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[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]

 
               REGULATION: THE HIDDEN SMALL BUSINESS TAX

=======================================================================

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                             APRIL 14, 2016

                               __________

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                   

                               

            Small Business Committee Document Number 114-056
              Available via the GPO Website: www.fdsys.gov
              
              
              
              
              
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                   HOUSE COMMITTEE ON SMALL BUSINESS

                      STEVE CHABOT, Ohio, Chairman
                            STEVE KING, Iowa
                      BLAINE LUETKEMEYER, Missouri
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                         CHRIS GIBSON, New York
                          DAVE BRAT, Virginia
             AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
                        STEVE KNIGHT, California
                        CARLOS CURBELO, Florida
                         CRESENT HARDY, Nevada
               NYDIA VELAZQUEZ, New York, Ranking Member
                         YVETTE CLARK, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                       BRENDA LAWRENCE, Michigan
                       ALMA ADAMS, North Carolina
                      SETH MOULTON, Massachusetts
                           MARK TAKAI, Hawaii

                   Kevin Fitzpatrick, Staff Director
             Emily Murphy, Deputy Staff Director for Policy
                       Jan Oliver, Chief Counsel
                  Michael Day, Minority Staff Director
                  
                  
                  
                  
                            C O N T E N T S
                            

                           OPENING STATEMENTS

                                                                   Page
Hon. Steve Chabot................................................     1
Hon. Nydia Velazquez.............................................     2

                               WITNESSES

Ms. Karen R. Harned, Executive Director, National Federation of 
  Independent Business Small Business Legal Center, Washington, 
  DC.............................................................     4
Mr. Frank Earnest Knapp, Jr., President and CEO, South Carolina 
  Small Business Chamber of Commerce, Columbia, SC, testifying on 
  behalf of the American Sustainable Business Council............     6
Mr. Rosario Palmieri, Vice President, Labor, Legal and Regulatory 
  Policy, National Association of Manufacturers, Washington, DC..     7
Mr. Thomas M. Sullivan, Of Counsel, Nelson Mullins Riley & 
  Scarborough, Washington, DC....................................     9

                                APPENDIX

Prepared Statements:
    Ms. Karen R. Harned, Executive Director, National Federation 
      of Independent Business Small Business Legal Center, 
      Washington, DC.............................................    23
    Mr. Frank Earnest Knapp, Jr., President and CEO, South 
      Carolina Small Business Chamber of Commerce, Columbia, SC, 
      testifying on behalf of the American Sustainable Business 
      Council....................................................    33
    Mr. Rosario Palmieri, Vice President, Labor, Legal and 
      Regulatory Policy, National Association of Manufacturers, 
      Washington, DC.............................................    36
    Mr. Thomas M. Sullivan, Of Counsel, Nelson Mullins Riley & 
      Scarborough, Washington, DC................................    55
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    ABC - Associated Builders and Contractors, Inc...............    65
    NACD - National Association of Chemical Distributors.........    66
    NSBA - National Small Business Association...................    68

               REGULATION: THE HIDDEN SMALL BUSINESS TAX

                              ----------                              

                        THURSDAY, APRIL 14, 2016

                  House of Representatives,
               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:00 a.m., in Room 
2360, Rayburn House Office Building. Hon. Steve Chabot 
[chairman of the Committee] presiding.
    Present: Representatives Chabot, Luetkemeyer, Hanna, 
Knight, Hardy, Kelly, Velazquez, and Adams.
    Chairman CHABOT. Good morning. I call this hearing to 
order. We are here today to talk about small businesses and the 
hidden federal regulatory burden that is weighing them down.
    Small businesses are a huge contributor to the American 
economy. They employ nearly 57 million employees, create 7 out 
of every 10 new jobs, and produce nearly half of private sector 
GDP. In my home state of Ohio, 2.1 million Americans go to work 
every day at a small business. In fact, almost 90 percent of 
U.S. employers have 20 employees or less.
    The federal government should be doing everything it can to 
help these small but mighty job creators flourish. 
Unfortunately, federal regulators are doing the opposite 
oftentimes by layering on new red tape and hiding the real 
burden from the American public.
    Too often, agencies do a poor job of assessing the impact 
of regulations on small businesses. However, we know small 
businesses shoulder a disproportionate share of the federal 
regulatory burden. A 2014 study found that small businesses 
with 50 employees or less spend 17 percent more to comply with 
federal regulations and that regulations cost the economy over 
$2 trillion annually.
    The regulatory burden falls most heavily on small firms 
because they have fewer resources and do not have in-house 
lawyers and regulatory compliance staff to help them navigate 
complicated federal rules. That is why it is critical that 
federal agencies analyze the small business impacts of new 
regulations and reduce unnecessary and excessive burdens. 
Agencies have been required to do this for over 35 years but 
still avoid these requirements in many instances.
    We need to lighten the massive regulatory burden and make 
it easier for small businesses to start, grow, thrive, and 
create new jobs. So we need to understand the problems that 
small businesses are facing and develop bold solutions.
    One legislative solution that the Committee put forward 
last year is H.R. 527, the Small Business Regulatory 
Flexibility Improvements Act, which passed the House with a 
bipartisan vote. The legislative window is closing, so I hope 
the Senate will act quickly to move this important bill.
    I want to thank the witnesses for being here today, and I 
would now like to recognize our ranking member for her opening 
statement.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    Reducing the cost of regulations is an important issue for 
small businesses. Complicated rules and duplicative 
requirements can create burdens for small firms across a wide 
range of industries. Unchecked regulations can over time become 
out of date requiring companies to devote significant resources 
to compliance. This hurts their bottom line and their ability 
to hire new employees. For these very reasons, Congress enacted 
the Regulatory Flexibility Act in 1980. At its core, the act 
requires agencies to assess the impact of their regulations on 
small businesses. A panel process was also added in 1996 
requiring the EPA and OSHA to hear directly from small 
businesses on the most potentially burdensome rules. CFPB was 
brought into the panel process in 2010 under the Dodd-Frank 
Act. Overall, the result of the Regulatory Flexibility Act has 
been impressive.
    Since 1998, through its enforcement of the Act, the SBA's 
Office of Advocacy has reduced the burden of Federal rules on 
small businesses by almost $130 billion. The Regulatory 
Flexibility Act is making a real difference for entrepreneurs 
across the country. President Obama has built on this and taken 
further actions in this area. He has issued several broad-based 
executive orders on rulemaking. Most importantly, he instructed 
agencies to conduct retrospective review of their regulations. 
These reviews have resulted in near-term cost savings to the 
U.S. economy of $10 billion. He also has required agencies to 
estimate the costs and benefits of regulations, consider less 
burdensome alternatives, and incorporate those that are 
affected by regulations into the rulemaking process. Taken 
together, these efforts are helping to reign in regulatory 
costs, while ensuring that agencies can carry out their 
mission.
    While it is important to reduce the unnecessary burden on 
small businesses, we have to be careful to not impede the 
economic benefits of regulation. Clean water and air 
regulations help ensure a healthy workforce and are critical to 
many companies, especially those engaged in travel and tourism. 
Safety rules keep our workers healthy and enhance productivity 
by reducing workplace accidents. Financial regulation has 
prevented individuals from being taken advantage of.
    Earlier this month, we saw the CFPB close down a student 
loan debt management company that fleeced 3.6 million from 
4,300 consumers through a 3-year scam, so we have to be careful 
to not use instances of regulatory burden to undo helpful 
rules. Reduce compliance costs? Yes. That is something we can 
all agree to, but neutralize critical environmental health and 
safety rules, no, that is too far. Too often this debate is 
framed in a strictly either/or context, meaning we must choose 
between harming small businesses and preserving important 
protections that keep workers and consumers safe. Perhaps a 
better option is to focus on regulating in a thoughtful manner 
that is sensitive to the burden imposed on small companies 
while maintaining their underlying policies. The regulatory 
review process that Congress and the president have laid out is 
meant to achieve that goal, taking small firms' needs into 
account.
    Today, I hope to learn more about how mechanisms like the 
Regulatory Flexibility Act are minimizing their regulatory 
impact on small companies. Likewise, there might be other ways 
that federal agencies can lessen small business compliance 
costs, whether it is through compliance assistance, legal 
advice, or other steps, it is my hope that this sort of 
proactive thinking can also be part of the discussion. All of 
us share the goals of protecting workers, preserving our 
environment, and keeping consumers safe. Likewise, none of us 
want these protections to hurt small companies or impede job 
growth. It is my hope that by working together, we can achieve 
both goals.
    With that, I thank the witnesses for being here today, and 
I yield back.
    Chairman CHABOT. Thank you. The gentlelady yields back.
    If Committee members have an opening statement prepared, we 
ask that they submit them for the record.
    I will now take just a moment to explain our timing and 
lighting system. It is pretty simple. Each of you gets 5 
minutes. We will then get 5 minutes to question you back and 
forth from Republican and Democratic side. The lights, the 
green light will be on for 4 minutes, the yellow light will 
come on to let you know you have got a minute to wrap up, and 
then the red light comes on, and we would appreciate it if you 
would conclude by that time if at all possible. We will give 
you a little leeway but not a whole lot.
    Now I would like to introduce our witness panel. I will 
introduce our first witness, and then I will turn it over to 
the ranking member to introduce our second witness, and I will 
introduce the others.
    Our first witness is Karen Harned. Ms. Harned is the 
Executive Director of the NFIB, National Federation of 
Independent Business, Small Business Legal Center. The NFIB 
represents over 325,000 small and independent businesses. The 
Legal Center advocates for small business in the nation's 
courts and serves as a resource for small business owners 
across the country. Prior to joining the Legal Center, Ms. 
Harned worked at a law firm specializing in food and drug law.
    I would now like to yield to the Ranking Member for our 
second introduction.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    It is my pleasure to introduce Mr. Frank Knapp, Jr., the 
Founder, President, and CEO of the South Carolina Small 
Business Chamber of Commerce, which has more than 5,000 members 
and has a goal of making South Carolina more small business 
friendly. He also serves as Vice Chair of the American 
Sustainable Business Council, which advocates for the growing 
universe of sustainable and socially responsible businesses and 
social enterprises. Mr. Knapp holds a master's degree in social 
psychology from the University of South Carolina and a 
bachelor's degree in psychology from Indiana University of 
Pennsylvania. Welcome.
    Chairman CHABOT. Thank you very much.
    Our third witness is Rosario Palmieri. Mr. Palmieri is the 
Vice President of Labor, Legal, and Regulatory Policy at the 
National Association of Manufacturers, or NAM. NAM represents 
manufacturers across the United States, the majority which are 
small businesses. Before joining NAM, Mr. Palmieri served as a 
staffer on several House Committees, including the Committee on 
Small Business, the most important Committee in Congress.
    Our final witness is Tom Sullivan, an attorney with the law 
firm of Nelson Mullins. He leads the Coalition for Responsible 
Business Finance, a group of businesses that advocate for the 
value of nontraditional lending opportunities for small 
businesses. Previously, Mr. Sullivan served as Chief Counsel 
for Advocacy at the U.S. Small Business Administration from 
2002 to 2008. We thank you all for being here today, and Ms. 
Harned, we will begin with you. You are recognized for 5 
minutes.

  STATEMENTS OF KAREN R. HARNED, EXECUTIVE DIRECTOR, NATIONAL 
   FEDERATION OF INDEPENDENT BUSINESS, SMALL BUSINESS LEGAL 
  CENTER; FRANK EARNEST KNAPP, JR., PRESIDENT AND CEO, SOUTH 
  CAROLINA SMALL BUSINESS CHAMBER OF COMMERCE, TESTIFYING ON 
 BEHALF OF THE AMERICAN SUSTAINABLE BUSINESS COUNCIL; ROSARIO 
 PALMIERI, VICE PRESIDENT, LABOR, LEGAL AND REGULATORY POLICY, 
 NATIONAL ASSOCIATION OF MANUFACTURERS; THOMAS M. SULLIVAN, OF 
          COUNSEL, NELSON MULLINS RILEY & SCARBOROUGH

                  STATEMENT OF KAREN R. HARNED

    Ms. HARNED. Thank you, Chairman Chabot and Ranking Member 
Velazquez, for inviting me here today. On behalf of the 
National Federation of Independent Business, I appreciate this 
opportunity to testify on the hidden tax that regulation 
represents on small business. According to our latest NFIB 
Small Business Economic Trends Survey, 21 percent of small 
business owners cited government regulations and red tape as 
their single-most important problem. Despite the devastating 
impact of regulation on small businesses, federal agencies 
continue to turn out approximately 10 new regulations a day 
with a stunning 3,297 federal regulations in the pipeline.
    When it comes to regulations, small businesses bear a 
disproportionate amount of the regulatory burden as compared to 
larger businesses. This is not surprising since it is the small 
business owner, not one of a team of compliance officers, who 
is charged with understanding new regulations, filling out the 
required paperwork, and ensuring the business is in compliance 
with new federal mandates. The small business owner is the 
compliance officer for her business, and every hour she spends 
understanding and complying with a federal regulation is 1 less 
hour she has to service customers and plan for future growth.
    Today, I want to focus on a category of regulations that 
does not seem to get as much attention in Washington, and that 
is labor regulations. Small businesses can be found in 
virtually all industries. Whether you are a manufacturer, a 
baker, or a dry cleaner, the one thing you are going to have in 
common is employees. For the small business NFIB represents, 
who on average have 10 employees or less, these regulations can 
be some of the most challenging. The small metal fabricator, 
for example, goes into business knowing how to finish metal 
products. He has a good sense of where he goes to get the 
supplies he needs and what kind of skills he is going to be 
needing in his workforce. But what he likely is not going to 
know is the best practices regarding wage and overtime 
calculation, compliance with various state and federal 
discrimination laws, and hiring.
    On July 6, 2015, the Department of Labor published a 
proposed rule that would more than double the minimum salary a 
worker must receive to $970 per week, or $50,440 annually, in 
order to be considered exempt from overtime requirements. The 
nearly $750 million DOL's initial regulatory flexibility 
analysis estimates small businesses would face in new costs 
during the rule's first rule underestimates the true compliance 
costs for a small business. For example, DOL estimates it is 
going to take 1 hour for businesses to become familiar with the 
rule, but this assumption disregards a basic reality of 
regulatory compliance. It is the small business owner that will 
be wading through the rule's regulatory text, not compliance 
specialists like those working for large corporations. This 
rule will not require just a simple look at a salaried 
employee's weekly wages. If an employee is currently salaried 
and makes greater than the current threshold of $455 per week 
but less than the proposed $970 per week, the small business 
owner would spend a considerable amount of time calculating 
various scenarios.
    NFIB member Robert Mayfield owns five Dairy Queens in and 
around Austin, Texas, and he believes this rule would be bad 
news for employers and employees. Currently, Mr. Mayfield 
employs exempt managers at all five of his locations, and these 
individuals earn, on average, about $30,000 per year, and work 
between 40 to 50 hours per week. The managers also receive 
bonuses, more flexible work arrangements including paid 
vacations and sick time, training opportunities, and promotions 
that Mayfield's hourly employees do not get. Under DOL's 
proposal, Mayfield predicted that he will need to move the 
managers back to hourly positions as there is simply no way he 
can afford to pay over 10 managers $50,000 each. Mayfield noted 
that rather than giving managers overtime, he is likely to hire 
a few more part-time employees. He says, ``I feel most sorry 
for the many enthusiastic people who work for me, who have 
worked hard to advance into their dream of a salaried 
management position.'' He continues, ``How can you be a manager 
and punch a time clock? The idea is to do a job, not to keep 
track of your hours. This is the antithesis of building a 
management mentality or in training someone to be a manager. It 
would also disrupt the workplace and lead to fewer management 
opportunities. It would hurt, not help, the people we claim 
that we want to help.''
    As I detail in my written statement, DOL's overtime rule is 
just one of many labor regulations, like OSHA's silica rule and 
the persuader rule out of Department of Labor, that are 
imposing a hidden tax on small business, and these hidden taxes 
are in addition to those found in significant environmental 
regulations, like the ``waters of the U.S.'' rule and EPA's 
Power Plan rule.
    Small businesses are the engine of our economy. 
Unfortunately, they also bear a disproportionate weight of 
government regulation. Complying with these and other 
regulations prevents small business owners from creating and 
growing new jobs.
    Thank you so much for holding this important hearing on 
regulations as a hidden tax on small business, and we look 
forward to working with you on these important issues going 
forward.
    Chairman CHABOT. Thank you very much.
    Mr. Knapp, you are recognized for 5 minutes.

             STATEMENT OF FRANK EARNEST KNAPP, JR.

    Mr. KNAPP. Thank you, and I apologize in advance. I have a 
cold.
    Thank you, Chairman Chabot, Ranking Member Velazquez, and 
members of the Committee. My name is Frank Knapp. I am the 
president and CEO of the South Carolina Small Business Chamber 
of Commerce. I am also the board co-chair of the American 
Sustainable Business Council, which through its network 
represents about 200,000 businesses. The American Sustainable 
Business Council advocates for policy change at the federal 
level and at the state level that supports a more sustainable 
economy.
    Today's hearing topic is important for small business and 
the vitality of our economy. Good regulations tend to stimulate 
innovative and entrepreneurship in addition to limiting or 
preventing destructive forms of economic activity. Bad 
regulations, whether because they are not designed properly or 
simply not needed, will be a burden on small businesses, and 
thus, harm our economy. Everyone here would prefer the former 
and not the latter.
    One example of what is working is the Regulatory 
Flexibility Act. In 2004, my South Carolina organization worked 
with our South Carolina Chamber and the NFIB to pass our Small 
Business Regulatory Flexibility Act modeled after the Federal 
law. Several years later, the then-chairman of the South 
Carolina Regulatory Review Committee told me that over the 
previous 7 years, his Committee had reviewed about 300 proposed 
regulations and identified only 10 that raised their concern. 
His Committee worked with the State agencies promulgating these 
new regulations and satisfactorily resolved the issues. The 
Regulatory Flexibility Act has created an effective process to 
protect small businesses even if the process itself needs some 
attention from time to time.
    While some inside the Beltway claim that regulations are 
holding back our economic growth, the American Sustainable 
Business Council has a different view. Along with the other 
small business organizations, we released a poll of small 
business owners in February of 2012, which found that small 
businesses do not see regulations as a major concern. Our 
polling confirmed that small business owners value regulations 
if they are well constructed and fairly enforced. Eighty-six 
percent believe some regulation is necessary for a modern 
economy, and 93 percent of respondents believe their business 
can live with some regulation if it is fair and manageable. 
Seventy-eight percent of small employers agree regulations are 
important in protecting small businesses from unfair 
competition and to level the playing field with big business. 
Seventy-nine percent of small business owners support having 
clean air and water in their community in order to keep the 
families, employees, and customers healthy. Sixty-one percent 
support standards that move our country towards energy 
efficiency and clean energy.
    Recently, Republican pollster Frank Luntz surveyed CEOs and 
found similar results as the American Sustainable Business 
Council polled. Regulations were identified as the seventh 
concern behind more pressing issues like creating economic 
opportunity, keeping taxes affordable, raising the minimum 
wage, and reducing income inequality. So if small businesses 
are not self-identifying regulations as their top impediment to 
growth, and businesses in general are not citing regulations as 
a significant problem, who are pushing the anti-regulation 
bills really representing?
    The answer is clear. Most of the complaints we hear in 
Washington are from only two industries. Those that are 
impacted by the Wall Street reform, Dodd-Frank, and new 
Environmental Protection Agency regulations. K Street lobbyists 
regaled Congress and the public about the dire economic 
consequences to small businesses of regulations that will 
prevent another Great Recession or protect the health and 
safety of our citizens or restrain the future wrath of 
uncontrolled climate change. In reality, the financial giants 
who drove our economy off a cliff and the powerful fossil fuel 
industry are driving the anti-regulation train using the name 
of small business to garner sympathetic ears.
    In conclusion, the regulation promulgating process can 
produce good results and good rules while protecting small 
businesses from unnecessary burdens if we provide the resources 
for agencies to expeditiously carry out the requirements. 
Congress has already put in place those requirements, but the 
federal government's responsibility to impact small businesses 
should not stop there. Some small businesses will find 
compliance with federal regulations difficult. The answer is 
not to throw the baby out with the bathwater and invalidate 
existing rules. Instead, we believe the solution lies in 
expanding the capacity of the federal government to provide 
regulatory compliance assistance to small businesses.
    Thank you for the opportunity to speak before you today, 
and I welcome any questions the Committee might have.
    Chairman CHABOT. Thank you very much.
    Mr. Palmieri, you are recognized for 5 minutes.

                 STATEMENT OF ROSARIO PALMIERI

    Mr. PALMIERI. Thank you, Chairman Chabot, Ranking Member 
Velazquez, and members of the Committee, it is an honor to 
testify before you today about the impact of regulation on 
small business.
    The U.S. is still the world's largest manufacturing 
economy, producing more than $2 trillion in value each year and 
directly employing nearly 12 million Americans and indirectly 
supporting 18 million jobs. Manufacturers provide good high-
paying jobs. Unfortunately, manufacturers lost 2.3 million jobs 
during the most recent recession, and since then we have 
generated over 802,000 net new jobs. But to regain 
manufacturing momentum and to return to net manufacturing job 
gains, we need improved economic conditions and improved 
government policies.
    The business community is often misunderstood about their 
views on regulation. Manufacturers believe regulation is 
critical to the protection of workers' safety, public health, 
and our environment. We believe some critical objectives of 
government can only be achieved through regulation, but that 
does not mean that our regulatory system is not in need of 
considerable improvement and reform. Regulations are often 
unnecessarily complex, duplicative, and ineffectively achieve 
their benefits. Excessive regulatory changes and uncertainty 
impose high costs, especially on small businesses. Small 
businesses, as we know, bear a disproportionate burden of 
regulation because of the often high fixed cost of compliance 
not subject to economies of scale. That is why the work of this 
Committee and the implementation of the Regulatory Flexibility 
Act are so important.
    Unfortunately, agencies are not anxious to analyze the 
impact of their regulations on small business. A recent study 
showed that between 1996 and 2012, fewer than 8 percent of 
rules were subject to the RFA's analytical requirements. 
Although we had hoped that was because agencies made excellent 
decisions about which rules had those impacts, let me share a 
quick list of some of the most expensive EPA rules. EPA's 
greenhouse gas limits on power plants, National Ambient Air 
Quality Standards for Ozone, Boiler MACT, the NESHAP 6X and the 
``Waters of the U.S.'' rule. EPA certified that each of them 
would not have a significant impact on a substantial number of 
small entities. I think most of us would find that hard to 
believe.
    The reason it matters that these rules and thousands of 
others were not subject to the law is that the real businesses 
and real jobs are lost when small businesses are not 
considered. Last year, SBA's Office of Advocacy saved small 
businesses $1.6 billion in first-year regulatory cost savings, 
and as Ranking Member Velazquez noted, saved $130 billion since 
1998. Imagine what could have been accomplished if fewer rules 
could evade these analytic requirements, and that is why a 
reform of the RFA is so urgent and why Chairman Chabot and this 
Committee's leadership in proposing H.R. 527 would help address 
these concerns.
    Additionally, there are a number of powerful and 
potentially bipartisan regulatory reforms to choose from. One 
would be for Congress to confirm the authority of OMB's Office 
of Information and Regulatory Affairs to review the regulations 
issued by independent regulatory agencies and ensure their 
adherence to strong analytic requirements. Congress plays an 
important role within the regulatory process but does not have 
a group of analysts who develop their own cost estimates of 
proposed or final rules. Just like Congress has an independent 
CBO to check OMB budget assumptions, Congress should have a 
parallel office to OIRA and the agencies to review regulations 
and their impacts.
    While we have appreciated the Administration's good efforts 
on retrospective review of regulations, they have not resulted 
in significant cost savings for our members or a change in 
culture in the federal agencies. To truly build a culture of 
continuous improvement and thoughtful retrospective review of 
regulations, different incentives are needed. To incentivize 
high quality reviews, existing regulations should automatically 
sunset unless they are affirmatively shown to have a strong 
continued justification. While the overwhelming majority of 
those regulations would be continued, a cleanup of outdated or 
unnecessary regulatory accumulation would occur. The complexity 
of rulemaking and its reliance on highly technical scientific 
information has only increased since the passage of the 
Administrative Procedure Act. The APA is 70 years old, and it 
should be reformed by incorporating modern principles for sound 
rulemaking best embodied by President Clinton's executive order 
into the DNA of every rule.
    In my written statement, I have included additional 
regulatory reform proposals for your consideration. I have 
outlined a number of challenging rules for small manufacturers.
    I appreciate the opportunity to provide testimony today on 
behalf of manufacturers across the country. I applaud you for 
holding today's hearing, and I am happy to respond to any 
questions. Thank you.
    Chairman CHABOT. Thank you very much.
    Mr. Sullivan, you are recognized for 5 minutes.

                STATEMENT OF THOMAS M. SULLIVAN

    Mr. SULLIVAN. Thank you, Mr. Chairman, Congresswoman 
Velazquez, members of the Committee. I am pleased to present my 
views on how small businesses are impacted by federal 
regulation. The bulk of my testimony will actually cover how 
small businesses can impact federal rules, or at least how the 
Regulatory Flexibility Act is designed to ensure that small 
business has a voice in the process.
    My testimony this morning is drawn from my two decades of 
work on small business regulatory issues and my overall desire 
to bolster the voice of small business in that process. I was 
confirmed to head the Office of Advocacy in 2002, and as you 
know, that office is responsible for overseeing the Regulatory 
Flexibility Act. I served until October 2008, and during my 
tenure, the Office of Advocacy issued approximately 300 public 
comment letters to 60 agencies, averaging about 38 per year. I 
have remained deeply interested in how small businesses are 
impacted by regulation and how small business involvement can 
benefit regulatory policy.
    I would like to share just briefly some good news and bad 
news. The good news is that federal agencies work with SBA's 
Office of Advocacy, and EPA, and OSHA, and the CFPB, and they 
utilize SBREFA panels to explore how each agency can sensitize 
its regulatory approach to small business. The bad news is that 
there are still times when agency deadlines, whether they are 
judicial, statutory, or political, push folks at the agencies 
to approach the Reg Flex Act as a set of procedural hurdles. 
That concern is of utmost concern during this stage of the 
Administration when the clock is ticking down on when federal 
regulations will be finalized under President Obama. The end of 
administration phenomenon to cement its legacy through 
regulation is not unique to this presidency. There is plenty of 
data, research, and testimony on the subject of midnight 
regulations. One recent publication estimates 4,000 rules 
making their way through this Administration at a cost of more 
than $100 million.
    Unfortunately, I have more bad news. The most obvious 
example of an agency purposely, in my opinion, of an agency 
purposely avoiding the Regulatory Flexibility Act was EPA's 
recent promulgation of the ``waters of the U.S.'' rule. The EPA 
and the Corps certified that the proposed rule would not have a 
significant economic impact on a substantial number of small 
businesses.
    More good news. A set of policies that is good news is that 
states continue to experiment with ways to make their 
regulatory climate more hospitable to small business. Frank 
Knapp already mentioned South Carolina, and in my home state, 
Governor Charlie Baker led an initiative to review all of the 
Commonwealth's rules in a ``spring cleaning'' exercise last 
year designed to help small business. This is akin to my work 
as chief counsel when the Office of Advocacy worked with South 
Carolina, Massachusetts, and several other states to encourage 
state adoption of the Regulatory Flexibility Act at a state 
level, and it is good news that that effort continues.
    Unfortunately, the bad news is that States and their 
experiments also stumble into situations where they want to 
help but unintentionally harm small businesses.
    The coalition that I run, the Coalition of Responsible 
Business Finance, is monitoring a situation in Illinois and a 
situation in New York, up in Albany, where those legislators 
are considering small business lending provisions. It seems as 
though the goals of transparency and disclosure are good, but 
the other prescriptive underwriting standards and excessive 
regulatory mandates' civil and criminal penalties, 
unfortunately, could do more harm than good. I am hopeful that 
in Springfield, Albany, and other state capitals, as I am 
optimistic here in Washington, D.C., that legislators and 
regulators can, and should, incorporate the views of small 
business before moving forward. That is the same principle of 
the Regulatory Flexibility Act.
    I am troubled by what happened with EPA's ``waters of the 
U.S.'' rule and how its avoidance of the Regulatory Flexibility 
Act could not be challenged until the rulemaking was finalized, 
a year after they certified that it would not hurt small 
business. That certification part of the Reg Flex Act is truly 
the ``fork in the road'' when it comes to whether EPA should 
listen to small business and tailor its regulatory approach to 
accommodate small firms. H.R. 527, passed by this Committee, 
solves that problem, and I am hopeful that the Senate will look 
towards a similiar solution.
    I commend this Committee's attention to the plight of small 
businesses that are trying to keep up with the flood of 
mandates emanating from our nation's capital. Agencies need to 
continually hear from you, from the Office of Advocacy, from 
small business stakeholders like my fellow panelists, and from 
small business owners themselves in order to affect positive 
regulatory change. Thank you.
    Chairman CHABOT. Thank you very much. We appreciate the 
testimony of all the witnesses. Now the members on both sides 
will have an opportunity to ask a few questions, and I will 
begin with myself.
    Ms. Harned, let me start with you, if I can. Mr. Palmieri 
and Mr. Sullivan and you all believe and testified, and we 
obviously read your statements, that the Regulatory Flexibility 
Act needs to be strengthened and that loopholes need to be 
closed. I agree, and many of the members of the Committee do, 
and I have introduced legislation to do so. This Committee has 
held numerous hearings where we have heard about agencies 
bypassing the Regulatory Flexibility Act requirements or merely 
treating it as a ``check the box'' exercise. When agencies 
ignore the RFA's procedural requirements, the only option left 
is litigation. Are RFA compliance disputes being resolved 
favorably for small businesses in the courts? And if not, why 
not, in your opinion?
    Ms. HARNED. Actually, in many instances they are being 
resolved favorably because, for example, the certification 
questions that even the ``waters of the U.S.'' rule presents. 
You either complied with the law or you did not. Right? We have 
won in past cases on those issues. The problem is they are 
Pyrrhic victories, because that win is going to take place 
years after the rule has taken effect. That is why the 
legislation that you supported, that the House has passed and, 
that the Senate needs to pass, is so critical, because it will 
allow for judicial review in that critical process where the 
agency has decided not to certify a rule or has failed to 
properly comply with doing an appropriate RFA analysis as the 
rule requires.
    Chairman CHABOT. Thank you very much.
    Mr. Palmieri, let me turn to you next. Notice and comment 
rulemaking is a critical process and ensures affected parties 
and other members of the public have input on regulations as 
they are developed. In the notice and comment, is it working 
well, or are there problems, such as short comment periods for 
complex rules? Do those types of things prevent small 
businesses from participating in the rulemaking process? What 
are your thoughts in that area?
    Mr. PALMIERI. Absolutely. When a rulemaking extends to 
hundreds of pages of extraordinarily complex and dense material 
that cannot be read by the average person, and then an agency, 
as in the case of the Department of Labor, gives a 30-day 
comment period, as they just did recently on a rule for federal 
contractors, it absolutely undermines the entire purpose of 
notice and comment. When asked for an extension of the comment 
period so that businesses could absorb the true impact of the 
rule and weigh in in a thoughtful way, they extended it for an 
additional 10 days. They could have just as easily refused if 
they had chosen to. There is really no excuse in the rulemaking 
process for agencies not to give sufficient time, especially if 
they have not done an advanced notice of proposed rulemaking or 
given an opportunity for early stakeholder input, like 
President Obama's executive order recommends to agencies.
    Chairman CHABOT. Thank you very much.
    Mr. Sullivan, you mentioned the ``waters of the United 
States'' rule as an example of agencies deliberately avoiding 
compliance with the RFA. By certifying the rule, EPA avoided 
conducting a small business advocacy review panel and doing an 
analysis of the rule's impacts. What can be done to address 
this kind of egregious behavior? Is the answer legislation or 
litigation or presidential leadership or some combination of 
those things?
    Mr. SULLIVAN. I think it is some combination of those 
things, honestly, Mr. Chairman. I think that H.R. 527 really 
fixes this problem, and that is the certification problem. 
Really what we are getting at is process versus result. Small 
businesses just do not want to be shut out of the process. They 
want clean water, they want clean air, but they do not want to 
be shut out of the process. At that critical decision point, 
when EPA or any other agency says it does or does not affect 
small business, I think there needs to be an independent 
assessment of that decision that happens before 7, 8, 12 years 
later when it makes it to the Supreme Court, because small 
businesses need regulatory certainty.
    Chairman CHABOT. Let me squeeze in one quick question here, 
Mr. Palmieri. Ms. Harned had mentioned the silica rule in the 
$5.5 billion annual compliance cost as one of the top issues. I 
know you had it in your written testimony as well. Would you 
discuss that briefly, the compliance challenges that small 
manufacturers are facing when it comes to the silica rule?
    Mr. PALMIERI. Sure. Manufacturers care deeply about the 
health of their employees and they are constantly, with or 
without the rules, able to address them. The real challenge of 
the silica rule is that OSHA will not allow businesses to 
prioritize personal protective equipment above costly 
engineering controls. Even in situations like in a foundry 
where it may not be feasible to implement the kinds of 
engineering controls OSHA has suggested, they are looking at 
extraordinarily costly measures when there are more efficient 
measures that will be just as protective. That is the real 
tragedy of this rule.
    Chairman CHABOT. Thank you very much. My time is expired.
    I would like to now recognize the gentlelady from North 
Carolina, Ms. Adams, who is the Ranking Member of the 
Investigations, Oversight, and Regulations Subcommittee, for 5 
minutes.
    Ms. ADAMS. Thank you, Mr. Chair, and thank you, Ranking 
Member Velazquez, for holding these hearings on tax 
implications for small businesses. It is of critical concern.
    Ms. Harned, you note that regulations are extremely onerous 
for businesses. How burdensome are regulations here in the U.S. 
compared to regulations in other countries, particularly those 
with similar economic structures?
    Ms. HARNED. Honestly, I would probably not be your person 
to answer that question. Our members really do primarily 
operate in the United States. They do not do much 
internationally.
    Ms. ADAMS. Would other members of the panel like to 
respond?
    Mr. PALMIERI. Sure, Ms. Adams. Part of the challenge for 
U.S. businesses is that often our compliance regimes are very 
different than in say some of our European allies and others 
where they may set a rulemaking standard but it is a goal as 
opposed to a floor or a threshold. Oftentimes you may even find 
similar regulatory standards internationally, and yet, their 
enforcement regimes have a different philosophy, and as a 
result, are far less costly to implement or they have a more 
cooperative relationship between businesses and regulators. 
What we certainly say, although they are not fantastic 
international quantitative comparisons, is that the U.S., when 
are business leaders operating in multiple jurisdictions 
surveyed, the U.S. is one of the most costly regulatory 
countries.
    Ms. ADAMS. Thank you, sir.
    Ms. Harned, many businesses are worried about duplicative 
regulations at both the federal and state levels. Can you 
discuss the extent to which firms face duplicative regulations?
    Ms. HARNED. Thank you for that question, because that is a 
very important issue that I have seen in my 14 years at NFIB. A 
state will tell somebody to do one thing. You will see it with 
building codes, all sorts of things. The federal government 
will come in, or an inspector will come in and say, oh, no, you 
need to do it that way. Really what I think all regulators need 
to do, and we need to come up with a system to meet the small 
business owner where they are, they need to know once I have 
gone through this one inspection, whether it is a state 
inspection, a federal inspection, even an inspection by a 
workers' comp insurer, they have hit the marks that they need 
to hit, that they are good, because they want to meet the 
requirements that are asked of them. But, if the requirements 
are different for different people that are coming in at 
different times, it gets very confusing and challenging, and 
quite frankly, frustrating.
    Ms. ADAMS. Thank you.
    I have a concern about minority-owned businesses, and I 
wanted to ask if you had any thoughts on how red tape impacts 
minority-owned firms or disadvantaged businesses, and how the 
agencies can work with these firms specifically to provide 
technical assistance around compliance issues.
    Ms. HARNED. I actually think all small business owners, 
regardless whether minority-owned or not, are in it together on 
this issue, if I may, because I think that is the biggest 
issue. None of them are able to really find out what is 
required. I talked to colleagues, friends, members in different 
industries, and they really are relying on the trade 
association newsletter to alert them to things. Really, the 
outreach that can come to all communities, minority included, 
to the small businesses, there cannot be enough communication, 
enough channels of communication, in my opinion, because I 
still think so much of this comes as a shock. ``Oh, wait. We 
need to be doing that? I had no idea.'' I think that is 
particularly problematic if you are in a more insulated 
community or not as familiar with business, if, you are just 
new to business.
    Ms. ADAMS. So what is the solution then?
    Ms. HARNED. I have suggested to agencies before, partnering 
with small trades, getting the information, working with them 
to disseminate the information, get the information out. The 
same can be done with the minority communities. Bringing those 
organizations in to help them find their people, meet them, let 
them know what the rules are, and then also help them with 
compliance. Compliance assistance is key for everyone.
    Ms. ADAMS. Great. Thank you very much.
    Mr. Chair, I yield back.
    Chairman CHABOT. Thank you. The gentlelady yields back.
    The gentleman from Missouri, Mr. Luetkemeyer, who is the 
Vice Chairman of this Committee is recognized for 5 minutes.
    Mr. LUETKEMEYER. Thank you, Mr. Chairman, and welcome to 
all the panelists today.
    Ms. Harned, I serve on the Financial Services Committee as 
well and do a lot of work with regards to financial services 
issues, Dodd-Frank regulations, CFPB and, overreach. In fact, I 
am the author of the bill to stop Operation Chokepoint which 
affects lots and lots of small businesses. It is not based on 
whether they are doing something illegal, but based on the 
political bent and/or value system of the agencies, DOJ and 
FDIC in particular, with regards to certain individual 
industries. What is your experience with your members with 
regards to Operation Chokepoint, and have you seen a decline 
since FDIC has changed their policy?
    Ms. HARNED. We definitely are hearing more from members on 
this issue, and this was actually one of the regulatory, rules 
that has given us great concern. My Legal Center issued an 
underground regulation report last fall that highlighted the 
Operation Chokepoint and other mandates that have been coming 
out of agencies that have not gone through the process, have 
not had the benefit of Reg Flex. As a result, it seems it is 
targeted in different areas of the country, and so we are just 
seeing these complaints, if you will, come up through different 
industries, different parts of the country. But all of this is 
something that could have been foreseen had the agency gone 
through the requirements of the regulatory process instead of 
doing this through some DOJ memo or however this program 
unfolded.
    Mr. LUETKEMEYER. According to their own emails, their own 
internal emails, there is a concerted effort and a culture 
within these agencies that allows this to happen. So my 
question also, is have you seen as a result of this a decrease 
in the access to capital for your members?
    Ms. HARNED. Honestly, I cannot speak to that. I feel like 
that would be something for our research team, but I could get 
back to you.
    Mr. LUETKEMEYER. Sure.
    Mr. Sullivan, as an advocate for small businesses, I am 
sure you deal with a lot of different regulatory agencies. Have 
you seen the willingness of the agencies to work with you with 
regards to--I know a number of the panelists have made comments 
about concerns when rules are issued, nobody really does their 
analysis. I think it was 8 percent of the rules have basically 
a cost-benefit analysis done on it or any sort of other 
analysis, which is 92 percent short of the goal of what it 
should be. When you go back and talk to the bureaucracies, do 
they recognize this? Are they willing to work with you?
    Mr. SULLIVAN. This is another one of the good news, bad 
news kind of responses to your question, Congressman. The good 
news is yes, there are pockets of really good practices. You 
are familiar, certainly, with your work on Financial Services 
with CFPB. The good news with CFPB is they let you and the 
small business stakeholders know right at the beginning of a 
rulemaking that they are going to do a SBREFA panel. I wish EPA 
would tell everybody that they were going to do it. The 
challenge then is that when CFPB does it, it does not seem as 
though they are really incorporating those views into how they 
approach the regulation. That is kind of a sole agency good 
news, bad news.
    The Department of Transportation has a long history of 
working very well with SBA's Office of Advocacy. OSHA actually 
releases its interaction with small business in a report prior 
to----
    Mr. LUETKEMEYER. My question, sir, they are working with 
you but do they listen? Because I can tell you from talking 
with folks who have gone to some of these agencies, the 
fiduciary rule is a recent example. The QM rule with regards to 
qualified mortgages in CFPB, they ignored the discussion and 
the visits, because I had a group come to my office, and they 
said for the 42nd--we were the 42nd group to go in and talk to 
CFPB about the problems with QM and they said, well, we still 
know better than you what to do. It appears to me that even 
though you go talk to them, there is this attitude that we know 
better than you. Do you see that as prevalent, yes or no?
    Mr. SULLIVAN. Congressman, yes, I do see that continue to 
be a prevalent attitude, unfortunately.
    Mr. LUETKEMEYER. This is my concern because as I go home 
every week and I talk to my small business folks at home and I 
ask them, if you had one rule or regulation that you could get 
rid of, what would it be? They will tell me, you know what? It 
is not one particular one. It is this combination of all of 
them. It is the straw that finally breaks the camel's back. It 
is not knowing what is coming to us next that is a concern to 
us, and as a result, we are sitting on our cash. I have small 
businesses that are sitting on tons of cash. They want to 
expand, hire people, put a new line in their manufacturing 
plant, and cannot because they do not know what is coming down 
the pike next. It is this uncertainty that causes us to not 
have, I believe, the kind of economy we could have. When you 
look at creating fewer businesses in the last 7 years than we 
have lost, that is a problem, and I know it affects you, Ms. 
Harned.
    I yield back the balance of my time. Thank you.
    Chairman CHABOT. Thank you. The gentleman's time is 
expired.
    The Ranking Member, Ms. Velazquez, is recognized for 5 
minutes.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    Mr. Knapp, a lack of regulation or regulatory enforcement 
can often lead to catastrophic results. Environmental 
disasters, such as those in West Virginia recently, or the BP 
oil spill, have been devastating to local small businesses. 
What do you think happened there? Was it lack of regulations or 
lack of enforcement?
    Mr. KNAPP. Thank you. In West Virginia, you are talking 
about the Elk River Spill. That was actually because, and I 
know this firsthand. As soon as that spill happened, I was in 
contact with the businesses there, which cost them, by the way, 
$19 million a day because they had to shut down their only 
source of clean drinking water. It was a matter that was not on 
the radar of anybody. You had this tank and nobody knew what 
was in it. Nobody was paying attention to it. It did not fall 
under any guidelines, any rules about how it had to be 
maintained. After that, the West Virginia legislature actually 
passed some very strict rules regarding aboveground storage and 
chemical storage. Unfortunately, the following year they turned 
around and gutted a lot of it. It is important. Regulations are 
important. They keep us safe. They protect our environment. 
They protect small businesses so that they do not have to be 
shut down when the drinking water is shut down, and they are 
important. I think everybody here recognizes that regulations 
do serve a purpose when they are done appropriately and are not 
too onerous.
    I will go back to my statement. If we are talking about 
everybody thinks it is a good thing that agencies or the SBREFA 
process or everybody else has better outreach, we better fund 
it, because if we do not fund it, we are not going to be any 
better off than we are today. There is no sense in passing 
something and saying you will do this and then they go, ``well, 
okay, we do not have time so we are going to still try to not 
do it''. That is what I think goes on in these agencies with 
limited resources. It is funny. I was here nearly four years 
ago testifying before the same Committee, talking about the 
same thing.
    Ms. VELAZQUEZ. Yeah, well, I guess budgets have 
consequences.
    Mr. KNAPP. Yes, they do.
    Ms. VELAZQUEZ. Mr. Sullivan, I see in your testimony that 
you are leading the Coalition for Responsible Business Finance, 
a group of nontraditional small business lenders. As you know, 
I also serve on the Financial Services Committee, and I have 
pushed Director Cordray to issue regulations under Section 1071 
of Dodd-Frank that will help us determine whether women-owned 
and minority-owned businesses are being discriminated against 
when they are trying to get loans. I will continue to push the 
director to do what we told him to do when we passed the Dodd-
Frank. However, I am curious, from your standpoint, about how 
the CFPB can get this information without harming small 
lenders. Do you have an opinion on that?
    Mr. SULLIVAN. Thank you, Congresswoman, and thank you for 
being one of the first members of Congress to meet with the 
small businesses who are trying to provide capital to small 
businesses outside of the depository bank arena.
    Grady Hedgespeth was just appointed as the head of Small 
Business at CFPB. He comes from a career at SBA. He is a good 
guy, and he approaches these issues very thoughtfully and 
carefully. CFPB has a good start and a good man to hire to do 
this, but he has a tough challenge ahead. The answer to your 
question is: CFPB can get it right if it truly meets, listens 
to, and reacts to small businesses in this space, and that is 
the principle of the Reg Flex Act. If they do it right, then 
they will come out with a good regulation.
    Ms. VELAZQUEZ. We will be watching for sure. Thank you.
    Mr. Knapp, when agencies publish a proposed rule, the Reg 
Flex Act requires them to describe, and where feasible, 
estimate the number of small entities to which the proposed 
rule applies. Agencies often underestimate the number of small 
businesses impacted by proposed regulations, or simply say that 
the data is unavailable. Is it your experience that the burden 
is on small businesses to demonstrate that they will be 
affected? Mr. Sullivan, I would like to hear your comments on 
that.
    Mr. KNAPP. I do not know how much outreach the EPA did 
regarding developing the ``waters of the U.S.'' I have been 
told it was pretty extensive even though they did not go 
through the SBREFA process. Here is the problem. The problem 
is, when we even have advocacy and they have the panels, they 
are usually done in places where most small businesses are not. 
Okay? They are done in Washington, and that means trade 
associations are representing them, and trade associations are 
not necessarily representing the rank and file out there. I do 
not remember any of them coming to South Carolina to hold 
anything.
    I do not want to say it is the small businesses' 
responsibility to tell an agency that yes, we will be impacted. 
I think that if we are going to be doing this type of outreach, 
they need to have the resources to go out to the small 
businesses. Instead of putting the burden on small businesses 
to say they are going to be impacted, let's bring the two of 
them and let's educate them. Let's take them to where they are 
and then have those types of conversations.
    Ms. VELAZQUEZ. Thank you.
    Mr. Sullivan?
    Mr. SULLIVAN. Thank you, Congresswoman Velazquez.
    First of all, I disagree vehemently with Mr. Knapp's 
statement that trade associations do not represent their small 
businesses. I think that is absolutely false, and I think my 
tenure as chief counsel, my interaction with the trade 
associations was tremendously helpful to gauge where small 
businesses come from. They are busy running their businesses, 
and if they can afford $100 extra to join a trade association, 
they want the trade association to interact with the agencies 
so that they can put the lights on and turn the lights off at 
the end of the day to run their business.
    Now, as far as whether or not agencies underestimate or 
overestimate or who is responsible for the data, agencies have 
the resources to do the type of economic analysis. They know 
when they can get help from small businesses through their 
trade associations. I think the burden under the law is on the 
agencies to get it right, and I think that should continue to 
be where the emphasis is for producing analysis that you can 
benefit from, as well as small business owners in the process.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    Chairman CHABOT. Thank you very much. The gentlelady's time 
has expired.
    The chair would just note for the record that whereas 
private companies can screw up as they did in the chemical 
spill in West Virginia, that the government can screw up 
royally as it did out in Colorado some time ago in the Animas 
River when the EPA allowed huge amounts to go into the river 
there. That was the EPA.
    I would now like to recognize the gentleman from 
California, Mr. Knight, for 5 minutes.
    Mr. KNIGHT. Thank you, Mr. Chair.
    My question is for Mr. Palmieri. Mr. Hardy and I recently 
wrote a letter to Secretary Perez expressing similar concerns 
to the testimonies today. As you may know, Mr. Hardy and I are 
from two very different states--me from California, Mr. Hardy 
from Nevada--and we approach things quite differently in both 
of those states. Do your members bring up issues on how these 
proposed rules would affect them on top of the state 
regulations in different states?
    Mr. PALMIERI. Absolutely. We often have deep sympathy with 
our members in certain states that have a very challenging 
regulatory philosophy. Some of our members live in states where 
the regulatory philosophy is to accomplish the objective but to 
also remain the most competitive state in the country to 
attract businesses and invest. Obviously, we also suffer the 
challenges of, as Ms. Harned mentioned, differing enforcement 
regimes where a business that might have a facility on two 
sides of a border, in the Midwest or otherwise, where one of 
their facilities is in compliance with State inspectors in the 
program and the other is not, despite doing the same thing and 
meeting federal standards. There are any number of challenges 
that they face, and obviously, for some, they have made 
decisions to leave certain states because of their regulatory 
regimes or decided not to invest that next dollar or that next 
job in states that are not as welcoming.
    Mr. KNIGHT. Well put. Our job is to kind of get out of our 
way in California. I think Mr. Hardy's job is to then take our 
jobs. I asked this because California just passed a minimum 
wage of $15 an hour, and unfortunately, California sometimes 
leads, many times in the wrong direction. How do we see this 
$15 an hour minimum wage? Because it could be moving across the 
country. I know other states are talking about it and other 
states are considering this. How will this affect small 
business? This is for all four panelists. How much will this 
make the changes? I know that we had a good story about the 
five Dairy Queens and the change that will happen with the 
managers and now putting them back to salaried employees. Just 
the change in flexibility of not being able to allow your 
employees to have maybe a life instead of the things that the 
small business is going to have to go through with these huge 
changes from $8, $9, and $10 an hour, to now $15 an hour.
    Ms. HARNED. If I may, this has been something that NFIB has 
really been on the front lines of in the various states 
fighting because of the Robert Mayfields of the world. The 
concern is what it does for the entire workforce because it is 
not just getting that first employee up to $15 an hour, an 
employee that you may be training that will eventually be 
making and truly producing that value for the business. It also 
means what do you do about Joe that prior to the increase was 
making $17 an hour or $16 an hour? You are not just raising the 
labor cost, it is not just the lowest person on the ladder; it 
is going to impact everyone. When you have the small business 
owners that we represent that are really sometimes netting 
$100,000 a year if they are lucky, there is not a lot of money 
to play with there. The pie is just not getting any bigger.
    Mr. KNIGHT. I will use my last couple seconds here. We did 
a couple roundtables and one of them was with small restaurant 
owners, and that is the exact issue that they brought up. Look, 
our cooks do not make $15 an hour. They are making more than 
that. Now we hire somebody at $15 an hour and somebody is 
making $18 an hour. Are they going to just say, well, ``that is 
fine by me; I will just continue to make $18 an hour''? Or are 
they going to say, ``we would like a bump, too''. It does have 
that ripple effect throughout the whole business that it is not 
just the $15 an hour basement, everyone is going to be bumped 
up. That comes off the bottom line of a small business. It 
makes it so there are less jobs. Not more jobs, less jobs.
    I appreciate the time and I appreciate the panel here 
today. Thank you, Mr. Chair.
    Chairman CHABOT. Thank you very much. The gentleman's time 
is expired. The chair would just note that like California, the 
city of Cincinnati--and I happen to be a resident of the city 
of Cincinnati--they are also now considering enacting a $15 
minimum wage, and I can assure you that they did not consult 
with the chairman of the House Small Business Committee before 
considering such action.
    The gentleman from Nevada, Mr. Hardy, who is the chairman 
of the Subcommittee on Investigations, Oversight, and 
Regulations is recognized for 5 minutes.
    Mr. HARDY. Thank you, Mr. Chairman, for the opportunity 
throughout this meeting and bring out some of these issues that 
are out there. As a former small business owner myself, I might 
disagree with many on the impact of regulations; I have seen 
the impact of what regulations do to small businesses. We talk 
a lot about the small business, but we also have to understand 
that through the regulation process, small businesses also hurt 
probably more than anybody else when it impacts big business. I 
just heard at a hearing this morning about the impact of the 
steel industry, the regulations on the steel industry and how 
we cannot compete, or how we have governments backing up 
things, but the government side does not have anything to do 
with regulations. It has something to do with what our 
responsibility is here.
    The reason I bring this up, through regulations like 
``waters of the U.S.,'' the Clean Water Act, the sick leave 
rules, all these other little rules that get at it, too, we, as 
small businesses, feed off many of the big businesses. When it 
impacts big business, it devastates our market too, and they 
start to collapse or they start to decline. Things like 
``waters of the U.S.'' in Nevada. Really? Clean waters of the 
U.S. and Clean Water Act in Nevada? You literally could go for 
hundreds of miles and never find a stream. But because of 
mining impacts and the costs, it also costs maybe steel 
products, precious or other metals that help make good quality 
steel. When that impacts there, it drives costs up and drives 
the business out of business, so to speak, so we have problems 
on that end, too. We cannot ever leave out the big business 
impact. I would like to thank Mr. Knight for signing onto the 
letter with me for the overtime rule.
    Ms. Harned, I would like you to address maybe a little 
further on what impact this overtime rule has had on small 
business. You brought it up a little bit but can you go into 
manufacturing costs of jobs or maybe what other issues might be 
harmed by this overtime rule?
    Ms. HARNED. Right. I think the issue is the jobs. I think 
that Mr. Mayfield's story really demonstrates that. The other 
thing that I think is so important to focus on with regard to 
this rule, we live in a very expensive area, and $50,000 is not 
what it is in rural Texas. That is one of our biggest 
complaints with this rule, and we really were asking that the 
Department look at the fact that you have different markets all 
over the country. One size definitely does not fit all when it 
comes to this, and you are, as Mr. Mayfield suggests, punishing 
people that you are trying to build as managers; making them 
think as an hourly employee as opposed to doing what is good 
for the business. I really think, for the small business owners 
we represent, this rule is very much one of a job loss leader. 
Lack of sales may definitely come from that, too, because as 
people lose jobs, they have less money to spend. Our most 
recent report that was just issued on Tuesday shows now that 
lack of sales is coming back up as a big factor as to why small 
businesses are not expanding and doing poorly in this economy 
still today.
    Mr. HARDY. You talk about the impact of the overtime rule, 
but we have many other impacts--the sick leave rule--that are 
coming forward. This joint employer rule, which is going to 
cause a major impact on industries because of the explanation 
that needs to be understood of where it is really going to stay 
with the smaller businesses that actually help build up that 
franchise, so to speak.
    A question I can ask of Mr. Palmieri, last year there was 
82,035 pages of regulations drafted from January 1 to December 
30. Who has to read those pages? How many pages a day is that, 
by the way? How many employees do we have to have to take care 
of just to make sure we are not violating regulations?
    Mr. PALMIERI. Absolutely. For some of our smallest 
businesses, it is absolutely impossible. They have to rely on 
outside expertise, they will pay consultants. They will join 
trade associations. They will join other groups to help figure 
out what is coming at them, both what to expect in the future 
and what is hitting them right now. But you point to a critical 
piece that is so often missed and that no agency does a good 
job of, which is to say, in what environment am I adding this 
new regulatory cost? What is the cumulative burden of the 
regulations from this agency and all others that have been 
imposed recently on this industry, this sector, or in the past, 
that they are still following? That they are still investing in 
capital equipment to comply with? That cumulative burden, even 
though this administration has asked agencies to look at it, is 
never analyzed, is never reviewed, and often is what makes a 
relatively small rule still very costly at the margin and 
critical for whether a business remains a profitable concern or 
not.
    Chairman CHABOT. Thank you very much. Thank you. The 
gentleman's time has expired.
    The gentleman from Mississippi, Mr. Kelly, is recognized 
for 5 minutes.
    Mr. KELLY. Mr. Chairman, thank you for holding this 
hearing, and I thank all of you witnesses for being here. I 
thank you for your testimony today.
    It is frustrating to me. I am new here, and so I still have 
friends back home that do not know anything about the 
legislative process, and quite frankly do not want to know 
anything about the legislative process, and I may join them one 
day. It is frustrating when you have agency after agency after 
agency that in the name of trying to help people are continuing 
to hurt not only the small businesses but also the end user, 
the customer, the consumer whose prices continue to go up. 
Whether we are talking about the CFPB or EPA or OSHA or NLRB, 
they continue to pile on regulations, quite frankly, even to 
the point that recently there are lobbying groups to support 
their rules on the front end, which is illegal in some cases. 
Even when you tell them it is illegal, and I have actually had 
this in the Ag hearing where they say, ``well, I think they 
misinterpreted the law''. I think the courts are wrong. The 
courts did not really mean that. They are wrong in the ruling 
that they have. We are going to ignore that. We have agencies 
that are out of control. We need good regulation in government. 
I think everyone in the panel would agree with that. We need 
reasonable regulation, and we need regulation that prevents 
cheaters, but we do not need burdens on our backs. Fifty 
thousand dollars a year is a lot of money in Mississippi, where 
I live. We cannot afford $15 an hour, especially when it is a 
graduated scale where you are punishing your hard workers, 
people like my wife who works, who does not make New York 
wages, it is difficult. So how do we stop them? Because they 
put up comment periods. They pay groups to go and comment what 
they want to say what a great rule it is, either legally or 
illegally. Groups do that. The number of comments does not 
equal the number of people it affects, and quite frankly, most 
small businesses cannot read it, do not have the time to read 
it, or are not articulate enough to organize to put those right 
messages on there. How do we stop it in Congress? How do we 
stop the ridiculous regulations that keep coming? I will just 
start with you, Ms. Harned, and see, what can we do?
    Ms. HARNED. That is the million-dollar question. I think 
one thing that can happen that would be helpful is, as we have 
seen with these big comprehensive bills, whether it is 
Obamacare or Dodd-Frank or whatever, there is way too much left 
unsaid in the statutory language, which means that the agencies 
get a clear path to fill in the blanks, if you will. Then you 
have years of jurisprudence in the courts that only give them 
the green light for that, saying we are going to defer to you, 
we are not going to second guess you. We have created, as an 
old professor Jonathan Turley said, the fourth branch of 
government now with these agencies. I really feel like starting 
in Congress, write clear, small, very direct legislation, and 
then aggressive oversight is also critical.
    Mr. KELLY. That is one of the things that is really 
frustrating to me, if I vote wrong and I do things that are 
stupid, my folks will send me home. I am accountable. If I make 
too many of the wrong votes or do things the wrong way, I am 
accountable. I go home. The President is accountable to the 
people. He is elected by the people, and if he makes the wrong 
decisions, whoever our next president is, he/she, it does not 
matter. If they make enough of the wrong decisions, the people 
will send them home. The same with our Senate. The problem is, 
these regulatory agencies, they do not even go to jail for 
breaking the law. There is no accountability whatsoever. They 
are not elected, they do not care what the people think, and 
they do not care what the voters think because they do not 
answer to the voters. They do not answer to the President. They 
do not answer to the Congress. They do not answer to the 
courts. They think that they are untouchable, and we have to 
figure out a way. I do not think any rule or regulation, if it 
was up to me, none of them, unless they were approved by 
Congress, would ever be acted into regulation. I do not care 
the cost because I think we owe a duty, and I think we have to 
get away from regulators running this country. The fourth 
branch of government, which I would argue right now until we do 
something, is the most powerful branch of government in spite 
of that is not the best thing for this nation. I think there 
are some really good people who work there. I do not think they 
are all bad people, and I think people have really good 
motives. But at the end of the day, I think we have to rule on 
the amount of excessive regulation. I yield back.
    Chairman CHABOT. Thank you. The gentleman yields back.
    The chair was considering going into a second round and 
asking another question, but I cannot improve on what the 
gentleman from Mississippi just said. So I am going to end it 
there.
    We want to thank all the witnesses for being here today. 
Today's hearing highlighted how regulations that are often 
created without assessing the real world consequences for small 
businesses can result in unnecessary and excessive regulatory 
burdens, especially on small businesses. At the core of this 
problem, I think to some degree, is the agency's failure to 
comply with the Regulatory Flexibility Act. This Committee will 
continue to closely monitor agencies' regulatory activities and 
work on solutions that will ensure full compliance with the 
law.
    I would ask unanimous consent that members have 5 
legislative days to submit statements and supporting materials 
for the record. If there is no further business to come before 
the Committee, we are adjourned. Thank you very much.
    [Whereupon, at 11:15 a.m., the Committee was adjourned.]
    
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