U.S. GOVERNMENT PRINTING OFFICE

68–099 WASHINGTON : 2001

THE FUTURE OF SMALL BUSINESS:

WHAT LIES AHEAD? WHAT ISSUES

NEED TO BE ADDRESSED?

HEARING

BEFORE THE

SUBCOMMITTEE ON

GOVERNMENT PROGRAMS AND OVERSIGHT

OF THE

COMMITTEE ON SMALL BUSINESS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

WASHINGTON, DC

SEPTEMBER 28, 2000

Serial No. 106–71

Printed for the use of the Committee on Small Business

(

(II)

COMMITTEE ON SMALL BUSINESS

JAMES M. TALENT, Missouri, Chairman

LARRY COMBEST, Texas

JOEL HEFLEY, Colorado

DONALD A. MANZULLO, Illinois

ROSCOE G. BARTLETT, Maryland

FRANK A. LOBIONDO, New Jersey

SUE W. KELLY, New York

STEVEN J. CHABOT, Ohio

PHIL ENGLISH, Pennsylvania

DAVID M. MCINTOSH, Indiana

RICK HILL, Montana

JOSEPH R. PITTS, Pennsylvania

JOHN E. SWEENEY, New York

PATRICK J. TOOMEY, Pennsylvania

JIM DEMINT, South Carolina

EDWARD PEASE, Indiana

JOHN THUNE, South Dakota

MARY BONO, California

NYDIA M. VELAZQUEZ, New York

JUANITA MILLENDER-MCDONALD,

California

DANNY K. DAVIS, Illinois

CAROLYN MCCARTHY, New York

BILL PASCRELL, New Jersey

RUBEN HINOJOSA, Texas

DONNA MC CHRISTENSEN, Virgin Islands

ROBERT A. BRADY, Pennsylvania

TOM UDALL, New Mexico

DENNIS MOORE, Kansas

STEPHANIE TUBBS JONES, Ohio

CHARLES A. GONZALEZ, Texas

DAVID D. PHELPS, Illinois

GRACE F. NAPOLITANO, California

BRIAN BAIRD, Washington

MARK UDALL, Colorado

SHELLEY BERKLEY, Nevada

HARRY KATRICHIS, Chief Counsel

MICHAEL DAY, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT PROGRAMS AND OVERSIGHT

ROSCOE G. BARTLETT, Maryland, Chairman

MARY BONO, California

PATRICK J. TOOMEY, Pennsylvania

RICK HILL, Montana

DANNY K. DAVIS, Illinois

RUBEN HINOJOSA, Texas

CHARLES A. GONZALEZ, Texas

NELSON CROWTHER, Counsel

(III)

C O N T E N T S

Page

Hearing held on September 28, 2000 ..................................................................... 1

WITNESSES

Blann, James, Senior Vice President, American Express Company ................... 2

Hexter, John, Chairman, National Small Business United ................................. 5

McCutchen, Woodrow C., Executive Director ........................................................ 8

Coratolo, Giovanni, Director of the Small Business Council, U.S. Chamber

of Commerce ......................................................................................................... 10

Yancey, Ken, Executive Director, Service Core of Retired Executives ................ 13

Raimondo, Anthony, Chairman & CEO, Behlen Manufacturing Company on

Behalf of National Association of Manufacturers .............................................. 14

APPENDIX

Opening statements:

Bartlett, Hon. Roscoe G ................................................................................... 32

Prepared statements:

Blann, James .................................................................................................... 35

Hexter, John ..................................................................................................... 38

McCutchen, Woodrow C ................................................................................... 49

Coratolo, Giovanni ............................................................................................ 59

Yancey, Ken ...................................................................................................... 77

Raimondo, Anthony .......................................................................................... 82

Additional Material:

Written Comments by Mr. O’Hagan, President, National Electrical Manufacturers Association .................................................................................... 100

(1)

THE FUTURE OF SMALL BUSINESS: WHAT

LIES AHEAD? WHAT ISSUES NEED TO BE

ADDRESSED?

THURSDAY, SEPTEMBER 28, 2000

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GOVERNMENT PROGRAMS

AND OVERSIGHT,

COMMITTEE ON SMALL BUSINESS,

Washington, D.C.

The Subcommittee met, pursuant to call, at 10:04 a.m., in room

2360, Rayburn House Office Building, Hon. Roscoe G. Bartlett

[chairman of the Subcommittee] presiding.

Chairman BARTLETT. If our witnesses would take their places at

the table.

We will call to order this Subcommittee on Government Programs and Oversight of the House Committee on Small Business.

Good morning and welcome to this hearing of the Subcommittee on

Government Programs and Oversight of the Committee on Small

Business. A special welcome to those who have come some distance

to participate. The hearing will look into the future of small business in the United States and those issues of vital concern to the

small business community and Main Street, America. It is small

businesses that are the engine driving the present economic prosperity by spurring the creation of new enterprises, by producing

new job opportunities, and by being leaders in technology and innovation.

Congress needs to keep in constant touch with the needs and

concerns of the small business community. This hearing will provide an opportunity to learn of those issues of most concern and

those that will affect the future of small business in the United

States.

Another focus of the hearing is to obtain your recommendations

about how to best promote and sustain an enterprise friendly economy that rewards those who start and grow small businesses. Suggestions with respect to legislation to assist small businesses would

be most welcome. Also, your views with respect to any burden created by Federal regulations and paperwork together with suggestions for improvements would be most helpful. There are a number

of questions that can be asked. How can the present economic conditions be sustained? Has the prosperity touched every segment of

the small business community or are there segments of the small

business community that need assistance? If so what kind of assistance? Should the assistance come from the private or public secVerDate 11-MAY-2000 14:55 Mar 26, 2001 Jkt 010199 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 E:\HEARINGS\68099.XXX pfrm08 PsN: 68099
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tors? How effective are the private solutions and government programs in addressing these needs?

As previously pointed out, small businesses have been leading

the economy both in innovation and job creation. It is hoped that

the hearing will help to answer these and other questions. For example, what is needed to maintain this record well into the 21st

century?

Why the emphasis on small businesses? For the simple reason

that small businesses are presently the main engine driving the

economy of this country. It is a statistical fact that small businesses are the creators of new jobs and the stimulus behind our

present economic prosperity.

Independently owned businesses, the free market economy in

this country with fewer than 500 employees and many with far

fewer than that, created 76 percent of the new jobs from 1991 to

1995, employed 53 percent of the private nonfarm workforce, contributed 47 percent of all sales in the country, are responsible for

51 percent of the private gross domestic product and produce 55

percent of innovations. Small businesses produce twice as many

both product innovations and significant innovations per employee

as compared to larger firms.

Those who work in Washington, D.C. need your views. The Committee on Small Business welcomes your testimony. I look forward

to a lively and informative discussion. Thank you again for being

here today.

In a former life I was a small business person. I am one of perhaps 30 or 35 Members of Congress who were ever a member of

NFIB. I have read your testimony with great interest. You know,

if small business people were running this country we wouldn’t

have to be having this hearing, and I would hope that more of our

small business people will get into politics and eventually into Congress, because what you want for our future will benefit every one

of the people in this country, not just small business people. Thank

you very much for coming to our hearing this morning.

We will turn now to our witnesses. Our witnesses are Mr. James

Blann, Senior Vice President of the American Express Company;

Mr. John Hexter, Chairman, National Small Business United; Mr.

Woodrow McCutchen, Executive Director of the Association of

Small Business Development Centers; Mr. Giovanni Coratolo, Director of the Small Business Council, U.S. Chamber of Commerce;

Mr. Ken Yancey, Executive Director, Service Core of Retired Executives, SCORE; Anthony Raimondo, Chairman and CEO, Behlen

Manufacturing Company, National Association of Manufacturers.

Thank you all very much for agreeing to come and participate in

this hearing. We will began with Mr. Blann.

STATEMENT OF JAMES BLANN, SENIOR VICE PRESIDENT,

AMERICAN EXPRESS COMPANY

Mr. BLANN. Good morning. Mr. Chairman, as you said, my name

if Jim Blann. I am the Senior Vice President of American Express

Small Business Services. I am very, very honored to be here today.

The testimony I am about to provide represents the voices of tens

of thousands of small business owners who have played a part in

a program we at American Express Small Business Services have

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conducted since March of this year, and that program is called

Voices From Main Street.

My testimony will focus on the workforce needs of small business

owners because it was this issue that was identified as their number one priority. And most specifically, I will focus on the fact that

small firms say today’s labor force suffers from a severe skills gap

that inhibits their ability to continue to grow and prosper.

Let me step back for a minute and describe our program. Once

again it is called Voices From Main Street, and it was signed to

help small business owners interact on a national level and discuss

the issues most important to them. And small business owners

across the country have responded in a powerful way through a

number of channels that we have provided. We conducted two national research surveys in February and May that included respondents numbering 2200 small business owners. We created a

Website and are getting many thousands of hits from small business owners. We have conducted a number of national Web chats.

We put together a nationally televised one-hour small business

forum on CNN that aired May 24 and we have had several Web

cast town halls. So this has been a pretty good significant effort in

terms of trying to get small business owners to get their issues

heard within the country.

We have launched this program because despite, frankly, the terrific work of organizations like those sitting here today in this

room, too often the concerns and needs of the small business owner

are overwhelmed by the voices of other constituencies. Small businesses, as you said, Chairman Bartlett, are the backbone of American economy and given the contributions they make to this country the situation that we are describing regarding the workforce

are truly perilous. You no doubt are aware, as you pointed out, that

small businesses employ about half the country’s workforce, account for about half of the country’s private sector output, and are

by far the majority of net new jobs added to the economy over the

last few years.

Additionally, I would point out that many large companies are

affected tremendously by the rise and fall of small firms. My group

alone at American Express serves almost 3 million small businesses and, very frankly, the survival and success of small business

is extremely important to big business.

Now let me get back to what small firms have told us about the

current labor shortage and how it is very troublesome for them.

Small businesses often don’t have the resources to recruit, compensate and train a qualified workforce, resources often available

to larger companies, companies like mine. And when you compound

this disadvantage with the gap in the skills that are coming

through in the workforce needed by the small business community,

it is fair to say that the situation is reaching crisis proportions.

And two of the most significant findings from the Voices program

were, first, that most small businesses are dissatisfied with the

country’s workforce skills. Only a third of small businesses owners

say they are extremely or very satisfied with the skills of employees and potential employees. And, second, small businesses owners

say that despite the emergence of the Internet economy it is not

the computer or technical proficiency that their employees need,

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but more basic soft skills, basic written communications, verbal

skills and interpersonal skills, much more fundamental skills that

are lacking in the workforce that is coming towards small business.

Mr. Chairman, this situation has truly, we believe, reached a crisis level for small business owners. And the small business community is telling us that they need a better equipped workforce or the

entrepreneurial renaissance that has driven so much growth within

the economy will wither.

What are some potential solutions? Well, small businesses narrowed their short-term priorities to two ideas that I would like to

open for discussion this morning. The first idea is for more internships for teenagers. The majority of employees in the small business workforce have only a high school education. So that means

we need to aggressively pursue connecting more secondary and vocational schools to the small business community.

The second potential initiative is creating more readily accessible

information on those existing training programs that work well.

When we asked entrepreneurs if they were aware of local programs

designed to improve workforce skills, only about 40 percent said

they knew of a program in their community.

The sad thing is that many good programs do exist that could

help small business owners today. Created at the state, county and

local levels through a combination of school administrators and

business groups, many of those programs unfortunately just aren’t

widely promoted or easily accessible.

One immediate action could be providing small business owners

with a single convenient place for them to find out about those existing local programs, and one way to possibly get at that would

be to have the SBA add to its Website a place where educational

institutions and small business owners could come together to promote their programs, share experiences and expand on best practices. We at American Express are prepared to assist in the creation of such a site or perhaps to utilize our Voices From Main

Street program to help with this.

We also would welcome the opportunity to work with the Committee to hold Internet based Committee hearings on this issue to

allow more small businesses from the small business community to

provide their direct input, and that is very possible with the Internet today. Small business owners also know they have a responsibility to get involved. They are looking for opportunities to assist

local schools and other institutions in preparing the next generation for the working world, and a broader discussion with other

Members of Congress involved might be a next step.

In closing, solutions will not be easy. Most small firms need help

right now, but small business owners are aware of the fact that the

problem requires both short-term solutions and long-term planning.

They also tell us that solutions do not necessarily require more legislation or the creation of new Federal programs. In fact, solutions

that require a lot of paperwork or are difficult to access would not

be widely used.

In closing, I would like to thank you for providing us at American Express the opportunity to share with you some of what small

business owners have told us through the Voices program, and I

am happy to explain more about the research we have conducted,

5

and I look forward to helping you help small businesses overcome

this dilemma.

Thank you.

[Mr. Blann’s statement may be found in appendix.]

Chairman BARTLETT. Thank you very much. I am pleased that

Mr. Danny Davis, ranking member of our Subcommittee, has joined

us. Now we turn to John Hexter, Chairman of National Small Business United.

STATEMENT OF JOHN HEXTER, CHAIRMAN, NATIONAL SMALL

BUSINESS UNITED

Mr. HEXTER. Thank you, Chairman Bartlett, Mr. Davis. My

name is John Hexter, and I am the Chairman of National Small

Business United. While I am the President of my own business

consulting firm, Hexter and Associates in Cleveland, Ohio, I am

here today as the representative of our more than 65,000 NSBU

members and over 23 million small business owners across this

great land. I have been immersed in the issues affecting small

business, most recently as a member of the SBA’s reg fair program

under the Small Business Regulatory Enforcement Fairness Act

and as a delegate to the past two White House conferences on

small business. My clients are all small businesses.

Mr. Chairman, this hearing is a grand opportunity to explore

ways to assure the small business sector continues to drive this

wonderful American economic miracle into the 21st century. We

are pleased you have invited some of us here who operate in the

proverbial trenches to express our views today. Let me focus on

those issues our members have stressed as their most immediate

concerns.

In my working activities with any number of small business related organizations, I am able to get a sense of what concerns small

businesses have across a number of sectors and regions in the

country. While I speak about changes that need to be enacted in

the future, I would like to point out there is a chance, at least in

some cases, that legislation could be passed before the end of this

Congressional session.

Next I will discuss a few items that relate more to longer term

goals and initiatives that we believe our government should address to facilitate the preservation and growth of the economic engine we call small business.

Finally, If I am brave enough, I would like to take a moment for

some predictions concerning the future of small business, first what

needs to be done now.

Annually NSBU convenes a membership meeting to solicit grass

roots input on issues of immediate importance to small business,

and NSBU’s board is charged with pursuing solutions to those topics. What follows is our six immediate issues.

Certain provisions of the Ticket to Work Act and Work Incentives

Improvement Act of 1999 require small businesses to pay all of the

capital gains taxes resulting from the sale of their businesses in

the first year, even if payments for the sale are spread over several

years. This requirement inserted at the last minute targets small

firms and family firms. The smaller the business, the more likely

that a sale of the business could cost more in taxes in the first or

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second or even third year that those installments would cover. The

installment sale tax provision is a huge impediment and a disincentive to those firms seeking to expand by acquiring other firms

and makes a sale impossible for business owners who have an urgent need to exit their businesses. NSBU is appalled that this provision ever appeared in the 1999 act; that is, negative consequences

we overlooked and ignored, and we are still awaiting appropriate

redress in this Congress.

There are a number of bills in both the House of Representatives

and the Senate that would correct what was placed in the 1999

law. They enjoyed broad based bipartisan support. What is particularly troubling to me as a small business owner is that such an initiative can have such broad support and still not be enacted.

Second, as a nation we have collectively wrung our hands over

the number of people without health insurance. The current presidential campaigns are replete with advertisements and proposals

to address this issue. It isn’t rocket science to know that if you tax

a behavior you will get less of it. Taxing health insurance benefits

is simply bad public policy. Why our Congress doesn’t provide immediate tax relief for the health care benefits provided to the self

employed is a mystery to me and a particularly troublesome issue

for the members of NSBU.

Third, NSBU as well as a number of other small business associations is vehemently opposed to the Occupational Safety and

Health Administration’s proposed ergonomic standards and health

and safety rules as they are currently drafted. We support legislation that would delay OSHA’s effort to promulgate final rules before independent, sound and peer-reviewed scientific analyses have

been conducted. We are not saying that ergonomic legislation is always a bad thing or even unnecessary. OSHA should go back to the

drawing board and come back with a proposal that can work and

be equitably enforced. OSHA must be prevented from going ahead

full speed with a set of rules that have not been generally accepted

in the scientific community.

Mr. Chairman, let me digress to explain a basic conflict I have

observed in my role as a SBREFA reg fair panel member. I view

so much of the Federal and regulatory enforcement as founded on

a false premise, that managers and we small business owners are

in conflict with our employees. Small businesses and family farms

most often operate on tight margins and employ family and friends

from the community. To deliberately put family and friends at risk

makes no sense at all. As I will mention again later, as Jim already

mentioned, the single biggest impediment to the future of small

business in America is lack of skilled workers able to deal with the

greater complexity of the work place. It is a fundamental flaw in

the enforcement of our laws when the regulators whom our tax dollars pay presume we want to harm our workers and wreck our environment.

Next NSBU supports the SBA’s Office of Advocacy. NSBU supports S. 1346, sponsored by Senator Kit Bond. The approach in

that legislation does a great deal to protect this office. We also support expanding its role to include assessment of the effectiveness

of the Federal subsidy and assistance program for small business,

the impact of Federal regulations on small business and the develVerDate 11-MAY-2000 14:55 Mar 26, 2001 Jkt 010199 PO 00000 Frm 00010 Fmt 6633 Sfmt 6602 E:\HEARINGS\68099.XXX pfrm08 PsN: 68099
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opment or strengthening of minority women owned and other small

firms.

According to a recent study released by the Office of Advocacy,

their work in dealing with agencies through SBREFA have saved

small firms over $5.3 billion in fiscal 1999 alone and they tell us

that is a drop in the bucket.

Elimination of the death tax. Finally, Mr. Chairman, I have

saved perhaps the most important issue for last. In our country

there exists something called the estate tax. This defies all logic.

Individuals and partners who own and operate small businesses

and farms who have worked all their lives to leave a legacy for

their children and grandchildren are being asked when they die to

give a significant portion of those assests to the federal and state

and local government. For many, their business is the largest asset

they have to support their families after death. The death tax can

currently remove up to 55 percent, more than half, of their assets.

The same government that erects unnecessary barriers to entrepreneurship, the same government that won’t allow us to treat health

insurance benefits on an equal basis with other workers, the same

government that taxes us on earnings of our employees, the same

government that doesn’t believe we care for the safety and health

of our employees and the very same government that buries us in

paperwork regulations then through the death tax takes up to 55

percent of what is left after we have worked with diligence and discipline to earn and save.

These are American values? Is it any wonder that the small business sector is ambivalent about the role of the government in the

American economy? Relief from the death tax is a pressing issue

for those of us who are aging baby boomers considering how to provide for our retirement and for our future economic health.

So what needs to happen? Well, the big issue is a complete and

thorough examination of the Code of Federal Regulations, no small

task. It needs to be undertaken with the intent, the expressed intent of identifying and eliminating conflicting laws, rules and regulations that overlap and contradict one another. Conflicting laws

and regulations should trigger an enforcement exception until the

government resolves the conflict and the burden should be removed

from the target of the enforcement action. Only then will our government employees and officials understand that they work for us,

not the other way around.

The sheer weight of enforcement action is often an unbearable

burden for small business. The small business community is also

desperately in need of a complete overhaul of our Nation’s tax system. NSBU has come to believe that the income tax system is broken beyond repair. We have endorsed a form of the national sales

tax called the fair tax, which would replace all Federal income payroll and gift and estate taxes.

I commend to you NSBU’s testimony before Mr. Manzullo’s Subcommittee just three weeks ago and our testimony before the Ways

and Means Committee last April.

I promised you some predictions and, if you will bear with me

just a tad longer, I believe I have some valuable insight for your

consideration. Earlier this year along with American Express, IBM

and RISEbusiness, NSBU published a report entitled. ‘‘The Future

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of Small Business Trends for a New Century.’’ Copies are here on

the table. I know that they have been distributed. I would like to

take a moment to briefly touch on five items in that report.

The demographics of the labor force will change dramatically

over the next few years. Over the long term the shortage in quantity and quality of labor will be one of the most important constraints on economic growth.

I mention this issue, Jim mentioned this issue, others will mention this issue. The workforce in this country is shrinking. Population growth has recently slowed to about 1 percent a year and in

the next 6 years the younger portion of the labor force, our new

workers if you will, will shrink by nearly 2 million workers, creating significant competition for those employees.

Three, the workforce in this country is changing, not just shrinking. By 2006, not too many years out, women will account for almost half of the labor force. Non-Hispanic whites will account for

73 percent of the labor force, down from 80 in 1996. Small business

men and women will have to change their thinking about hiring

and retaining employees of different cultures, races and ethnicity.

Four, labor demands has shifted dramatically. Good job growth

will occur in professional, managerial and high level sales in the

serve and technology sectors. Increasing demand for more easily

trained workers—the issue you raised Jim about basic skills—has

resulted in a huge increase in the demand for college educated employees.

Small business will likely have to step up the level of training.

This is the last item. Small business will likely have to step up the

level of training for their existing workforce to retain employees

with technical proficiencies, hire a greater number of older workers, and create more flexible and family friendly work policies.

Department of Labor regulations from which government agencies and Congress are often exempt regularly impede our efforts to

be flexible and family friendly employers.

In conclusion, Mr. Chairman, I would like to be able to report to

you that the future of American business entrepreneurship is

bright because of the benign role of the government at all levels.

That is not the way it is, however. The role of government as it

relates to the small business sector is like a beaver. It gets in the

middle of the stream and builds a dam. Only with the continuing

support of the Office of Advocacy and the ongoing involvement of

diligent representatives like you can we expect to thrive without

significant change in the attitude and role of the governmental regulators.

I thank you for your time and attention, and I look forward to

further discussion.

[Mr. Hexter’s statement may be found in appendix.]

Chairman BARTLETT. Thank you very much for your testimony.

Now we turn to Mr. McCutchen.

STATEMENT OF WOODROW C. McCUTCHEN, EXECUTIVE DIRECTOR, ASSOCIATION OF SMALL BUSINESS DEVELOPMENT

CENTERS

Mr. MCCUTCHEN. Good morning, chairman Bartlett, Ranking

Member Davis. I am Woody McCutchen. I am the President of the

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Association of Small Business Development Centers. Our SBDC

network operates in all of the 50 States, the District of Columbia,

Guam, Puerto Rico, the Virgin Island and American Samoa. With

more than 1,000 services centers nationwide, we provide services to

more than 650,000 existing and aspiring entrepreneurs each year.

First, Mr. Chairman, I would like to thank you for having this

hearing and for inviting the ASBDC to participate. I am going to

digress from my written testimony because I see no need to recite

the statistics that you have already so eloquently stated that demonstrate that small business continue to drive this economy. If we

hope to continue with the strong economic growth that we are currently experiencing, it is essential that we maintain a climate

where small businesses can continue to flourish. You will find as

we go down the table, Mr. Chairman, that a lot of the priority

issues are repeated in our testimony, and I would like to give some

slight nuances on some of those issues. And of course we have

found also that the number one concern for small firms right now

is the ability to find and maintain skilled workers. Work force development is the one overriding issue that our counselors find

when we meet with thousands of small businesses each year. The

documented shift in labor demand towards professional, managerial and high level sales jobs and the services and technology sectors complicate this shortage of trained workers and make this a

very urgent issued that needs to be addressed for our small firms.

Another important shift though, Mr. Chairman, has to do with

the shift in business ownership, and what we have found out is

that baby boomers own a significant percentage of sole proprietorships and partnerships. That means that in the coming years there

will be an increasing number of small business closures if those

baby boomers are not given some assistance with ease of succession. The SBDC plans to address this issue by providing increased

succession planning in our training activities for small businesses.

But again as the first two speakers have mentioned, the ability to

turn your businesses over to your children is impacted by the tax

regulations.

Technology represents significant challenges and represents significant opportunities for small businesses. However, those firms

that are slow to acquire the technology skills that they need will

find themselves really significantly behind the curve. To address

that question, the ASBDC is planning to launch a major professional development effort for our counselors and trainers to make

sure that we have the skills to provide credible and viable e-commerce and e-business advice to our clients. And we plan to make

this training available to SBA field staff so that we are coming

from the same page when we address our clients.

Mr. Chairman, despite the changes in technology and the

changes in the demographic makeup of the workforce and in the

demographic makeup of aspiring entrepreneurs, some things remain unchanged. One of the things that we have been discussing

in our network has to deal with the definition of what a technology

business is versus a nontechnology business, and we contend that

right now there is no such thing as a nontechnology business. And

we plan to emphasize in our training not the fact that we are going

to provide services to only high technology firms, we plan to proVerDate 11-MAY-2000 14:55 Mar 26, 2001 Jkt 010199 PO 00000 Frm 00013 Fmt 6633 Sfmt 6602 E:\HEARINGS\68099.XXX pfrm08 PsN: 68099
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vide services to businesses that need to effectively utilize technology to start to grow and to succeed.

The other issues that all of our clients talk about have to do with

taxes, have to do with business regulations and the impossibility

of surviving the regulatory maze that businesses face. Our association looks forward to the day that H.R. 4946 becomes law and to

cooperating with Congress and other regulatory compliance assistance providers in assuring that our Nation’s small businesses have

ready access to the regulatory and compliance assistance that they

need.

I what to talk about another area, Mr. Chairman, and that is access to capital. Business financing in this country has traditionally

been asset-based financing. One of the characteristics of this new

economy, this new technology, is that it pays a premium not to

bricks and mortar, but to ideas. So that when we talk about access

to capital for small businesses we need to look at underwriting criteria and business evaluation criteria, because how do you place a

value on an idea? What is the value of intellectual property rights?

What do you use to collateralize that financing?

Those are the issues that are important to us and to our small

businesses.

I have heard a couple of our earlier speakers talk about the need

for education that addresses the needs for small businesses. It is

interesting, Mr. Chairman, that 47 of our 57 SBDCs are university

based or higher education based. In earlier testimony before you,

we talked about the need of utilizing young people as interns in

small firms to bring to those small firms the technology skills and

the comfort with technology that those young people have. We

think that the idea of interns will not only provide access to technology education for small businesses, it will provide those small

businesses with access to a potential workforce. And we think that

the extension of the SBDC program and the educational needs of

small businesses below the secondary level down into the junior

high schools, down into the high schools is going to be an important factor for small businesses.

Mr. Chairman, again I am really happy to be here this morning,

and I appreciate the opportunity to speak before this hearing. I will

be happy to answer any questions you have later. Thank you.

[Mr. McCutchen’s statement may be found in appendix.]

Chairman BARTLETT. Thank you very much. Let us to turn now

to Mr. Giovanni Coratolo, Director of the Small Business Council,

U.S. Chamber of Commerce. Thank you very much for being with

us.

STATEMENT OF GIOVANNI CORATOLO, DIRECTOR OF THE

SMALL BUSINESS COUNCIL, U.S. CHAMBER OF COMMERCE

Mr. CORATOLO. Thank you very much. Good morning, Chairman

Bartlett and Congressman Davis. It is a pleasure to be here. I am

Giovanni Coratolo, Director of Small Business Policy for the U.S.

Chamber of Commerce. Chairman Bartlett, we applaud this Subcommittee’s dedication and interest in sustaining the economic expansion that has been led by the Nation’s 24 million small businesses. These are business owners who are faced with the daily

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ulatory agencies, a tax code that penalizes savings and investment,

and an increasingly litigious society and competitors from an expanding global marketplace. Yet these small business men and

women in spite of obstacles have emerged as the primary vehicle

by which the new economy has grown and prospered.

In order to project the future, it is important to touch a little on

the past. Looking back to the fifties and sixties large goods producing companies dominated the world economic power structure.

We lived in a culture that based prosperity on the premise, so goes

General Motors, so goes the economy. It was only several decades

ago when our big businesses started to sputter that we sent observers to Japan to understand how they were able to build a bigger

big business, and many prognosticated the decline of the United

States as an economic world power was inevitable.

It was only during the last decade that the answer to our national revitalization became apparent. This was found within the

entrepreneurial spirit of our small businesses. The trend for big

business is now to downsize and become more entrepreneurial. It

is the small businesses that are credited with being the driving

force for technological change and productivity growth. They are

the crucial barometers for economic and social well-being.

Now countries are sending observers here not to find out how we

are running General Motors but how we are fueling the growth and

proliferation of our small businesses. Our corporate heroes are not

those that created jobs from the penthouse of high office buildings

but those that launched enterprises from their basements and garages.

At the U.S. Chamber of Commerce we have identified five policy

areas that are critical to the impact of the future of small business.

I will list those priorities and underneath each in your written testimonies are an example or number of examples or specifics I won’t

go into for the sake of time.

Number one, as we have heard here, to provide small business

access to a quality workforce. In order to assure the future growth

of small businesses we must provide a level playing field for small

businesses to hire, train and retain a qualified workforce. According to a recently released survey by the U.S. Chamber of Commerce, workforce issues are a top priority for Chamber members,

and that study is also included in your written comments. We have

to make sure that we solve the health care issue so that small businesses are capable of competing with larger businesses for workers

and the solution to benefits will do that.

We have to make sure our school system—we look at businesses

as a customer to the education system, and that is a profound difference from where it is now.

Change tax policy. In order to ensure the strength and vitality

of our small enterprises we must promote a tax policy that allows

small businesses the opportunity to reinvest more money in the

growth and continuation of their businesses and not in the growth

of big government. As you heard here a number of tax issues, I

won’t repeat them.

Eliminate needless burdensome Federal regulations. Many small

businesses’ efforts to expand their enterprises are hampered by the

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ment agencies, and there again I won’t list the number that are

there. There are many on the books and many are proposed to be

passed.

Number four, stop frivolous lawsuits against small business. Outlandish punitive damages are crafted to force large settlements regardless of the small business’ degree of responsibility for the

harm.

And lastly give small business the opportunity to compete in a

global economy. With the advent of technology the world is increasingly a global marketplace. We must allow small businesses to

compete in today’s complex and sophisticated world market as unrestricted as their international competitors. In our tendencies to

regulate and tax our new economy small businesses, our first goal

must be to do no harm. In old economy businesses fixed assets and

physical location determined success. For today’s businesses intangible assets such as knowledge, entrepreneurial spirit, management and innovation are key determinants for market strength. In

order to sustain continued growth within our new economy, new

policy must reflect sensitivity to the paradigm shift, especially in

regards to the small business community.

The growth and vitality of new economy enterprises have been

based on a steady flow of venture capital and the ability to merge

with other companies to complement forces for market strength

and stability. Currently FASB is proposing to eliminate the longstanding use of the pooling of interest method of accounting for

business combinations in favor of purchase accounting. If allowed

to proceed, this will have a chilling effect on the ability of small

technology businesses to grow and compete in a fast moving new

economy.

Another defining issue that will determine the course of small

business in our knowledge based society is privacy. With technological ability to track and gather information on individual and

group preferences where do you draw the line in regarding this potential powerful information?

As innovation drives success with the new economy, small businesses are in need for the understanding and means to protect

their research and inventions through patent protection. Often

small businesses are unaware of complicated processes by which

these safeguards needs to be used. In some cases funding becomes

a barrier.

In closing, Mr. Chairman, within the headquarters of the U.S.

Chamber of Commerce we have a meeting room called the International Hall of Flags, where hanging from the walls are flags from

entrepreneurs of the 16th century, Sir Frances Drake, Magellan,

Columbus, just to name a few. Funded by the nobility of their time

and navigating by the stars, they risked their life and limb to sail

the oceans in search of trade and prosperity.

Today’s entrepreneurs have traded their massive ships for laptop

computers, funded by venture capitalists and navigating with

Netscape, they fly their Website home pages high and sail the

worldwide sea of the Internet in search of global trade routes at

the speed of light. Policies that promote, protect and encourage the

entrepreneurial spirit of our small business community will allow

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ture and provide the United States with unprecedented prosperity.

How congress answers this call will determine the success or failure of these modern day Magellans.

Again I want to thank the chairman and Congressman Davis for

having the Chamber testify today. Thank you.

[Mr. Coratolo’s statement may be found in appendix.]

Chairman BARTLETT. Thank you very much for your testimony.

We now turn to Mr. Yancey. I have had a long time feeling that

most things are done better in the private sector than in government and in SCORE we have a wonderful marriage of the private

sector and government. So I welcome Mr. Yancey.

STATEMENT OF KEN YANCEY, EXECUTIVE DIRECTOR,

SERVICE CORPS OF RETIRED EXECUTIVES (SCORE)

Mr. YANCEY. Thank you, Chairman Bartlett. Mr. Chairman, Mr.

Davis, my name is Ken Yancey, and I am the Executive Director

of the Service Corps of Retired Executives, better known as

SCORE. Thank you for inviting me to testify before you today.

SCORE does not survey its small business clients regarding challenging issues related to starting and running a small business.

However, we can offer comments based on anecdotal and anonymous information regarding our clients’ needs. I will pass on some

of the findings of the National Commission on entrepreneurship,

NCOE, published in their 2000 report entitled ‘‘Building Companies, Building Communities: Entrepreneurs in the New Economy.’’ Patrick Von Bargen, Executive Director of NCOE, has made copies

of the report available to the members of the Committee and more

information about NCOE is available at their Website

www.NCOE.org.

In this robust economy with low employment, complicated by a

shift to a knowledge-based economy, finding and retaining quality

people is a major challenge for entrepreneurs, as you have heard

from all of the previous speakers. The challenge is at all levels, including management, technical and entry level positions.

Additionally, the NCOE study brings up the challenge of too few

workers that are ready to work, referring to competence and attitude of many individuals entering the workforce, including the basics of commitment and courtesy. Improving math and science curriculum in grades K through 12 and technology training would

have a positive impact on the future workforce.

The NCOE study provides potential solutions, including hiring

employees from the growing population of senior citizens and taking advantage of telecommuting. Access to capital has been a challenge for small firms for years. Today there is significant venture

capital for funding available for technology related, high growth

start-ups. This is not true for small business start-ups and existing

businesses in traditional industries, particularly companies with

capital requirements less than $1 million. Most of these small

start-up entrepreneurs use personal funds, second mortgages,

friends and family or credit cards to finance their ventures. The

Small Business Administration is attempting to address the needs

of this segment of the small business economy with the SBA LowDoc loan, the SBA Express loan program and the SBA MicroLoan

program.

14

The need for small business-related technical assistance, mentoring and networking opportunities are also very important for today’s entrepreneurs. SCORE and other programs such as the Small

Business Development Centers and the Women’s Business Centers

offer free or low cost access to this type of entrepreneurial support.

SCORE serves over 300,000 existing and aspiring entrepreneurs

each year and has served over 4.5 million since its inception. With

continued support from the Small Business Administration and the

Congress, SCORE plans to increase its outreach efforts to America’s entrepreneurs. This expansion will come online through greater availability of SCORE’s e-mail counseling now available at the

SCORE Website at www.SCORE.org.

We are planning the development of new online community applications where small business owners can learn from SCORE

counselors as well as from each other. SCORE is also working on

distance learning opportunities with private sector alliance partners such as the Kaufman Center for entrepreneurial Leadership,

Visa U.S.A., Equalfooting.com and Staples.com. Additionally,

SCORE plans to improve the availability of one-to-one counseling

through the expansion of chapters into fast growing areas of the

communities where they already serve as well as outreach to underserved and rural communities.

Mr. Chairman the 11,400 volunteer members of SCORE are committed to assisting in the success of small and growing companies

across the country and to those individuals that wish to start a

business.

Again, thank you for your support of SCORE and for inviting me

to testify today.

[Mr. Yancey’s statement may be found in appendix.]

Chairman BARTLETT. Thank you very much.

And now Mr. Anthony Raimondo, Chairman and CEO, Behlen

Manufacturing Company, National Association of Manufacturers.

STATEMENT OF ANTHONY F. RAIMONDO, CHAIRMAN AND CEO,

BEHLEN MANUFACTURING COMPANY, ON BEHALF OF NATIONAL ASSOCIATION OF MANUFACTURERS

Mr. RAIMONDO. Thank you, Mr. Chairman, Congressman Davis.

I am very pleased to be here this morning. My name is Tony

Raimondo, and I am very impressed with how the chairman could

pronounce that first time around. Thank you, Mr. Chairman. I am

President and CEO of a metal fabricating company in Columbus,

Nebraska called Behlen Manufacturing. I am here this morning to

testify on behalf of the National Association of Manufacturing, the

NAM.

We represent 18 million people who make things in America. We

are the Nation’s largest and oldest multi-industry trade association. The NAM represents 14,000 member companies, 10,000 of

which are small and mid-sized, which is a category that I would

fit. We also represent 350 member associations serving manufacturing and employees in every industrial sector in all 50 states. We

are headquartered in Washington, DC. And have ten additional offices across the country.

Although I am submitting written testimony, I would like to

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ers. Specifically, I want to discuss the pro-growth and pro-workers

issues that will benefit the American small business community

and overall economy.

America’s economy has expanded impressively over the past 18

years with only one relatively mild downturn in the entire period.

At the NAM we are proud of the disproportionately large contribution American manufacturers have made to that expansion. We

continue to have an impact in GDP that was similar in the Industrial Era. That is another whole story that I would like to share

some thoughts on at another time.

Coupled with the fiscal restraint of recent years, our booming

economy has filled Federal coffers beyond expectations and yielded

the first Federal surplus of more than a generation.

The NAM believes that the Federal tax code is the single largest

obstacle to continued strong economic growth. Federal tax laws

need to be reformed and replaced with a pro-growth code. At the

same time we realize this effort remains a daunting one. Consequently, under the code itself there is need for fundamental

change. We believe that certain pro-growth incentives need to be

incorporated into the otherwise anti-growth tax code. For our small

and medium sized companies, the most important tax policy priority is what you have heard earlier, the repeal of the current estate and gift tax regime, sometimes known as the death tax, and

lower tax rates for S-corps.

The importance of repealing the death tax to our small and medium sized companies is no surprise as business spends on average

a staggering $52,000 a year on estate tax planning. The time and

money spent preparing for the death tax similarly do not help a

business in any way. This diversion of valuable human and financial capital achieves absolutely no economically useful purpose. It

does not increase productivity, expand the workforce or put new

products on the shelf. A business pays this cost every year, not just

at some uncertain future date when an even bigger bill comes due.

Our members would much prefer spending this money on new

technology, business expansion and additional employees. The

death tax can be devastating to the transition between generations

in a family owned business. A Vermont life insurance company

study indicates that few than one in three family owned companies

survives the next generation. Furthermore, the 55 percent estate

tax does not allow much room to breather. Very few businesses or

business owners have that kind of liquidity, and almost no manufacturing company does.

Currently there are some special estate tax breaks on the books

for small businesses but qualifying for the family owned business

exclusion is difficult, if not impossible. Business owners must constantly monitor whether they meet the stringent ownership and

participation requirements in the law, often a time consuming and

expensive endeavor. If the government determines after the fact,

that is, after the owner’s death, that these requirements have not

been met, the full estate bill is due and all those dollars have been

wasted.

Complete repeal of the death tax is the best solution for a progrowth economy and for family owned manufacturing companies

and all other small businesses that are creating jobs and securing

16

future for their employees, as you described so well, the engine of

our economy.

As I have noted, the death tax is devastating to the small business community. So are proposed worker safety regulations that do

more harm than good.

Another issue that would adversely affect small business is

OSHA’s $18 billion ergonomics regulation. This proposed regulation

is a window into OSHA’s soul, clearly trying to reach beyond the

workplace even into the home to regulate.

Worker safety is one of the top priorities in my factory and for

all members of the NAM. I know—and in this script I say—all of

my employees. I would just like to give you a brief thumbnail

sketch. Behlen has grown in 15 years and I had the opportunity

to acquire the company from 300 employees to 1500 employees. We

export product to over 50 nations. Our people are very involved. We

call them partners in progress. No time clocks, honor system, profit

sharing and productivity sharing. We truly are partners with our

employees. We work together and our best safety programs are led

by our partners in progress.

So the work environment has changed, and I am not alone on

this. The overall injury and illness rate is currently at its lowest

level since the Bureau of Labor Statistics began reporting the information in the 1970’s. In spite of BLS’s data showing that repetitive

stress injuries, MSDs, have declined by 24 percent since 1944 and

despite the lack of consensus in the scientific and medical communities on the causes of MSDs, OSHA is moving aggressively forward with ergonomics regulation and ignoring the intent of Congress. Employers covered by OSHA’s proposed rule, which was published in the Federal Register in November 1999, would be responsible for taking measures to reduce all MSDs, including carpal tunnel syndrome, neck and back strains, by initiating and maintaining

a basic ergonomics program once a single injury is reported in a

facility. OSHA considers an injury work related if working conditions contributed to the injury or even if non-work factors contributed as well.

Further, while typical Workers Compensation rules currently

cover two-thirds of an employees pay while he or she is out, the

OSHA rule will require workers to be paid at 90 percent of their

pay if they are claiming an ergonomic injury. OSHA has in effect

created a most favored injury status for ergonomics. If covered employers must set up an ergonomics program to control work-related

MSDs which must include the following, and it is a long list of employee hazards and what have you that I am sure you’re aware of,

so I will skip that.

In October of 1998, Congress approved $890,000 for the National

Academy of Sciences to conduct an independent peer-reviewed

analysis of the available science on MSDs. The NAM opposes the

rule and urges OSHA to wait until the evidence is in before moving

forward.

I would like to thank Chairman Barlett and Congressman Davis

and the Subcommittee for the opportunity to discuss on behalf of

NAM issues that will impact the future of small business. We hope

that our recommendations to best promote and sustain an enterprise friendly economy for small manufacturers are helpful, and we

17

look forward to working with Congress on these various issues. Although our written list of concerns are lengthy, we are up to the

task to work with Congress and the administration to encourage

economic growth for our Nation’s small businesses, particularly in

the manufacturing sector.

I would be pleased to answer any questions and once again

thank you for this opportunity.

[Mr. Raimondo’s statement may be found in appendix.]

Chairman BARTLETT. Thank you very much for your testimony.

Without objection, your written testimony will be made a part of

the permanent record. As you heard, some bells went off and we

have a bit more than 10 minutes before a vote. What I proposed

to do is recognize Mr. Danny Davis for any statement he wishes

to make and for whatever questions and comments he might have.

I don’t know if you want to begin before we vote or if you want to

rush to vote and come back.

Mr. DAVIS. Let me, if I could, Mr. Chairman, just in case something gets all fouled up and given the fact that this is in all probability our last hearing for this session, I first of all wanted to commend you and also want to express how delighted I am to work

with you through this session. I certainly appreciate the manner in

which you have not only provided leadership but the manner in

which you have conducted the business of the Committee.

As I listened to the testimony of all our witnesses, I was struck

by the eloquence in terms of some of the terminology, OSHA’s soul,

all of these Magellan like global pursuits, but I really was struck

by two issues that you raised. One is the workforce availability and

the difficulty of finding the type of workers that you fell would be

necessary, and maybe there is time for at least a comment on that.

What is happening to us as a nation is that we are having this

much difficulty finding a skilled, desirable workforce given some of

the areas of tremendous unemployment that exists. And so if

maybe there is enough time for at least a comment on that question.

Yes.

Mr. HEXTER. Let me respond at two levels, first of all as a former

employer. As I say, I am a sole practitioner now. I am relieved I

am a former employer. The problem which Mr. Blann referred to,

which we all have encountered, is that the basic skills are lacking,

not the technical skills. We can teach a new employee how our

businesses work. We can’t teach them to read or write, to come to

work on time, to put their best efforts in, to pace themselves

through the day so the work gets done, and those are issues which

I would suggest are not being taught or learned in K through 12.

Now whether it is the flaw of the teaching cadre, the whole core

of teachers who don’t seem to understand those issues—and I can’t

believe that is so—or it is the inability to reach out to those people

early enough to teach them that this is what life is about, they get

their education, forgive me, from the television.

Mr. DAVIS. Anyone else.

Mr. BLANN. I would like to expand on what John just said. I am

not an expert but I have heard about a program with junior

achievement that some of our employees at American Express are

involved in where the program operates within local high schools

18

and gives students, adolescents, exposure to what the business

world is about. And apparently from what I hear from people, employees at American Express that are involved in these programs,

the kids at the schools get very excited about this and do get a

taste of what the real world is about. And that, it feels like, is an

example of a partnership between the private and public sector

that is working and maybe ought to receive more focus to get at

this issue.

Mr. DAVIS. Yes.

Mr. CORATOLO. 50 percent of our Nation goes to college and only

50 percent of that 50 percent graduates. Our educational system at

times focus too much or, well, I should say is in balance in the

sense that it focuses so much on the college graduate and not

enough on the person that is not going to college that needs these

skills for the business world. I think our education system has to

be more oriented toward the fact that businesses are customers of

the education system and regardless of whether they elect to go to

college or stay on to work without college degree, they have to be

educated to the degree that it is going to help business function.

Mr. DAVIS. Well, let me say—I know we have got to go, Mr.

Chairman—I think that this is really incredible and requires indepth analysis and thinking in terms of what is happening not only

to or education system but what is happening to our value system.

And how do we transform desirable values so that individuals simply understand that as they get ready to enter the work. I know

I have a press conference that I have to participate in, but I will

definitely try to come back, Mr. Chairman, because I am very interested in this.

Chairman BARTLETT. Thank you. We will recess the hearing

briefly for what appears to be only a single vote. We will return

shortly to continue. Thank you very much.

[Recess.]

Chairman BARTLETT. We will reconvene our Committee hearing.

Let’s spend a few minutes talking about the subject that all of you

mentioned as the number one concern, the subject that was approached by my colleague, Dr. Davis, and Danny Davis is a Ph.D.,

and so he is familiar with the education process, and we chatted

about this on the way to the vote, and that is the availability of

skilled labor. When he asked how come, you responded that a

major factor in this is our education system. What has happened?

My father, who was born in 1895, could extract the cube root by

the long hand method by the time he was in the sixth grade. By

the time I got to school my professor told me that you got square

root by the trial and error method. Now I knew better than that

because I learned at home how to do the long hand method. I can

still do it, by the way, in spite of calculators and how easy it is to

do with calculators.

But what has happened to our education system? Just recently

there was a test of 19, graduates of 19 countries, high school graduates. We—I am sorry, 21 countries. We came out 19th in that. We

were thankful for Sri Lanka and Cyprus. They were the only two

countries whose graduates scored lower than ours. What has happened and what do we do to fix it?

19

Mr. MCCUTCHEN. Mr. Chairman, let me take a stab at that. It

has to do with attitudes. And success in the K through twelve system is measured by the percentage of those youngsters who get

into college. You get into college based on how you perform on

standardized tests, not based on what you know. Once you get to

college the success of the college is measured based upon the number of major corporation that you have coming in to do recruiting

trips and as a result of those recruiting trips the dollar value of

support you get from the major corporations. So what is missing in

this whole scenario are the issues, the concerns, the needs of small

business.

My wife works for a major computer company. She is a technical

recruiter. They have the resources to assign professional human resources people to individual universities to go in, maintain a relationship and recruit their best and brightest students for their big

corporations. Small firms don’t have those resources. And I think

that one of the issues has to be again alerting not only the colleges

and universities but the K through 12 systems that if the small

firms’ needs are not being met there will be no jobs for those young

people who are going through the system.

So I think a lot has to do with how we measure success in our

education system and to make sure that that measurement includes providing a skilled workforce for the sector of our economy

that provides most of the jobs.

Chairman BARTLETT. There are two things that our education institutions can do, and I taught for 24 years and twelve of those

were in a community college. One of the things that we can do is

to provide specific skills that are needed. In the community college

we did a lot of that. We partnered with industry. What do you

need? We will set up a course to provide the kind of workforce people that you need to meet your demands.

But the other thing that education does, and that is the thing

that almost every one of you mentioned in your testimony, the

skills that are really needed is not what you can do in front of the

computer or what you do in front of that lathe or milling machine,

but it is basic communication skills. It is interpersonal relationships. It is the fundamental things that schools used to teach like

reading, writing and arithmetic.

Now I am a strong opponent of minimum wage increases and the

reason for that is I want to provide that opportunity on the first

rung of the economic ladder for those young people, and they are

mostly young people, who need it most. And flipping hamburgers

at McDonald’s is a good job for a young person because it teaches

them, and several of you have mentioned what it teaches them. It

teaches them to show up on time. It teaches them to work while

they are there. It teaches them to do what they are told. It teaches

them to be responsive to the needs of the customer. Now these are

all the kind of skills that you are looking for in people, isn’t it? And

those skills are learned, some of them learned probably better at

McDonald’s than they are learned in the school environment, which

is why I am so opposed to increasing the minimum wage because

nobody works at minimum wage in my district. But there are some

places where people do come in at minimum wage and I don’t want

to cut off the bottom rung of that economic ladder.

20

Other comments. Yes, sir.

Mr. HEXTER. Let me give you an anecdote because of your connection to the junior college environment. I was privileged to sit

through a meeting—this was in northern Ohio—and one of the

speakers was talking about the difficulty, the dividing line between

those who pass algebra and those who do not pass algebra in terms

of success down the road, whether it was academic success or just

work success, and they were becoming the math skills issue. I took

exception to that because I think algebra is the first time that our

students are confronted with solving a problem, solving an unknown. This is taught as a math issue, not as a life skills issue.

If you cannot get through solving for an unknown in a mathematical sense, you are not learning to think.

We need to reorient the whole process into forcing the thought

process and evaluating the thought process as part of our educational outcomes. We don’t do that. We ask for answers and go on

to the next question instead of evaluating the thought process, and

it is very difficult. Teachers aren’t skilled to do that. It is hard

work. But we can teach our employees to think, and that is what

we have to have when we come to work, the ability to solve a problem. Otherwise we can replace them with a machine.

That is really what has driven the automation and productivity

because we have replaced them with machines. The more you raise

the minimum wage, the more likely a machine can do the job.

Chairman BARTLETT. I spent a day in Carroll County in our district and part of that day I spent at Mirada. That is an auto parts

manufacturing plant. The raw material comes in in the morning

and at a 20-minute time slot in the afternoon it has to appear on

the assembly line or they get economically punished for that. So it

is a very demanding business. They have replaced people that unload skids with a robot that unloads the skids.

Mr. HEXTER. Exactly right.

Chairman BARTLETT. Now that is a very low demand in terms

of skill but because they couldn’t depend on the workforce that

robot never calls in sick. It never gets an injury that would require

several days off. And in the afternoon I went to another industry

there and they hired the severely mentally handicapped. And they

bid competitively for their jobs and they paid their workers on the

basis of their productivity. I remember the things they were doing.

One of the things they were doing—you go into a store, you see

that little vending machine that has those plastic things with fuzzy

things in it and you put a quarter in and get it out and one of the

workers there, he had a box of little plastic balls and he had another box of little fuzzy things and he was putting the fuzzy things

in the plastic balls and that is what he was doing. There were some

others that were assembling the mulled cider things. You have the

mulled cider in a plastic bag and you have the card board thing

that you staple on that tells the buyer how to make mulled cider.

The third group were collating a little pamphlet. It had six pages

in it and I think there were eight people collating that. Six of them

sat in a line with the page in front of them in a box. The seventh

of them went down the line, each one of them put their page in the

box as it went down and then the eighth one stapled it at the end.

They were now collating these little pamphlets. The end of the

21

week they got paid for what they did. I was there at payday, and

I will tell you of the pride of these people when they come up and

got their pay check. The severely handicapped got those contracts

by bidding competitively. In our campaign, and my son ran our

campaign for a lot of cycles, we do a lot of mailings. We have a

local school for handicapped children. We did a lot of our mailing

through them. They would stuff the envelopes, and to get the job

they competed with a local mail shop that did the whole thing with

automated procedure and one guy stood there to fix the machine

in case it did not work. But these kids in the school did the job and

they did it at the same price as the mechanical mail house did it,

and I thought what a contrast in these two jobs. At Mirada they

were replacing every worker they could with automation. And I

went to the other job and they were going out of their way to find

things for people to do because they knew that work was therapeutic, that it was good for people. And I thought that somewhere

in our society we have to have a healthy balance between these two

things. How do we get there? What is so wrong with our education

system that we are scoring near the bottom as we compete with

every other country, every other major industrial country and some

of them not very major industrial countries in the world?

Other comments, suggestions. Yes, Mr. Blann.

Mr. BLANN. I am not an education expert but I believe that parents are a part of the educational system, and so I think it is a little broader than just the school systems. And those same people

coming into the workforce that small businesses are saying are not

qualified for what the economy needs are increasingly becoming

parents. And if you just fast forward from that, think about what

kind of educational environment they are probably providing for

their young children.

So I think we need to think beyond kind of the school systems

within the country but the social systems, the family environment

that kids are growing up in.

And just another thought, it is far easier I think to teach a young

child to read and to communicate than to try to teach an adult

retroactively. So it takes a long time, meaning it is going to take

a number of years for that to then flow into the workforce to help

small business, to help the economy, but I think we need to think

long term on that in terms of how we are going to turn this around,

not just what we are going to do tomorrow.

Chairman BARTLETT. You mention it is far easier to teach young

people. It is an astounding fact but I have heard it from several

psychologists, by the time you are three you will know half of all

the things you will ever know and that is in spite of really a high

tech society. If you think about what the three-year-old has

learned, they know half of things that you will ever learn. You

mention the role of the family. I am pretty politically incorrect

when it comes to education. I spent 24 years there. I think involving the family is the single most important thing we can do for

education, which is why I am so supportive of school choice. I don’t

really like vouchers. It is not the government’s money. They have

no business doing it, giving it back to you with some strings attached. I want a tax credit. For those who do not make enough

money to get a tax credit, I have no problem with a voucher for

22

them. I think that everybody in our society needs to have the kind

of options that our President and Vice President had. By the way,

neither one of them sent their kids to a public school, but both of

them want to deny those who need private schools the most; that

is, the poorer people in our society, want to deny them the right

to send their kids to a private school. I think involving the family

is the most important thing we can do.

I went with Steve Forbes to a school in Baltimore and it was

right in the ghetto area of Baltimore, and they got their kids from

exactly the same socioeconomic level as the public schools around

them. Every one of their kids when he graduates from high school

is accepted in three colleges and has a scholarship, at least one

scholarship. That is a requirement for graduation. You aren’t ready

to graduate unless three colleges have accepted you and you are

good enough to get a scholarship. And he does it for less than half

the price of the public schools. And I was there at graduation. It

was not a graduation, it was a celebration. And he gave the diploma to the parents, who then gave it to the graduate, recognizing

the essential role that parents play in the education process.

And I asked him how do you do it. He said, well, we won’t accept

the kid until the family has made a commitment to the education

process. Now the school that the family chooses that is different

from the public school that the kid has gone to may be no better

and it doesn’t matter if it is no better. The education the kid gets

is going to be a whole lot better because the family has an involvement in the process. They will find a place for the kid to study.

They will turn off the television. They will ask is your homework

done. They will help him if it is not done.

I think involving the family is the single most important thing

to do for education. I am not sure that throwing more money at

education solves it. If you think about what education systems do

with more money, it is not reading, writing and arithmetic. The additional money tends to be spent on things that compete with reading, writing and arithmetic. A band, more athletics, put a uniform

on a little girl, teach her to twirl a baton, put her on a bus, put

her in a parade. These are great things, but they are not reading,

writing and arithmetic.

Our economic competitors in engineering, Japan, their children

spend twice as many hours studying the three R’s. We are bright

but we are not that bright that we will keep up to them when we

spend only half as many hours studying the three R’s.

Other comments on where we are in education relative to jobs

and what we can do about it? Yes, sir.

Mr. RAIMONDO. I would share, Mr. Chairman, that there is another partnership there that seems to be working and it is very,

very critical in our new global challenges, the business-education

partnership. The School to Career, the School to Work program especially if you are in a smaller community getting the kids out into

the work environment, interning was mentioned earlier, but just

getting them out to the work environment so they understand the

skill, the needs, the team interfacing, the people skills is very, very

important. I chair that School to Career program in Nebraska and

it is just been one of the most positive issues both in retaining the

brighter students and all of the students in the community because

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they understand what the jobs are that are available in their community, if that is a librarian, that the dynamics are changing

there, or a welder or an accountant, whatever it is. The kids benefit

tremendously. It changes their level of interest when they start to

know what these jobs really are.

In the business world I think we have had a disconnect between

education and business as we have grown through the last century

because business has not involved their employees as much. We

have gone through some mass productions where people could walk

in the door and theoretically people could say they asked me to

leave my brains at the front door. Business has changed totally on

that subject. We need each and every person to change globally

with this. We need their thinking, their involvement.

So business is much more critical than it has ever been because

our needs have changed. We need to partner with the education

world if we can support School to Work or School to Career, which

funding is drying up. Somehow we have to get that partnership

continuing to make a difference in our students’ lives.

So we at NAM and my experiences in Nebraska chairing that

has been very positive to get partnered with the schools, get the

kids into business and see the specific jobs, and it has made a big

difference.

Chairman BARTLETT. You mention welding. I would like to spend

a moment talking about welding and that kind of job. There are

enormous shortages of workers for these trade skills.

Mr. RAIMONDO. Exactly right.

Chairman BARTLETT. And the reason for that I think is that

there is a perception in our society and in our schools that these

are not good careers, that only the poor learners go into those jobs.

And the truth today is—and I had a small business, I was a land

developer and home builder and I still have a lot of friends in that

business. What they tell me is the kids they get can’t read and

write adequately so they can even start teaching them the technical skills they need.

But what we need to do to turn this around in our society is to

tell our teachers and tell our families that these are very rewarding

careers. I enjoy working with my hands. I enjoyed building. At the

end of the day if I have done it right, a hundred years from now

it is still going to be here. You do not have that kind of satisfaction,

I think, sitting in front of a keyboard. What you have done today

nobody is going to care about six months from now, let alone a

hundred years from now most probably. So there is a lot of real reward in these kinds of jobs. But we aren’t getting our young people

going into those jobs. And you have to not only be good with your

hands, you have to also be bright. You can’t do it today if you are

not smart. And so these are very special kids that in addition to

being smart and being able to handle the intellectual parts of it,

they are also very good with their hands.

How do we change that culture so our schools and families are

promoting these as rewarding and desirable careers? Yes, sir.

Mr. CORATOLO. One other thing I want to point out. Small businesses do not compete on the same playing field with big businesses when it comes to benefits like health insurance and pension

benefits. I hear from a lot of small businesses. They have lost workVerDate 11-MAY-2000 14:55 Mar 26, 2001 Jkt 010199 PO 00000 Frm 00027 Fmt 6633 Sfmt 6602 E:\HEARINGS\68099.XXX pfrm08 PsN: 68099
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ers to these larger businesses that actually pay less for health care,

that pay less for pension benefits. And I know there are bills now

to streamline the pension process or provide small business with

easier administrative skills. I think in the future we are going to

have to look toward providing small business with the same level

playing field and buying these types of benefits for their workers

so they don’t have workers matriculating to the larger businesses

that through the economies of scale afford better benefits.

And the solution to the health care crisis in America is another

area that we have to address in order to help small business. Twothirds of those uninsured really work for small businesses. So those

are areas that really play into the need to acquire help for small

business.

Chairman BARTLETT. The health care insurance companies

through no fault of their own, it began with the interference of government and wage and price controls after World War II, but now

they are violating the basic premise of insurance. That is share the

risk. What they are trying to do is to avoid the risk. That is not

why you have insurance to avoid the risk. You have insurance to

share the risk. Somehow I hope it can be done without government

intervention. The industry needs to understand that they have a

responsibility to share the risk and when they do that, then it

won’t cost more for a small business person to enroll the employees. Now it does, and it does because the insurance companies are

trying to cherry pick and avoid the risk. And to the extent that one

of them does it, the other one has to do it or he is disadvantaged

because he has to charge a higher premium if he is trying to share

the risk rather than to avoid the risk.

I would like to challenge the industry to fix that problem before

bungling government tries to fix it for them. You know, you mentioned those who are uninsured. Of the 55 million uninsured, about

40 percent of those are simply in between jobs. And if we had true

portability, and true portability will come when the employee owns

the policy and not the employer.

And that started with government meddling when they tried to

fix, legislate wage and price controls after World War II and employers couldn’t offer more money and they offered benefits. I have

no idea why they chose health insurance. They could have chosen

your car payment or your kids’ education or life insurance, but they

chose health insurance. And out of that grew the Big Blues, which

for many years were essentially a regulated utility, a regulated monopoly. Then others came in and it is now somewhat more competitive.

But still most insurance policies are owned by the employer rather than the employee. It is part of recompensing the employee. If

you put in their pay check the net amount of what it cost you to

buy their insurance and they get the 100 percent deduction, which

would fix the problem of the discrepancy between the big employer

who is 100 percent, and the small employer who is getting little or

nothing. What is it, 30 percent now? And by and by it is going up

more than that. But it should be 100 percent.

So, if we fix that portability problem by the employee owning the

policy, immediately 40 percent of all the uninsured drop out.

Roughly another 40 percent of those are young people, who are inVerDate 11-MAY-2000 14:55 Mar 26, 2001 Jkt 010199 PO 00000 Frm 00028 Fmt 6633 Sfmt 6602 E:\HEARINGS\68099.XXX pfrm08 PsN: 68099
25

vincible and they don’t need insurance because they are not going

to get sick. So they don’t buy it. They would rather have a better

car and better furniture.

And I don’t criticize their decision because when they do a financial statement they are worth significantly less than nothing because they are renting their apartment. They are paying for their

furniture, which is used and they pay for their car which is used.

If they sold their furniture and sold the car they could not pay the

debts on it. They are worth less than nothing financially. It is a

reasonable risk for them to say if I get sick I will go bankrupt.

There is little stigma involved with going bankrupt today.

So we need to change this culture. I have a simple solution to

that. You can’t avoid your health bill by going bankrupt. We will

hound you for the rest of your life for your health bills. Tomorrow

they will go out and buy health insurance. We need to motivate

them to do the right thing. They shouldn’t be moving the burden

of their health care onto those who buy health care insurance

through their employer or through their own policy.

The other 20 percent represent workers who work for somebody

who can’t pay it. If we force them to pay it they simply won’t have

a job and the job will move to the Pacific Rim. I have no problem

providing health care for those people. I want to provide for all of

those people that are moving from welfare to work. A family of four

on welfare lives as well as if you made $23,600 a year. That is $11

on something gross pay, $7 on something take home. Few people

who leave welfare to go into the workforce make 11 bucks an hour

in their first job. They ought to live at least as well working as

they lived on welfare and I want to provide babysitting for them.

I want to provide health care insurance for them. They won’t always be there. They will get seniority. They acquire new skills.

They will move up.

But I think work is therapeutic. My grandmother always said

that an idle mind is the devil’s workshop. And you look at where

most of the problems are in our society, it is idle minds. After you

have worked eight hours hard and come home you are probably not

up to mischief, are you? I think work is good for our society and

very therapeutic.

I remember a poem my mother used to recite. ‘‘There is nothing

like work to put flavor in pie’’ was one of the lines in it. And when

you are tired enough and hungry enough everything tastes good,

doesn’t it?

Other comments.

Regulations. You mentioned regulations and one of you—I forget

who it was—why we have regulations. It is because government—

I think it was Mr. Raimondo, is that correct? When I started running for office now 9 years ago, I said that there were two premises

for regulations, both of which I reject. One premise is that every

employer, every manufacturer, every provider is inherently greedy

and evil and they are going to abuse their employees and abuse the

public, and we have to make sure they do not do that. I was an

employer. The health and well-being of my employees was more important to me than any bureaucrat in Washington. If I lost a member of my team, I was hurting. If I went out and brought somebody

else off the market to come in, he was not a member of the team.

26

My guys worked from morning to night and never needed to speak

to each other because they knew what they were doing, what the

next step was. When I injected a stranger in there, that cut my

productivity. I didn’t want to do that.

The other premise is every consumer is incredibly stupid and

they will hurt themselves. They will buy the wrong thing. They will

do the wrong thing. They will stick their hand in the meat grinder

and it is obligatory on the part of government to protect these stupid people so they won’t hurt each other. I think we need education. I am all for truth in advertising. I want labels on everything

I buy, so I know what is in it, but after that I want to make my

decisions, thank you. If you look at all of our regulations, are they

not based on one or both of these two premises, both of which I

think are easily rejected?

Yes sir.

Mr. RAIMONDO. I think it is also changing, Mr. Chairman. You

are absolutely right. Even in business in the old hierarchy model

or control model we used to absolutely know that people wouldn’t

work unless we controlled them, and all of these dynamics are very

interesting to watch it change. We threw away time clocks in my

company in 1984 and people continually looked at me and thought

I was absolutely nuts and it would never work. And I say why do

you have time clocks? Who is going to cheat? Three to 5 percent

of your people. So we have all the regulations and all the rules. We

threw away the rules and 3 to 5 percent of the people, they

shouldn’t be there if they are a problem child or whatever you want

to call them. And it has worked just wonderfully. We are an employer of choice because of some of that trust and respect.

Chairman BARTLETT. What do you call your employees?

Mr. RAIMONDO. Partners in progress.

Chairman BARTLETT. Good deal. They are called associates and

partners in progress. They are called almost anything other than

employees, aren’t they, in small businesses that are really moving.

Mr. RAIMONDO. That is right, Mr. Chairman, it is very exciting.

We make these rules and regulations for the problem child that is

not the good solid employee that is going to help us grow together

and partner with us.

Chairman BARTLETT. How do we answer the critics that tell us

when we pass this legislation that permits more skilled immigrants

to come in that we are taking jobs away from Americans? My answer to that is that these companies cannot stay here if they cannot find the skilled workers and they will ultimately pick up and

go to where they can find the skilled workers and the other American jobs that are here will disappear when they do that. This is

not legislation that is threatening American jobs. This is legislation

that is protecting American jobs. But we need your help in getting

that message out.

Mr. RAIMONDO. That is good. They are protecting and

supplementing. It is a very positive way to approach it, Mr. Chairman. Very positive way. And it is a very critical issue for us. With

all the skills shortages and labor shortages, we need that supply

coming in.

I once listened to a manufacturer that said, well, if there is a

wage benefit for 5 years I will go to Mexico, but you don’t see that

27

happening. We can compete right here. Our company ships products, as I mentioned, to over 50 nations and we ship it all right out

of Columbus, Nebraska, which is in the heart of the country. So we

add the travel to the ports and then overseas and we can still compete.

Chairman BARTLETT. In the district I have the honor of representing, there is a tannery. They make leather for upscale Toyota

cars. Now this is a very labor intensive industry. There is almost

nothing that is automated in that industry, and they are successfully competing with companies all over the world. So it can be

done here. But they do it with a workforce that is really a part of

management. And when they were having trouble meeting their

deadlines and they were air freighting the product over to Japan,

whatever profits they might have made were gone when they paid

that bill, Toyota came over here to show them how to rearrange

their production lines. No new equipment. Nothing new except the

philosophy. A team philosophy. It is very interesting when you see

the people that are there, all with Japanese names, none of which

I understood, but the workers understood them. And productivity

went up enormously. The workers were part of teams. It was fun.

They were competing with each other. This is a very labor intensive industry, and every year when I go to their picnic, I compliment them. One year they got from Toyota two awards, an

award for doing it better and an award for doing it cheaper. It is

easier to do one of those at a time, but it is tough to do both of

those at a time. They got two major awards from Toyota. So it can

be done.

We are progressively losing our manufacturing jobs to overseas.

I know people who believe that this is just fine. The smokestacks

are disappearing. It is good for the environment. We are moving to

a service based economy, but if I push this to the extreme I have

trouble understanding how we have a viable economy if all we do

is cut each other’s hair. Don’t we need manufacturing?

Mr. RAIMONDO. Actually, Mr. Chairman, the media will tell you

what you are sharing but in the real world manufacturing continues to retain the position of 21 percent, in that range, of GDP

from the Industrial Era, as we call it. It is one of the most misunderstood subjects. The media says there is less jobs in manufacturing. Well, that is exactly right because we are leading the Nation in productivity gains. So today we continue with 21 percent

GDP contribution.

Chairman BARTLETT. With fewer and fewer people.

Mr. RAIMONDO. With fewer and fewer people. Our jobs are getting more technical, the productivity is going up. We are leading

the Nation with productivity gains in the 4, 5, and 6 percent range,

and it is a very exciting environment to be in manufacturing. We

have regained our global competitiveness.

Chairman BARTLETT. But still last month we had the biggest

trade deficit in our trade history. If that is repeated month after

month, it is nearly $400 billion a year trade deficit. Shouldn’t we

be doing more manufacturing here? A lot of it is oil, I understand

that, but that which is not oil is primarily manufactured goods

which is coming in here, isn’t it.

28

Mr. RAIMONDO. A lot of it is textiles and oil, you are absolutely

right. In the hard goods side we are holding our own extremely

well. Of course in the technology side we are holding, the computer

world we are holding our own very well. But manufacturing jobs

are strong and growing again and the perception—we have a

factbook that we will send you, which is just a wonderful profile

on the real facts in manufacturing, how we use technology, how we

integrate it to get a return on investment in productivity, and the

kind of growth—the last couple of years our contribution percent

of the growth has been in the 29 percent range of GDP, just looking

at the growth segment. So we need to do a much better job.

We will get you a factbook, and I am sure you will enjoy it with

your interest and your background, sir.

Chairman BARTLETT. Who in your community are the most popular kids in your high schools?

Mr. RAIMONDO. The quarterback on the football team.

Chairman BARTLETT. You have got it. Those who excel in the

areas that are important to their future and our future really are—

oh, what is the word I want to use? They were squares when I was

a kid. What are they now? They are nerds or geeks. Are those the

right words? And they really, you know they can’t date the pretty

girls and they aren’t popular in school. How do we change the culture so that what is important, is important.

Mr. MCCUTCHEN. You know, Mr. Chairman, one of the things we

have been talking about are the skills that we need in our workers.

And if you look at those skills, those skills are identical to the

skills that you need to be a business owner. And I think one of the

ways that we need to change the culture is to start educating our

young people at a much earlier age that the purpose of education

is not just to prepare you to get a job. It is to prepare you to have

alternatives. And one of the most viable alternatives is to own a

business, so that when you see a Harty plumbing truck driver you

are not looking at a plumber who works for somebody else. That

may be a plumber that works for himself. I think if we start educating our children much earlier—we suffer from what I call the

syndrome of preaching to the choir, and all of us on this panel and

you and many of the people in this room can recite the statistics

about small businesses and the importance of small businesses in

this economy because we work with it every day.

We know where the jobs are coming from. People who are in education don’t know that. They have no idea. So there is no emphasis

in education on the importance of owning a business. And I think

if we start providing that kind of education to our young people at

an earlier age, a lot of these things will correct themselves.

Chairman BARTLETT. I visited a fourth grade class a little bit ago

and one of the kids there knew the difference between an anthropologist and a paleontologist. Now that kid should have been a real

hero in that school. I am sure he wasn’t. That is pretty impressive

that a fourth grader even knows the difference between a paleontologist and an anthropologist. I am sure that he was not the most

popular kid in that school. But I am dreaming of the day when he

is the most popular kid in the school because that is the kind of

skill that will serve him for the rest of his life.

29

I am concerned about this for two reasons. One of them is that

in the short term the fact that we cannot turn out quality graduates from our schools is threatening our economic superiority. You

cannot now hire the kind of young people you need to continue

your business drive. So in the short term it threatens our economic

competitiveness globally. If you go to any of our graduate schools

in the technical area, two-thirds to three-fourths of all of the students there are foreign students and most of them Orientals.

Have you been there? I see several of you are nodding your head

in assent. In the long run this is a threat to our national security

because we cannot continue to have the world’s best military unless

we have the world’s best scientists, mathematicians, and engineers.

I worked eight years for IBM, and I guess I left there about 1975.

We knew at IBM that we at IBM and our country ran the risk of

losing this superiority in computers for a very simple reason, losing

it to Japan. Every year little Japan was turning out more and better scientists, mathematicians and engineers. IBM knew they were

not going to be able to compete in this global market if they could

not have access to the same quality and quantity that the Japanese

had access to. Fortunately, that got turned around but they are

still fierce competitors. A little country. We are a super giant as

compared to a country like that.

So in the long term I have national security concerns. We have

got to turn this around because ultimately if somebody else is consistently turning out more and better scientists, mathematicians

and engineers will they not eventually have a better military than

you have? So I think this is a vital concern to every American.

As we end this Congress and go into the next Congress, it is very

appropriate that we focus on the kinds of things that we are focusing on today. What have benefited small business, what do we need

to do to make sure that we have a climate there that continues this

economic growth?

We just want to make sure, in closing, that we have discussed

all of the factors that are important to you all. I think the number

one factor was the workforce, the quantity and quality of the workforce, and a part of that was education and what we need to do

about that.

By the way, an open-ended question to people in general. What

do you think is the biggest problem in America today? More of

them mention education than any other. To their credit, and I take

hope in this, the number two item that they were concerned about

is the moral climate in our country. They are concerned about that.

I think that is good. We talked about regulations and one of you

mentioned that OSHA on balance does more harm than good.

There is an old country saying, ‘‘I don’t think I would do that; the

juice ain’t worth the squeezing.’’

I think that is true of many, many government regulations. The

juice ain’t worth the squeezing. A more professional way of saying

that is they don’t meet any cost-benefit criteria. They cost more to

implement it than you benefit from it. And we really need to take

a hard look. I have a Ph.D. in biological sciences. I ended up getting 20 patents. I am the only person in Congress with patents, I

think. I have been in the small business community. But we really

30

need to change this regulatory environment. It is eating the soul

out of our small business people particularly.

I wanted to ask, in closing, your help on one small aspect of this,

and that is taxes. And many of you mentioned, I think one of you

mentioned SBREFA, which I am very supportive of, and the Office

of Advocacy. There is a joke that they always tell an audience that

always gets a rise from the audience. It is about the guy that

comes and knocks on the door and says I am from the government

and I am here to help you. And almost everyone busts out laughing

when they tell that. Jerry Glover is the head of the Office of Advocacy. Nobody laughs when Jerry says that. When he says ‘‘them,’’ he is talking about government bureaucrats. When he says ‘‘us,’’ he

is talking about the small business community.

We have got to do something to reduce this regulatory burden.

I am a biologist. I really am an environmentalist. I give low scores

to environmental scoring groups because everything they think is

an environmental bill I think is a bill which infringes on individual

property rights and creates more oppressive government regulations. I think we can help the environment without doing that. But

we need your help in educating all the people you interface with,

so we can have a majority in Congress to roll back some of these

oppressive regulations that are disadvantageous to our society as

a whole.

Now I don’t know of a single conservative who wants to drink

dirty water and breathe impure air. All of us are environmentalists

to that extent. But we need your help in getting education out to

the people so that they understand what is working and what is

not working.

Now the one thing I wanted to talk about was adding the IRS

to the SBREFA panel process. Right now that process requires that

when EPA and OSHA comes out with a new rule, that they have

to convene a panel to determine how hurtful that is going to be to

small businesses, and they have to then modify that rule so it will

not unduly affect small businesses. They don’t, IRS doesn’t have to

do that. And one of the rules that they came out with, which was

killing small businesses, was the option that they have to determine whether you report on the cash basis or accrual basis. And

I see some heads nodding in assent. If you are between, what, one

million and five million gross sales—and we had small business

people sitting where you are sitting who were nearly in tears because they were devastated and being put out of business—and the

IRS guy sat there and I asked him at the end of the day when that

business is finally liquidated will it make any difference to the taxpayer how much tax was collected whether he operated on an accrual basis or a cash basis. He said, no, it wouldn’t. At the end of

the day you collect exactly the same amount of tax. I said, then

why are you hassling our small business people? Why would you

do this if at the end of the day—and by the way, the government

tomorrow is going to be just as anxious for more money as the government today. So you know delaying the collection of those taxes

a year or two is not going to hurt our country because the one

thing governments love to do is to collect and spend money. We

would—like to move the House bill which was passed by this Committee and the Senate bill which was passed and came back to us

31

a bit more than a year ago and it sits at the desk. We would be

very happy if you would look at that bill and very quickly, because

we don’t have much more time in the session, and tell us if this

is a bill that would work because if it is we want to pressure our

leadership have a vote in the House. It is S. 1156.

Yes, sir.

Mr. CORATOLO. The United States Chamber of Commerce does

endorse S. 1156 and we would be fully in back of anything the

House would do—— Chairman BARTLETT. If you all as quickly as you can could get

us a letter supporting this. If you will converse with your colleagues at the table and if all of you could sign a letter, and we

will find somebody to type it for you before you leave here if you

wish. I want to get this on the floor as quickly as possible. It is

sitting there. It would be an enormous benefit to small business to

know that the IRS is not going to be able in the future to lay regulations on them that are onerous without them having a voice at

the table. So if you could do that, work with your colleagues and

if before you left here if you could get us something in writing, I

will take that to Dick Armey and see if we can get that on the

floor.

Okay. Are there other comments or suggestions before we close

the meeting?

I want to thank you all very much for your contribution. This

record will be read by a lot of people. Your comments were from

my perspective right to the point. And please help us with the letter of support for S. 1156 so we can get it moving as quickly as

possible. Thank you all very much for your testimony and we are

adjourned.

[Whereupon, at 12:10 p.m., the Subcommittee was adjourned.]

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