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S. HRG. 111–1171 

ASSESSING THE REGULATORY 

AND ADMINISTRATIVE BURDENS ON AMERICA’S 

SMALL BUSINESSES 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS AND 

ENTREPRENEURSHIP 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

NOVEMBER 18, 2010 

Printed for the Committee on Small Business and Entrepreneurship 

( 

Available via the World Wide Web: http://www.fdsys.gov 
(II) 

COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP 

ONE HUNDRED ELEVENTH CONGRESS 

MARY L. LANDRIEU, Louisiana, Chair 

OLYMPIA J. SNOWE, Maine, Ranking Member 

JOHN F. KERRY, Massachusetts 

CARL LEVIN, Michigan 

TOM HARKIN, Iowa 

JOSEPH I. LIEBERMAN, Connecticut 

MARIA CANTWELL, Washington 

EVAN BAYH, Indiana 

MARK L. PRYOR, Arkansas 

BENJAMIN L. CARDIN, Maryland 

JEANNE SHAHEEN, New Hampshire 

KAY R. HAGAN, North Carolina 

CHRISTOPHER S. BOND, Missouri 

DAVID VITTER, Louisiana 

JOHN THUNE, South Dakota 

MICHAEL B. ENZI, Wyoming 

JOHNNY ISAKSON, Georgia 

ROGER F. WICKER, Mississippi 

JAMES E. RISCH, Idaho 

DONALD R. CRAVINS, JR., Democratic Staff Director and Chief Counsel 

WALLACE K. HSUEH, Republican Staff Director 
(III) 

C O N T E N T S 

OPENING STATEMENTS

Page 

Landrieu, Hon. Mary L., Chair, and a U.S. Senator from Louisiana .................. 1 

Snowe, Hon. Olympia J., a U.S. Senator from Maine .......................................... 3 

Hagan, Hon. Kay R., a U.S. Senator from North Carolina .................................. 7 

Shaheen, Hon. Jeanne, a U.S. Senator from New Hampshire ............................ 7 

Pryor, Hon. Mark L., a U.S. Senator from Arkansas ........................................... 8 

WITNESSES

Panel 1 

Sargeant, Hon. Winslow, Chief Counsel for Advocacy, U.S. Small Business 

Administration ..................................................................................................... 8 

White, James R., Director, Tax Issues, U.S. Government Accountability Office ......................................................................................................................... 18 

Panel 2 

Harris, Roger, President and COO, Padgett Business Services/SmallBizPros, 

Inc. ......................................................................................................................... 54 

Nannis, Lawrence S., CPA, Chair, National Small Business Association .......... 63 

Langer, Andrew, President, The Institute for Liberty ......................................... 76 

Gattuso, James, Senior Research Fellow, Regulatory Policy, The Heritage 

Foundation ............................................................................................................ 97 

ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED

Gattuso, James 

Testimony .......................................................................................................... 97 

Prepared statement .......................................................................................... 99 

Hagan, Hon. Kay R. 

Opening statement ........................................................................................... 7 

Harris, Roger 

Testimony .......................................................................................................... 54 

Prepared statement .......................................................................................... 57 

Landrieu, Hon. Mary L. 

Opening statement ........................................................................................... 1 

Langer, Andrew 

Testimony .......................................................................................................... 76 

Prepared statement .......................................................................................... 79 

Nannis, Lawrence S. 

Testimony .......................................................................................................... 63 

Prepared statement .......................................................................................... 66 

Pryor, Hon. Mark L. 

Opening statement ........................................................................................... 8 

Sargeant, Hon. Winslow 

Testimony .......................................................................................................... 8 

Prepared statement .......................................................................................... 10 

Shaheen, Hon. Jeanne 

Opening statement ........................................................................................... 7 

Snowe, Hon. Olympia 

Opening statement ........................................................................................... 3 

White, James R. 

Testimony .......................................................................................................... 18 
Page

IV 

—Continued 

Prepared statement .......................................................................................... 20 
(1) 

ASSESSING THE REGULATORY AND ADMINISTRATIVE BURDENS ON AMERICA’S SMALL 

BUSINESSES 

THURSDAY, NOVEMBER 18, 2010 

UNITED STATES SENATE, 

COMMITTEE ON SMALL BUSINESS

AND ENTREPRENEURSHIP, 

Washington, DC. 

The committee met, pursuant to notice, at 10:05 a.m., in Room 

428A, Russell Senate Office Building, Hon. Mary L. Landrieu, 

Chairman of the Committee, presiding. 

Present: Senators Landrieu, Pryor, Shaheen, Hagan, Snowe, and 

Risch. 

Staff Present: David Gillers, Chris Lucas, and Matt Walker. 

OPENING STATEMENT OF HON. MARY L. LANDRIEU, CHAIR, 

AND A U.S. SENATOR FROM LOUISIANA 

Chair LANDRIEU. Good morning, everyone, and welcome to our 

hearing on Regulatory and Administrative Burdens on America’s 

Small Business. The Small Business Meeting will come to order. 

To begin, let me say that I want to be very clear that the intention of holding this hearing is not to attack the Americans With 

Disabilities Act and I want to thank you all for being here. I want 

to apologize that it was singled out among all the Acts of the Federal Government, it was not brought to my attention until a few 

minutes go, but I appreciate you all being here. 

This hearing is about general rules and regulations of which 

yours may be one of hundreds that can, you know, unnecessarily, 

sometimes, affect the operations of very small businesses in our 

country. So, that is what our committee is examining today, and 

I want to thank you all for being here. 

I also want to say that this hearing is about identifying the obstacles that small businesses face in complying with federal rules 

in their day-to-day operations and working to find meaningful alternatives or ways that agency rules can achieve their intended 

purposes, many of which are for the public good, and all of which 

have the intention of being for the public good, while mitigating the 

economic harm to small business. 

Nearly two months ago, Congress passed the Small Business 

Jobs Act of 2010. This committee led that effort, and it provides 

much needed relief to small businesses through the SBA lending 

programs, provides immediate tax cuts, up to $12 billion for small 

business in America, and establishes strategic partnerships with 
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community banks, a first of its kind innovative approach to provide 

greater access to capital for small firms everywhere, and we understand that it is working as those rules are being put into place as 

we speak. 

With that being said, our nation’s smallest entrepreneurs are 

still facing significant obstacles when they try to grow their business. Our job here is not done, it is only beginning, and I am committed, and the members, at least on the Democratic side and I 

hope the Republican side as well, to reducing unnecessary administrative and regulatory burdens that small businesses face every 

day in their fight to get our economy back on track. That is why 

this past Monday I cosponsored the Bipartisan Small Business Paperwork Relief Act, which Finance Committee Chairman Max Baucus is leading, a bill that repeals the expanded Form 1099 requirement put into effect by the healthcare reform legislation signed 

into law last year. 

For months I have heard from small businesses all over the 

country that the expanded Form 1099 reporting requirements just 

did not make sense and would unreasonably burden small business. We have responded, we are going to try to repeal that piece 

of the healthcare law which will not affect healthcare policy at all, 

which is important, it will just affect the way the money is raised 

to pay for that policy, and that was the wrong thing to do, as I 

have said, and I am glad we will have a chance to change it. 

As it is now according to the testimony we will hear today, the 

cost of tax compliance for small business is over 300 percent greater per employee than the cost to large companies. Just yesterday 

in this room we had a roundtable with banks from around the 

country. We had a banker, Steve David sitting in that third chair, 

from New Roads, a small town in Louisiana, only $150 million 

bank. He said that his FDIC insurance had gone up over 300 percent just in the last couple of years. I am going to submit the actual dollar amount for the record, but it is just unconscionable that 

fees and administrative burdens for small businesses have gone up 

so substantially, not just in the last several years, but it has been 

a trend now over a decade or more. 

There was a report released just last week, the Crain Report, I 

am going to get a copy of it in a minute, I hope that Mr. Sargeant, 

Dr. Sargeant, you will be speaking on that this morning and also 

Mr. White, that goes into greater detail about the administrative 

burdens on small business and we are looking forward to hearing 

some of that testimony today. 

Today’s hearing is the next step in a process that will serve to 

build a solid record of current regulatory obstacles small businesses 

face. This way we can tailor smart solutions that will maximize the 

public benefit, while streamlining unnecessary requirements on our 

nation’s small businesses. We know these regulatory hurtles translate into real cost for them. Without question, federal, administrative, and regulatory burden on businesses large and small continue 

to grow every year. 

According to a recent report, which is the one that I have called 

your attention to, regulations in the United States have increased 

more than—to $1.75 trillion. If you broke that down by cost per 

U.S. household, each family would be responsible for more than 
3 

$15,000 of the annual cost. However, the distribution of these regulatory costs is uneven and will disproportionately affect small business. Advocacy, which is the office before us today, estimates that 

the average per business was approximately $8,000 per employee 

in 2008. 

Think about that, people stand up and cheer around here if we can find $1,000 tax cut per employee. I mean, would not that be 

extraordinary to provide a $1,000 tax cut per employee? But on the 

same time, our combination of rules and regulations is basically attaching to each employee an $8,000 burden. If we could life $500 

of that or $600 of that or $1,000 of that, it would be cause for real 

celebration in this nation. 

The regulatory cost, as I said, per employee for small business was $10,585 compared to $7,454 for medium-sized firms, and 

$7,755 for large firms. There is a chart that breaks that down and 

I think it is important to understand the burden that is falling disproportionately on small business, and the opportunity to continue, 

I think, to meet the goals of all of our agencies, whether it is 

Health or Labor or OSHA or other agencies without being disproportionately heavy to the smallest and sometimes newest businesses, that if we give them a chance to get started, would be more 

than happy and more than able to comply with the rules and regulations that we are requiring of them. 

When Federal Government regulations do not account for the 

unique challenges that small business owners, and I should say entrepreneurial start-up companies, are facing, I think we all suffer. 

Small businesses employ approximately 50 percent of the U.S. 

workforce, but the start-up businesses, the new businesses, are 

what is going to account for the jobs created to end this recession. 

So, we want to make their load as light as possible, not heavy, 

light, so that they can be nimble and agile and be created and 

grow, and that is to our benefit. 

Today we will hear from our Chief Regulatory Relief Officer. 

That is what this office is. It is referred to today as the Office of 

Advocacy. The name does not exactly imply what it is. Your job, as 

you know Dr. Sargeant, is to advocate for regulatory relief to small 

businesses, it was why this office was created some years ago, its 

primary mission for existing, and we are looking forward to some 

of your either suggestions or observations today. 

And Mr. White, we are happy that you are here from the Government Accounting Administrative Office that is done reports, the 

GAO, on this subject, any number of reports. We are looking forward to some of your observations today. 

Before we get to our panel I would like to turn it over to my 

Ranking Member for her opening statements and thank her for 

joining me today—— 

Senator SNOWE. Thank you, Chair Landrieu. 

Chair LANDRIEU [continuing]. For this very important hearing 

and recognize that Senator Kay Hagan is with us as well. 

OPENING STATEMENT OF HON. OLYMPIA J. SNOWE, A U.S. 

SENATOR FROM MAINE 

Senator SNOWE. Thank you, Chair Landrieu. And you are absolutely right, it is a critical issue and I want to commend you for 
4 

holding this hearing because without a doubt, undeniably, the regulatory burden is disproportionate on small businesses throughout 

this country and it is inhibiting job creation potential and undermining their ability to compete. 

I welcome our witnesses here today, most especially Dr. 

Sargeant, for joining us in his first appearance before this committee since becoming Chief Counsel for the Small Business Administration’s Office of Advocacy, and Mr. White, thank you as well 

from GAO for providing such invaluable data as we make decisions 

in some of these critical issues and what we need to do in the future. 

I do not know how to say it any clearer: excessive regulations are 

suffocating the entrepreneurial spirit of America’s almost 30 million small businesses. The Heritage Foundation, I know, will be citing chapter and verse the number of regulations that will be promulgated, the 43 new major regulations that will be implemented 

in Fiscal Year 2010, imposing $26.5 billion in new regulatory compliance costs, and that is in addition, as Chair Landrieu indicated, 

to the $1.75 trillion in annual regulatory compliance costs that the 

Office of Advocacy recently reported. 

This is a regulatory rampage stampeding over small businesses. 

So, Dr. Sargeant, as the Chief Counsel for Advocacy, you are the 

singular person within the entire Federal Government whose primary statutory mission is to ensure that small business economic 

impact is considered during the federal rulemaking process. As you 

well know, I and some of my colleagues here, had concerns about 

your nomination and subsequent recess appointment largely due to 

the fact that you failed to identify reducing the small business regulatory burden and administering the Regulatory Flexibility Act as 

the central mission of your office. 

I sincerely hope that you will prove us wrong, Dr. Sargeant, because we expect you, as a chief counsel, not just to be a regulatory 

watchdog, but to be a bulldog for small business, driving small 

business regulatory reform issues within the highest levels and 

standing up against other agencies during the rulemaking process. 

You must act independently from the Administration and the SBA 

and match, and even exceed, the $11 billion in annual regulatory 

compliance savings the Office of Advocacy achieved under the last 

chief counsel. This is not a suggestion, it is a fundamental obligation. 

In my leadership capacity on this committee I have long been 

concerned about the mounting regulatory burden that the Federal 

Government is imposing on American business. Regrettably, small 

firms with fewer than 20 employees, and the Chair has already 

mentioned this, has born the disproportionate burden of complying 

with federal regulations with the annual regulatory costs exceeding 

$10,585 per employee for those firms with less than 20 employees. 

Those daunting figures are from 2008, as a matter of fact, so imagine where we stand today. Consider that according to the U.S. 

Chamber of Commerce, health reform alone mandates 41 separate 

rulemakings, at least 100 additional regulatory guidance documents and 129 reports. 

So, we should waste no time in cutting the regulatory red tape 

that is strangulating America’s small businesses, they are hidden 
5 

taxes, another layer of uncertainty to bottom line operating costs 

and is stifling job creation, hampering innovation, and postponing 

investment in the economy. 

In my numerous, recent street tours and meetings in Maine, 

aside from taxes, small businesses complained the most about onerous regulations emanating from every agency, every sphere of 

Washington, D.C. So, Dr. Sargeant, it is absolutely critical that you 

take immediate action to appoint your ten regional advocates who 

will be your eyes and ears on the street as to what issues are most 

pressing to small firms, and I would like to discuss that with you 

further in the question and answer period as to why that has not 

happened. 

It is absolutely critical to help you in performing the mission of 

your office. That is why earlier this year I joined my good friend 

and colleague on this committee, Senator Pryor, to introduce the 

Job Impact Analysis Act, and am pleased that several of those provisions were included in the recent jobs bill. It is absolutely vital 

that we take this step forward. I hope that you take full advantage 

of the additional influence this provision provides by setting a 

record for comments filed by the Chief Counsel for Advocacy. 

There is much more that Congress can and must do. I will continue to advocate for an aggressive regulatory reform agenda that 

requires the Federal Government to fully consider small business 

economic impact during the rulemaking process. For instance, it is 

about time that we in Congress receive job impact statements from 

the nonpartisan CBO that estimates potential job creation and job 

loss from regulatory requirements and major legislation. 

It is long overdue that we require the Federal Government to finally consider the indirect economic costs in addition to direct economic costs of Federal rules and regulations. And agencies must 

periodically review their existing regulations for small business impact so that agencies unnecessary and duplicative regulations can 

be stricken, and there has to be more than a few of those in the 

more than 163,000 pages of the Federal Code. 

Finally, I added a requirement to the Wall Street Reform Bill 

that before the new Consumer Financial Protection Bureau can 

even publish a rule, it must convene a small business panel to 

scrutinize it. Dr. Sargeant, I appreciate that your office will be 

holding a stakeholders’ panel this afternoon on the small business 

review panels. I expect Advocacy to play a driving role in establishing them within this bureau. 

Those panels have worked exceptionally well at EPA and OSHA 

since 1996, so why not apply this requirement to every federal 

agency so small businesses are considered first, not as an afterthought, and it is a very critical point because I know that in my 

battle to get this done within the Financial Regulatory Reform Bill, 

there was one issue, everybody was saying, ‘‘well, you know, let the 

rules, take effect, and then if they are a problem we will fix it 

later.’’ Well, no, no, no. Not in this economy. Not now. Not for small 

businesses. 

We need to have small business effects fully examined before 

rules are ever promulgated, so that is why we have panels at 

OSHA, EPA, and now at the Consumer Financial Protection Bureau. Frankly, we should have panels at every agency. 
6 

The same is true on the 1099 issue, I know we will have further 

discussions, so I will not get into details in my opening statement, 

but I do believe you need to be front and center on this issue. I 

must have heard it 1,000 times on my street tours, small businesses are extremely concerned about the implications and the effects of the 1099 requirement and on their ability to comply with 

it. 

It is going to be extremely onerous, without question, in addition 

to everything else that is coming their way from every other agency. So, I would hope that you would be front and center of that and 

I think frankly, more than just having confidential or private conversations with the IRS and Treasury, I think you should submit 

public comments on this very question to the Department, because 

it is vital. It is that crucial to the well being of small businesses 

throughout this country. 

Finally, I am deeply troubled by OSHA’s several recent actions 

that could undermine the collaborative approach to enforcement 

that has worked so well since the Clinton Administration. OSHA 

recently boosted penalties and reduced the penalty mitigation 

structure for small firms with fewer than 25 workers without first 

convening a small business review panel to consider the economic 

impact, and that is why earlier this week I joined Senator Enzi, the 

Ranking Member of the HELP Committee, in sending an oversight 

letter to the Labor Secretary probing OSHA’s action and commitment to a collaborative approach that has always been the case. It 

concerns me that OSHA is undermining the cooperative relationship by taking these steps that are going to be additionally onerous 

to small business, not only increasing their penalties, but reducing 

the mitigation of penalties that have been in current law. 

So, with that, Madam Chair, I will submit the rest of my statement but there is a lot to discuss, obviously, with respect to these 

issues. Thank you. 

Chair LANDRIEU. Thank you. I really appreciate the leadership 

over many years of the ranking member. I would point out, and I 

am sure she is aware, that the regulatory burden of the United 

States could not possibly be the fault of Dr. Sargeant who just took 

office three months ago. Having said that, the rampage started 

prior to this Administration coming in, might have picked up a little bit of speed, but it started a long time ago and so I think in 

fairness to the witness who has just been in his job about three 

months. 

Senator Hagan. 

Senator SNOWE. Can I just make a point? 

Chair LANDRIEU. Go ahead. 

Senator SNOWE. Madam Chair, I was not suggesting that it was 

his fault. We have passed legislation that includes all that rulemaking. That is the point. Hopefully Dr. Sargeant will be an advocate to address many of these issues as they come along, because 

so many rules are coming down as a result of legislative enactment 

that will really pose a significant burden. 

Chair LANDRIEU. Thank you. 

Senator SNOWE. So, that is why he is going to have an enormous 

responsibility to address all those issues as they come to the fore-
7 

front, because of the magnitude and dimension and breadth of all 

these regulations. 

Chair LANDRIEU. Thank you, Senator Hagan. 

OPENING STATEMENT OF HON. KAY R. HAGAN, A U.S. 

SENATOR FROM NORTH CAROLINA 

Senator HAGAN. I just wanted to say thank you, Chairman 

Landrieu, for calling this hearing and to members of both of the 

panels joining us to discuss the regulatory burdens on small business. We have got to do something about this. I know I am not 

alone when I say that jobs are my number one priority and the key 

to a true economic recovery is enabling our nation’s small businesses to expand and create jobs. 

In North Carolina, too many small businesses are still struggling 

to make payroll, families are struggling to put food on the table 

and pay bills, and also, like Senator Snowe, having spent the past 

year and a half talking to small businesses and owners in every 

corner of the state, I have seen first hand the power of their determination and innovation, and what is clear to me is that North 

Carolina’s small business owners want a fair shot to compete and 

to get back to work, and to help them do so, we have got to work 

to create a better environment for businesses to grow these jobs, 

and that is why it was so important that we pass the Small Business Jobs Act in September, which included critical provisions to 

get capital flowing to small businesses and to support the SBA’s 

ability to support the small businesses and the lending nationwide. 

Finally, it is why I think today’s hearing is so important. As the 

witnesses have highlighted, small businesses often face a disproportionate regulatory burden and the 1099 regulatory requirement that I know we will be discussing today, is a perfect example 

of an unintentional consequence of legislation that truly presents 

significant challenges for small business, and I am committed to 

working with my colleagues to protect small business owners from 

this burden before it goes into effect in 2012, and at this point, 

every job is critical and it is essential that we ensure that our 

small businesses do not have to decide between hiring a new employee and complying with local, state, and federal regulations that 

present an undue burden. 

So, Madam Chairman, thank you for holding this hearing and I 

look forward to the witnesses testimony. 

Chair LANDRIEU. Thank you. 

Senator Shaheen. 

OPENING STATEMENT OF HON. JEANNE SHAHEEN, A U.S. 

SENATOR FROM NEW HAMPSHIRE 

Senator SHAHEEN. I just want to thank you and the ranking 

member for holding the hearing this morning, and I look forward 

to hearing from our panelists. 

Chair LANDRIEU. Senator Pryor. 
8 

OPENING STATEMENT OF HON. MARK L. PRYOR, A U.S. 

SENATOR FROM ARKANSAS 

Senator PRYOR. Thank you, Madam Chairman. Thank you for 

having this hearing and ranking member, Snowe, thank you for 

your leadership on small business issues as well. 

We all know that small business is the driving force in our economy so this important hearing, I am glad we are having it, and 

look forward to hearing from the witnesses. Thank you. 

Chair LANDRIEU. Thank you. Dr. Sargeant, why do not you begin 

and let me just give you a very brief introduction. I know you are 

well known to this committee but to those that are observing. Dr. 

Sargeant, this past August, was appointed Chief Counsel of the Office of Advocacy by President Obama. He comes from an entrepreneurial background himself, previously working as program manager in electronics for the National Science Foundation’s Small 

Business Innovative Research Program, and has been a cofounder 

of a semiconductor circuit design company. 

I want to thank you for asking me to speak at the 30th Annual 

Regulatory Flexibility Conference that was here last September. I 

enjoyed meeting many of the members that were in attendance and 

as a result of that will be having a lunch with the former advocates 

and yourself later today to talk with them, both those that have 

served in Republican and Democratic administrations to get some 

good ideas from them. 

Next, I want to welcome Mr. James White from the U.S. Government Accountability Office. Mr. White is the Director of Tax Issues 

with the GAO and has held that position since 1998. Previously he 

was an associate professor at Hamilton College where he taught 

public finance. We welcome you, Jim, this morning. 

Let us start with Dr. Sargeant. 

STATEMENT OF HON. WINSLOW SARGEANT, Ph.D., CHIEF 

COUNSEL FOR ADVOCACY, U.S. SMALL BUSINESS ADMINISTRATION 

Mr. SARGEANT. Chair Landrieu, Ranking Member Snowe, members of the committee, good morning and thank you for the opportunity to appear before you today. I am Winslow Sargeant, Chief 

Counsel for Advocacy at the U.S. Small Business Administration. 

In the interest of time I will summarize my prepared testimony 

and ask that my full statement be included in the record. 

The Office of Advocacy is an independent office within SBA. The 

views and my testimony do not necessarily reflect the views of the 

Administration or the SBA, this statement was not cleared by the 

Office of Management and Budget. 

As Chief Counsel for Advocacy, it is my top priority to ensure 

that small businesses are not unfairly burdened by regulations. My 

office does this in large part through monitoring federal agencies’ 

compliance with the Regulatory Flexibility Act, that is why I am 

honored to be here today. 

I have been on the job for almost three months and Advocacy has 

been very busy during that time. Advocacy held a symposium celebrating the 30th anniversary of the passage of the RFA. I would 

like to personally thank Chair Landrieu for her participation. Advocacy also hosted a symposium on job creation by high impact 
9 

firms. We have held nine small business roundtables on issues including the environment, transportation, labor, safety, and health, 

and tax. One of those roundtables covered the expanded Form 1099 

reporting requirement. 

During my short time at Advocacy, I have signed 13 public regulatory comment letters including ones in environmental, education, 

and medical privacy and Medicare rules. At the recent RFA symposium, we released a new study authored by Dr. Mark Crain on the 

cost of federal regulatory burden on small businesses. Dr. Crain 

found that the total regulatory burden on small firms is larger 

than ever. As indicated on this chart, the smallest business, those 

with fewer than 20 employees, pay $10,585 per employee, on average, to comply with federal regulations. The federal regulatory burden is 36 percent greater on these small firms than on their large 

counterpart creating a staggering competitive disadvantage. 

Compliance with IRS tax regulations is one area where small 

business is at a severe cost disadvantage to large firms. The Crain 

study also found that the cost to small businesses of tax compliance 

is over 300 percent greater per employee than the cost to large 

companies. In September, Advocacy held a roundtable on the IRS 

Form 1099 expanded reporting requirement where we heard directly from over 30 small business owners and representatives. 

Participants spoke to the significant paperwork burden of the requirement as well as the internal data controls that would need to 

be implemented. The small business owners and representatives 

called for a legislative fix. 

Advocacy commends Senator Baucus, Senator Landrieu, and 

Senator Shaheen, on the introduction of the Small Business Paperwork Relief Act that would repeal the expanded Form 1099 reporting requirement. 

As Chief Counsel for Advocacy, I fully support the repeal of this 

reporting requirement. 

Small businesses are also greatly concerned about the impact of 

regulations in the environmental area. Advocacy is currently working closely on EPA’s Small Business Advocacy Review panels, on 

wood heaters, stone mortar discharge, and emissions from small 

electric utilities. An additional area I am focused on is the newly 

created Consumer Financial Protection Bureau, CFPB. We are 

working to help the bureau build compliance with the RFA, and especially the SBREFA panel process. 

I met earlier this week with the leadership of the CFPB to discuss implementation of the SBREFA panel process into their rulemaking plans. This afternoon, Advocacy will host a roundtable that 

will bring together small businesses from the banking and finance 

sector to discuss the SBREFA process at this new agency. 

I commend this committee on your commitment to my office and 

reducing the regulatory burden on small businesses. Addressing 

these concerns will help foster an atmosphere of certainty and fairness for small business, allowing America’s greatest engine of economic growth and job creation to drive our economy forward. 

I look forward to continue to closely with you. I would be happy 

to answer any questions you might have. 

[The prepared statement of Mr. Sargeant follows:] 
10 
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Chair LANDRIEU. Thank you so much. 

Mr. White. 

STATEMENT OF JAMES R. WHITE, DIRECTOR, TAX ISSUES, U.S. 

GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. WHITE. Madam Chair and members of the committee, I am 

pleased to be here to discuss the burden on small businesses of filing third party information returns with IRS about certain payments they make. The payments are labeled miscellaneous income 

and reported on Form 1099 MISC. You can see the form on page 

four of my statement. 

As the form shows, there are many categories of miscellaneous 

income, most relevant for today is non-employee compensation in 

box seven where businesses must currently report payments over 

$600 for services provided by contractors who are not incorporated. 

The Patient Protection and Affordable Care Act expands this reporting to include both payments to corporations and payments for 

goods. IRS uses third party reporting of payments to verify that the 

payment recipients include them on their tax returns. 

I want to make three points. First, third party information is a 

powerful tool for ensuring taxpayers pay the tax they owe. Second, 

reporting such information imposes a cost on the third parties. 

Third, options are available to Congress and IRS that could mitigate those costs. 

Regarding the benefits, third party information reporting increases voluntary tax compliance because taxpayers know that IRS 

knows their income. The process is shown on page six of my statement where a kite shop hires a contractor for $600. Both are small 

businesses. The kite shop files a 1099 MISC reporting the payment 

to IRS and the contractor gets a copy. IRS then matches the 1099 

with the contractor’s tax return to make sure the payments are included in income. 

The chart on page seven shows that where there is information 

reporting and/or withholding, taxpayers’ compliance rates are high. 

For example, for wages and salaries, taxpayers misreported about 

one percent of their income. By contrast, sole proprietors, whose income is often not subject to information reporting, misreported 54 

percent of their income. Information reporting has other benefits. 

It reduces the cost and intrusiveness of IRS’s compliance efforts because computer-matching substitutes for audits of taxpayers. It 

may also reduce small businesses costs of preparing their returns 

because they get summaries of payments received. 

My second point is that third parties incur costs to file information returns. It is difficult to estimate how large these costs are because businesses do not track them separately. In nine case studies 

we conducted in 2007, filers of information returns told us the costs 

were relatively low, but not zero, for example, one organization 

with a few thousand employees said filing a couple hundred information forms was a minimal additional cost. A small business told 

us that spending three to five hours per year preparing information 

returns manually. Two venders charge between 80 cents and $10 

per form depending on the number of forms. We did not study the 

costs on third parties of expanding reporting to include payments 

for goods. 
19 

My third point is that businesses trying to file 1099 MISC forms 

face impediments. For example, some businesses are not aware 

that they have a filing requirement. Better IRS guidance is one obvious solution, but it ignores the fact that many small businesses 

pay tax preparers or accountants to do their taxes and never look 

at IRS guidance. More effective, perhaps, would be requiring preparers to ask whether 1099s have been filed, or waiving penalties 

for late submission by first-time filers. Another impediment is that 

some businesses are confused about the 1099 requirements. Options here include standardizing the dollar threshold for reporting 

or increasing the dollar threshold to limit the number of small 

businesses having to report. 

Another impediment is determining whether the payee is incorporated. We were told that some businesses routinely file 1099 

MISCs for all their contractors rather than going to the effort of 

determining who is incorporated. We have suggested that reporting 

be extended to incorporated payees, but not payments for goods. 

IRS has already taken one step to reduce the costs of reporting 

by exempting payments paid by credit card. Other options include 

grandfathering existing business relationships, and exempting certain types of payments or businesses. 

Finally, the 1099 MISC filing process is not convenient. Payers 

must get tax I.D. numbers from payees, paper submissions must be 

on specially printed forms, and IRS does not have an online portal 

for electronic filing. Solutions include guidance to new companies 

about providing tax I.D. numbers on invoices, allowing submission 

of downloaded forms, and building an online portal. 

In summary, our tax system shifts some of the costs of tax administration to third parties in order to increase compliance, however, those costs could be reduced and still maintain the compliance benefits. This concludes my statement, I would be happy to 

answer questions. 

[The prepared statement of Mr. White follows:] 
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Chair LANDRIEU. Thank you. Mr. White, let me start with you on 

this 1099 because this is an issue that has really gotten 

everybody’s attention, and I want to start with, the legislative history, I understand, of this provision—and I appreciate your testimony about the need for tax compliance. It is important when 

taxes are levied, for people to pay them, and it is important for the 

government to design systems to make sure that people are paying 

their rightful share of taxes. 

The question is, where that burden of compliance should fall, and 

my understanding of this particular provision, and I want you to 

comment, is it was established—the threshold—in 1954. The history of the information reporting requirement, Congress intended 

the threshold amount for triggering informational reporting to correspond to the personal independent exemption level in the Internal Revenue Code. 

In 1954, that exemption was $600. Today your threshold stays at $600, but the dependent exemption has risen to $3,650. So, my 

question is, not the intent, but how did it stay so low for so long, 

and why wasn’t it raised? Why didn’t someone suggest that it be 

raised to a more reasonable threshold? 

Mr. WHITE. There is no automatic adjustment for inflation, which 

is part of the problem, and that would be in our table where we 

suggest some mitigations. That is one of the options. 

Chair LANDRIEU. But in all the reports ever requested by any 

member of Congress on this subject or related, do you know if the 

IRS ever suggested this would be something that might make 

sense? And Dr. Sargeant, I know you have only been on the job 

three months, but in any of the reports that you have had a chance 

to review yet in your office, was there ever a report submitted that 

it might just be a good idea to raise the threshold on 1099s commensurate with inflation? 

Mr. WHITE. We suggested it in the 2009 report. I am not aware 

of what IRS has done on this question. 

Chair LANDRIEU. Okay. 

Mr. SARGEANT. With regard to the reports that I have read, I 

have not seen any mention with regard to the need to raise—— 

Chair LANDRIEU. Okay, well, I would like to go ask both of you 

to go back and just review any of the reports that your individual 

agencies submitted, to let this committee know if this was ever 

flagged or brought to anyone’s attention, because if not, what it 

tells me is there is a systematic malfunction somewhere in this 

government where there is really no entity kind of looking out for 

how to just sort of automatically adjust these requirements, and if 

it is going to take an Act of Congress to adjust every single one of 

them, we are going to be spending an awful lot of time and creating 

an awful lot of havoc when something could be done quite more efficiently in an administrative way. 

Now, we are going to repeal 1099, but the time and effort it 

takes to do this could have been avoided in some way had there 

been some sort of system of just, you know, regular review. And I 

think, Dr. Sargeant, it leads me to the—hopefully the purpose of 

your office is exactly this, to be exploring and evaluating new proposed regulations and how they might effect small business, reviewing long time regulations. 
47 

In fact, I think in the law, you know, and I am on a little bit 

of a learning curve here, but I think that in the law there is something like every ten years the Office of Advocacy conducts a detailed examination of the cost of federal regulation. There is a time 

frame, if the staff could—there is a specific time frame for reviewing. I think if a law is ten years old—are you following what I am 

saying? 

Mr. SARGEANT. Yes. 

Chair LANDRIEU. Is not that part of your portfolio of responsibilities? 

Mr. SARGEANT. Senator, under the RFA Section 610 calls for a 

periodic review of rules, but that is done by the Agency, and so we 

will continue to work with the Agency to review those rules—— 

Chair LANDRIEU. But what role do you have as that Agency reviews its ten-year-old rules and regulations? Do they call you in or 

your office in to do that review with them? Do they do a first draft 

and submit it to you for review? 

Explain a little bit about how that works. 

Mr. SARGEANT. What has happened in the past is that small 

businesses would reach out to us to make their comments known 

about various rules that are on the books, and so we would reach 

out to these agencies to review these rules, and by law, under 610, 

they have to review these rules every ten years. Rules that are on 

the books more than ten years, they have to be reviewed to see 

whether these rules are necessary. So, we continue to reach out to 

these agencies to make sure that they are doing this review. 

Chair LANDRIEU. Okay. Let me ask you this. Your office has been 

involved, as you said, on behalf of several small businesses. I understand that your office can do your most effective work when you 

are able to coordinate with agencies early in their rulemaking process. I really need you to try to give me one or two specific examples, since you have been in your office, about how that process has 

worked and with what specific agencies, let us say in just the last 

couple of months, that they have called you in early on when they 

are thinking about rules, whether it is Fisheries, or OSHA, or any 

other agency out there. 

Mr. SARGEANT. Well, Senator, we have held nine roundtables 

since I have been in office, and what we do is that we work with 

small businesses and we also—— 

Chair LANDRIEU. But nine roundtables where? In the country? 

Mr. SARGEANT. Roundtables in D.C. itself. 

Chair LANDRIEU. In D.C. with small businesses? 

Mr. SARGEANT. With small businesses, but also with representatives from the various agencies. We held a roundtable with Labor 

because there was a concern with what we call the H–2B rule. This 

would have a significant impact on small businesses, and so what 

we did is that we brought together those that would be impacted 

by this rule, but also we made sure that Labor, those who were 

writing the rules, were in this room and we assured Labor that this 

would not—that we would make sure that it will be a good dialogue 

in terms of small businesses would be able to voice their concern 

and those who are writing the rules would be able to respond as 

to why they think these rules are necessary. 

So, that is one example that we played very early on. 
48 

Chair LANDRIEU. So, you are using a roundtable model specifically called on a specific regulation. You bring the department that 

is either writing or renewing the regulation with small business. 

Those are public meetings. You have had nine of them in Washington. 

Mr. SARGEANT. Yes. 

Chair LANDRIEU. You can submit a list to us of what they were 

and what topics and your recommendations from each—— 

Mr. SARGEANT. Yes. 

Chair LANDRIEU. I am assuming? 

Mr. SARGEANT. Yes, yes. Yes, Senator. 

Chair LANDRIEU. Okay. Mr. White, my last question I will turn 

it over to Ranking Member Snowe, do you have any other suggestions in terms of the latest one or two reports that GAO has issued 

about specific action this committee could take to either increase 

our investment in this area or give more support to this office or 

a process that could be put into place that would help us to identify 

more quickly rules and regulations that are having, you know, a 

detrimental effect on small business and making the appropriate or 

necessary changes? 

Mr. WHITE. I think with respect to taxes, which is what I know 

about, one thing to watch is the new credit card reporting requirements that have been put in place, and IRS has already said, the 

Commissioner has already stated, that IRS will rescind the 1099 

reporting requirements for businesses that make their payments by 

credit cards because those payments are going to be recorded in the 

future to IRS. 

IRS is in the process of implementing that process, and so this 

may be a mechanism to reduce the burden of 1099 reporting if this 

credit card reporting turns out to be an effective substitute for that, 

so I would watch the effectiveness of that and what the impact is, 

specifically, on 1099 filing of that program. 

IRS also, in recent years, has undertaken a lot of additional research on the causes of noncompliance by businesses, particularly 

small businesses, and as the results of that research come forward, 

I think there will be more information about the burden on small 

businesses of complying with certain requirements. We had recommended that IRS, as part of that research process, focus specifically on the 1099 issue and they had agreed to do so. 

Chair LANDRIEU. Thank you. 

Senator Snowe. 

Senator SNOWE. The more we discuss these issues, it underscores 

that we ought not pass regulations without knowing the effects before their implementation or enactment. The bottom line is, today, 

small businesses disproportionately bear the weight of what is happening. Dr. Sargeant, I recommend that you take Main Street tours 

before the reality becomes pretty clear and stark about what is 

happening. The cause and effect of actions here affecting Main 

Street is pretty evident. We have to reorganize this whole regulatory process, and in the meantime aggressive advocacy is necessary on your part, and rigorous examination of all of these potential regulations coming down. 

Wall Street reform resulted in 553 new regulations. In 2010 the 

Administration promulgated 43 major new regulations from var-
49 

ious agencies. There were 41 separate rulemakings in the 

healthcare reform in addition to another 100 additional regulatory 

guidance requirements within the healthcare reform law that was 

enacted this year. 

So, all of this is going to require a major burden in your office, 

and that is why I would like to know exactly what plan you have 

developed to respond to all of these rules that will be coming to the 

forefront that are going to have enormous implications on small 

businesses across this country? 

Mr. SARGEANT. Senator, with regard to the CFPB, and thank 

you, Senator, for being—for your commitment to the office. We now 

have oversight with regard to CFPB via the SBREFA Panel process. We have met with the staff at CFPB. They have also come over 

to the Office of Advocacy, and so it pays to work very early on. You 

know, what is good about this new agency is that it is a new agency and so it does not have some of the histories of not in compliance, so we are working with them and we have training in terms 

of, you know, this is the RFA. 

We have done about 40 panels with EPA and another 12 with 

OSHA, so we have a lot of examples of running the SBREFA Panels, and so there is a roadmap, there is a flow chart that we can 

share with CFPB to make sure that they are in compliance, kind 

of the best practices, and so we have encouraged them to work with 

us very early on to avoid some of the holes, some of the pitfalls, 

that could result in not being in compliance because the SBREFA 

process really works, and it results in better rules because it brings 

small business in very early and so we know that small businesses 

have—they agree that SBREFA works, so does the Agency, so that 

is why it is very important for us to work with CFPB to make sure 

they buy in. 

Senator SNOWE. Well, in that instance, because of the requirements in the law—now, is the panel going to be up and running 

and that process underway before the bureau is established? The 

point is, we do not want to have the bureau established and they 

go running forward with all these regulations and eventually we 

get around to setting up the Small Business Review Panel. 

How is that going to work? 

Mr. SARGEANT. Well, under 609(a), there is a process and a timeframe that has been laid out in terms of what you need to do, what 

type of notification that must be given for the SBREFA Panel process. Now, I have met with the staff at CFPB and they are not— 

they do not have enough staff yet. They are very early on but we 

continue to work with them to make sure that they do not get 

ahead of themselves in writing rules. 

Senator SNOWE. Are you taking steps overall to triage all these 

new regulations that are going to be coming to the forefront among 

the various newly enacted legislation and all the other regulations? 

Do you have a plan to implement all that and to respond to that 

because there is a breadth of regulations? 

Mr. SARGEANT. Well, Senator, I am pleased to have a staff of 

very talented lawyers who work with the various agencies to make 

sure that they are ahead of the process and they have very good 

contacts with these agencies to make sure that any rules that are 

in process that we can make sure that they follow the RFA process. 
50 

Senator SNOWE. Exactly why is it that you felt it was necessary 

to deal more confidentially with the Treasury Department, on the 

implementation of the 1099 requirement? I mean, they call for a 

public formal response. Why is it that your office did not do that 

on this critical issue? 

Mr. SARGEANT. Senator, before I joined the Office of Advocacy, 

the Office was, very early on, involved with the 1099 back in June, 

and so they were contacted by small businesses, because this 1099 

provision is burdensome. As someone who comes from small business and who has to respond to the paperwork, you know, anyone 

who came from small business would have never advocated side to 

provision, but once I got into the office, what we did is that we held 

roundtables with both small businesses and also the trade associations as well, and what came out of this meeting is that this was 

a reporting requirement. This was not a fix; this was a, how to report 1099s, just like James said, with regard to credit cards. Credit 

cards would be exempt. 

What we found is, you know, many small businesses do not use 

credit cards, they use cash, and credit cards have fees, and so once 

again, that was not good for small businesses, but what came out 

of the panel is that they said, you know, this still does not solve 

the problem of the 1099 reporting requirement. What you need is 

a legislative fix, and so immediately after the panel I contacted the 

IRS chief counsel to have a meeting to share with him the concerns 

that small businesses have. With regard to the interagency confidential process, that was instituted by Executive Order 13272 by 

our previous president, and that has worked well in terms of making sure that rules would not even—rules would not come to the 

fore, that they will be less burdensome. 

So, it is a process that has been used, and my predecessor, Tom 

Sullivan, also used it very well, as well, and so I thought that it 

was worthwhile to use it. 

Senator SNOWE. I have other questions, Mr. White, but I will 

wait during my second round. Thank you. 

Chair LANDRIEU. Okay. 

Senator Shaheen. 

Senator SHAHEEN. Thank you, Madam Chair. Mr. White, you 

provided us with a very, I think, good list of ways to address the 

1099 reporting requirements. Now, I certainly agree with the Chair 

and Ranking Member that we are going to repeal that requirement 

through legislation, but it is an interesting list, I think, with respect to other reporting requirements that exist for small businesses. 

So, how many of these things can be done with that legislative 

action and how many are being contemplated by your office as you 

think about other reporting requirements for small business? 

Mr. WHITE. Most of them could be implemented by IRS, some of 

them might require legislative action, and most of them also have 

pros and cons, so what we have done with IRS is, in some cases, 

make recommendations that IRS gather more information, for example, so that there is better data about exactly what those pros 

and cons are. Part of the problem with the new requirement for information reporting on goods is there is no information out there 

about the number of firms that would have to do such reporting, 
51 

how many reports each firm would have to file or what the cost of 

filing those kinds of reports would be. That is the sort of information you would like. 

Some of the options are thinking creatively about the problem 

and ways to address it at lower cost. For example, many small 

businesses either are unaware that they have got a 1099 filing requirement, the current—under current law, the current requirement. 

Senator SHAHEEN. Okay, but I do not want to talk about 1099 

because I think that is going away. So, talk to me about other regulations that small businesses have that—and you said you have 

made recommendations to the IRS relative to many of these items. 

Do you know what the status of their review of your recommendations are and what the status is? And whether they are moving forward on this? 

Mr. WHITE. They have been very responsive in our moving forward with some of our key recommendations, so there are current—there are information reporting requirements under current 

law that would stay in place and as I said a minute ago, we recommended that IRS, as part of their ongoing research efforts, make 

that a special focus. 

In the past, information reporting was not a focus of IRS research. We asked them to include them in their research plans 

going forward. It is a very systematic, sophisticated research effort 

that they have got underway and they have incorporated information reporting into that. 

Senator SHAHEEN. Do you think that this committee could get 

the list of recommendations that you have made to the IRS and 

perhaps we could get a report on where they are in looking at 

those? 

Mr. WHITE. Yes. Absolutely. 

Senator SHAHEEN. Thank you. 

Dr. Sargeant, one of the things that you and Mr. White actually 

both have alluded to is the importance of leveraging our existing 

support structure for small businesses to help them learn about 

what their regulations are and appropriate compliance. Can you 

talk a little more about what you are doing in that respect, about 

how you envision using part of the SBA apparatus, for example, 

like the Small Business Development Centers, to help do that? Or 

is that part of what you are thinking? 

Mr. SARGEANT. Senator Shaheen, the small businesses need to 

know how to comply with regulation, but they also need to have 

a mechanism to have their voice heard, and so that is what the Office of Advocacy does. 

With regard to the SBDCs, they are SBA, and although we are 

independent from SBA, we sometimes work with SBDCs to make 

sure that there is a forum or there is an avenue for those businesses to seek training and to know more about some of the programs that are available for small business. 

With regard to outreach, outreach is very important and that is 

why we are very aggressive in making sure that we bring on the 

ten regional advocates. You know, it has been almost two years not 

having regional advocates and they are our eyes and ears on the 

ground, and that is the direct contact where small businesses in 
52 

each region because we recognize this is not a one size fits all. 

What goes on in Iowa may be different than what goes on in D.C., 

and so it is very important to have someone on the ground, a contact, so that a business who may have some concerns or they 

may—they are not sure what is coming out of D.C., that they 

would be able to contact that person so that their voice is heard. 

My focus is to make sure that the voice of small business is 

heard at all levels of government. 

Senator SHAHEEN. And can I just ask one final question, Madam 

Chair? 

Chair LANDRIEU. Go ahead. 

Senator SHAHEEN. When you said you have ten regional advocates, can you tell me where the Regional Advocate for the northeast is located? 

Mr. SARGEANT. The Regional Advocate for the northeast? Oh, the 

Regional Advocate of the northeast is located in Boston and we are 

in the process right now of bringing them on. We have identified 

a few, but once we have identified the advocate, there is the process that you have to go through to get them in, in government, the 

background checks, but we hope to have all ten by the first of the 

year. 

Senator SHAHEEN. So, we do not actually have somebody hired 

for the position right now to serve the state of New Hampshire? 

Mr. SARGEANT. Well, we have the person and they are going 

through the process right now. They have been identified, it is just 

dotting the i’s and crossing the t’s in terms of becoming a federal 

employee. 

Senator SHAHEEN. And that person—those folks do not need approval by Congress, Senate approval, do they? 

Mr. SARGEANT. Those folks do not need Senate approval, but 

they still need to go through the government process. 

Senator SHAHEEN. Thank goodness. Thank you. 

Chair LANDRIEU. Dr. Sargeant, let me clarify something and then 

I will recognize Senator Snowe for one more question and then I 

would like to move to the second panel. I appreciate Senator Risch 

being with us. 

Let me ask you this. How long have those regional offices been 

vacant? I am aware that they are vacant now, I just assumed that 

was a recent occurrence, but you said they have been vacant for a 

while? 

Mr. SARGEANT. They have been vacant almost—I would say almost going on two years. 

Chair LANDRIEU. Two, okay. 

Mr. SARGEANT. It has been a while. 

Chair LANDRIEU. So, they were all full in the last administration? 

Mr. SARGEANT. Yes. 

Chair LANDRIEU. And then with the change, they just—those positions just have not been filled because your position was not filled 

until three months ago, right? 

Mr. SARGEANT. That is correct. Yes. 

Chair LANDRIEU. And you are still on only a recess appointment 

because of some opposition. Is that correct? 

Mr. SARGEANT. That is correct. 
53 

Chair LANDRIEU. Okay, so it is very important, I believe, and I 

am going to ask my colleagues to carefully think through the importance of establishing this director permanently, getting this office staffed up. It is crucial, as our office, to mitigate against unnecessary and burdensome rules. If we do not give them the tools they 

need and the employees they need, we cannot then expect them to 

do the kind of work we are requiring them to do. 

So, I am asking my colleagues that are here and not here, to consider the importance of this, and I most certainly will commit to 

you to work closely with your office over the next several weeks to 

identify, you know, really good, aggressive people. 

On that goal, let me just say this. In addition, Senator Snowe, 

I think we have to think about if this office is actually strong 

enough, even when fully staffed, this is the organizational staff I 

just received. There are ten attorneys in the country—slots for ten 

attorneys and nine advocates. It has 19 people on one side, and the 

entire federal bureaucracy on the other. So, I think we have to be 

reasonable in what we expect this office to be able to do in this circumstance. 

Now, I am happy to say I have just introduced a bill or will be 

introducing a bill today looking for cosponsors that strengthen this 

office. If there was ever an office that needed to be strengthened, 

I would think that this would be one, so that they can do the 

things we are asking them to do, which is to minimize unnecessary 

burdens on small business so that they can work. And I will look 

forward to working with you on that. 

But Senator Snowe, let me get to you. But on the record I want 

to say one thing. David, a banker from Louisiana in my opening 

statement, I wanted to put this in the record, testified yesterday 

on our roundtable about additional regulations. His small bank, 

$150 million bank, New Roads, Louisiana, a tiny little, beautiful 

little town in Louisiana, $17,000 in 2008, $137,000 in 2009, and 

$220,000 in 2010. That is just FDIC insurance increases. 

Senator Snowe. 

Senator SNOWE. Thank you. Your singular mission, Dr. Sargeant, 

is on the whole rulemaking process, and making sure that these 

regulations are not burdensome to small businesses and getting 

ahead of the train, and that is absolutely, indisputably critical. I 

hope that is all you are focusing on because it is undeniable what 

is happening across the country in this sphere alone. Many have 

labeled it as a de facto tax, it certainly is, and so if you need any 

other resources, step forward. 

It is too bad about the Regional Advocates, I know in the northeast we have an outstanding individual, and that those individuals 

did not carry over until their replacements came to the forefront. 

I believe that would have been a better way to have done it, but 

that was not in your sphere of decision-making because I think otherwise it should have carried some continuity in this critical area 

at this perilous economic time for small businesses and the economy as a whole. 

Mr. White, on the issue of 1099, you mentioned specifically, I 

wanted to ask you—there has never been a cost benefit analysis 

done on 1099s as it would apply to goods, is that correct? 
54 

Mr. WHITE. Not that I am aware of. I have never seen one. As 

I said, there is not even an estimate in the number of firms that 

would have to file. 

Senator SNOWE. So, the other dimension to all of this is the impact that this is going to have because we have no way of knowing 

the degree to which it is going to affect small businesses in complying with this regulation. 

The National Small Business Network estimates that 1099 mandates would cost businesses and the IRS at least 100 times more 

to administer than the average $1.7 billion it will yield annually. 

So, obviously, it is important that we have the ability to look at 

this very carefully. Hopefully it does get repealed soon, and unfortunately it did not happen earlier, but I hope it does happen now 

in this Lame Duck because I think it is going to represent serious 

consequences. It is one more aspect to why businesses are not 

going to invest in the future when they start adding and calculating the costs of doing business. And without such an analysis, 

there is no way to know exactly how much this will cost small businesses. 

I have no doubt it is going to be an inordinate burden on them. 

Thank you. 

Chair LANDRIEU. Thank you, Senator. I would like to move to our 

next panel, if we could. I appreciate the cooperation of the members. And thank you all very much. 

To save time, as they are coming forward, let me introduce Mr. 

Roger Harris, president and chief operating officer of Padgett Business Services. He brings over 30 years of experience in accounting 

and financial experience in the service and retail industries. He is 

a resident of Athens, Georgia. And we welcome him today. 

Larry Nannis is a CPA. 

[Bangs gavel.] 

Chair LANDRIEU. Thank you for your cooperation. Mr. Nannis is 

a CPA, has over 40 years of serving small businesses and is currently chair of the National Small Business Association. We welcome Mr. Nannis with us today. 

Next, Mr. Andrew Langer, president of the Institute for Liberty. 

He came from the Institute from the National Federation of Independent Business. We thank you for being here, Andrew. 

Finally James Gattuso is a senior research fellow at the Heritage 

Foundation specializing in regulatory and telecommunications 

issues. I would like to start with Mr. Harris, if we could, and as 

you all know, we have asked you to limit your opening remarks to 

five minutes. We have reviewed your testimony, we have highlighted it, we appreciate it. If you want to summarize it, that would 

be terrific. 

Mr. Harris. 

STATEMENT OF ROGER HARRIS, PRESIDENT AND C.O.O., 

PADGETT BUSINESS SERVICES/SMALLBIZPROS, INC. 

Mr. HARRIS. Thank you, Senator Landrieu, Ranking Member 

Snowe. It is a pleasure to have the opportunity to be back before 

the committee again. 

Chair LANDRIEU. Just speak a little bit into your mic; you have 

to kind of lean forward. 
55 

Mr. HARRIS. My name is Roger Harris, president of Padgett Business Services. We have been providing accounting and tax services 

to small business owners for over 40 years, and just to give you an 

idea of who are client is, it would be represented by the chart on 

the left, the less than 20 employees, so the burdens that our clients 

are seeing in regulation and compliance is very heavy. 

I think what someone once described a small business owner as, 

is someone who has the opportunity to do the one thing they love 

and the 99 things they hate. And record keeping and compliance 

would probably top the list of the 99 things that they hate, and 

every minute or every dollar we take from them from doing the one 

thing that they love and make them spend it on one of those things 

that they hate, it makes them less productive and have less of an 

opportunity to help us when we need them the most at this time 

to get out of the economic difficulties that we are in. 

There has been a lot of discussion about 1099s and I want to first 

of all commend the Chairman for being a sponsor of the repeal 

which I think is ultimately what we need in this process, but I 

think even if we get repealed, we can still learn from what we are 

going through. I think what we see is that we have made some assumptions and we heard today that third party reporting does, in 

fact, help compliance. 

That does not necessarily mean that all third party reporting is 

good, and when we jump to conclusions that we can have a system 

that is currently in place, which deals with the non-corporate taxpayer and a level at $600, and just advance it into the corporate 

world and leave the amount the same, we end up with a cost benefit analysis. I am not sure if anyone has done one, but I am not 

sure it is necessary. I think we all recognize that the amount of 

burden that we would place on our small business owners and the 

amount of benefit to the system would not be very great. 

And I think that we have to make sure that any time we are 

going to assess burden on a small business owner that we look 

back and understand the real cost in what that is, and sometimes, 

I think, we do not take enough time to examine what we are doing, 

we just do it, and let them absorb it. And they will absorb it. They 

will complain about it, I can tell you, I have never heard complaints like I have heard this year about 1099s, and on behalf of 

our offices and our clients, thank you for issuing the repeal. 

But we need to not make this kind of mistake again. We need 

to make sure that as we go forward, we look for ways to minimize 

the burden on the small business owner if we expect them to help 

us through this recovery. And I think if we just looked at the pure 

numbers of small business owners that are out there, and if we 

could somehow just empower them to add one person to their payroll, the impact that we would have in this country would be tremendous. And we can do that if we are smart in how we regulate 

and how we ask them to comply. 

I will make two other quick comments and then I will reserve 

the time for the others and look forward to your questions. 

The most recent study that I have seen from the IRS said over 

85 percent of all small business owners need the services of a tax 

preparer. For me, that is good. For the country, that is not. We 

have to address the overall compliance burden and where more and 
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more people feel like they are qualified to take care of their own 

obligations. 

Secondly, one of the biggest and this chart is a great example of 

that, one of the most onerous parts of any small business is the 

cost of dealing with employees and while we have—at Padgett we 

are fortunate to have 300 offices in the United States, we have 100 

in Canada. 

So we are able to compare and I can tell you, the system here 

is vastly more complicated than the system our Canadian offices 

have to follow through. We have thousands of taxing jurisdictions, 

they have a handful. They have predominantly annual filings, we 

have more filings than we can keep up with. 

Just last week, because we are in all 50 states and we provide 

the regulatory software for our offices, we got 17 changes in one 

day from 17 different states, and so I think one of the ways that 

we have to address, is we have to look at burden in its total and 

each of us can justify the rule that we want to pass or the obligation that we are passing, but we must recognize that this is also 

taking place at a state level, at a local level, at an industry level, 

and all other places, and until we address burden in total, I am 

afraid that we are going to continue to raise that cost of the most 

precious asset we want our business owners to have, which is a 

new employee. 

Again, thank you for the opportunity to be here today, it is a 

pleasure, and I look forward to your questions. 

[The prepared statement of Mr. Harris follows:] 
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Chair LANDRIEU. Mr. Harris, let me thank you, and I want to assure you that I, as the Chair of this committee, will be calling on 

you regularly with the expertise that you and your firm have, because I think it is particularly important to have that breadth that 

broad view, not just a specific view, as we really try to make an 

impact here. 

This is not a fly by night effort on this committee’s part. We are 

going to be at it for as long as I am the Chair and the Raking 

Member has been a real leader in this effort as well, so as long as 

the two of us stay in the leadership of this committee, I can promise you this is just the beginning of our efforts to really get a handle on this and make some significant changes, and we hope that 

you will be available to us as we move forward. 

Mr. HARRIS. Thank you. I would welcome that. 

Chair LANDRIEU. Thank you. 

Mr. Nannis. 

STATEMENT OF LAWRENCE S. NANNIS CPA, CHAIR, NATIONAL 

SMALL BUSINESS ASSOCIATION 

Mr. NANNIS. Chairwoman Landrieu, Ranking Member Snowe, 

and members of the committee, I want to thank you for the opportunity to testify on ways to reduce the regulatory and administrative burdens placed on America’s small business. 

My name is Larry Nannis. I am a certified public accountant and 

partner in the firm of Levine, Katz, Nannis and Solomon located 

in Needham, Massachusetts. We provide financial management 

and tax advise to entrepreneurial firms. 

I am also serving as the chairman of the board of the National 

Small Business Association. 

Small business owners face an overwhelming regulatory burden 

in complying with Internal Revenue Service regulations. The burden is not only a heavy one, but is disproportionate as well, and 

as you heard from Dr. Sargeant, the cost of tax compliance for 

small firms is 67 percent higher than for their larger counterparts. 

For firms with fewer than 20 employees, the per employee cost of 

complying with the tax code is $1,304. 

Before I go on, though, I would like to thank Chairwoman 

Landrieu and Senator Shaheen for your courageous moves yesterday in cosponsoring the legislation that would repeal the expanded 

Form 1099 reporting requirements. Less there are some who believe that this is not the correct response, permit me to briefly explain why this repeal is so necessary. Section 906 of the Patient 

Protection and Affordable Care Act would mean that every small 

business owner, including me, will face an increased paperwork 

and administrative burden for each additional 1099 form prepared. 

In fact, LKNS, if the law had applied in 2010, we would have increased our 1099 production from two to 79, and in reviewing the 

records of a lot of my clients, the minimum impact on the number 

of forms that would have had to have been created was threefold. 

Additionally, many small businesses, in an attempt to reduce 

data collection and paperwork burdens, will simply reduce venders 

and refuse to entertain new business dealings. This will have a disproportional impact on small businesses and entrepreneurs attempting to get a foot in the door. 
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Although this could simplify the accounting burden, it would 

have a devastating competitive impact on small, local, independent 

businesses who now sell the same services or products to other 

businesses. NSBA has been adamant that the only solution to this 

huge problem posed by the new 1099 reporting provision is full repeal, and Chairwoman Landrieu and Senator Shaheen, it appears 

as if you agree. 

Unfortunately, perplexing paperwork and an oppressive federal 

regulatory regime continue to overburden innumerable small business owners across the country. SBA research demonstrates, as the 

chart shows, that in total companies with fewer than 20 employees 

pay more than $10,585 per employee to comply with federal regulations. For large firms it is 36 percent less. 

Despite the efforts of SBA’s Office of Advocacy, which reports 

that its intervention results in foregone first year regulatory cost 

savings of $7 billion in Fiscal Year 2009, the federal regulatory and 

paperwork burden continues to balloon and is now at approximately $1.75 trillion. 

In the written testimony that you have received, we have outlined many ways that the administrative burden on small business 

should be reduced and I urge you to consider them. In the interest 

of time I would like to highlight two of them, one of them brought 

up by Ranking Member Snowe earlier. 

Federal agencies should be required to perform and submit cost 

benefit analysis on proposed regulations and paperwork. This is a 

routine business practice that federal agencies would be well 

served to emulate. 

In the tax area, NSBA believes efforts to reduce the regulatory 

and administrative burdens on small businesses must focus on 

overall simplification, eliminating inequities within the Tax Code, 

and enhancing taxpayer education and outreach. Congress should 

stop trying to impose more burdens on taxpayers and replace the 

current Tax Code altogether with something that makes more economic sense, such as the Fair Tax. A long time proponent of the 

Fair Tax, NSBA believes that now, more than ever, a sensible, fair 

method of collecting taxes is needed contrary to the present system. 

Perplexed, bothered, and bewildered American taxpayers spend 

$265 billion in recent years just trying to comply with tax laws and 

regulations. 

Now, those willfully disregarding their tax liabilities should be 

held accountable, but with the complexity facing many taxpayers, 

NSBA believes a key priority should be the development and implementation of initiatives to improve IRS guidance. NSBA concludes 

that the committee should work with the IRS to conduct more research to better identify noncompliant taxpayers, enhance taxpayer 

services to inform taxpayers of correct tax obligation, and adjust its 

enforcement tools to target those who intentionally evade paying 

taxes. Adding new burdens and requirements on small businesses 

already struggling to do the right thing is simply the wrong answer. 

It is my hope that Congress and the Administration can work together toward the straightforward repeal of the 1099 provision. 

Now is the time for Congress to support proposals that are fair and 
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reasonable and that do not hinder the survival, growth, and innovation of our nation’s entrepreneur. 

I would like to thank Chairwoman Landrieu for holding this 

hearing, bringing this proposal to the forefront, and for the opportunity to testify. Thank you. 

[The prepared statement of Mr. Nannis follows:] 
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Chair LANDRIEU. Thank you, Mr. Nannis. Let me just clarify for 

the record, you said the figure was $250 billion annually for compliance? 

Mr. NANNIS. Correct. 

Chair LANDRIEU. Could you restate that? Is it $258? 

Mr. NANNIS. $265 billion. 

Chair LANDRIEU. $265 billion annually. 

Mr. NANNIS. In recent years, just to try to comply with the tax 

laws and regulations. 

Chair LANDRIEU. And that would be tax laws, federal, state, and 

local, you think? 

Mr. NANNIS. Correct. 

Chair LANDRIEU. Okay, federal state and local. 

Mr. NANNIS. Correct. 

Chair LANDRIEU. So, it would be all. 

Mr. Langer. 

STATEMENT OF ANDREW LANGER, PRESIDENT, THE 

INSTITUTE FOR LIBERTY 

Mr. LANGER. Thank you. And thank you for having me here, 

Madam Chairwoman and Ranking Member Snowe, especially, 

thank you as well for inviting me. 

My name is Andrew Langer. I am the president of the Institute 

for Liberty. We are a 501(c)(4) advocacy organization based here in 

Washington, D.C. and we focus on the impacts of the federal regulatory state on small business. I have been working on these issues 

for almost my entire career in D.C., first working with an environmental attorney on the impact of environmental regulations on 

jobs, and then working for the National Federation of Independent 

Business, as you said. 

This is a serious problem, and I always get buoyed when I come 

before a body such as this and hear advocates like you really understand, fully understand, what we are facing here. One of the 

issues that I have found in the last two years, as our economy has 

slipped into the doldrums, is that folks simply do not understand 

the role that regulations have played in where we are today. A couple of weeks ago I debated a gentleman, a pundit from CNN, who 

completely dismissed the idea that the $1.75 trillion regulatory 

state has any impact whatsoever on our ability to create jobs. But 

as you so adequately said earlier, the fact that, you know, if we 

offer some meager tax credit to a small business, it gets dwarfed 

by the $11,000, $10,600 cost that is out there. 

For a business with ten employees, it is $106,000 every year that 

goes out the door. 

And we talk about money, and that is important. I also talk 

about time, as was referenced earlier on. We have to be focusing 

on the issue of time management and the impact that agencies put 

on the mandates that agencies put on individuals in how they deal 

with things frequently. We can talk about $1.75 trillion or the 

$10,600 number, but we also need to be thinking about the fact 

that every seven and a half hours that an agency puts on a small 

business owner’s time is a full day’s worth. And with any, you 

know, in any business, it is between 200 and 250 days per year 
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that they can get out of their employees. Every day that is lost is 

a half percent of that employee’s productive time. 

So, when we are talking about tax burdens and we are talking 

about three to five hours, that is a half a day of somebody’s time 

that they are not spending being productive in their business. And 

so, it is one of the things that we have recommended at the Institute for Liberty, and I have recommended while I was at NFIB, 

that we need to get the agencies to start discussing burden, not 

just in terms of monetary value, but in terms of time as well. And 

I will talk about that more in a moment. 

This issue of cutting regulatory costs, as I said, cannot be ignored. If we cut regulations—regulatory costs by 30 percent, we 

can save the economy roughly $600 billion, which is the rough 

equivalent of the first stimulus package that was passed by Congress and signed by the President. Without spending a dime of federal taxpayer money, we inject the economy with an influx of capital, of time and of energy. That translates into jobs. You save a business $30,000. If they are spending $106,000, $30,000 that they save is the equivalent of 

hiring one person with benefits, and when you do the math, saving 

$600 billion for small businesses means that we could virtually 

wipe out the unemployment rate in America today. We have to 

take the steps to do that. 

One of the things that was discussed in the first panel is this 

issue of regulatory budgeting, the role that Congress must play in 

dealing with these issues. I think that is absolutely essential that 

Congress steps forward and begins to do some sort of an assessment of the impact of the new mandates that they are putting out 

there, because it does start the way—and you were very right in 

your introductory remarks, Senator, when you said that this started, did not start with this Administration, it was accelerated, it has 

been accelerated by a tremendous amount in the last 18 months, 

but it did start 35 years ago. 

We can actually start directly the evisceration of America’s manufacturing sector with the rise of the three great regulatory regimes in the early part of the 1970s. This is going to take a long 

time to undo, but we have to start today. The fact is, that over the 

last decade, regulatory costs grew by about 10 percent every five 

years or so. That cost skyrocketed in the last five years to, went 

up 37 percent from $7700 per employee per year to $10,600. 

One of the things we have to get a handle on, and I will say this 

in sort of my conclusory remarks, is that we have to get a handle 

on the indirect impact that regulations have. S. 3024 was a great 

step in the right direction and to build on that we have to get at 

this issue of indirect economic costs. 

Senator, in your home state of Louisiana, one of the things that 

would have been very, very helpful, I think, over the last year, 

would be how the—the impact of the off-shore drilling moratorium 

did not just impact the oil industry, but impacted the small businesses in your state, and frankly, small businesses all around the 

country, because the fact is that one of the things that drove this 

economy under was not just the burst of the housing bubble, but 

it was the run up in energy prices two years ago that small businesses could not face. 
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The fact is—— 

Chair LANDRIEU. You have got to wrap up. 

Mr. LANGER. I am. I am wrapping up right now. 

Chair LANDRIEU. Good. 

Mr. LANGER. I just want to say, the bottom line is that offices 

like the Office of Advocacy have to be protected by this body, they 

do essential work. I think unfortunately that there are folks in the 

Administration who simply do not place an emphasis on the regulatory burden. That needs to stop. 

[The prepared statement of Mr. Langer follows:] 
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Chair LANDRIEU. Thank you, Mr. Langer. I appreciate it. Very 

articulate. 

Jim. 

STATEMENT OF JAMES GATTUSO, SENIOR RESEARCH 

FELLOW, REGULATORY POLICY, THE HERITAGE FOUNDATION 

Mr. GATTUSO. Thank you. Madam Chairman, members of the 

committee, thank you for the opportunity to testify today on this 

important topic. 

Every year Americans are reminded of the costs of federal taxation when they file their income tax returns to the IRS. 

Chair LANDRIEU. Try to speak into your mic a little bit more. 

Mr. GATTUSO. I am sorry. 

Chair LANDRIEU. It is okay. 

Mr. GATTUSO. They see a clear and specific bottom line telling 

them how much they paid into Washington. Not so with the cost 

of regulation. These costs are hidden, embedded in the prices of 

products and services, in reduced innovation, and lost jobs. And by 

any reckoning, these costs are substantial. As you have heard according to the report released by the Small Business Administration, these costs have been estimated at $1.75 trillion annually and 

the regulatory burden falls disproportionately upon small businesses. 

I did not want to be the only witness today not to say that because I think we have heard that number many times today. But 

as important, these costs are increasing. According to a recent report we completed at the Heritage Foundation, in Fiscal 2010 

alone, some 43 major new rules increasing regulatory burdens were 

issued by federal agencies. The total costs for these rules, based on 

estimates by the regulators themselves, topped $26.5 billion. That 

is the highest cost for new regulations since at least 1981 which 

is as far back as records go. It was a record breaking year. 

Now, it should be noted that the actual costs of these regulations 

was almost certainly much higher than the reported $26.5 billion. 

At the first matter, the cost of non-economically significant rules, 

those rules deemed lightly not to have an annual impact of $100 

billion—$100 million or more, is not calculated at all by agencies. 

Moreover, regulatory agencies did not quantify costs for 12 of the 

economically significant rules adopted in FY2010. So, $26.5 billion 

is a record, but I think the number is, in truth, much higher than 

that. 

Looking ahead, many more rules are in the pipeline. This year’s 

record for regulatory increases may not stand for long. We will 

have a flood of rulemakings coming in the financial regulations sector—in the financial sector, from the financial regulation bill that 

was passed this year, of rulemakings from the healthcare reform 

bill that was passed this year, and for many other agencies, some 

that we have not heard about in a while, but the Consumer Product Safety Commission is still issuing major rules based upon the 

reform legislation passed in its are, two or three, I believe three 

years ago. 

And then there are agencies moving forward without specific 

Congressional authorization, the Federal Communications Commission may still be considering rules on the internet, which arguably, 
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and I believe, would be without Congressional authorization at all. 

The Environmental Protection Agency is also moving ahead without specific Congressional authorization on greenhouse gas regulation. We may see record-breaking years next year and into the future. 

Now, there are steps that Congress can take to increase the scrutiny of new and existing rules to ensure that each is necessary and 

that costs are minimized. Among these, requiring a cost analysis 

of all legislation imposing new regulatory burdens. Currently, although all proposed legislation must be scored by the Congressional Budget Office to determine likely fiscal costs, there is no 

similar requirement that regulatory costs be reported. Members 

should not be asked to vote on proposals without the best possible 

estimate of their likely costs. All bills proposing new or expanded 

regulations should undergo a regulatory impact analysis analyzing 

and quantifying, where possible, the likely costs and benefits. 

This regulatory scoring would ideally be performed by a new 

Congressional regulation office similar to the Congressional Budget 

Office. Such a step could be taken by Congress on its own initiative 

and without Presidential approval. 

Secondly, establish a sunset date for new federal regulations. 

Once adopted, rules tend to be left in place even if they have outlived their usefulness. Currently under Section 610 of the Regulatory Flexibility Act, rules that have a substantial effect on a significant number of small entities must be reviewed by the agency 

every ten years. In practice, however, such review, if it occurs at 

all, is usually performed in a cursory manner. To ensure that substantive review occurs, regulations should automatically expire, if 

not explicitly reaffirmed by regulators. 

Lastly, consider requiring Congressional approval of major regulations that place new burdens in the private sector. Under the 

1996 Congressional Review Act, Congress has the ability to veto 

new regulations coming from agencies under an expedited process. 

To-date, however, that authority has only been used successfully 

once. To improve Congress’s ability to oversee rulemaking and to 

increase accountability in Congress for rules that are adopted, the 

presumption of the Congressional Review Act should be reversed 

and rules should not take effect until approval is granted by Congress. Such a system should be seriously considered. 

However, in doing so, Congress should be careful to avoid two 

dangers. I will finish up quickly. 

First, the process should apply only to the imposition of new burdens on consumers in the economy. It should not be required in 

order to lift such burdens. And secondly, it should be clear that 

Congressional approval, under the process, is conditional upon a 

prior grant of regulatory authority to the agency by Congress and 

that the Congressional review process does not, itself, constitute a 

grant of authority. 

That concludes my remarks and I would be happy to take any 

questions. 

[The prepared statement of Mr. Gattuso follows:] 
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Chair LANDRIEU. Thank you. We do have several. Let me begin 

with asking all the panel, starting with you, Mr. Harris. You know, 

when I consider the testimony that I am hearing, I almost do not 

know where to start. I mean, it is quite overwhelming, honestly, 

and while both Senator Snowe and I and others of the committee 

have introduced, and actually passed, you know, legislation recently to begin addressing this, it just seems that it is just a huge 

endeavor. 

One simple approach that comes to me, and I want to ask all of 

your views on it, and do not hold back, if you do not think this has 

any, has limited merit, what would you all think of a blanket exemption of all rules and regulations for businesses at least below 

10 employees or 25 employees to start, and then work our way up 

from there? Is there any, can you think off the top of your head, 

which you have to right now, for the benefits or disadvantages of 

such—just a blanket exemption? Mr. Harris. 

Mr. HARRIS. Well, I think we have certain exemptions in place 

now where we recognize we need to give a start up business a 

chance to get off the ground before we impose the heavy rules and 

regulations. 

Chair LANDRIEU. Can you give an example of something like 

that? 

Mr. HARRIS. Well, I think in any legislation, if you look at the 

healthcare bill, the exemption for the credit below—I mean, we 

apply credits and benefits to smaller businesses to try to help them 

get through their start up phase, and sometimes I think we ignore 

opportunities to do that as well, so as a general rule, I think that 

is a terrific idea. I think, even in my testimony, I talked about exempting smaller businesses from the 1099 rules before repealing 

them. 

Chair LANDRIEU. And when you say smaller, what is it that 

comes to your mind? Is it 10, 25, 50? In your experience, you know, 

as we try to say creating, allowing that room for entrepreneurship, 

it would seem to me clear that it would be a business of 10 or less, 

and potentially 25 or less, not that it is easy for businesses with 

35 employees to comply, I am not suggesting that, but just to sort 

of take a step at a time as we approach this regulatory nightmarish situation that we are seeing. 

Mr. LANGER. The tipping point. 

Chair LANDRIEU. The tipping point. How do we begin chipping 

away? So, you would think that as some kind of blanket exemption 

might be helpful? 

Mr. HARRIS. I think personally I would like to see the exemption 

be based on a revenue as opposed to an employee count. I hate to 

see burden increase by hiring one more person, so I would start 

with, I would say, if we are going to create an exemption, let us 

do it on an annual revenue basis. So, I think all people would be 

happy to see their revenues go up in accepting additional burden, 

but I am not sure we should hold back employment. 

And again, I cannot speak to the impact it could have on compliance, you know, I am not sure of that impact, but from the small 

business standpoint, I think it would be very welcome to say, we 

are going to let you grow to a certain point before—and then we 

will gradually increase your burden, and I think that would be wel-
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come and it would encourage some people. I just cannot speak to 

the regulatory compliance side of that. 

Chair LANDRIEU. Mr. Nannis. 

Mr. NANNIS. I think one of the things, and to Mr. Harris’ point, 

I think to have a blanket exemption, be it on a revenue model or 

an employment model, I think would go a long way to simplifying 

just a whole lot of issues with regards to small business, not the 

least of which is the definition of what a small business is. 

If you look at the size standard regulations, and I know we are 

not talking about that, it varies depending on what industry you 

are in. If you look at the tax regulations, if you look at the tax 

laws, there are certain places where it is under 25, there are certain places where it is over a million or under a million, that tax 

laws is impact. I think that to come up with a standard, and I 

agree, I am not sure that the employment number would be the 

right one, but probably a revenue number, would go a long way to 

simplifying a whole lot of stuff relative to regulatory and legislative 

issues as they pertain to small business. 

Chair LANDRIEU. Mr. Langer. 

Mr. LANGER. Well, here is what we know. We know that for 

small businesses, you know, the 20 employee number is, in terms 

of regulatory burden, seems to be what changes things. That you 

get above 20 employees, the regulatory costs drop by about a third 

to 50 percent depending on what industry you are in and what you 

are doing. We know that most businesses hire their first full time 

regulatory professional at about 35 employees and that generally 

has to do with employee benefits, HR rules that are out there. And 

again, this changes depending on the industry you are in. 

From an environmental health and safety standpoint, which is 

where you are going to run into your biggest push back on a blanket employee-size model, you have a number of environmental regulations which do not get triggered until you hit above 10 employees, so you might be able to get covered in terms of that if you 

wanted to do a blanket prohibition. 

You know, it is one of these things where we have to recognize 

that there may have to be a sliding scale given the economic state 

of the nation, that when unemployment rises above a certain level 

and economic growth drops below a certain level; we need to relax 

the rules that impact small businesses. Wealthier nations are able 

to better protect their environmental and safety, and as nations 

grow less wealthy, they have to prioritize jobs over the environment. I think we have to recognize that is a fundamental economic 

truth. 

In principle, I think it is a very interesting idea. I think the implementation is where the devil’s going to be in the details. 

Chair LANDRIEU. Mr. Gatt—— 

Mr. GATTUSO. Gattuso. 

Chair LANDRIEU. Gattuso. 

Mr. GATTUSO. I do have some concerns about an approach like 

that in three main areas. First, I think it would cause distortions. 

You would be in effect giving an advantage to small businesses 

which are valuable, contribute usually to the economy, but should 

be competing on a level playing field. I usually hate to use that 

term, but a level playing field with large businesses. Remember, 
113 

larger businesses tend to be small businesses that were successful. 

Think of Apple Computer, think of Amazon.com, and it is better 

overall for the consumer if the most efficient firm be allowed to 

produce its good and services for the economy. That is also good for 

small businesses because remember, small businesses are also consumers of goods, so I think on the whole that would help small 

business. You do not want these distortions. 

Secondly, there is a bad incentive effect. Again, as I said, large 

businesses tend to be small businesses that grew. I think you 

would be creating an incentive to stay small despite the success of 

a company that decreases the incentive to work your business to— 

into new fields. It creates an incentive to remain small which really 

we want these companies to grow, we want the successful ones to 

advance, to hire more people. 

And lastly, I think that there is a probability of huge gaming of 

such a system. I think suddenly we would see numbers of small 

businesses in form would skyrocket. Suddenly you would see all 

sorts of businesses that claim to be small, claim to only have so 

many employees, but in truth are arms of larger businesses, so I 

think even the effect would not be to help small business. 

Chair LANDRIEU. Okay, so the survey is, three of you are for it, 

one of you is against it. I would like all of you to think more about 

it in the next, you know, few weeks, maybe submit a little bit more 

detail about your thoughts on that too because I am going to seriously consider something like that to this committee. 

Last question, I will turn it over to Senator Snowe, all of you, 

if you had to pick not 1099, because we have already skinned that 

cat, what are your two most aggravating other rules and regulations, if you could pick two, I know, out of the hundreds that aggravate you, but Mr. Harris, are there two that continue to be sort of, 

two or three, that people just clamor, it does not make sense to 

them, it is not cost-effective? Could you suggest a couple to us? 

Mr. HARRIS. Well, and I am not sure if this is one or 100, but 

I think if we looked at today’s discussion of 1099 rules and tried 

to take the current set of rules for employee reporting, W–2s, withholding, multiple filing; I cannot imagine if we were trying to introduce that process today what the testimony would be like, if we 

were going to say, not only are you going to have to keep up with 

how much you pay your employee, we are going to make you 

agents of the state, federal, and local governments and withhold 

that money and you are responsible for submitting that money to 

the government, and multiple forms to back up those payments, 

and if you are late or do not make a payment on time, you, the 

business owner, are going to be penalized. 

Given the discussion we had with 1099s, I would love to try to 

see that process being sold. So, I am concerned that we have just 

accepted that because it is the way we have always done it, without any examination of everything we are doing as it relates to hiring an employee and tracking their wages and tracking their payments. Is it just the way that we are doing it now, or could it be 

done better? 

Chair LANDRIEU. Well, let me ask you this, though, when you are 

a business owner, do not you have to know how much you are paying people? 
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Mr. HARRIS. Oh, sure. Sure, you do. That is what I am saying. 

Chair LANDRIEU. You have to track that right. 

Mr. HARRIS. You have to track it. And I am not saying—but, it 

is a very complicated redundance. We found multiple forms to different agencies reporting the same information that again we have 

just let this system kind of grow and let everybody have their piece 

of it. We let the states have their piece of it, the federal have 

their—— 

Chair LANDRIEU. So, if it could be one simplified form about employees that just gets circulated among all the various agencies, 

that in itself would be a significant help? 

Mr. HARRIS. I think that would, I think there are multiple forms 

that you file for the same thing. 

Chair LANDRIEU. Mr. Nannis, anything come to your mind? 

Mr. NANNIS. I think in general, and again, this may be one of 

those that it is one or it is 100, is the whole issue of explanation 

of what it is that you are submitting to the government. I know 

there is a Plain Language Act that was recently passed and I believe that it is really important that the language of describing how 

a form gets prepared. I mean, in my business I am a tax return 

preparer, and I have four people on my staff alone to help me understand what some of these rules are, and I think that in many 

issues, certainly in the—within the Internal Revenue Code, there 

are sentences there that are the most amazingly long sentences 

that take forever to just get through. I believe strongly that implementation, complete implementation of plain language all the way 

through to the Internal Revenue Code. 

Chair LANDRIEU. Well, let me ask you since I am going to prepare a floor speech on this, if you would send me a few of those 

sentences it might help. I will put them in charts, put them up on 

the Senate floor. We will have a little fun with that. 

Go ahead, Mr. Langer. 

Mr. LANGER. Yeah, you know, one of the things that I have always heard a lot about was when the Department of Commerce 

puts out their economic census forms, which is sort of a restatement of, you know, what your business is up to. It goes along with 

the authority that Commerce has to collect the census data. 

Most business owners do not understand why they are having to 

fill out this stuff that they have already filled out before when they 

fill out their tax forms, especially now that the mandates are increasing. So, that is one that hits a lot of different industries. The 

problem has always been that there is not a silver bullet, that it 

is all the little mandates that add up to very, very big things, 

which is why we have been so outspoken about getting the agencies 

to stat burden, both in dollar terms and in time terms, and maybe 

setting some restrictions on the agencies in terms of their ability 

to add further burden without taking burden away elsewhere. 

Chair LANDRIEU. Thank you. 

Mr. Gattuso. 

Mr. GATTUSO. The first one I mentioned is sort of the general 

field of mandates for employee benefits such as in the new 

healthcare bill, but there is plenty of other mandates. I think that 

gets to the heart of the jobs issue, it most directly hinders job 
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growth and is—if you had to start in one place, I think you would 

start there. 

As a second one, this might not be the most—certainly not mentioned the most often and might not be the largest, but maybe the 

most neglected and that would be the rules being applied by the 

Consumer Product Safety Commission on toys and other consumer 

goods. I think the bill passed three years ago on this issue was 

done under, with good intentions, but I think it was so sweeping 

that it is driving a lot of small businesses out of business to providing very little if any safety advantage for the public. 

Chair LANDRIEU. Senator Snowe. 

Senator SNOWE. Thank you, Madam Chair. I want to thank you 

all for your outstanding suggestions and input here today. It is critical. Unquestionably we are facing what I describe as a regulatory 

stampede. I mean it truly feels that way. On my Main Street tours, 

it is just staggering, the disconnect, between the reality of what we 

do here and what actually occurs on Main Street. We have got to 

turn it around. 

I also got a preview of the resistance. I encountered, for example, 

in establishing a review panel for the Consumer Financial Protection Bureau, I could not understand why there was such strong resistance to the idea of ascertaining what the effects would be of any 

potential regulations before they were promulgated, and I cannot 

tell you the degree to which that was opposed and fought even in 

the conference committee. 

So, it makes me wonder what the hidden agenda is, let alone 

what is described as a de facto tax, and I could not agree more. 

So, the question is, where do we go from here? Senator Pryor and 

I have introduced legislation, one of the provisions which was incorporated in the jobs bill that passed, and became law recently 

which is to require the Advocacy Office to respond to agencies with 

respect to rulemaking. But the question is whether or not to require every agency, every department to have a review panel. It is 

clear we have it with OSHA and we have it at EPA and now it 

makes me wonder why we never had it and applied it to every 

other agency. 

Would you agree that that is a step forward? And would that 

have an enormous benefit? Secondly, applying it to the indirect 

costs as well as to the direct economic cost, because there are a lot 

of hidden costs in the indirect effects of regulation? Mr. Gattuso, 

what would you say? 

Mr. GATTUSO. I think that would be an excellent idea. You know, 

the analysis of cost is, again, as Andrew said, not a silver bullet. 

We will never find out exactly what our regulatory cost is. You are 

not going to get down to the penny, but we should know as much 

as we possibly can, and I hear objections to activities like this on 

the basis of resources and time. Regulators say we do not have 

time to do that, we do not have the resources to do that. Well, if 

you are imposing $100 million or $1 billion of cost on the public, 

you should be able to spend the time necessary to find out what 

effect it will have. 

Senator SNOWE. Absolutely. 

Mr. Langer. 
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Mr. LANGER. Well, to gin on to what James said, that is why we 

have also advocated for this issue of comparative risk assessment, 

which I know, sort of, folks’ eyes glaze over, but it is a way of 

prioritizing public policy problems to ensure that they are actually 

problems. You know, why would we spend all of this enormous 

time and money dealing with something that is not actually posing 

a risk to the public, not just on health and safety, but on other 

issues as well, financial issues, consumer products, which as health 

and safety issue, but, you know, these are areas where we actually 

have to sit down and assess, really, have a look before you leap, 

as James said, really understand what we are doing beforehand so 

that we are not about to cause $100 billion worth of damage to the 

economy. It really is essential, but really the things that you have 

laid out, especially for the future and the deference that needs to 

be accorded to the Office of Advocacy, that can only be of enormous 

benefit to small businesses. 

Senator SNOWE. Mr. Nannis. 

Mr. NANNIS. Other than to be redundant, I think that in my 

business one of the things that we do as auditors and as CPAs is 

we look at internal control, and one of the biggest issues that we 

have is trying to convince companies that they ought not to spend 

a dollar to save a dime, and I think cost benefit analysis, I think 

your suggestion for looking at the indirect cost benefits, these are 

the types of things that will go a long way to ensure that we are 

not asking small business to do something that will just undermine 

their ability to be able to grow. So, the suggestion makes a lot of 

sense. 

Senator SNOWE. Mr. Harris. 

Mr. HARRIS. I am not sure exactly how to do this, but the experience I have got is, I served on the IRS Advisory Council for four 

years and continue to go to some, what they call, stakeholder meetings where there is the back and forth of what they are talking 

about and how it would be impacted in the real world, as I will call 

it. 

Sometimes it works better than others, particularly the sooner 

you can be brought into the discussion and have your input heard, 

the better the end product usually becomes, so anytime you can 

generate that back and forth of understanding, I think, again, the 

1099 issue, if there had been a one day give and take between the 

business community and the people writing the legislation, we 

could have saved a lot of these headaches just in the sense, so I 

would always advocate the more you can bring in input from the 

outside of how is this going to be felt before it is felt, would be 

hugely beneficial. 

Senator SNOWE. On a couple of other issues, I will ask anybody 

to respond who cares to, the whole idea that much regulating is 

outside of the review process, for example, in OSHA, regional guidance, documents, and there are hundreds of similar items in the 

healthcare reform law. That is why Senator Enzi and I sent a letter, because of all these increased penalties on small businesses 

that are going to go from $1,000 to $3,000. It started in October, 

and then they reduce the penalty mitigation structure, I think one 

of you made reference to that, maybe it is you, Mr. Langer, in your 

testimony as well. 
117 

It was a 60 percent reduced penalty that is going down to 40 percent, there is another dimension, and they do not have to go 

through a review process. It is outside that purview. So, we have 

got that. Secondly, the stampede that I referred to between financial regulatory reform, healthcare, and all the other agencies combined, what would you recommend to Dr. Sargeant about how he 

ought to be preparing to be an aggressive advocate on behalf of 

small business and dealing with that immediately? 

Mr. LANGER. First? You want me to go first? 

Senator SNOWE. Anybody who cares to. 

Mr. LANGER. Well, I think first of all, just on the issue of the Office of Advocacy, somebody mentioned earlier this issue as to 

whether or not advocacy is fully funded and getting the resources. 

I am not entirely certain that they are and I really think that 

Small Business Committee needs to make sure that they are getting their due in terms of being able to do their jobs and not being 

undercut by other elements of the Administration which I have 

been hearing very, very serious rumors that other agencies, other 

personnel, are not giving them their due and they need to be accorded the deference. 

The fact is that yeah, the issue of regulation by guidance is a 

very serious one, and I fear that the more we try to ratchet down 

on the actual administrative regulatory process under the EPA, 

that they are going to turn around and start doing more regulation 

by guidance. The Wetlands Manuals over at the EPA, for instance, 

which have huge force and affect over hundreds of millions of acres 

across the country, huge impact on businesses and individuals. 

That is not subject to this. And as we talk about it with the independent agencies as well, those need to come under the rubric. 

These are all things that need to happen. 

I have always been a fan, if we are talking about real, sort of 

concrete solutions, I am a big fan of making every bureaucrat who 

puts out a new regulation to put their name and direct dial office 

phone number on every piece of paper that comes out. 

Senator SNOWE. Good idea. I like that. 

Mr. LANGER. Thank you. Listen, I think if you want to get at it, 

you know, you want to get clean language regulations and these 

folks do not want to get hassled by folks having to pick up the 

phone and call Washington, make somebody put their name on the 

regulation they put out there. 

Senator RISCH. Put the President’s cell phone number. 

Mr. LANGER. I am not advocating for that. 

Mr. GATTUSO. If I could add too, I associate myself with what Andrew said, the proliferation of guidelines is a problem, and if we 

make the formal review processes for regulations more effective, 

there will be more guidelines. It is like pushing on a balloon. Ultimately there is no other solution, there is no magic bullet, but I 

think you have to drive the review process and the appreciation for 

cost, down into the agency level. You cannot do it with 19 people, 

you cannot do it with 100 people, you probably cannot do it with 

1,000 people on the outside. 

This needs to be internalized in every agency. Every agency 

should have their own Office of Advocacy internally to watch out 

for regulatory excess. Every chairman, every agency administrator 
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should have staff close to him, looking out for him, looking out for 

rules that are not justified, not fully justified, too expensive. This 

cannot be completely an outside pressure looking in. You need that 

outside pressure, but it needs to be internalized as well. 

Mr. HARRIS. I would just add one comment to what has already 

been said. I do not think you are going to do it holding panels in 

Washington, D.C. You need to be out having panels in the hometowns and talking to the real people that are being impacted by it, 

and most small business owners are busy and they do not get a 

chance to fly to D.C. and attend a panel, but they might be able 

to attend a meeting in their hometown in the evening to talk to 

people if they really believe that those people are there to help 

them. So, I would say, get out of Washington and get into the real 

world. 

Chair LANDRIEU. Senator Risch. 

Senator RISCH. Thank you very much. First of all, I wanted to 

comment on Mr. Nannis’ statement about the bravery that the good 

Chairman and Senator Shaheen has shown in introducing the bill 

to repeal the 1099 problem, and, however, if we are going to pass 

out medals, we probably ought to look at the background a little 

bit, and the first thing we ought to look at is how this got there 

in the first place. 

This was buried in a 3,000 page healthcare bill that was shoved 

down the throat of the American people on a straight party line 

vote. Senator Snowe and I and every single one of our Republican 

colleagues on this side of the capital and on the other side of the 

capital, voted no against that bill and that was one of the reasons, 

one of the many, many reasons, that the bill was going to strangle 

small business in America. 

Now, if we are also going to examine what size medal the person 

should get for the bravery, we should look at what happened on 

September 14, 2010. Now, September 14, 2010, the United States 

Senate had on the floor the Small Jobs Creation Act. We had an 

amendment to that bill which specifically repealed the mess they 

made of the 1099 situation in the healthcare bill. And guess what 

happened? It failed. It failed on a 46 to 52 vote. 

Again, every single Republican voting to put that amendment on 

this bill, which, by the way, is now law and which would have repealed the 1099 problem. Every single Republican voted for that 

amendment and we were joined by some of our colleagues on the 

other side of aisle. 

If the brave people who introduced this bill to repeal this had 

voted with us on September 14, 2010, we would not even be here 

talking about this today. 

In any event, to add insult to injury, that particular amendment 

has been put in the form of a bill, and the Republicans yesterday, 

I am told, tried to hotline that bill. Now, that is a procedure where 

you can push this thing through here and get it passed and get it 

into law, and I am told my good friends on the other side of the 

aisle have objected to the use of the hotline. 

So, guess what, the 1099 problem is not going to go away. My 

only point is if we are going to pass out medals, we ought to maybe 

adjust the size of the medals everybody’s going to get for bravery. 

We want this done and we are going to continue—we are going to 
119 

continue to push this. We are going to try to hang it on every bill 

that goes through here and sooner or later the American people are 

going to get a hold of their Senators and Representatives by the 

throat and say, look, we do not want this. 

And Mr. Harris, with all due respect, you said you wanted one 

day, we spent a year shouting from the top of this building that 

this is what was going to happen if this healthcare bill passed. So, 

it was more than a day, we spent a year at it, but we could not 

get it done. 

But, I want to promise you this and I want to commit to you this, 

we are not done. We are going to continue every day, all day, to 

try to get this 1099 problem resolved because as long as I have 

been in public service, which is almost all my adult life, this issue 

probably rises as high as any other issue I have ever seen as far 

as affecting small business and as far as raising the ire of small 

businessmen, so thank you very much. Thank you, Madam Chair. 

Chair LANDRIEU. Thank you, and I will end the meeting. I would 

like to comment, though, and I am sorry that it has had to end on 

a little bit of an argumentative note here because we started out, 

I think, in a very bipartisan fashion but I do want to respond. 

From our perspective, Senator Risch, we did not shove the bill 

down your throat, we gave you a year to come up with a way to 

provide Americans with healthcare that every other country in the 

world, at least developed country, has figured out a way to cover 

their people and we have not, and you all declined, and we ended 

up having to pass a bill with only Democrats, none of us passing 

the bill or voting for it ever said it was perfect, and we recognize 

that there are portions that must be adjusted as we move along 

and we are prepared to do that. 

Secondly, the bill that you all voted for on the floor on September 

14th had an offset that you knew when you introduced it was totally unacceptable to the Democrats and you did it in a very partisan, obnoxious way, in my view, and so that is why we did not 

vote for it. 

And I want this public to be very clear about this, there were 

amendments put on the floor, both by Democrats and Republicans 

to repeal 1099, but both leaderships put offsets on that that the 

other side could not vote for. So, that is why some of us have been 

working honestly for the repeal of 1099 to find an offset both sides 

could agree to, and that is what this Chairman has led that effort 

and I will continue to. 

So, I do not want Mr. Nannis to have to debate this with Senator 

Risch. I will be happy to debate it here on the floor, but the meeting is adjourned. 

[Whereupon, at 12:01 p.m., the Committee was adjourned.] 

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