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44–212 2008

EXAMINING EXPIRING TAX INCENTIVES 

AND THE NEEDS OF SMALL BUSINESS 

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

HEARING HELD 

SEPTEMBER 11, 2008 

Small Business Committee Document Number 110-111 

Available via the GPO Website: http://www.access.gpo.gov/congress/house 


Congress.#13
HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

HEATH SHULER, North Carolina 

CHARLES GONZALEZ, Texas 

RICK LARSEN, Washington 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

HENRY CUELLAR, Texas 

DAN LIPINSKI, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

BRUCE BRALEY, Iowa 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

BRIAN HIGGINS, New York 

MAZIE HIRONO, Hawaii 

STEVE CHABOT, Ohio, Ranking Member 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

STEVE KING, Iowa 

JEFF FORTENBERRY, Nebraska 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

DAVID DAVIS, Tennessee 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

MICHAEL DAY, Majority Staff Director 

TIM SLATTERY, Chief Counsel 

KEVIN FITZPATRICK, Minority Staff Director 

STANDING SUBCOMMITTEES 

Subcommittee on Finance and Tax 

MELISSA BEAN, Illinois, Chairwoman 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

VERN BUCHANAN, Florida, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

Subcommittee on Contracting and Technology 

BRUCE BRALEY, IOWA, Chairman 

HENRY CUELLAR, Texas 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

JOE SESTAK, Pennsylvania 

DAVID DAVIS, Tennessee, Ranking 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

MARY FALLIN, Oklahoma 

(II) 

Subcommittee on Regulations, Health Care and Trade 

CHARLES GONZALEZ, Texas, Chairman 

RICK LARSEN, Washington 

DAN LIPINSKI, Illinois 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

JOE SESTAK, Pennsylvania 

LYNN WESTMORELAND, Georgia, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

MARILYN MUSGRAVE, Colorado 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

Subcommittee on Rural and Urban Entrepreneurship 

HEATH SHULER, North Carolina, Chairman 

RICK LARSEN, Washington 

MICHAEL MICHAUD, Maine 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JEFF FORTENBERRY, Nebraska, Ranking 

ROSCOE BARTLETT, Maryland 

MARILYN MUSGRAVE, Colorado 

DAVID DAVIS, Tennessee 

Subcommittee on Investigations and Oversight 

JASON ALTMIRE, PENNSYLVANIA, Chairman 

CHARLES GONZALEZ, Texas 

RAUL GRIJALVA, Arizona 

MARY FALLIN, Oklahoma, Ranking 

LYNN WESTMORELAND, Georgia 

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 1 

Chabot, Hon. Steve .................................................................................................. 2 

WITNESSES 

Feraci, Mr. Manning, Vice President, National Biodiesel Board ......................... 4 

Clements, Mr. Joseph E., Clements Management, LLC, on behalf of the 

National Restaurant Association ........................................................................ 6 

Kilduff, Mr. Larry, The Kilduff Company, Milwaukee, WI, on behalf of the 

International Council of Shopping Centers ........................................................ 8 

Berlinghieri, Mr. Leo, CEO, MKS Instruments, Inc., Andover, MA, on behalf 

of the Semiconductor Equipment and Materials International ....................... 10 

Shephard, Mr. Tom Shepherd, Chairman and CEO, The Shepherd Co., Norwood, OH .............................................................................................................. 12 

APPENDIX 

PREPARED STATEMENTS: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 29 

Chabot, Hon. Steve .................................................................................................. 31 

Feraci, Mr. Manning, Vice President, National Biodiesel Board ......................... 33 

Clements, Mr. Joseph E., Clements Management, LLC, on behalf of the 

National Restaurant Association ........................................................................ 37 

Kilduff, Mr. Larry, The Kilduff Company, Milwaukee, WI, on behalf of the 

International Council of Shopping Centers ........................................................ 42 

Berlinghieri, Mr. Leo, CEO, MKS Instruments, Inc., Andover, MA, on behalf 

of the Semiconductor Equipment and Materials International ....................... 51 

Shephard, Mr. Tom Shepherd, Chairman and CEO, The Shepherd Co., Norwood, OH .............................................................................................................. 56 

STATEMENTS FOR THE RECORD: 

Ernst and Young ...................................................................................................... 60 

National Association of Manufacturers .................................................................. 75 

Altmire, Hon. Jason ................................................................................................. 79 

(V) 

(1) 

EXAMINING EXPIRINGTAX INCENTIVES AND 

THE NEEDS OF SMALL BUSINESS 

Thursday, September 11, 2008 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 10:05 a.m., inRoom 

1539, Longworth House Office Building, Hon. Nydia M. Vela ́zquez 

[Chair of the Committee] Presiding. 

Present: Representatives Vela ́zquez, Cuellar, Altmire, Clarke, 

Ellsworth, Hirono, Chabot, Akin, and Gohmert. 

Chairwoman VELA ́ ZQUEZ. Good morning. This hearing of the 

Small Business Committee is now called to order. 

Entrepreneurs play a host of unique and integral roles in the 

American business world. They are economists for innovation, they 

are engines of job growth and, perhaps most importantly, they are 

agents of economic turnaround. During the past recessions, small 

businesses have led the charge towards financial recovery. 

Today, in the face of soaring inflation and stagnating salaries, we 

clearly need their help to bring the market back on track. But in 

order for this to happen, entrepreneurs must have the tools necessary for growth. Targeted tax relief is an important means for 

encouraging small business development. By promoting investment 

and research, it sparks entrepreneurial expansion and economy 

progress. 

In today’s hearing, we are going to look at a number of specific 

incentives that do just that. Many of the incentives we will examine today were included as part of the Economic Growth and Tax 

Relief Reconciliation Act of 2001. To make room for all the tax 

measures that benefited large corporations, these were enacted on 

a temporary basis. In order to further small business growth, they 

will have to be extended. In moving forward with this task, it is 

important to focus on those tax breaks that galvanize the job market and bolster emerging industries. 

Incentives for tech startups will accomplish that goal. After all, 

innovation has long been a springboard to economic recovery. For 

example, the dot.com boom of the mid-1990s pulled us out of decline and breathed new life into the American marketplace. Today 

we need to tap that same spirit of innovation. Tax breaks that 

incentivize tech startups will drive millions of dollars into the economy and create hundreds of thousands of new jobs. With unemployment at its highest point in 5 years, we could use that kind of boost 

to the workforce. 

2 

Flexible depreciation schedules present another crucial incentive 

for entrepreneurs. These provisions encourage small firms to invest 

in their own growth and development. If business owners are willing to make popular investments, it only makes sense to provide 

them with the innovation to do so. This particular impetus not only 

bolsters small firms, but also puts cash back into the economy. 

Every small business purchase of a good or service gives an added 

life to the industry that provides it. 

Targeted relief does more than advance entrepreneurial development. It also promotes investment in our communities. The benefits of incentives that encourage financiers to put money into small 

firms in low-income neighborhoods are twofold. These provisions 

both open up new markets and revitalize struggling regions. Tax 

breaks that bring jobs and capital to low-income communities will 

be a tremendous boom to the small business world and the economy as a whole. 

These kind of incentives, coupled with a number of other items 

we will look at, present an important means for revitalizing the 

marketplace. Small firms are the engine that drive the American 

commerce. When they do well, we all do well. Extending the provisions discussed today will give them the security they need in order 

to grow and the certainty they need in order to help strengthen 

and expand our economy. 

[The prepared statement of the Chairwoman can be found in the 

appendix at page 29.] 

With that, I would like to thank all of the witnesses for taking 

time off your busy, busy schedule to be here with us today. And 

I yield to the Ranking Member, Mr. Chabot, for his opening statement. 

Mr. CHABOT. Thank you, Madam Chairwoman, for yielding. And 

before I turn to the subject of taxes, I want to pause to note the 

significance of this day, the seventh anniversary of the 2001 terrorist attacks on our Nation. The Chairwoman, I know, lost many 

constituents and friends on that day. And our thoughts and prayers 

are with those who lost their lives and were so affected by that 

tragic event, and with their families and our brave servicemen and 

-women who are serving our Nation both in this country and 

around the world. 

Now, Madam Chairwoman, I want to say that I do appreciate 

your holding this important hearing on extending the temporary 

tax provisions commonly known as tax extenders. We have an outstanding panel of experts to advise us today, and I look forward to 

all of their testimony. And a special welcome to Tom Shepherd, 

who is from my district in Cincinnati, Ohio, whom I will introduce 

later. 

Small businesses as well as working families are experiencing 

difficult times. Gas prices are high, food prices are rising and people, unfortunately, are losing their homes. Tax relief is absolutely 

critical to small businesses, particularly in times of economic uncertainty. 

According to a recent NFIB survey, small businesses ranked Federal tax on business income as one of their top five concerns. There 

are many steps that Congress can take to alleviate the tax burden, 

including eliminating the current Tax Code and starting over. Our 

3 

61,000 page Tax Code, which has not had a substantial revision 

since 1986, should in my view be terminated. The Code’s complexity is staggering. For small businesses, most of them which do 

not have the resources to hire technical tax experts, it can prove 

difficult to navigate. According to the Small Businesses Administration Office of Advocacy, small businesses with fewer than 20 employees spend over $1,200 per employee to comply with tax paperwork, recordkeeping and reporting requirements. 

Until we terminate the Code and start over, which doesn’t seem 

to be on the near-term horizon, unfortunately, Congress must act 

every year to renew the temporary tax provisions that expire or— 

that they are renewed from year to year is the way we have been 

handling them up here. This year, Congress must again take up 

legislation to renew these provisions. This is, in my view, a very 

poor tax policy and makes it extremely difficult for any business, 

especially a small one, to budget and plan for the future. 

However, these temporary tax credits are critical for small firms 

to grow and create the jobs that help to strengthen our economy. 

These are the incentives the companies use to develop new technologies, hire new workers, and invest in their communities. Particularly in a time of slowing economic growth, small companies 

simply cannot absorb tax increases. 

Renewing the temporary tax provisions is important, but we 

must also make the 2001 and 2003 tax cuts permanent. They are 

scheduled to sunset in 2010, so not far down the road. And if they 

do, on January 1, 2011, the American people will face the largest 

tax increase in history, a $683 billion increase. According to the 

Joint Committee on Taxation, failing to extend these cuts would 

cause 31 million families with children to pay an average tax increase of $1,025 because of the reduction in the value of the child 

tax credit from 1,000 down to 500. Almost 30 million married couples will have to pay an average tax increase of $686 resulting 

from the return of the marriage penalty; 91 million taxpayers will 

have to pay an average of $498, so almost $500 more because of 

the loss of the 10 percent tax bracket which is lower than most. 

5.5 million taxpayers who were benefiting from the deduction for 

student loan interest and employer educational benefits would have 

to pay an average of $286 more in their taxes. 

Two million families who adopt a child will pay an average of 

$156 more in taxes; 28 million savers and investors will pay an average of $1,800 more in taxes due to the end of lower tax rates on 

long-term capital gains and dividends. 

The 2001 and 2003 tax cuts included an across-the-board cut for 

all working Americans, which is vital since 85 percent of small 

businesses file as individuals. According to the Heritage Foundation study, the failure to renew these cuts would cost the Cincinnati area, my community, the economy there, approximately 

$200 million annually in economic growth, including 1,900 lost jobs 

and a tax increase of $1,300 per taxpayer per year. 

At one of our Committee hearings, the issue of flow-through income, when business owners include company revenues on their individual income tax returns, was raised. As one small business 

owner testified, quote, many folks in Congress think they are raisVerDate Aug 31 2005 16:19 Oct 10, 2008 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\44212.TXT RUSS
4 

ing taxes only on the wealthy, but I am here to tell you that these 

rate increases will strike at the heart of small businesses, unquote. 

One final point. For the overall health of the economy, Congress 

must curtail wasteful Federal spending. Cutting spending and 

working towards a balanced budget is critical not only for our economic security but also for our national security. These steps would 

help small businesses through our current economic challenges. I 

look forward to hearing the recommendations of our distinguished 

panel of experts here this morning. 

And, Madam Chairwoman, I again want to thank you for holding 

this important hearing and I yield back the balance of our time. 

[The prepared statement of Mr. Chabot can be found in the appendix at page 31.] 

Chairwoman VELA ́ ZQUEZ. Thank you. And it is my pleasure to 

welcome our first witness, Mr. Feraci. Mr. Manning Feraci is the 

Vice President of Federal Affairs to the National Biodiesel Board. 

Prior to work for NBB, Mr. Manning served as the chief of staff 

to Congressman Kenny Hulshof. Founded in 1992, the National 

Biodiesel Board is the national trade association representing the 

biodiesel industry as the coordinating body for research and development in the United States. Mr. Feraci, you will have 5 minutes. 

STATEMENT OF MANNING FERACI, VICE PRESIDENT OF 

FEDERAL AFFAIRS, NATIONAL BIODIESEL BOARD 

Mr. FERACI. Chairwoman Vela ́zquez, Ranking Member Chabot, 

members of the Committee, the National Biodiesel Board, and 

many small businesses that make up our trade association, appreciate the opportunity to be here today to tell you about the importance of the biodiesel tax incentive to our industry. 

The National Biodiesel Board is, as I alluded to, the trade association for the U.S. biodiesel industry and we represent the breadth 

of the entire industry. You have everything from the producers who 

are actually making the fuel, the fuel marketers, the feedstock providers who are providing the material from which we are making 

the fuel. So we have a pretty good perspective in terms of what is 

going on in the biodiesel industry. 

Biodiesel itself is a diesel replacement fuel. It is produced typically from animal fats or vegetable oil. Soybean oil is typically the 

feedstock that is used in the United States. However, over time, 

you have seen an increased diversification in the feedstock that is 

used. And you basically react the animal fat or the vegetable oil 

with alcohol, remove the glycerin and refine it until you hit a fuel 

specification that is determined by an international consensus body 

known as ASTM. 

We take very seriously fuel quality efforts. We vigorously test our 

fuel. We encourage our members to engage in our fuel quality program because consumers have to be confident that we are putting 

a quality fuel into the marketplace. And we feel confident that we 

are. 

In the marketplace, our fuel is typically blended with conventional diesel fuel. Usually it blends at 20 percent or below in the 

marketplace. And typically what you have are ′′below the rack′′ jobbers who are buying the fuel from our plant and blending it below 

5 

the rack. We have penetration at about 42 fuel terminals right 

now. 

And just to give you some perspective, there are 1,500 fuel terminals nationwide. Ethanol is at about half of those terminals. We 

are at 42. Now, we expect that number to go up over time, and we 

certainly want to see that happen because our goal is to get greater 

penetration into fuel infrastructure so that we get to more consumers with our fuel. 

The tax incentive that I want to visit on here briefly was initially 

enacted in 2004, as part of the American Jobs Creation Act, subsequently extended as part of the Energy Policy Act of 2005, and it 

expires at the end of this year. It is a dollar-per-gallon blenders’ 

excise tax credit that you get if you make the fuel from virgin vegetable oils or animal fat. Whereas it is 50 cents per gallon if you 

make it from second-use oils such as yellow grease or restaurant 

grease. The fuel has to meet ASTM D6751, which is the fuel specification, and section 211 requirements of the Clean Air Act to qualify for the tax incentive. And the credit is claimed at the point that 

the biodiesel is blended with conventional diesel fuel. And everyone 

who claims it has to register with the IRS to claim that credit. 

The one commentary that you can make on the existing biodiesel 

tax incentive is that it is working and all you have to do is look 

back. In 2004 when the credit was enacted, you had 25 million gallons of production in the United States. In 2007, we had 500 million gallons of production in the U.S. So if the idea is to increase 

the production and use of biodiesel, there is a pretty compelling 

case to be made that the biodiesel tax incentive is working. And 

not only is it working, there is a very compelling public policy rationale to be made for why we should encourage the production and 

use of biodiesel in the United States. 

The first and most obvious is it is going to reduce our dependence on foreign oil. The 500 million gallons of biodiesel produced 

in the United States represents displacing 20 million barrels of oil. 

Ours is an extremely efficient fuel. We have a 3.5 to 1 energy balance. So that means for every unit of energy it takes to make a gallon of biodiesel, you get 3.5 units of energy out of it. And those are 

numbers that come from NREL, so they are extremely credible. 

So we are an efficient fuel that is going to help reduce our dependence on foreign oil. We are extremely good for the environment. The USDA/DOE model has us as reducing greenhouse gas 

emissions by 78 percent. And most importantly, we are creating 

good green jobs in rural America. We support over 21,000 jobs, 

added $4 billion to the U.S. economy in 2007 alone. The most important thing, though, is that all these benefits that we get are all 

in jeopardy if the tax incentive is not extended, because it ends at 

the end of this current year, on December 31st. Absent that credit, 

because of the way it functions, is to make biodiesel price competitive with petroleum diesel fuel. Absent that tax incentive—and I’m 

not trying to be dramatic— our guys are just not going to produce 

fuel. 

So, Madam Chairwoman, Ranking Member Chabot, I appreciate 

you having this hearing. It is absolutely vital to our industry that 

this tax incentive be extended. I would be willing to take any questions you may have. 

6 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Feraci. 

[The prepared statement of Mr. Feraci can be found in the appendix at page 33.] 

Chairwoman VELA ́ ZQUEZ. Our next witness is Mr. Joseph E. 

Clements. He is a restaurateur from Baton Rouge, Louisiana. Mr. 

Clements is also a certified public accountant by training and his 

company, Clements Management, currently operates nine Burger 

King restaurants in central Louisiana. Mr. Clements is here to testify on behalf of the National Restaurant Association founded in 

1919. The association is the leading business association for the 

restaurant industry. Welcome, sir. 

STATEMENT OF JOSEPH E. CLEMENTS, RESTAURATEUR, 

CLEMENTS MANAGEMENT, LLC, BATON ROUGE, LOUISIANA, 

ON BEHALF OF THE NATIONAL RESTAURANT ASSOCIATION 

Mr. CLEMENTS. Thank you, Madam Chairwoman, Mr. Chabot. I 

would like to thank the members of the Committee for the invitation to offer testimony today on behalf of the National Restaurant 

Association about ways in which to update the Tax Code and help 

stimulate the economy. 

As stated, I have been in the restaurant business for 13 years 

and I currently own and operate NINE Burger King franchise restaurants in Louisiana, and I employ approximately 300 people. 

Prior to my entry into the restaurant business, I practiced public 

accounting for almost 19 years, where my firm provided services to 

small businesses just like the one I own today. 

I am here today to discuss the need for reforms and the depreciation schedules, specifically to shorten the lives of the write-off of 

the restaurant buildings and improvements to 15-year lives. This 

would create an immediate economic activity within the industry, 

which in turn would reverberate throughout the economy. 

There is currently legislation pending in the 110th Congress 

which addresses accelerated depreciation. H.R. 3622, championed 

by Congressmen Kendrick Meek of Florida and Patrick Tiberi of 

Ohio, would make permanent a 15-year depreciable life for newly 

constructed restaurants, as well as for improvements on restaurants. The bill currently enjoys bipartisan support with over 

160 cosponsors, including 18 members of this Committee. 

There is no question that restaurant depreciation schedules are 

outdated. According to the Tax Code, restaurant buildings have a 

useful life of 39-1/2 years over which they can be written off. To 

suggest that a restaurant building’s useful life is 39-1/2 years is 

just ludicrous. The wear and tear on restaurant buildings is probably greater on this type of building than on any other type of 

building. Indeed, this is evidenced by the frequency by which restaurant buildings are remodeled, renovated or even rebuilt. 

Over the years, Congress has made many changes to the depreciation schedules. There have been changes that have split the industry between leased properties and owner-occupied properties, 

and there have been changes to specific industries which are competitors to the restaurants, such as convenience stores and gas stations. And there have been changes allowing faster write-offs for 

improvements but not for new construction, placing certain businesses in an economic disadvantaged position. I maintain, however, 

7 

that the Tax Code should not pick winners and losers in the restaurant industry, but it should allow a level playing field on which 

all can play. 

Finally, it is widely recognized that the restaurant business is 

one of the more risky ventures that one can undertake in our economy. Opening a restaurant requires an enormous investment in 

capital, most of which is spent on the building or the improvements. Most restaurateurs finance their buildings or improvements 

over a 12- to 15-year term. Adjusting the appreciable lives to match 

these terms more closely reflects the actual cash expenditures of 

the asset. 

The purpose of this hearing is not to discuss the merits of this 

issue but rather, more importantly, whether this tax provision will 

help small businesses and hence spur growth in a struggling economy. We believe these changes will have a dramatic and immediate 

effect, given that the average cost of an update or remodel of a restaurant ranges from $250,000 to $400,000 according to the NRA. 

Or in my personal case, a new Burger King restaurant costs 

$800,000. 

This year alone, the restaurant industry is expected to spend in 

excess of $5.5 billion on capital expenditures for building construction and renovations. These are dollars that will be spent in the 

construction industry and will further grow the economy. 

And finally, if there is any question as to whether this provision 

would immediately spur activity, look at what happened when Congress enacted the provision to provide restaurants with a 15-year 

schedule on improvements made to restaurants from the 2004 bill. 

The following year, in 2005, the year that the provision went into 

effect, the restaurant industry spent more than $7.4 billion on new 

structures and improvements, a 42 percent increase over the 5.2 

spent in 2004, according to the Census Bureau. Additional spending fueled by a shorter depreciation schedule created thousands of 

jobs in the construction-related industries across the country. 

With a more predictable schedule, we anticipate that these 

spending numbers will grow as restaurateurs have the ability to 

plan new construction and improvements farther out than 1 or 2 

years. 

All of this information is addressed in my written testimony, as 

well as a detailed explanation of the issues. In respect for everyone’s time, I will not read the rest of them today, but I would ask 

that you look at them in the written testimony. 

We urge the members of this Committee to consider this information as evidence of the need to help the restaurant industry 

keep strong in order to keep the Nation’s economy overall strong. 

Again, I would like to thank you on behalf of the National Restaurant Association for the opportunity to provide this testimony. 

And I thank those members of the Committee who have cosponsored this legislation, and we appreciate your support. I will be 

happy to answer any questions that you may have on this information. 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Clements. 

[The prepared statement of Mr. Clements can be found in the appendix at page 37.] 

8 

Chairwoman VELA ́ ZQUEZ. Our next witness is Mr. Larry Kilduff. 

Larry Kilduff is the president and management member of the 

Kilduff Company based in Milwaukee, Wisconsin. The Kilduff Company is a privately held real estate development company. Mr. 

Kilduff has over 22 years of involvement in retail and other commercial development projects across the country. He is here to testify on behalf of the International Council of Shopping Centers. 

With over 75,000 members, ICSC is the leading trade association 

of the retail development community. Welcome. 

STATEMENT OF LARRY KILDUFF, THE KILDUFF COMPANY, 

MILWAUKEE, WISCONSIN, ON BEHALF OF THE INTERNATIONAL COUNCIL OF SHOPPING CENTERS 

Mr. KILDUFF. As mentioned, my name is Larry Kilduff. I am the 

chairman of the Environmental Policy Committee and recent past 

Central Division Government Relations Co-Chair for ICSC. I am 

also the founder—to supplement that volunteer work—of the 

Kilduff Company in Mequon, Wisconsin. 

The Kilduff Company participates in development and consulting 

projects in retail marketplaces around the country ; however, our 

passion and specialty is urban redevelopment and revitalization. 

We have made an indelible mark in neighborhoods throughout the 

United States by applying unique talents and philosophies to assist 

communities and individual developers in their economic renovation efforts. 

I am here today representing our trade association, the International Council of Shopping Centers, which was founded in 1957 

and is currently more than 75,000 members strong in over 90 countries, including shopping center owners, developers, managers, 

marketing specialists, investors, lenders, retailers and all other 

professional endeavors that participate in our industry, including 

academics and public officials. 

I am here today specifically because of the concern over the socalled tax extender legislation and that it continues to languish. 

This legislation contains a number of tax provisions that expired at 

the end of 2007 or are set to expire in 2008. In particular, ICSC 

supports the immediate extension of the 15-year depreciation for 

leasehold improvements, brownfields expensing, a new market tax 

credit and a number of energy tax incentive provisions. 

One of the most important obligations of a shopping center owner 

is to provide modern, efficient and environmentally sound retail 

space for tenants and the public. Owners must periodically refurbish or replace, usually every 5 to 10 years, many components of 

their buildings. Sometimes these requirements are in the lease and 

they are required to be. They are paid for by landlords or paid for 

in part by landlords through incentives back to the tenants. The 5- 

to 10-year lease period is fairly common in our industry. These improvements can be fairly substantial. They can include HVAC. 

They can include interior walls, plumbing, electrical, things that 

have to comply with ever-changing codes for building construction 

and also for environmental improvements. The 15-year depreciation period for such leasehold improvements more closely reflects, 

although it doesn’t perfectly match, but it does more closely reflect 

9 

the active life of these improvements and the market practices of 

today’s environment. 

In Alaska, a friend of ours who owns a family shopping center— 

they have owned it for many, many years and developed it in Anchorage—and as it has continued to grow, it has become a major 

shopping center in that area and yet is still a family-owned business. It is faced with the dilemma of having to try and make a decision as to whether to make a substantial renovation of the property. With a 15-year depreciation schedule and with a shopping 

center that size, notwithstanding the size of the shopping center, 

the owner is small. The margins are very thin, and the decision to 

go forward may or may not be completely reliant on the possibility 

of the depreciation schedule being 15 years and being made permanent. 

Brownfields remediation expensing is also very important to 

small developers. As a small developer who focuses on urban 

projects, I wrestle with my share of environmentally contaminated 

properties and developed a good deal of experience with these properties, both with the clean-up of brownfields and assisting others 

in that endeavor. Just as my Alaska example shows, with the 

leasehold depreciation schedule, this program for remediation expensing is vital. 

I am currently involved in a project in the early due diligence 

stages in Kenosha, Wisconsin. It is a 40-acre mixed-use development adjacent to retail and commercial that consists primarily of 

senior housing and multifamily residential. This is an infield 

project that will ultimately, upon completion, generate a tax increment of over $80 million. And while my company is small, the 

group of people that we have put together to do a project of this 

magnitude is looking forward to doing it. It is adjacent to a landfill 

that has been active for over 30 years. This landfill is part of the 

project. Without the cleanup of that landfill, this project can’t go 

forward. The property is owned by the same people. The city is 

afraid to test it. The landowner doesn’t want to test it. Nobody 

wants to know what is in it until they know how they are going 

to pay for cleaning it up. And this could very well affect our ability 

to go forward. 

When we measure risk profile for a project like this, if we look 

at it and say we don’t know what it is going to cost to clean it up, 

we won’t know what it is going to cost to clean it up until we test. 

Once we test we may have to acknowledge what is in there, and 

somebody in this picture is going to be responsible for it. We have 

to look very, very hard at whether or not we can even make that 

effort. Knowing that you could at least appreciate the expense of 

that cleanup can have a major impact on that. 

With urban projects, it is also very important to mention that 

anything that can measure or level the playing field with risk can 

be very, very important. 

And I would urge you also to consider the bill that was forwarded by Mike Turner and Stephanie Tubbs Jones. I realize there 

is no time for Congress to pass H.R. 3080 this year, the 

Brownfields Cleanup Act, but Representative Tubbs Jones understood that making the transferable tax credit available to small 

businesses could tip the balance in that very decision-making. 

10 

We also do support new market tax credits. The process is cumbersome and sometimes doesn’t do as good a job as it could, but it 

also falls into that category of things that help balance the imbalance in urban redevelopment. 

And then lastly, we would also look at your support for commercial building tax deductions. And carried interest—we believe that 

the carried interest problem is significant as it relates to the small 

businesses in this country. And I would love to entertain questions 

on that if you have any interest. 

At this time, I think I would just like to thank you, Madam 

Chairwoman, for your prompt enactment of the tax extenders legislation. It is necessary for economic growth, job creation and capital 

investment and energy security. And ICSC looks forward to working with you and the entire Congress on doing so. Thank you very 

much. 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Kilduff. 

[The prepared statement of Mr. Kilduff can be found in the appendix at page 42.] 

Chairwoman VELA ́ ZQUEZ. Our next witness is Mr. Leo 

Berlinghieri. Mr. Berlinghieri is the Chief Executive Officer and 

President of MKS Instruments in Andover, Massachusetts. MKS 

Instruments is a global provider of process control solutions for advanced manufacturing processes. He is here to testify on behalf of 

Semiconductor Equipment and Materials International, or SEMI. 

SEMI is the global representative of the microelectronic ecosystem 

industry. Welcome. 

STATEMENT OF LEO BERLINGHIERI, MKS INSTRUMENTS, INC., 

ANDOVER, MASSACHUSETTS, ON BEHALF OF SEMICONDUCTOR EQUIPMENT AND MATERIALS INTERNATIONAL 

(SEMI) 

Mr. BERLINGHIERI. Good morning. Thank you, Madam Chairwoman and Ranking Member Chabot and the Committee, for having me here today to speak. As Madam Chairwoman noted, I am 

the CEO and President of MKS Instruments, so part of the interest 

is personal to MKS Instruments. But also I will be the chairman 

on the North American Advisory Board of SEMI beginning next 

year. And we represent about 800 companies involved in the semiconductor, photovoltaics, and display industry, which about 80 percent of those companies are small businesses. So I am speaking on 

behalf of both organizations. 

We provide products to equipment makers involved in semiconductor manufacturing, displays, in photovoltaics and other advanced technologies. 

Today I would like to talk about two components of the tax extenders bills that are of great importance to MKS and the other 

semiconductor companies and SEMI members. These issues are the 

R&D tax credit and the commercial investment tax credit for solar 

energy. 

In terms of the R&D tax credit, MKS Instruments employs about 

500 engineering professionals. We expect to spend about $80 million in R&D this year. That is about 10 percent of our revenues. 

And that is fairly common for the industries that we represent. 

R&D spending goes towards the salaries for our engineering peoVerDate Aug 31 2005 16:19 Oct 10, 2008 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\44212.TXT RUSS
11 

ple, engineering consulting, and towards the cost of materials for 

R&D and for the tools that we use. Initial R&D investment of $1 

million, or slightly more than that, recurring each year generates 

about 11 to $12 million of revenue each year. And with over 5 to 

7 years of a product life cycle, that would be somewhere between 

50 and 75 million in revenue over that life cycle. So the R&D tax 

credit is an important incentive to locate this value-added investment in the United States. 

In addition to these jobs, there is really a direct benefit to the 

U.S. Government. And I did a couple of quick back-of-the-envelope 

calculations. We estimate that the typical R&D credit for us gives 

us about $2 million of credit. As a conservative estimate, if you 

look at about a 15 percent profit level, pretax profit level, on that 

50 million in revenue resulting from the R&D projects, that would 

give us a profit of about 7-1/2 million. We assume that the tax rate 

at 36 percent for business would provide a return in the corporation taxes to the government of about $2.7 million. And that excludes the additional tax benefits from hiring people in the R&D 

area, so their actual personal incomes, as well as all of the supply 

chain that would be either providing materials or services for us 

as well. 

The R&D tax credit has a long history of strong bipartisan bicameral support. It is unfortunate it expired 8 months ago. Growth 

of the American economy is closely tied to the ability of our companies to make sustained commitment to long-term investment in 

R&D. The credit provides a critical, effective, and proven incentive 

for companies like MKS to increase our R&D spending in the 

United States. It is a stimulus for U.S. investment, innovation, 

wage growth, consumption and exports. 

While the R&D tax credit is expired, many countries such as Ireland, Canada, and China have more attractive R&D incentives luring research jobs away from the United States. The United States 

used to have the best R&D tax credit, and now we have moved way 

down the ladder in that list of countries. They have made it a priority and we have not. I urge Congress, before adjournment, to 

enact a seamless multiyear extension of a strengthened R&D tax 

credit . 

The second issue is the commercial investment tax credit for 

solar energy. Solar energy is a new market for MKS instruments 

and many of the other SEMI companies as well. The materials and 

equipment used in the semiconductor industry are very similar to 

what is to be used in the solar energy industry. At the time when 

America’s energy independence is more crucial than ever, solar energy and other means of alternative energies are expected to boom. 

The commercial investment tax credit for solar energy expires at 

the end of this year. 

Unfortunately, due to the uncertainty of an ITC extension, solar 

projects in the United States have already been put on hold. The 

commercial ITC for solar energy is a critical incentive for companies to locate their solar energy manufacturing facilities and 

projects within the United States. Again, just like the R&D tax 

credit, these investments produce jobs. According to a Navigant 

Consulting study, if extended, the solar energy ITC is expected to 

12 

create almost 40,000 more jobs and about $8 billion in investments. 

If it is not extended, those jobs and investments will go elsewhere. 

Other nations have very generous incentive packages for solar 

energy and are leading in the investment in this area. If Congress 

fails to extend the credits, it will cause America to fall further behind and ensure that these investments are made overseas. 

There is no doubt that our country will be a user of solar energy. 

The question is whether we will be a producer of the equipment 

and the panels and the installation kits. 

I urge Congress, before adjournment, to approve an 8-year extension of the commercial investment tax credit for solar energy. 

In closing, let me reiterate what is at stake here is American jobs 

and investments in crucial technologies. Tax policies are a key factor for companies when they are deciding to invest, and we are 

faced with some stiff competition abroad. This is a very limited 

window of opportunity to extend the credits this year. I urge Congress to make this a top priority, ensure that the R&D tax credit 

and a commercial investment tax credit for solar energy are extended before Congress adjourns. We cannot afford to wait. 

I thank you and I look forward to any questions that I can answer. 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Berlinghieri. 

[The prepared statement of Mr. Berlinghieri can be found in the 

appendix at page 51.] 

Chairwoman VELA ́ ZQUEZ. Now the Chair recognizes the Ranking 

Member for the purpose of introducing our next witness. 

Mr. CHABOT. Thank you very much, Madam Chair. And I am 

pleased to introduce Tom Shepherd, who is Chairman and CEO of 

the Shepherd Chemical Company, which is based in Norwood, 

Ohio, which is in the First Congressional District, the district that 

I have the honor to represent. And he also has the Shepherd Color 

Company. Both companies are family-owned small businesses with 

over 400 employees. Shepherd Chemical was established back in 

1916, and Mr. Shepherd is the fourth-generation Shepherd to run 

the family businesses. 

Mr. Shepherd serves on the Executive Committee of the American Chemistry Council and chairs its Small Business Council. He 

is also a member of the Executive Committee of the Cobalt Institute. He received a B.A. In biology from Princeton University and 

a master’s degree in management from Northwestern University. 

We are pleased to have you here today, Tom, and we look forward 

to your testimony. 

STATEMENT OF TOM SHEPHERD, CHAIRMAN AND CEO, THE 

SHEPHERD CHEMICAL COMPANY, NORWOOD, OHIO 

Mr. SHEPHERD. Thank you Congressman Chabot. Thank you, 

Chairwoman Vela ́zquez and members of the Committee. I represent only Shepherd Chemical and Shepherd Color. We are custom and specialty metal-based chemicals manufacturers that make 

life better, safer, and healthier. Our core purpose is to have a positive impact on people’s lives, specifically our employees, our customers, our communities and our shareholders. 

Central to our strategy is the development of engineered products and innovative technology. This is what we like to do and this 

13 

is what allows us to compete successfully around the world. R&D, 

as you know, can be expensive. We rely on dozens of chemists and 

engineers, and millions of dollars in technical assets to create new 

and novel materials for a wide variety of uses. 

Recent developments include additives for high-pressure lubricants, gas generants for air bags, infrared reflective pigments for 

cool-roof technology, cathode materials for lithium-ion batteries, additives for biodegradeable plastics, and catalysts for sealants for 

energy-efficient windows. 

My company takes full advantage of the research and development tax credit, but I need to tell you that I am quite conflicted 

about this program. On one hand, it brings welcome relief from our 

onerous tax burden. I believe our government is wise to let my 

companies keep more of the money we have earned, and we are 

happy to do so. I assure you that we invest that money wisely. 

Also, of all the things that our government does with the taxes we 

pay, investing in businesses and activities that create value and 

jobs is one of the best. When business is encouraged and not discouraged, lots of good things happen. 

On the other hand, I believe businesses should invest in research 

and experimentation because it is good for that business. To invest 

for other reasons, such as gaining a tax credit, seems to be a bad 

idea. So if the purpose of the tax credit is to stimulate and reward 

investments and research and experimentation, I might urge you 

to consider what is assuredly a more effective and efficient way. My 

suggestion is to reduce the income tax in general, and especially if 

small business performance is the target, to eliminate the estate 

tax which is especially detrimental to small businesses. 

If our government were to lower taxes, the reward for creating 

value would increase. If the reward for creating value were to increase, more people would try harder to do so. And if more people 

would try harder to do so, more would succeed and more value 

would be created and more jobs would be created and more people 

would be self-sufficient and fewer people would be in need of assistance and more people would have the means to take care of those 

that are, so government would have to spend less. And if government had to spend less, they could tax us less, and the whole cycle 

could play out again. I really believe it is that simple. 

Unfortunately, over the years we have made it complex. However, in the likely event that taxes continue to be levied as they 

are today, and if we are intent on spending them for the betterment of America, I believe doing so in support of businesses and 

activities that create value and new jobs is a good investment with 

a strong pay-off. If this is the case, then I am strongly in favor of 

the R&D tax credit. 

I do have one caveat. My understanding is that the R&D tax 

credit saves my companies about 15 percent of our yearly increase 

in research and experimentation expenditures. While I do not turn 

up my nose at this kind of money, it is not nearly enough to influence how I invest in R&D. I invest in R&D because it makes sense 

for my business, not because of the R&D tax credit. If given the 

opportunity, I would love to talk about the estate tax. Thank you. 

Chairwoman VELA ́ ZQUEZ. Thank you. Mr. Shepherd. 

14 

[The prepared statement of Mr. Shepherd can be found in the appendix at page 60.] 

Chairwoman VELA ́ ZQUEZ. I would like to address my first question to Mr. Feraci. For small communities, the biodiesel tax incentive has been the linchpin of small business development and investment, especially in rural America. Can you explain the link between the tax credit and rural communities? 

Mr. FERACI. Absolutely. You are absolutely correct. What you 

saw at the beginning of the biodiesel industry when it was in its 

infancy, and even as it has continued to grow, is that given the opportunity to add value to their agriculture products, you had soybean farmers who would come together and form cooperatives and 

then hence to buy biodiesel production facilities. The industry has 

matured beyond then, but if you take a look at where we are located and where we are producing jobs, it is largely in rural communities. So not only do you have the jobs that you are getting in 

the plants, but you have everything in the fuel distribution chain, 

you have everything that you are getting from the agriculture community as well, and then various feedstock providers adding value 

to their products. So I think in terms of job creation in rural communities, we add a lot. 

Chairwoman VELA ́ ZQUEZ. You mentioned in 2004, when it was 

the first year that the biodiesel tax incentive was in effect, we had 

an output of only 25 million gallons of fuel and then today the output is up to 500 million. Do you have any data that shows how 

many jobs were created as a result of that? 

Mr. FERACI. Sure. And a study that we had commissioned internally to get a good handle on that. Right now in 2007, we have supported over 21,000 jobs, added over $4 billion to the overall economy from our industry. And if you go out to these biodiesel plants 

and you see them, typically they are smaller producers and they 

are small businesses for the most part. 

Just to give you some perspective the larger side of our facilities 

are going to be 100 million gallon production. That is as big as it 

gets. But your typical plant is going to be a 15 million gallon plant 

or smaller. And it will be a small number of employees, but they 

are doing good paying jobs, good green jobs, that are obviously of 

benefit to the local community. 

Chairwoman VELA ́ ZQUEZ. And if the tax incentives will continue, 

will be extended, do you have any numbers as to how many jobs 

will be created in the future? 

Mr. FERACI. Sure. Again, the same analysis that we had done 

of—what we would anticipate to have in the industry would happen if the tax incentive is extended, we would expect to create a 

projected—a little over 38,000 jobs, add another $26 billion to the 

economy between now and 2012. 

But you touch on a great point. The extension of the tax incentive is extremely vital to that. Because the way that that functions 

is it makes our fuel price competitive with petroleum diesel in the 

marketplace. And there is a compelling public policy reason to do 

that from an energy security standpoint, obviously the job creation 

standpoint, the environmental standpoint. But the way the credit 

itself functions is if it goes away, all of the sudden our fuel is a 

lot less competitive. And right now, obviously, where fuel prices 

15 

are, consumers are very sensitive to that. And I think that you 

would see production in the industry all but halt or be severely curtailed at the least. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Mr. Clements, in your testimony you focus on the importance on 

the 15-year depreciation schedule for qualified restaurant improvements, and this credit expires on December 31, 2007. Given that 

we are 9 months into the year and it has yet to be extended, have 

you seen any projects either delayed or terminated because of the 

fact that it expired and it has not been extended? 

Mr. CLEMENTS. I have not seen that personally, but I do have a 

situation where people in 2007 saw an opportunity to develop a 

new restaurant. I know specifically of one fellow franchisee of mine 

that began the process in 2007 based on the understanding and expectation that these extenders would be passed. He started the 

project. He is now almost complete with the project. And he is sitting in a very different financial situation today than he was when 

he started the project because the extenders have not been put together and passed. So that situation could have affected that building project. I can’t say for certain it did or did not. But certainly 

the fact that you can match the cash flow of the tax depreciation 

and the taxes to the payment of the building, the cost of the building, or the improvements, certainly allows for an accelerated interest in the project. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Mr. Berlinghieri, a recent study revealed that over 25 percent of companies claiming R&D credits have assets of less than $1 million. Those are small businesses. 

Can you talk to us about the importance of the credit for small 

businesses making significant investment in research and how does 

it create opportunities for future expansion? 

Mr. BERLINGHIERI. I think one of the key things in the industry 

that I am involved with and representing SEMI in is that our industry is very dynamic and things change very quickly. And so in 

order to be a leader in producing either semiconductor chips or 

solar panels, it is required that on a regular basis we change the 

technology and bring lower costs to be able to produce products. 

In the supply chain that we have—as I mentioned, many of them 

are small businesses and also with SEMI itself, 80 percent of the 

members are small businesses—that investment allows us—as I 

mentioned that back-of-the-envelope calculation, we are often able 

to get about 10 times the revenue per that investment. And so 

what that does is provides manufacturing jobs for all of those companies, their suppliers in producing materials or machines parts or 

services. So it has a cascading effect completely down our supply 

chain in terms of creating employment and revenue, I think, for 

the government as well. 

Chairwoman VELA ́ ZQUEZ. Very good. Thank you. 

Mr. Kilduff, the tax extender that allowed for a 15-year write-off 

on this whole improvement, I know that is critical to your industry. 

This Committee has held hearings on the Tax Code and we have 

heard from many entrepreneurs about the need to modernize the 

Tax Code. Can you discuss the economic effect that outdated provisions can have on small businesses? 

16 

Mr. KILDUFF. Yes, ma’am, I can, with particular regard to the 

leasehold depreciation portion of this. Most shopping centers—and 

our industry is made up of a vast number of different types of people. The larger developers tend to make all the headlines and make 

the biggest projects. But there are an enormous number of smaller 

developers. 

My company, I have four people in my office. And we are able 

with a small office to put together a coalition of capital partners 

and others to make big projects go. The reality is that most of those 

shopping center owners are owning shopping centers that are 75- 

to 80,000 square feet, might have a majority of that space be leased 

to small tenants. Those tenants turn over on leases every 5 years. 

And if you have got a Subway Sandwich shop in a particular space 

and they move out in 5 years. And somebody wants to put in a dental office, you literally have to tear out all of that work. And you 

can be four or five tenants down the road on a 39-year depreciation 

schedule, still amortizing that first tenant. And so it is a significant 

impact. Significant impact. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Now I recognize Mr. Chabot, and then I will have other questions 

for the second round. 

Mr. CHABOT. Thank you, Madam Chair. 

Mr. Feraci, I will begin with you, if I can. Back in April, I toured 

one of the companies in my congressional district, it was the Peter 

Kramer North American Company. It is a full-line oil/chemical supplier. And during my visit, one of the folks there, his name is Michael Dow, he was one of their account executives, stressed that if 

the production tax credits were not extended, it would be almost 

impossible for them to make a profit. 

Is that unique to them, or do you think that that is the case in 

a lot of businesses across the country? 

Mr. FERACI. Peter Kramer is a member of ours, and I am glad 

you were out to see their facility. I am sure it was impressive. The 

experience that you heard there at your plant visit would be the 

exact same thing that you would hear at pretty much every other 

biodiesel plant that you went to: large, small, multi-feedstocks. It 

really wouldn’t matter. They would tell you the same thing, given 

the important role that that tax incentive plays in making us pricecompetitive in the marketplace. 

Mr. CHABOT. Thank you. And you had also mentioned in your 

testimony about the efficiency of biodiesel, and I think you mentioned that it was about for every—the input being 1, the output 

is like 3-1/2 times the output. How does that compare with ethanol? Could you comment on that? 

Mr. FERACI. I am not sure—I have seen different numbers for 

ethanol. Ethanol has a positive energy balance. I believe ours is 

higher. 3.5 to 1 is an extremely efficient fuel. 

Mr. CHABOT. The numbers that I remember are pretty close, actually. Not to yours, but I think you got as much energy out almost 

as you put in. So there was a real concern about that especially, 

arguably, if you are driving up food costs and other things at the 

same time. So it sounds like you all are quite efficient, and I think 

it is something that bears looking into. 

17 

Mr. Clements, if I could go to you next. Restaurants are often 

open long hours and experience high customer traffic and renovate 

frequently. Could you expand a little bit on the importance of the 

15-year depreciation schedule? And I know you mentioned that Pat 

Tiberi—and we have a lot of bills. That is something that after this 

meeting I am going to go back and look at very closely, because I 

know philosophically over the years we have been in favor of that, 

and I am inclined to go on that bill as well myself. So if you could 

just talk about that briefly. 

Mr. CLEMENTS. I would be glad to. Perhaps the best way to approach it is to let you hear an example in my own situation. I am 

a Burger King franchisee. I sign a franchise agreement for every 

location that I operate and it is a 20-year agreement. Within that 

20 years, I am required to do a pretty substantial remodel at 10 

years. Obviously, I have to maintain the facility and keep all the 

repairs and maintenance up and keep up with the cosmetics and 

decor of the day. 

At the end of 20 years, assuming I want to renew that—and in 

most cases I would—then I have got to do beyond a substantial— 

it is almost in a lot of cases what we would call a ′′scrape and 

rebuild′′ where I tear the facility down and I just completely rebuild it, or I go down to the concrete and four walls and put a new 

roof on it, put new air conditioners on it, put new interior walls, 

new plumbing, new electrical. So I have just about rebuilt the entire building, and yet I am only halfway through the life of the 39- 

1/2 years. So from an economic standpoint, I am sitting there still 

trying to figure out how to write off the rest of the building from 

the first round, and I am incurring just about as much in cost on 

the second round. So I hope that helps explain the scenario. 

Mr. CHABOT. Yes. Thank you. 

Mr. Shepherd, let me go to you next, if I can. You had, I think, 

concluded in your testimony by saying—and I quote, I believe—if 

given the opportunity, I would love to talk about the estate tax. So 

I would like to give you that opportunity. 

Mr. SHEPHERD. Thank you very much. For my company and 

many small businesses, we are privately held and we are an S corporation, so all the profit from our company flows through to the 

owners, and we pay taxes not on our salary but on the entire profit 

of the company. Every year, almost 50 percent of that income is 

taxed. And that will be so for my entire working life. 

I am fourth generation, as Mr. Chabot mentioned. I have a 

strong desire to pass along to my kids who are looking like they 

will be capable of handling this. When I die, depending on what the 

law is at the time, maybe 50 percent of the accumulated wealth 

will then be taxed again. So 50 percent on income throughout my 

life and then another 50 percent on the accumulation when I die. 

We, of course, are preparing for that. We expect it to happen. I 

would love for it to not happen because it is an incredible waste. 

Every year, my salary, which is typical for my position in the 

marketplace, is more than completely consumed by taxes on that 

salary and premiums to pay for life insurance that hopefully will 

be sufficient to pay the tax when I die. 

18 

And we also spend a fair amount of time just figuring out how 

to plan our estate for that transition, and a lot of money—I just 

paid an $8,000 check to a lawyer to help figure all this out. 

So how do my family and I live if all my salary is going elsewhere? We have to pull equity out of the company and that is equity that would otherwise be invested towards more chemists, more 

laboratory equipment, more capacity, any number of things. But 

my preference, as I stated, is that rather than an R&D tax credit, 

which I love by the way, because it offsets this stuff a bit, I would 

much rather just be able to keep the money that we make through 

hard work and manufacturing. We have proven that we are a good 

investment and I think we would be a good investment going forward. 

Mr. CHABOT. One quick follow-up question. When you said you 

could invest the money back in the company, would that perhaps 

allow the company to grow and potentially hire more employees as 

well, so other people are benefiting in the community? 

Mr. SHEPHERD. Yes. Let me elaborate on that. Twenty-five years 

ago, we had about 150 employees. Now we have about 450. We 

grow. 

Mr. CHABOT. Thank you very much. Madam Chair, rather than 

ask questions, I think I would like to defer to my colleagues. And 

if you are doing another round, I will come back and get these gentlemen the next round. Thank you, yield back. 

Chairwoman VELA ́ ZQUEZ. Ms. Hirono. 

Ms. HIRONO. Thank you, Madam Chair. I am particularly interested in the biodiesel industry and I visited with specific biodiesel—I hope they are members of your organization. 

Mr. FERACI. They are not members, but we deal with them. 

Ms. HIRONO. Good. They should become members, probably. And 

the great thing about biodiesel is that it uses products. And in the 

case of specific biodiesel, you use hotel and restaurant oil which 

otherwise would have to be disposed of with expense to those businesses. 

So, Madam Chair, I just wanted to mention to you that when I 

visited with them, that one of the first questions they asked is 

whether we were going to extend the biodiesel tax. And this was 

a real-life example of how the tax policies that we adopt here have 

an impact. And members of the industries, most of whom are small 

businesses as you mentioned, they pay attention to what we are 

doing. So thank you for that. 

And, Mr. Clements, I just also wanted to mention that this Committee has focused on the 15-year provision before, and so I want 

to thank you for coming and reiterating the importance of that 

time frame for restaurant renovations. 

Mr. CLEMENTS. We appreciate your work. Thank you very much. 

Ms. HIRONO. Thank you, Madam Chair. 

Chairwoman VELA ́ ZQUEZ. Mr. Gohmert. 

Mr. GOHMERT. Thank you, Madam Chair. And I really appreciate 

you having this hearing. I think this is terrific. I appreciate you all 

being here and the testimony. It is the kind of things people in 

Congress need to be reminded of, apparently, constantly. Apparently there is not a long-term memory here, and so we need that 

encouragement on a regular basis. 

19 

Mr. Shepherd, one of the last things you said is that if you had 

to pay tax twice on the same income, you said it would be, a quote, 

waste, unquote. And I would submit to you that it would only be 

a waste if you feel like you might happen to be able to spend 

money better than the wonderful people here in Washington. But 

otherwise, you know, somebody may need another monument to 

themselves up here or something like that. 

Chairwoman VELA ́ ZQUEZ. Bridge to nowhere. 

Mr. GOHMERT. We had a small business congressional delegation 

trip to China 3 years ago, and one of the things we did was talk 

to CEOs, people that had moved businesses to China. And I went 

with the impression—I am from East Texas. I went with the impression that probably they were just moving over there for cheap 

labor. And that was what we were told, a small part of the reason. 

But the driving force for most of them was the dramatic decrease 

in taxes. And that China was even flexible, if it was a big enough 

business, on negotiating income tax; and that when they looked at 

a corporate tax, half of what we have here in the U.S., and the advantages that they were able to have, even though they had better 

quality control in the United States, they like being in the United 

States, they just couldn’t turn down that kind of tax break. 

And then since I have been here, I have come to know John 

Bruton, who took over as Prime Minister in Ireland when they had 

one of the worst economies in the world. And now, as I understand 

it, they may be one of the top five fastest growing economies. And 

as best I can read and see, it sounds like the sole reason they 

turned that whole nation around from being one of the worst to one 

of the best as far as the economies was they dramatically dropped 

the business tax, and now businesses are moving in there, people 

have jobs again, the kids are not rushing to get out of Ireland. And 

then, of course, they turned things around there, they did, by dropping their taxes. And now the European Union has John Bruton 

as their Ambassador to the U.S. They wanted his input on how we 

turn Europe around, and now I understand that much of the European Union is looking at dropping taxes and following that lead. 

And we seem to be the only advanced Nation in the world that is 

talking about increasing our taxes instead of decreasing them. 

And as far as the discussion about the death tax, there have 

been some good points made about that. But I can’t forget this gentleman in my district in East Texas, he is a small business owner. 

They are in the timber business and they have a bunch of land. 

And they are land-rich and money-poor, but he approached me and 

he said, ′′You have got to do something about the death tax.′′ I am 

sure you are aware in 2010 there will be no death tax, right? 

Mr. SHEPHERD. For a moment. 

Mr. GOHMERT. For that year. And then in 2011, it kicks back to 

the 55 percent that basically—a socialist notion that the government needs half—over half of the estate that has been accumulated 

is by taxes having been paid on all of that. And he said, ′′My children are all grown. They are in the business, and they got together 

and hired an accountant who has advised them that if I die in 

2010, they keep all of the estate, but if I have the indecency to 

make it to January 1 of 2011, they are going to lose half of the estate. And they are kind of encouraging me that,′′ you know, not to 

20 

take care of himself. And he said, I am beginning to get a little 

worried if I make it to December of that year, if you guys in Washington haven’t done something— 

He was kind of kidding, but you could see there was concern in 

his eyes. 

So anyway, I appreciate, Madam Chair, your having this hearing. I think everybody in Washington needs to be reminded we are 

hurting our country by overly taxing the people that are providing 

the jobs. We thank you. 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Gohmert. 

Mr. Ellsworth. 

Mr. ELLSWORTH. Thank you, Madam Chair. 

I just made a note to myself, don’t build any monuments to myself, and if I build a bridge in Indiana, it should go somewhere. I 

also was going to give Mr. Shepherd a chance to elaborate. So 

thank you, Mr. Chabot. Mr. Kilduff, you are going to benefit from 

Mr. Chabot recognizing Mr. Shepherd. 

You said you would like to address the carried interest. Sometimes in Washington—as you know, we implemented PAYGO, and 

you caught that as a pay-for. Would you elaborate? I will give you 

my 5 minutes to elaborate on that unintended consequence. It is 

something that happens to us quite a bit up here, and obviously 

that is something we don’t like. But please elaborate on that. Help 

us understand better how that affects you. 

Mr. KILDUFF. Sure. I would love to. 

I think in my notes somewhere I have the exact year. I think it 

is 2006. The last numbers we have, somewhere near 50 percent, 

around 46 percent of all partnership tax returns that were filed in 

the United States were filed on real estate. And the typical form 

of ownership of real estate—and, frankly, my own company, my operating company, is an LLC, which is taxed as a partnership. 

When a small business developer puts together a project, like a 

shopping center project, you would go out and you would solicit the 

lease possibility from a food store. You would run the feasibility on 

the property. You would analyze all the costs. You would put all 

of that together, and then you would go to someone else as a capital partner, and you would say, look at what we have here. We 

have this opportunity to do this great project, and I am prepared 

to give you a significant portion of the ownership in it if you are 

prepared to risk your capital. 

And they would come back and say, well, we will pay you a small 

fee, which is taxed as ordinary income, for managing this project, 

and we will allow you to keep a carried interest. We don’t typically 

call it that. That is a financial term. In real estate we usually just 

call it just an ownership interest. But we will allow to you keep a 

carried interest in this project, and when it is ultimately sold or 

whatever, you will benefit for having put this whole thing together, 

for having used your ingenuity, for having risked everything you 

own, because every time I sign a loan at the bank, my home, my 

children’s education and everything is at risk, so I had better be 

right. 

But all I will earn in a project like that until they are paid back, 

until the project is successful and ultimately possibly until the 

project is sold is that small fee, which is taxed as ordinary income 

21 

on a regular basis. My entire interest in that project will be taxed 

as if I were a hedge fund operator, and that is a significant issue. 

And there are many, many more small partnerships and small 

projects in real estate investments in small companies like mine 

than there are hedge funds. And without beating up hedge funds, 

I just think there is a distinction there. And I don’t know that anybody intended to harm the entrepreneur’s efforts to put together a 

coalition of investors and partners to build something by taking 

away their incentive at the end of the day. 

Mr. ELLSWORTH. Thank you very much. 

Madam Chair, I would yield back. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Mr. Feraci, right now the United States can import biodiesel 

from another country, capture the tax incentive, and we ship that 

product to another country for their benefits. They call this practice 

splash and dash. Can you discuss this issue on what the biodiesel 

industry’s position is on such activity? And in what ways do you 

think we can stop these abuses to our Tax Code? 

Mr. FERACI. Sure. I would be happy to talk about it. 

You described what a splash and dash transaction is pretty accurately. What you have is a situation where you take finished biodiesel produced in a third country, say Argentina, and then it will 

come to the United States. It will be splash-blended with diesel 

fuel—because remember, that is the event that triggers a tax benefit—and then that fuel will ultimately be shipped to a third country for end use. 

Now, if you look at that, there is clearly no sort of energy or tax 

policy justification whatsoever for a transaction like that. And the 

National Biodiesel Board is vehemently opposed to splash and 

dash. We have been working for years to try to shut these sort of 

transactions down. I can tell you it was clearly unintended—no one 

foresaw this when the tax incentive was put in place in 2004 that 

this was going to happen. 

Now, the good news is H.R. 6049, the energy and tax extender 

package that passed the House prior to Memorial Day, as well as 

335, which is the Baucus-Reid bill, and the McConnell-Grassley 

substitute as well all address this in the same way. And what it 

says is that fuel produced outside the United States for use outside 

the United States will not qualify for the tax incentives. So if you 

think of how that transaction works, that would shut it down. And 

furthermore, the effective date in all three of those packages is 

May 15 of this year, which was the date of first committee action 

in the Ways and Means Committee when they marked it up. So we 

are fully supportive of that provision. We think it is a good provision. These sort of transactions need to end. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Mr. Berlinghieri, the investment tax credit, we know, is essential 

to the solar power industry. And the growth of solar power has 

formed new businesses that play a variety of roles in manufacturing and installation. Can you talk to us about how this technology has presented business opportunity for small businesses? 

Mr. BERLINGHIERI. Yes. In an effort to make solar power cost-effective and allow consumers to afford to buy solar power, and today 

it requires, I believe, tax incentives for consumers as well to be 

22 

able to do that, the processes that are used to make a more effective solar power are very similar to the semiconductor manufacturing processes. And so there is a number of companies that have 

either been in semiconductors only that have been able to enter 

into the solar market and design equipment that will help make 

those tools, which obviously are employing people, and then actually make solar panels, which are also employing people as well. 

So again, we are able to produce equipment for solar, for making 

solar panels. We are able to produce those. Unfortunately, without 

those incentives, it is likely that the control of that will be outside 

of the United States, which we already have issues with in terms 

of our fuels and other resources. 

Chairwoman VELA ́ ZQUEZ. So if the tax incentives are in place, do 

you have any projections in terms of numbers of jobs? 

Mr. BERLINGHIERI. Well, I had quoted the study that was done 

that at least over the next—I believe it was the next couple of 

years, that that could provide about 40,000 jobs if the incentives 

were in place so that the equipment companies and the producers 

of those panels, installers could be in the United States. That 

would be at stake as well as about an $8 billion capital investment. 

Chairwoman VELA ́ ZQUEZ. Yeah. Mr. Shepherd, as you know, our 

economy is becoming increasingly global. And as a result, investors 

are deciding between putting their capital in U.S. firms versus our 

foreign competitors. If the R&E credit is not extended, do you believe investors may be more likely to invest their money abroad? 

Mr. SHEPHERD. I am sure they will. That won’t be our incentive. 

We are going to follow our customers where it makes sense. We 

have a couple manufacturing facilities over in Europe. We bought 

them back in the 1990s when our customers were going global. We 

have a lot of business in China. For various reasons we have decided not to put a facility there. 

I am sure plenty of people will be influenced by the presence or 

absence of an R&D tax credit. I don’t think it is going to make any 

difference to us. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Now I recognize Mr. Chabot. 

Mr. CHABOT. Thank you, Madam Chair. 

Mr. Kilduff, I will come back to you now, if I can now. The redevelopment of idle urban retail centers, some of which are affected 

by brownfields, as you had mentioned, seems to be a key to revitalizing struggling neighborhoods. And I have some neighborhoods 

like that in my area in Cincinnati. Could you tell us how the expensing incentive has helped your company to undertake these new 

projects? 

Mr. KILDUFF. Well, the expensing provision helps because the 

brownfield and the cleanup costs are incurred at the very beginning of the project. They are a large unknown. In the real estate 

developing business, everything from the ground up is something 

that you have a pretty good handle on. You know what the building 

is going to cost because you can get estimates. You have engineers 

that can give you costs on many things. But the minute you put 

a shovel in the ground, or, in the case of an urban redevelopment, 

the minute you have to start taking a building down and you don’t 

know what is inside it, the risk factor goes up extraordinarily. And 

23 

so looking at a cleanup of a brownfield as an exercise and an additional cost to the project, not knowing how much it is going to cost, 

but knowing that if you have to incur that cost, at least you will 

be able to expense it and not have to depreciate it as if it were a 

part of the building over a long period of time significantly affects 

your go or no go decision because this is the front end. So many 

projects, you don’t even know they didn’t—you don’t even know 

they didn’t happen. You know, they just didn’t happen. You don’t 

know if anybody ever looked at them or not. 

Mr. CHABOT. Okay. Also the New Markets Tax Credit encourages 

private investment in underserved areas, and I also have a number 

of those areas in my district. We have worked with new markets 

and had things actually occur that wouldn’t otherwise have occurred. Could you discuss new market and how— 

Mr. KILDUFF. Sure. You know, I have been involved in the New 

Markets Tax Credits program for a long time in the sense that I 

was involved with two organizations, LISC and the Enterprise 

Foundation, when they originally were trying to come up with the 

program. It was originally—the concept was that it was going to be 

similar to the tax credit housing project type of thing where it was 

going to provide equity, and it was going to fill the gap. In many 

of these redevelopment projects, there is a significant gap between 

risk and return and the risk and return in some other project 

somewhere else that will attract the capital instead. So the New 

Market Tax Credit does serve that purpose, and it has worked with 

some effect. 

I will tell you that for many small developers, it has been challenging to use the program because it is complicated. And the allocation of the tax credits often go to banks, and those banks often 

have selected or elected to offer the value of that credit at slightly 

below the mortgage rate at the going time and retain most of that 

leverage or most of that additional gap-filling possibility for themselves. While we support the renewal of that program, I would also 

urge the Congress to looking at streamlining that program and 

making it more targeted toward the actual purpose that it was intended. 

Mr. CHABOT. Thank you. 

Mr. Berlinghieri, do you believe that the R&E credit would be 

more effective, especially for small firms, if it could be made permanent; you know, if we knew it was going to be in existence, we 

could count on it, depend on it? 

Mr. BERLINGHIERI. Yes, I would believe so. I think when we look 

at our businesses, and especially in the area of product development and R&D, the long-term commitment to activities are critical. 

Most products take multiple years to get to market from concept 

to release and design. So I think that that—that is critical to us. 

That is why we have asked for it to be extended beyond this annual type of activity to 8 years so that we can make a long-term 

investment and know that it is not going to dry up a year later. 

And so it does—our model and I think the members of SEMI who 

are doing R&D have a long-term commitment to R&D, and they 

need it in order to produce a product. It is not a 6-month activity. 

It is a multiple-year activity. 

Mr. CHABOT. Thank you. 

24 

And finally, Mr. Shepherd, we had talked about the death tax or 

the Federal estate tax earlier. I would like to give you one opportunity again to go on another issue. We talked just briefly about 

LIFO and the challenges, problems, et cetera. Could you tell us 

what LIFO is and what you think ought to be done about that? 

Mr. SHEPHERD. Certainly. Thank you. 

LIFO is a method by which profits are determined for purposes 

of tax. It stands for ′′last in, first out.′′ My business is very heavily 

raw material-intensive involving many commodities, and the prices 

on commodities change over time. Last in, first out says that when 

I determine my profit, I am looking at my most recent price on a 

raw material purchase rather than my most distant. The profit is 

calculated based on my replacement cost of that raw material rather than what I spent to buy the raw material several months ago. 

I understand there are discussions going on to eliminate the 

LIFO provision. That would be disastrous and I think it would be 

wrong-headed. We do a lot of business with a metal called cobalt, 

and included a chart with my written statement that shows the 

volatility in the price of cobalt. As you can see it is quite volatile. 

And if the price started at $10, and at the end of the year it is $20, 

the first in, first out method, which is what we would be looking 

at if LIFO went away, would assign profit to our company for the 

$10 per pound not the price of cobalt increased. That is not real 

profit and it is not money that we have available. We have invested 

all that so-called profit back into working capital for our company, 

to pay for the cobalt that is in our inventory. 

So if LIFO were eliminated, and we switched to FIFO, at the 

very time that we are cash-strapped because the price of cobalt has 

gone from $10 to $20, the government, under FIFO rules, would be 

looking for dramatically increased taxes. And then on the other 

hand, when the price of cobalt retreats from $20 back to $10, FIFO 

rules recognize negative profits (and therefore minimal taxes) at 

the very time the decrease in our inventory investment makes 

taxes more affordable. So it would create tremendous complexity in 

our cash management and great inefficiencies, because when it is 

time to invest, we wouldn’t have the cash, and at other times we 

would just be flush with cash. 

Mr. CHABOT. Okay. Thank you. 

I don’t want to open it up too much, but the other gentlemen 

here, do you all agree that also would be a significant problem in 

various other industries and something that we ought to be advised 

of and take into consideration in our tax policies? Is that a concern 

or—is there anybody that disagrees with that point of view? 

Mr. CLEMENTS. I want to speak as a CPA. He is absolutely correct in what he is saying. 

Chairwoman VELA ́ ZQUEZ. Would you please be brief since we are 

going to recess at 11:45? 

Mr. CLEMENTS. In my business it is not very significant because 

we have a small investment in inventory. I am sure he has got a 

significant investment. It is exactly like he said. 

Mr. SHEPHERD. One last comment. Right now, because over time 

the price of our raw materials have gone up more than they have 

come down, we have about a $40 million LIFO reserve. If suddenly 

that went away, and that $40 million was recognized as income, we 

25 

would have $20 million tax bill to pay. We don’t have that kind of 

cash hanging around. That could put us out of business. 

Mr. CHABOT. Thank you very much. Yield back. 

Chairwoman VELA ́ ZQUEZ. Ms. Clarke. 

Ms. CLARKE. Thank you, Madam Chair and Ranking Member 

Chabot. 

I am sorry, gentlemen, I didn’t get a chance to really hear as 

much of your testimony as I would have liked. I had another hearing simultaneously. But I did want to get here to ask some questions because I am concerned about the expiration of these tax 

credits. 

My first question is to Mr. Feraci and Mr. Shepherd. Due to a 

research and development tax credit expiring last year, thousands 

of jobs were at risk, according to the Information Technology Association of America. These jobs stimulate more spending, business 

growth, which creates even more jobs. Now many companies no 

longer can rely on this credit. How did this R&D tax credit impact 

your business in your industry? Can you tell us just briefly? 

Mr. FERACI. A lot of our members aren’t taking the R&E credits 

as much, but I can speak to the biodiesel tax incentive and the impact it is having. With the tax incentive, we are going to continue 

growing. We are going to continue creating jobs and adding+ to the 

overall economy. And we are going to continue being a part of our 

answer to our energy security issues, be part of answering the 

issues in terms of addressing climate change. 

Ms. CLARKE. Uh-huh. 

Mr. FERACI. If the tax incentive expires, because of the way we 

are structured, because of the impact it has in terms of being very 

fungible to make our fuel price competitive, those jobs are going to 

dry up. So a lapse would be pretty devastating to our industry. 

Ms. CLARKE. Mr. Shepherd. 

Mr. SHEPHERD. Yes. Thanks for the opportunity. 

I really can’t speak for our industry. I don’t intend to. 

As for our companies, the R&D tax credit is really not so big an 

amount of money that it drives much of anything. We are happy 

to get it. My real message here was taxes in general are very onerous, and if the way to reduce my taxes is to get an R&D tax credit, 

I am happy to have it. But really other taxes play a much bigger 

role. 

Ms. CLARKE. You think if it were made more meaningful in 

terms of how it impacts on your business—in other words, if it 

were to give you the type of cushioning you need to move forward 

with new innovation, it would be something desirable? 

Mr. SHEPHERD. We are a very innovative and technically driven 

company. If it were bigger and more meaningful, it would absolutely influence us. 

Ms. CLARKE. Mr. Kilduff, how has the New Markets Tax Credit 

been a powerful tool to spur small business development in low-income communities throughout the United States, from your perspective? And does this credit stimulate investments in businesses 

such as neighborhoods, retail stores and inner-city shopping centers? And would you agree that the New Markets Tax Credit has 

created jobs in economically distressed neighborhoods? If so, do you 

have evidence supporting that claim? 

26 

Mr. KILDUFF. Yes, ma’am. Actually that is an area that I participated in, not exclusively, but a great deal of my business is in underserved markets. There is always an equity gap in an underserved market project. There is a gap between the potential return 

and the costs based on the opportunity to do things in other markets would be easier. And New Market Tax Credits, brownfield expensing—brownfield tax credits, if we could get a bill passed to do 

that, those things all add tools to the chest to allow us to even consider those projects. They have worked significantly. The tax credit 

program is a little cumbersome, and I would urge some review of 

how those credits are allocated to the organizations that pass them 

out, but it is significant. It is significant. 

Ms. CLARKE. And then just in closing, Mr. Shepherd, do you believe that there should be a repeal of the deduction for expenses 

related to domestic energy production under the American Jobs 

Creation Act of 2004? 

Mr. SHEPHERD. I don’t know. I am not very familiar with the 

American Jobs Creation Act. 

Ms. CLARKE. Okay. Madam Chair, thank you very much. 

Chairwoman VELA ́ ZQUEZ. Mr. Akin? 

Mr. AKIN. I am sorry that I haven’t had a chance to join you because we have multiple committees at the same time. But I did 

note yesterday—I guess it was yesterday’s Wall Street Journal that 

they were saying something about a tremendous oversupply of strip 

malls and malls in general, everything like that. Does that mean 

that we don’t need the tax credits, we have already overbuilt? Or 

what do you think about that? 

Mr. KILDUFF. You know, my dear friend Gar Herring was quoted 

in that article. And we are going to have a talk, he and I. I am 

not so sure that everybody would agree with the entire article in 

terms of the overbuilding. 

I think, having been in the real estate business as long as I have, 

since before the 1986 tax change, and watched capital structures 

change, I think retail is suffering some of the consequences of 

weakness in other parts of the economy. But frankly, we are much 

better as an industry now about building things that are preleased 

and building things that are necessary at the time and are substantially reviewed. That does not mean, though, that if everybody 

starts losing their homes, and other businesses start closing, and 

people stop shopping, that it is not going to look like we have too 

much retail, or that some retailers aren’t then going to have to retrench, close doors, potentially even declare bankruptcy, which 

then fulfills that cycle and puts us in that position. I would submit 

to you that it is not quite like that. 

Having said all that, even through all of these endeavors in what 

is primarily a suburban development business that has taken place 

in the last 10 years, many of the projects in the urban markets still 

haven’t been done, and they haven’t been done in part because 

those were easier to do. And the reason they are easier to do is because when you measure them under the same time frame and 

same parameters as those urban deals, the suburban deals always 

came out on top. So things that could be used to help manage that 

and put the projects where many people are living, which have 

been abandoned for some 30, 40 years, could be of significant value. 

27 

Mr. AKIN. Thank you for answering that question. It does obviously depend on your assumptions and parameters and where the 

economy is going and all that. 

One other quick question. I don’t know that this was something 

that you had addressed specifically or not. As a guy who has been 

here now 8 years, when we did the dividend capital gains tax cut, 

which was politically a pretty unpopular thing to do, it appeared 

that almost immediately after that there were three charts that I 

have in my office and there was a tremendous effect on the economy. 

The first thing was we were running at losing about 140,000 jobs 

a month rate. And almost instantaneously, first quarter of 2003, 

when we did dividends capital gains, we turned around and saw a 

fairly steady increase in jobs, at about 160,000 jobs gained per 

month. Very big turnaround. 

The gross domestic product had been very erratic, up and down, 

for the first number of the—because I came in with the President, 

so the 2001, 2002 were very up and down for quarterly gross domestic product. That jumped up about—from about 1.4 average, 

but it was erratic, to about up into the fours. 

And the third thing was that government revenues also jumped 

up significantly. Even though we did a tax cut, the result was you 

had enough business stimulation from dividends capital gains apparently that you had a tremendous increase in Federal revenues. 

Now, I am making the assumption that there was a causal relationship between the dividends capital gains tax cut and what happened to the economy. That may or may not be true. 

Is it your opinion that that tax cut is very important to business 

in general, or do you think there is other tax cuts you think are 

far more valuable? 

Mr. KILDUFF. Well, in my business as a real estate developer, it 

is probably the single most important thing that we look at in 

terms of whether we build something, how long we hold it, what 

we do with it, how we structure the capital. So capital gains taxes 

would be significant for us, and increases there would be more devastating than many other things. 

The capital—the carried interest issue is also of significant importance for that very same reason, because most mall developers 

own things that they don’t profit from until it is ultimately sold at 

the end of the day because everybody else has to be paid back first. 

We are in the risk position. So those things combined could be devastating to small businesses. 

Mr. AKIN. Other members of the panel, is that an important tax 

cut, dividends capital gains, relative to your businesses? 

Mr. BERLINGHIERI. Well, I think the way I would comment on it 

is we are expected to make a significant return on investments that 

we make. When I get a personal tax cut, I probably get a one-forone return, and sometimes I may not even do that. But as a responsibility for our business, I have got to make a bigger return on 

it. So I think that investment does look for a larger return that creates more jobs and a healthier economy. So I absolutely believe 

that is the case. 

Mr. AKIN. Okay. 

28 

Mr. SHEPHERD. I would just say that anything that reduces the 

capital gains tax helps markets be more efficient, which allows 

money to go towards the best opportunity rather than being constrained by some artificial barrier. 

Mr. AKIN. So you are saying the dividend capital gains tax cut, 

from your point of view, is very important to the strength of the 

economy? 

Mr. SHEPHERD. I think it is very important. I think it should be 

cut further. 

Mr. AKIN. Okay. Thank you, Madam Chair. I would vote for that, 

too, by the way. 

Chairwoman VELA ́ ZQUEZ. Unfortunately we don’t live in the perfect world, right? Okay. 

Mr. CHABOT. We are trying to make it such, though. 

Chairwoman VELA ́ ZQUEZ. Well, you have tried for 12 years. 

Okay. 

Thank you so very much for your insights and great discussion 

that we had in this hearing. Let me just say that as the 110th Congress comes to an end, this Committee will continue to work with 

the leadership and our colleagues in the Ways and Means Committee to make sure that some of these extenders are signed into 

law, are passed. Some of these provisions have already passed the 

House. So we need to get the Senate to act. And we will continue 

to highlight with our leadership the important consequences of 

these tax extenders when it comes to small businesses in this country. 

Thank you very much. And with that, I ask unanimous consent 

that Members will have 5 days to submit a statement and supporting materials for the record. Without objection, so ordered. 

Chairwoman VELA ́ ZQUEZ. This hearing is now adjourned. 

[Whereupon, at 11:35 a.m., the committee was adjourned.] 

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