Tax Day: Exploring The Adverse Effects Of High Taxes And A Complex Tax Code
Summary
The printed record of an April 10, 2024 House Committee on Small Business hearing on tax policy, published as Small Business Committee Document Number 118-046, with Chairman Roger Williams presiding. Williams's opening statement argues for extending expiring provisions of the Tax Cuts and Jobs Act and states that median household income rose by $5,000 in the 2 years after its enactment. Ranking Member Nydia Velazquez's statement criticizes the 2017 law's temporary 20 percent deduction for small firms and states that the IRS has recovered over $500 million in unpaid taxes. The witnesses were an economics professor from Purdue University and the presidents of HJB Convenience Corporation, BTE Technologies, LLC. and Susquehanna Glass Co. The appendix lists their prepared statements and additional material from Small Business Majority.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
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[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
TAX DAY: EXPLORING THE ADVERSE EFFECTS OF HIGH TAXES AND A COMPLEX TAX
CODE
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
APRIL 10, 2024
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 118-046
Available via the GPO Website: www.govinfo.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
55-250 WASHINGTON : 2024
HOUSE COMMITTEE ON SMALL BUSINESS
ROGER WILLIAMS, Texas, Chairman
BLAINE LUETKEMEYER, Missouri
PETE STAUBER, Minnesota
DAN MEUSER, Pennsylvania
BETH VAN DUYNE, Texas
MARIA SALAZAR, Florida
TRACEY MANN, Kansas
JAKE ELLZEY, Texas
MARC MOLINARO, New York
MARK ALFORD, Missouri
ELI CRANE, Arizona
AARON BEAN, Florida
WESLEY HUNT, Texas
NICK LALOTA, New York
CELESTE MALOY, Utah
NYDIA VELAZQUEZ, New York, Ranking Member
JARED GOLDEN, Maine
KWEISI MFUME, Maryland
DEAN PHILLIPS, Minnesota
GREG LANDSMAN, Ohio
MARIE GLUESENKAMP PEREZ, Washington
SHRI THANEDAR, Michigan
MORGAN MCGARVEY, Kentucky
HILLARY SCHOLTEN, Michigan
JUDY CHU, California
SHARICE DAVIDS, Kansas
CHRIS PAPPAS, New Hampshire
Ben Johnson, Majority Staff Director
Melissa Jung, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Roger Williams.............................................. 1
Hon. Nydia Velazquez............................................. 2
WITNESSES
Dr. Aaron Hedlund, Associate Professor of Economics, Purdue
University, Columbia, MO....................................... 5
Mr. Raymond Huff, President, HJB Convenience Corporation,
Lakewood, CO................................................... 7
Mr. Chuck Wetherington, President, BTE Technologies, LLC.,
Hanover, MD.................................................... 8
Mr. Walter Rowen, President of Susquehanna Glass Co., Co-Chair of
Small Business for America's Future, Lancaster, PA............. 9
APPENDIX
Prepared Statements:
Dr. Aaron Hedlund, Associate Professor of Economics, Purdue
University, Columbia, MO................................... 33
Mr. Raymond Huff, President, HJB Convenience Corporation,
Lakewood, CO............................................... 43
Mr. Chuck Wetherington, President, BTE Technologies, LLC.,
Hanover, MD................................................ 49
Mr. Walter Rowen, President of Susquehanna Glass Co., Co-
Chair of Small Business for America's Future, Lancaster, PA 56
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
Small Business Majority...................................... 60
TAX DAY: EXPLORING THE ADVERSE
EFFECTS OF HIGH TAXES AND A COMPLEX TAX CODE
----------
WEDNESDAY, APRIL 10, 2024
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 10:04 a.m., in Room
2360, Rayburn House Office Building, Hon. Roger Williams
[chairman of the Committee] presiding.
Present: Representatives Williams, Stauber, Meuser, Van
Duyne, Molinaro, Alford, Bean, Lalota, Velazquez, Landsman,
McGarvey, Gluesenkamp Perez, Scholten, Thanedar, Chu, Davids,
and Pappas.
Chairman WILLIAMS. I want to welcome everybody here today,
and before we get started, I want to recognize Congressman Bean
from the great state of Florida to lead us in the pledge and
the prayer. Would you please stand?
Mr. BEAN. Thank you very much, Mr. Chairman. Let us pray.
Heavenly father, we are grateful for this day. The gift of
today. What are we going to do with it? We ask for energy and a
sense of purpose and direction. Lord, we give thanks for small
business, the people that put America to work and have created
one of the greatest systems of economic stability. We ask those
hands that are first to show up at work, last to leave and last
to get paid, that just--we bless them. We know that they are
the engine of putting other people to work and putting dinner
on the table. We ask a blessing on our country, our leaders,
and our defenders. And everybody said together, amen.
Join me in the pledge, ladies and gentlemen. I pledge
allegiance to the flag of the United States of America. And to
the Republic for which it stands, one nation under God,
indivisible, with liberty and justice for all.
Chairman WILLIAMS. I now call the Committee on Small
Business to order. Without objection, the Chair is authorized
to declare a recess of the committee at any time. I now
recognize myself for my opening statement.
Good morning to all of you, and welcome to today's hearing,
which will focus on how tax policy significantly impacts our
nation's small businesses. I would like to start off by
thanking our witnesses for joining us today, and your
attendance is greatly appreciated, and we value your input and
expertise on these issues. As our nation's job creators
continue to face harsh economic headwinds, we must ensure the
Tax Code works for them, not against them.
And in 2017, Congress passed the Tax Cuts and Jobs Act, the
most significant changes in the Tax Code in decades. The TCJA
lessened the tax burden on small businesses and provided much
needed relief for all Americans. When small businesses get to
keep more of their money, they put it to work in either their
business or their communities. I believe that the cuts
fundamentally provide how cutting taxes is good for small
businesses, good for all Americans, and good for our economy.
You don't have to just take my word for it, though. The
year following the tax laws enactment, businesses revenue went
up and generated the highest single year increase in government
revenue since 1977. This bill also helped families. In the 2
years following the TCJA's enactment, the median household
income increased by $5,000. Unfortunately, some of the main
provisions in this law are starting to expire, which will make
it harder for businesses to continue their operations. The
House of Representatives acted in January and passed a
bipartisan bill to extend some of these key provisions
affecting the small business community. But unfortunately, this
bill is still waiting for Senate action.
I hope the stories from our witnesses here today will help
spark action by impressing the bill's benefits and the time
sensitive nature of these tax policies. This morning, higher
than expected inflation reading shows that President Biden's
tax and spend policies continue to hurt everyday Americans. Not
only that, with inflation remaining stubbornly high, it will
likely force the Federal Reserve to keep interest rates high,
which will make it more challenging for businesses to access
capital. As the small businesses continue to deal with
inflation, labor shortage and onslaught of burdensome
regulations, it is imperative that we don't allow the Tax Code
to further penalize success.
In addition to larger tax liabilities, if these provisions
expire, business owners are facing a new, troubling reality.
Statistics show that small businesses are receiving audits at
an alarming rate. On average, small businesses owners will pay
over $1,000 per year to have a CPA firm prepare their taxes,
and that is money they don't have. This is just another cost
that a business owner has to write off as a loss when those
dollars could help build on their core business model. We in
Congress must make small businesses--are not forced to play
defense against an overly aggressive IRS. Unfortunately, we
also saw in the President's budget that he wants to increase
taxes on many small businesses. We can't tax our way into
economic growth and need to let our job creators do what they
do best and generate economic activity for their communities
and everybody.
I would like to once again thank our witnesses for being
here with us today. I am very much looking forward to our
conversation. And with that, I want to yield to our
distinguished Ranking Member from New York, Ms. Velazquez.
Ms. VELAZQUEZ. Thank you, Mr. Chairman. Good morning,
everyone, and thanks to the witnesses for being here with us
this morning. Main street businesses are the lifeblood of our
nation's economy, driving innovation and job creation and
helping millions of Americans achieve their American dream. As
such, they are key to our federal tax strategy. When our tax
system works for them, it brings the most value. However,
despite their fundamental importance, small firms are often
used as bargaining chips in the discourse around tax reform,
while wealthy individuals and large corporations cash in. As a
result, our tax system has grown increasingly complex and
uncertain, and Congress is forced to jump from one tax extender
package to another.
Meanwhile, our main street firms are left with a convoluted
and onerous tax code, for which they need to hire outside
professionals and spend substantial funds. Unfortunately, this
was especially the case in the Tax Cuts and Jobs Act of 2017.
While the main priority for this legislation included a
permanent 40 percent rate cut for the largest, most profitable
companies in history, small firms got a complex and temporary
20 percent deduction. While many small companies have
undoubtedly received benefits from the 199A deduction, nearly
half of the overall benefits goes to the top 1 percent of
income earners. My hope is that come 2025, when this provision
is scheduled to expire, we can work together to provide genuine
tax relief to millions of small businesses without saddling
them with another set of complicated and temporary deductions
that just end up further enriching a wealthy few.
Meanwhile, Democrats will continue advocating for a tax
system that is both fair and fiscally responsible. In just the
past three years, Democrats have successfully delivered tax
incentives to bring manufacturing back to America, used the
Child Tax Credit to cut child poverty in half, and established
a 15 percent corporate minimum tax so multinational companies
can no longer avoid paying taxes altogether. Through investment
in the Inflation Reduction Act, we have worked to modernize the
IRS. Taxpayers no longer have to spend hours on hold, and
filers are finding it easier to submit electronic forms.
Similarly, the new direct file program is making tax
submissions simpler than ever for millions of Americans.
Additionally, wealthy tax cheats are being held
accountable, and the IRS has already recovered over $500
million in unpaid taxes. So, while Democrats fight for a fairer
system that is easier to use, many of my colleagues on the
other side have been working, on behalf of tax evaders, to
defund the IRS. They have also been proposing more tax cuts for
the rich to pay for their cuts to essential programs like
Medicare, Social Security, and the Affordable Care Act. Now, as
we emerge from a cost of living crisis and wages are once again
outpacing inflation, President Trump is proposing a 10 percent
tariff on all imports. In my opinion, the contrast could not be
any clearer.
With that said, I am encouraged by the bipartisanship shown
earlier this year when we passed the Tax Relief for Workers and
Families Act, which not only extended the Child Tax Credit for
working families but delivered an extension for viable small
business provision like full and immediate expensing on
investment in machinery and R&D. Unfortunately, those
provisions once again face uncertainty as Republican senators
play politics and aim to kill anything that could be perceived
as a win for President Biden during an election year.
I look forward to working with the Chairman to ensure this
legislation gets passed and I look forward to hearing from our
witnesses about how best to support small firms using the tax
code. I yield back, Mr. Chairman.
Chairman WILLIAMS. Lady yields back, and I will now
introduce our witnesses. Our first witness here with us today
is Doctor Aaron Hedlund. Dr. Hedlund is an associate professor
of economics at the Daniel School of Business at Purdue
University located in West Lafayette, Indiana, and the research
director of the American First Policy Institute located right
here in Washington, DC. Additionally, Dr. Hedlund is a research
fellow at the Federal Reserve Bank of St. Louis and chief
economic--economist at the Show Me Institute, the only think
tank in Missouri dedicated to promoting free markets. Dr.
Hedlund was the chief domestic economist and senior advisor at
the White House Council of Economic Advisors, where he helped
design and execute emergency economic measures during the
COVID-19 pandemic. Dr. Hedlund earned his bachelor degree in
economics and math from Duke University and his PhD in
economics from the University of Pennsylvania. I want to thank
you for joining us today, even though you had some Baylor
history, right? And we look forward to the conversation ahead.
Okay, our next witness here with us today is Mr. Raymond
Huff. Mr. Huff is the president of HJB Convenience Co-op--
Corporation located in Lakewood, Colorado. Mr. Huff founded HJB
Convenience Corporation in 2004, purchasing the chain of
Russell's Convenience Stores, were all located in high-rise
office buildings. He is also the principal of Tenderfoot
Software which created the software used by Russell's
Convenience Stores. Prior to owning his company, Mr. Huff was
president of Trans Pacific Stores Limited, where he opted
Russell's Convenience Stores--where he operated Russell's
Convenience Stores. He currently serves as Vice Chair of the
CONXSS Advisory Board. Mr. Huff earned his degree in accounting
and business management from Howard University and thank you
for joining us here today, Mr. Huff. We look forward to the
conversation ahead.
Our next witness today is Chuck Wetherington. Mr.
Wetherington is the president of BTE Technologies located in
Hanover, Maryland. For over 2 decades, Mr. Wetherington has
served as president of BTE Technologies, a small manufacturing
firm which produces medical device equipment. Since buying the
company in 2001, Mr. Weatherington has brought new products to
the market while dealing with ever changing and burdensome
regulations. Mr. Wetherington is a board member and former
Chair of the Small and Medium Manufacturers Group for the
National Association of Manufacturers. He also serves as the
Governor's Workforce Development Board for the state of
Maryland. Mr. Wetherington holds degrees in engineering from
both the University of Illinois Urbana-Champaign and Vanderbilt
University. Thank you for joining us here today.
We appreciate and look forward to the conversation ahead
and I now recognize the Ranking Member from New York, Ms.
Velazquez, to briefly introduce our last witness appearing
before us today.
Ms. VELAZQUEZ. Thank you, Mr. Chairman. Our final witness
today is Mr. Walt Rowen. Mr. Rowen is the President of
Susquehanna Glass Company, a 113-year-old family owned business
in Columbia, Pennsylvania. Since 1995 he has been the third-
generation family owner of the business and has scaled the
company to sell consumer products to many of the nation's best
known retailers, employing between 35 and 60 people. Mr. Rowen
is also the Co-Chair for Small Business for America's Future, a
national coalition of business owners and leaders working to
provide small businesses a voice at every level of government.
Thank you for being here today, and welcome.
Chairman WILLIAMS. Thank you, and we appreciate all of you
being here today. Very much so. Now, before recognizing the
witnesses, I would like to remind them that their oral
testimony is restricted to 5 minutes in length. We stick with
that, okay? If you see the light turn red in front of you, it
means your 5 minutes have concluded and you should wrap up your
testimony. And what you will hear--you will hear this to just
help you remind, okay? And also, you are going to see Members
coming in and out, we may have a full house. We may have not so
full house. No reflection on you. There is other committees
happening so people will come and go and that is normal as we
proceed.
So, with that in mind, I now recognize Doctor Hedland for
5-minute opening remarks.
STATEMENTS OF DR. AARON HEDLUND, ASSOCIATE PROFESSOR OF
ECONOMICS, PURDUE UNIVERSITY; MR. RAYMOND HUFF, PRESIDENT, HJB
CONVENIENCE CORPORATION; MR. CHUCK WETHERINGTON, PRESIDENT, BTE
TECHNOLOGIES, LLC.; AND MR. WALTER ROWEN, PRESIDENT OF
SUSQUEHANNA GLASS CO., CO-CHAIR OF SMALL BUSINESS FOR AMERICA'S
FUTURE
STATEMENT OF DR. AARON HEDLUND, ASSOCIATE PROFESSOR OF
ECONOMICS DANIELS SCHOOL OF BUSINESS, PURDUE UNIVERSITY
Mr. HEDLUND. Good morning, Chairman Williams, Ranking
Member Velazquez, and Members of the committee. It is truly a
privilege to engage with you today on this issue of taxes and
not college basketball. My name is Aaron Hedlund. I have been
an economics professor for more than a decade, and from 2020 to
2021, I had the privilege to serve as the chief domestic
economist and senior advisor at the White House Council of
Economic Advisors. The views expressed today are my own.
Before jumping in, I would like to establish some economic
context for our discussion. Put simply, America is in the midst
of a policy induced cost of living crisis. One way to describe
inflation is as too much money chasing too few goods, which
means there are two basic ways to end the crisis. The first is
to address the too much money part by withdrawing excess
demand. The most natural way to do this would be to stop
Government overspending. But with the reckless fiscal policy of
the past few years, the Federal Reserve has had to step in with
its own painful medicine of interest rate hikes to tame demand.
The other avenue to reduce inflation is to address the problem
of too few goods by putting in place pro-growth policies that
expand supply and create affordable abundance. This recipe has
succeeded in the past. The 1980s supply side revolution of
simple, low, and fair taxes, coupled with regulatory reform and
sound money, put an end to stagflation. The second major
success of this approach occurred starting in 2017, following
years of failed attempts by its predecessor at a stimulus
driven growth strategy.
The Trump administration, along with Congress, took a
different approach when they unleashed the beginnings of a
second supply side revolution with the Tax Cuts and Jobs Act,
or TCJA, as one of its centerpieces. The TCJA had three primary
goals. One, make the U.S. competitive on the world stage and
repatriate earnings from abroad by reducing what was one of the
highest corporate tax rates in the developed world. Second,
reverse the stagnation of living standards that families had
been facing since 2007 by simplifying taxes through lower
marginal rates and doubling the standard deduction. Third,
boost small businesses and unleash investment across the
country by lowering tax rates, creating the 20 percent Pass-
through Deduction, and enacting opportunity zones.
The results were a resounding success as the economy vastly
outperformed the official forecast made in 2016. Unemployment
and poverty rates hit record lows, income gains reached record
highs, and 10 of billions of dollars of net new investment
flowed into high poverty communities. The typical American
families saw their income jumped by more than $5,000. Contrast
that with the $4,000 decline they saw between 2019 and 2022,
driven by inflation. In short, TCJA unleashed a blue collar
boom with the biggest gains at the bottom.
These accomplishments are notable, but Americans still
crave further progress towards taxes that are simple, low, and
fair. Simple. Tax complexity costs Americans hundreds of
billions of dollars in accounting and compliance headaches,
resources that should be going to productive economic
activities, not paperwork and bureaucracy. Tax simplification
is deregulation. Make the Tax Code simpler and people won't
have to contend with so many IRS regulations. Low. One myth
about tax cuts is that they deprive the government of needed
funds. The truth is that the government does not have a revenue
problem, it has a spending problem. Federal receipts as a share
of GDP have been stable for decades, and in 2022 they reached
their second highest level since world War II. Meanwhile,
spending had averaged 20 percent of GDP for 50 years prior to
COVID, but is now forecasted to be 23 percent to 24 percent
over the next decade and rising from there. Fair. Everybody
wants a fair Tax Code, but class warfare mythology about the
rich paying less in taxes than everyone else obscures the true
sources of unfairness. The truth is that while the top 1
percent earn about 20 percent of total income in the economy,
they pay over 40 percent of total taxes. And by the way,
corporate CEO's don't pay personal checks when the corporate
tax is getting paid. Workers and consumers bear most of that
burden.
So what actually makes taxes unfair? It is unfair that the
complexity of the Tax Code advantages those with the resources
to hire teams of lawyers, accountants, and lobbyists. And it is
unfair that high effective tax rates disproportionately punish
people aspiring to climb the economic ladder to enter the
middle class and start small businesses. True tax fairness
pursues a level playing field, not level incomes. Equality of
opportunity, not equality of outcomes. And more private
investment, especially in human capital, not less. Extending
TCJA should be the foundation upon which to build a Tax Code
that is simple, low, and fair. But I encourage Congress to be
bold and not stop there.
Thank you for the opportunity to speak with you about this
important matter. I look forward to answering your questions.
Chairman WILLIAMS. Thank you, Dr. Hedlund. I now recognize
Mr. Huff for his 5-minute opening remarks.
STATEMENT OF RAYMOND HUFF, PRESIDENT, HJB CONVENIENCE
CORPORATION
Mr. HUFF. Good morning. Thank you, Mr. Chairman, Ranking
Member, and Members of the committee for allowing me to talk to
you today about the 199A Tax Deduction. My name is Raymond
Huff. I am president of HJB Convenience, an S Corp. I have been
in the convenience industry since 1988. Today I operate seven
convenience stores and have 16 employees. I am here today on
behalf of myself and the National Association of Convenience
Stores.
In the United States, the convenience industry includes
more than 150,000 stores employing 2.44 million people. It is
truly an industry of small businesses. 60 percent of the
industry is comprised of single store operators. The industry
handles about 165 thousand--65 million transactions each day, a
number equivalent to half of the U.S. population. Today, I will
focus on Section 199A of the Tax Code, which provides a small
pass-through business--provides small pass-through businesses,
like mine, a deduction of a taxable income to help bring us
into rough parity with C Corporations. From a tax perspective,
I will cover the need for tax fairness for small businesses,
the benefits of the provision for the economy, and the
importance of making 199A permanent.
Initially, the reduction in tax burden for section 199A
allowed me to reinvest in my business, expand to open new
stores, and hire more employees. It did what it was intended to
do. It created a level playing field, and that level playing
field is better for my employees and my customers. Then came
COVID. My stores are located in commercial office buildings and
these employees are now working from h Prior to 2020, I had 23
stores operating in major cities but had to close two-thirds of
those stores due to low or no off--office occupancy. The 199A
tax deduction and other provisions of the law allowed me to
invest in technology that allowed me to keep some of those
stores open.
However, other than in 2018 and 2019, I have not made a
profit and have not been able to use Section 199A. I am not
alone. I have seen many other businesses located near mine, in
the central business districts, struggle for years. My main
message to you is do not pull the rug out from under me just
when I am finally starting to recover. My--many small
businesses, including mine, need the 199A tax provision to
stick around so we can get healthy again. This prospect of
losing the benefits of this tax law is very troubling. If my
business is faced with a significant tax increase at the end of
next year, it would set my business back in a way I really
can't afford or plan for. A 20 percent or higher increase will
require me to slow or cancel my store reopening's hiring plans
in the future.
This is just the stimulus that 199A in bonus depreciations
were meant to spur. They allow small businesses to invest,
expand, hire, and compete with the big boys. The Tax Code
should not favor my larger competitors. Without 199A, those
large competitors would have a better effective tax rate and
would be able to invest those funds, allowing them to have an
unfair advantage in the marketplace. That is not right. I can
hold my own, but I do need a level playing field, and 199A for
the first time leveled that field. That is we should all want
that.
Small businesses are the backbone of the U.S. economy. I
urge the Members of this committee and all Members of Congress
to recognize the urgency of this pending tax increase and take
action to allow for proper business planning. The business
community needs certainty, especially small businesses like
mine. Waiting to resolve this issue would certainly not be as
beneficial as extending and making those tax provisions
permanent now. Thank you for your time today. I welcome your
questions.
Chairman WILLIAMS. Thank you, Mr. Huff. I now recognize Mr.
Wetherington for his 5-minute opening remarks.
STATEMENT OF MR. CHUCK WETHERINGTON, PRESIDENT, BTE
TECHNOLOGIES, LLC
Mr. WETHERINGTON. Good morning, Chairman Williams, Ranking
Member Velazquez, and Members of the committee. My name is
Chuck Wetherington. I am president of BTE Technologies, a 40
person medical device manufacturer near Baltimore. I appreciate
the opportunity to testify about the importance of pro-growth
tax policy for manufacturing in America. This is actually my
second time appeared before this committee. My first appearance
was almost 6 years ago at a hearing on how trade policy affects
small manufacturers. Thank you for having me back.
I am pleased to see that this committee is still focusing
on policies, specifically tax policies, that are impacting
small manufacturers throughout the country. The most important
message I want to leave you with today is that small
manufacturers need consistency from Washington.
Straightforward, predictable tax laws means I don't have to
spend time locked away with my accountants trying to figure out
the rules of the road. Instead, I can get out on the shop floor
and focus on growing my business and creating quality jobs in
our community.
In 2017, Congress was able to take stale, outdated Tax Code
and update key provisions to reduce taxes on small
manufacturers. Tax reform put the U.S. on a path towards years
of consistent, predictable tax policy. The Tax Cuts and Jobs
Act was a new wave--drove a new wave of economic activity and
industrial expansion. BTE and many of our peers in the industry
experienced historic growth in the years between tax reform and
the pandemic. But as we saw with COVID, the world in which
small manufacturers operate can change in an instant. In 2020
and 2022--21, shutdowns and material shortages for our
suppliers had a direct impact on BTE. We were able to survive
and maintain operations, but many weren't so lucky.
Now, tax increases are harming BTE and others in our supply
chain. Over the past two years, critical tax incentives that
drove growth in our sector have expired. The most damaging tax
policy change for BTE has been the new requirements that we
amortize our R&D expenses, and about face for more than 70
years of immediate R&D expensing in the U.S. Bringing a medical
device to market is extremely risky and takes years and
millions of dollars. But now BTE cannot immediately express
those costs, reducing the working capital I have available to
invest in my business and my employees. This R&D change has
delayed projects to redesign and improve BTE's flagship
products.
As a result, our growth plans have stalled, delaying
expansions that would have allowed BTE to increase our employee
headcount by 50 percent. We are feeling the pain from the loss
of full expensing and new, stricter interest deductibility
standard as well. Capital equipment is now more expensive and
we face new barriers to operating our equipment rental
business, which enables smaller medical practices to have
access to high quality made in America healthcare equipment.
BTE and other small manufacturers are all experiencing these
tax increases.
Worse, more tax increases are coming our way at the end of
next year. Most of BTE's suppliers are pass-through businesses.
They will lose the 20 percent Pass-through Deduction at the end
of 2025, and their tax rates will go up. Many also face
increased estate taxes. Higher taxes in the manufacturing
supply chain will directly increase BTE's operating costs. And
small businesses like ours will face uncertainty as Congress
debates how and if Congress will address the full suite of pro
individual, corporate, and international provisions set to
expire next year.
Fortunately, the House has taken the first step to stave
off this uncertainty. I want to thank every Member of this
committee who voted for the Tax Relief for American Families
and Workers Act, common sense bipartisan legislation to restore
R&D expensing, and other expired 2017 provisions. But a larger
tax policy reckoning is looming. Smaller manufacturers are
depending on Congress to prevent damaging tax increases before
the end of next year. We deserve a Tax Code that promotes
innovation and demonstrates to the rest of the world what our
values will be for the next decade and beyond. It is urgent
that Congress deliver on that promise. Manufacturers like BTE
are ready to work with all of you on pro-growth tax policies
that allow us to create jobs, innovate, compete globally, and
provide a better future for all Americans. Thank you.
Chairman WILLIAMS. Thank you, Mr. Wetherington. And also,
now, we want to recognize Mr. Rowen for his 5-minute remarks.
Thank you.
STATEMENT OF WALTER ROWEN, PRESIDENT/CO-CHAIR, SUSQUEHANNA
GLASS COMPANY/SMALL BUSINESS FOR AMERICA'S FUTURE
Mr. ROWEN. Good morning, Chairman Williams, Ranking Member
Velazquez, and Members of the committee. My name is Walt Rowen
and I am president of Susquehanna Glass Company in Columbia,
Pennsylvania, and I am Co-Chair of the Small Business for
America's Future, a national coalition of small business owners
and leaders dedicated to providing the strong voice for small
businesses at every level of government. SPAF has long
advocated for tax reforms that benefit small businesses and is
committed to ensuring that policymakers prioritize the needs of
main street, by promoting an economic framework that supports
small business owners, their employees, and the communities
they serve.
Susquehanna Glass is a family owned business in the glass
decorating industry and we have been operating for 114 years.
Think about that. We have survived multiple economic upheavals,
two world wars, one Great Depression, recently the COVID-19
pandemic, and our business is still here. We currently employ
about 35 employees and are proud to provide good jobs and
economic activity to our local community since 1910. We are
actually 114 years old, not 13. However, our ability to weather
these storms has not solely been due to our own efforts. During
times of crisis, government programs like the pay--Paycheck
Protection Program and the Small Business Administration's EID
loans have been crucial lifelines that have allowed us to keep
our doors opened. I am sure all of our businesses have
recognized that.
That is important because the success of my business like
that of all small businesses, is inextricably linked to the
success of my community. America's 30 million small businesses
are responsible for nearly half of all private sector
employment and have been the primary source of job creation for
decades. We need investments and policies that create an
economic climate that allows small businesses to thrive, which
in turn will lead to thriving communities.
However, the current Tax Code, particularly the Tax Cuts
and Jobs Act, has not adequately addressed the needs of most
small businesses. A recent survey by the Small Business For
America's Future shows that the vast majority of small business
owners, somewhere around 75 percent of them, said the TCJA did
not help them hire, raise salaries, or invest in their
businesses. This failure to support small business growth
represents a missed opportunity to create jobs, raise wages,
and empower entrepreneurs to contribute to the vitality of
their communities. To support, truly support small businesses,
there must be a comprehensive approach that includes a fair tax
system and investments in creating economic opportunities and
building a strong workforce.
Merely extending the TCJA provisions beyond 2025, would
lock in a tax system that does not invest in small business
growth or resilience. Instead, we need to take this opportunity
to create and pass tax reform that supports small business
success, closes loopholes, and ensures everybody pays the same
or fair tax rates. Helpful policies for small business would
include a tax cut for small business owners hiring their first
employee to stimulate growth, making the first $25,000 in
profit for small businesses tax-free, raising the corporate
rate to 28 percent, and ensuring that billion dollar
corporations pay at least 21 percent of their income in taxes
to give lawmakers the means to make impactful economic
investments.
And finally, we must simplify tax matters for small
business owners--you have heard that from the entire panel--as
the current Tax Code is far too complicated and costly for
small businesses to navigate. The need for tax reform is
particularly urgent. The U.S. Census Bureau data shows there is
a historic surge in new business starts, nearly 16 million
since 2021, which is an 85 percent increase in the average
compared to 2004 to January 2021. This wave of entrepreneurship
represents a tremendous opportunity to build a more robust
economy. Smart tax reform and ensuring the taxes rightly owed
are collected will open pathways to address the challenges that
small businesses and their employees face. Supporting policies
that help small businesses will build a prosperous economy.
In conclusion, the current tax system and TCJA have failed
small businesses. The expiration of key provisions in that law
is an opportunity to take bold action to create a Tax Code that
works for main street because investing in small businesses is
investing in vibrant, thriving communities where everyone can
prosper. Thank you for the opportunity to testify today. I look
forward to your questions.
Chairman WILLIAMS. Thank you very much. And we will now
move to Member questions under the 5 minute rule. I recognize
myself for 5 minutes.
I have been a small business owner in Texas for over 52
years. I am a car dealer and understand the many challenges
facing Main Street America. Over the last few years, it has
been much harder to find and keep qualified workers,
regulations are forcing us to play defense, and inflation has
been cutting our margins and making it harder to keep the
lights on. Tax policy is the single most important thing we can
do to help all entrepreneurs facing these challenges. And when
a business owner is able to keep some of their profits, they
don't just put in a bank and let it sit there, we spend it.
They hire additional workers that creates more taxpayers, or
they buy the extra equipment to keep their business growing.
So, Mr. Huff, can you discuss how you were able to utilize
the 199A small business deduction to grow your business and,
more generally, what you do when you are able to keep more of
your hard-earned money?
Mr. HUFF. In my case, I wasn't up on tax law and my CPA in
2019 called and says you invested in equipment, did a self-
serve store, and the 199A and the bonus depreciation is
available to you. And I said, what does that mean? He says, it
means you have more cash. I was shocked. I called that an
Easter egg. I did not know that that was going to be the effect
doing that, having that extra funds. I then invested in 2019 in
additional technology that actually paid to keep my stores open
during the COVID times. So, the 199A and the bonus depreciation
helped me tremendously in those two years.
Chairman WILLIAMS. Competition is what drives the small
business economy and at the end of the day, your customers will
tell you if you are doing a good job or not as a business
owner, we do not need the government telling us that. And if
you offer superior product at a lower price or better customer
service, you will keep people coming back and your business
will survive, and they will tell others. Unfortunately, we have
been, and we have seen increased government mandates that are
making it more difficult for businesses to compete. When a
business owner is forced to hire a compliance officer to ensure
that they understand the ever-changing web of regulations or an
accountant to deal with an audit firm, an overly active IRS, it
is time and resources away from their core responsibilities.
So, Mr. Hedlund, can you elaborate on how simplifying the
Tax Code helps both American families and businesses thrive?
Mr. HEDLUND. Absolutely. This is a critical task and it is
made more critical by the fact that we are in the midst of this
cost-of-living crisis, which is entirely artificial. It has
been created by reckless policy for the past few years. And I
will return to one of my remarks, which is that tax
simplification is deregulation. Tax simplification is tax
fairness. Fairness is about a level playing field where you
don't have to hire teams of accountants and lawyers to do your
taxes, but it is a lot simpler. The TCJA helped with that, for
one, by doubling the standard deduction. So, prior to TCJA, 50
percent of joint filers itemized their taxes. They had to go
through and look at all the receipts and look at what gets
deducted. After TCJA, that fell to 12 percent. That benefits
small business owners as well. So, this is why we need to start
with extending TCJA and go further than that.
Chairman WILLIAMS. Now, I have got a limited amount of time
here, but Mr. Wetherington, as you have grown your and
developed your company, how has the R&D tax credit contributed
to your success? Because, as you said, you are highly regulated
and a long way from bringing a product to the shelf. So, how
has the tax credits contributed to your success?
Mr. WETHERINGTON. So, the key to me in R&D are my technical
people, my engineers, my software developers, and the clinical
staff that I have to help in the development of those devices.
It is key for me to know that some portion of that expense that
I have that is not current revenue yielding, it is future
revenue yielding, that I have some return on being able to
invest that. R&D is inherently risky. I don't get a win with
everything that we go through making. And it is critical that
we have that other nations around the world have that. We tend
to fall behind in how we have done that, particularly with
moving to amortization. Since we have moved to amortization,
the rate of growth of R&D in Europe has doubled the rate of
growth of R&D in the United States. So, it is critical that we
refocus on that.
Chairman WILLIAMS. The Chair now yields his time back and I
now recognize the Ranking Member for five minutes of questions.
Ms. VELAZQUEZ. Thank you. Mr. Rowen, your organization's
recent survey found that 72 percent of small businesses say
that overall, the tax code favors large corporations over small
businesses. As we consider tax reform over the next two years,
what can we do to restore trust in the system and deliver
benefits for true small businesses?
Mr. ROWEN. Thank you for that question. Everybody knows Tax
Codes are complicated. They have to be complicated, but they
don't have to be overly complicated. I believe that things like
depreciation, quick depreciation, immediate depreciation is
essential for small businesses to survive. There is no question
almost everybody in the business community would say that. What
I think I disagree with is the idea that the Tax Code itself,
what the rate of taxation is for a business, is the most
important thing to that business. Because the reality is
businesses only pay that when they are making profit. So, I,
for one, since 2020, haven't made any money. So, the tax rate
that I am paying right now doesn't mean a thing to me.
Depreciating means a thing to me. Interest rates means things
to me, but the tax rate doesn't. So, focusing just on tax rate
doesn't make sense to most small businesses because most small
businesses actually are not making a lot of money.
Ms. VELAZQUEZ. Thank you. Mr. Rowen, the Inflation
Reduction Act provided an additional $70 billion to the IRS for
customer service modernization and enforcement. Yes or no, do
you believe the IRS is using this funding to put greater
scrutiny on small businesses?
Mr. ROWEN. Absolutely no.
Ms. VELAZQUEZ. Thank you. Mr. Huff, yes or no, do you
believe the IRS will use additional funds to target small
businesses above historical averages?
Mr. WETHERINGTON. I have no evidence to tell you one way or
the other.
Ms. VELAZQUEZ. Okay, Mr.----
Mr. HUFF. Yeah, I have no evidence of that either. My CPAs
handle the rules and get back to me on what I should and
shouldn't be doing.
Ms. VELAZQUEZ. Thank you. Mr. Rowen, as we know, the IRS is
using much of their new funds to target people with high income
that routinely avoid paying taxes. Mr. Rowen, how does it
benefit entrepreneurs when people who cheat on their taxes are
held accountable?
Mr. ROWEN. I have reinforced over and over again that in
small business community--in small businesses, we live in our
communities. There are things in our communities that need to
be helped. Something like childcare, something like health
insurance, things like overall education. And those are the
areas that government policies and programs can address. When I
have people who are absent from work because their child is
sick, or they simply can't afford childcare, that affects my
business, my ability to hire, and my ability to have stable
employment and make a profit.
Ms. VELAZQUEZ. I guess you are aware Republicans are once
again proposing cutting Affordable Care Act subsidies to pay
for more tax cuts for the rich, and so that is something we
need to keep in mind.
Mr. ROWEN. That would be catastrophic for my business. We
absolutely depend upon the ACA.
Ms. VELAZQUEZ. Mr. Rowen, the current leader of the
Republican Party, former President Trump, is proposing an
across the board 10 percent tariff on all imported goods. Yes
or no, would you raise prices for consumers if this tariff was
implemented?
Mr. ROWEN. Yes. We live in a global economy. Half of the
products that I am decorating and selling are produced here in
the United States. We would like to make that more, but the
reality is we have to buy products overseas. Every product we
buy from overseas that has a 10 percent tariff will be more
expensive from me to my customer, and therefore to the ultimate
consumer. So, it is an inflationary policy.
Ms. VELAZQUEZ. Thank you. Mr. Chairman, I yield back.
Chairman WILLIAMS. Lady yields back. I now recognize
Representative Van Duyne from the great state of Texas for five
minutes.
Ms. VAN DUYNE. Thank you very much, Mr. Chairman, for
holding this important hearing. There is no doubt that the TCJA
helped supercharge the economy and provided much needed relief
to small businesses. The economic success of the 2017 tax
reforms was undeniable. Small business optimism peaked, and
investments in research and development hit record highs. Small
businesses finally felt untangled from an impressive Tax Code,
and it is great to hear these stories from our witnesses today.
In 2025, Congress will be facing an important choice. Continue
the success of the TCJA, looking at new ways to be competitive,
such as continuing the work that we have done, in my
subcommittee, by finding new ways for small businesses to
access capital or go back to taxing job creators at record
levels. If we do not take action, the small business deductions
will expire, and small businesses will be faced with a tax rate
of 43 percent, compared to the 20 that they now pay. And don't
be fooled, in the absences of higher taxes, Democrats are
finding new ways to burden small businesses across the country.
Not only are agencies such as the SBA creating regulatory
burdens, but every day, the IRS under President Biden is
growing and expanding. It is expanding its reach into American
wallets and small business ledgers. Lastly, we also have an
opportunity to get things right the first time, with new
opportunities when it comes to digital assets in
cryptocurrency. Mr. Huff, I am curious. You have heard that
some of the criticism on the TCJA was just a bailout for
wealthy corporations and one percenters. You have talked about
how it has benefited you. Do you feel like your business falls
into either one of those two categories?
Mr. HUFF. Which were the categories again?
Ms. VAN DUYNE. Well, that you are a wealthy corporation or
a wealthy one-percenter.
Mr. HUFF. No, I am definitely not either. I am a small
business owner who goes to work every day trying to make a
dollar and pay my employees and grow my business. I would like
one day to be wealthy in those things.
Ms. VAN DUYNE. But it is great to hear that we actually are
hearing from small business owners, mom-and-pop shops and
others who have actually been able to take advantage of the
TCJA. Mr. Hedlund, I am going to ask you. President Biden's
budget proposal contains many new tax provisions. Does any
particular proposal stick out as being the worst for small
business?
Mr. HEDLUND. There is a lot of bad options to pick from. It
is hard to pick one of them. But I say the worst thing we could
do for the economy right now is to hike taxes when people have
already been paying the inflation tax and the regulatory tax.
This would not--that would make the cost of living crisis
worse, make our growth worse, and not be good for the economy.
Ms. VAN DUYNE. So, you have heard President Biden
repeatedly state that he is not going to tax anyone making less
than $400,000. Is that accurate?
Mr. HEDLUND. Well, that promise has already been broken. As
I mentioned, the inflation tax. The typical American family has
seen their real income fall by $4,000 because of inflation, and
that will just be compounded by the expiration of thousands of
dollars' worth of tax cuts to them if that were to be allowed
to happen.
Ms. VAN DUYNE. I appreciate that. Mr. Wetherington, what
would you do differently if the R&D provisions of the Tax Code
had not changed?
Mr. WETHERINGTON. So, for me, I would be hiring more
engineers, more software developers. I would have a higher
level of certainty over what the Codes were and what my
expenses would be and what my liabilities would be associated
with doing that development. It would yield me getting to new
products faster, which helped me not only in selling products
to the United States, but I export to over 40 countries around
the world, including China. And it is important for us to bring
out, to beat other competitors around the world who also make
medical devices by being innovative and being on the leading
edge. R&D tax credits is a key tool in us being able to do
that.
Ms. VAN DUYNE. Tell me also, how would higher taxes impact,
because you talked about how we are competing with other, with
other countries and other businesses outside of America. Can
you tell me how higher taxes impact manufacturing?
Mr. WETHERINGTON. So, the vast majority of small and medium
manufacturers are actually suppliers to larger employers. So,
even though we may be not necessarily main street, but small
industrial parks around the United States, that higher tax rate
has a ripple down, a trickle-down effect. And we have seen a
real renaissance in reshoring of manufacturing in the United
States. And I think the Tax Code has been a big piece of that.
Not only the supply chain problems for the pandemic, but it was
already starting before then, in 2018 and 2019, because of the
improved Tax Code.
Ms. VAN DUYNE. Outside the Tax Code, can you talk about how
the regulations have been hurting your business? And we have
got 10 seconds.
Mr. WETHERINGTON. My regulatory expenses have gone up over
460 percent in the last eight years and not done anything to
make the products better or safer.
Ms. VAN DUYNE. Wow, that is impactful. Thank you very much
for your testimony.
Mr. WETHERINGTON. You are welcome.
Ms. VAN DUYNE. I yield back.
Chairman WILLIAMS. Lady yields back. And now I recognize
Representative Scholten from the great state of Michigan for
five minutes.
Ms. SCHOLTEN. Thank you so much, sir. Thank you to our
witnesses for being here today. What an incredibly important
conversation. Small businesses make up over 99 percent of
private sector employers, employing nearly half of the
workforce and creating two thirds of all new jobs. In my home
state of Michigan, nearly 1 million, over 900,000 small
businesses employ 1.9 million people. To that end, it is
incumbent on Congress and us here in this committee to help
create a tax system that is both easy for our small businesses
to use, and one that promotes fairness.
This question is for Mr. Rowen. In your experience
navigating our tax system at a small business for nearly 50
years, what programs or policies have made that experience
easier? And can you speak to any changes that you would like to
see specifically?
Mr. ROWEN. Boy, I am not quite sure how to respond to
easier. We are a large enough company that we employ an outside
accountant. And he is bringing all the complexities of the tax
laws to us. We don't have to employ. We have bookkeepers that
do our books. But the Tax Codes. But there have been. I mean,
they are just crazy.
Ms. SCHOLTEN. And I am not meaning to interrupt, none is a
perfectly appropriate answer.
Mr. ROWEN. None.
Ms. SCHOLTEN. If that is your genuine answer.
Mr. ROWEN. Yes, that is my answer.
Ms. SCHOLTEN. What can we do?
Mr. ROWEN. So, one, and it has been said by everybody
today, let us create a tax system that everybody believes is
fair, is consistent, and stays stable. Because every year, if
we, every two or three years, we change, that throws all of us
into chaos.
Ms. SCHOLTEN. Absolutely. And you just said it yourself,
you hire an outside accountant. Right?
Mr. ROWEN. Yes.
Ms. SCHOLTEN. Not many small businesses have that luxury,
right? This Congress, we have heard from a lot of small
businesses about labor shortages and supply chain issues
impacting their ability to grow and thrive. I hear about that
back home in West Michigan as the number one concern. Maybe
number two, only to access to capital. Mr. Rowen, again, as we
continue to bounce back as a country, can you describe how you
think we could potentially use the Tax Code as a leverage to
alleviate the workforce shortages that small businesses have
been struggling with in recent years? What changes would you
like to see? What avenues are already there? And how can we use
this to our advantage?
Mr. ROWEN. So, I think some of the things we have talked
about today that actually are still in the TCJA, I would
absolutely encouraged to stay in. So, things like having the--
being able to write off quickly, things like--but the two
things that are the most important things for me with employees
is healthcare and childcare.
Ms. SCHOLTEN. Yeah.
Mr. ROWEN. If we could have better healthcare and childcare
programs, that would make an enormous difference for the vast
majority of small businesses that I am familiar with.
Ms. SCHOLTEN. Heard. Thank you so much. I yield back.
Chairman WILLIAMS. Lady yields back. I now recognize
representative Bean from the great state of Florida for five
minutes.
Mr. BEAN. Mr. Chairman. Thank you, Mr. Chairman, a very
good morning to you. Good morning, Small Business Committee. To
our witnesses, glad to have you here. Welcome to your nation's
capital. I have only been in Congress 15 months, a little over
a year, and I have learned that Bidenomics is taking its toll
on main streets in northeast Florida, where I represent, and
really all across America. In fact, with the exception of Joe
Biden, I don't believe there is one single American who
objectively believes that our nation is headed in the right
direction.
To all of you small business owners that have been
struggling with Bidenomics, I want to tell you something, there
is a light at the end of a tunnel. Now many small business
owners will say, is it a train? It is not a train. It is the
potential tax relief in the Tax Relief for American Families
and Workers Act. The House has already passed it, a bill that
is both family friendly and business friendly. And we are
poised to deliver big, momentous change in Washington and all
across America. The provisions of this bill have a track record
of increasing wages, providing more job opportunities, and
helping American businesses become more competitive, more
productive, more innovative, and in turn, generating a
tremendous economic boom in their communities, whether you are
in research and development or in the convenience store
business. As Americans continue to suffer under back-breaking
inflation with an uncertain economic future, I believe the
bill, the Tax Relief bill, the Tax Relief for American Families
and Workers Act, will provide much relief, opportunity, and
certainty.
So, let us get to the questions. In 2017, Congress passed
and President Trump signed into law the Tax Cuts and Jobs Act,
which was the first major reform in the U.S. Tax Code since
Ronald Reagan did it in 1986. Sweeping reform updated the Tax
Code to benefit individuals and companies of all sizes. This
tax cuts was incredibly successful and provided much needed
relief for Americans. Unfortunately, the bill passed under
reconciliation, which bypasses the 60-vote threshold. And now
the program was temporary. We are soon to see all of that
great, the great work expire.
So, my question, Dr. Hedlund, if Congress allows the
provisions of the job--Tax Cuts and Jobs Act to expire, what
will be the impact on American businesses?
Mr. HEDLUND. That is a great question. And it would be a
very damaging impact because we saw what positive progress that
law provided. $5,000-plus in income gains for the typical
family with bigger gains at the bottom, people with less formal
education, people with non-managerial jobs, people at the lower
end of the income distribution had faster gains than at the
top. So, if we let the TCJA expire, we can expect to see less
investment, lower wages and lower overall prosperity.
Mr. BEAN. Very good. Thank you very much. And to Mr.
Wetherington, can we agree America has always been on the
forefront, cutting edge of inventing things, making the world
better, making quality of life for everybody? And that comes
with research and development. Is it true that our Tax Code now
is, is punishing people who do research and development? And if
we don't make changes, we are going to see America fall further
behind the rest of the world and research? What do you say to
that Mr. Wetherington?
Mr. WETHERINGTON. That is absolutely true. Manufacturers
are inherently problem solvers. But we want to focus our
problem solving on things about what we are manufacturing. We
don't want to focus our problem solving on a new Tax Code or on
changes. So, it is predictability and consistency that we
really need out of Washington; allows us to focus on the job we
need to do not only in creating new products through R&D, but
also on the daily building, making, shipping, supporting
products that we make to help people get better in our
healthcare system.
Mr. BEAN. Ten-four. So, we have got to act or we are going
to go further behind the rest of the world?
Mr. WETHERINGTON. The priority is urgent.
Mr. BEAN. Amen. No. Thank you for saying that. Mr. Huff, I
just want to say thank you and congratulations to you. Seven
stores. I know your family is proud. Sixteen people are getting
a paycheck. They are putting dinner on their table because of
you. Is crime a problem at convenience stores right now?
Mr. HUFF. Not in my stores, but generally crime is, I
think, coming down. But I am not sure about that. The--if I
could speak to----
Mr. BEAN. Hold on one second. My final question, we are
going to flip it back to you.
Mr. HUFF. Okay.
Mr. BEAN. The Inflation Reduction Act, Dr. Hedlund, has
been poised even at this Committee how great it is for small
business. Isn't it true that spending $1.3 trillion under the
Inflation Reduction Act has greatly enhanced inflation in these
United States of America?
Mr. HEDLUND. Yes. It should be called the Inflation
Creation Act.
Mr. BEAN. Thank you very much Mr. Huff, we will get back to
you next time. Thank you all for coming forward. I yield back,
Mr. Chairman.
Chairman WILLIAMS. Gentleman yields back. I now recognize
Representative Chu from the great state of California for five
minutes.
Ms. CHU. Mr. Rowen, I would like to ask you a question. I
also serve on the Ways and Means Committee, which has
jurisdiction over the Tax Code. And I so appreciate your small
business perspective on how a Tax Code geared towards
corporations and the wealthy does not trickle down to small
businesses and workers. In fact, that is why Democrats have
fought to end trickle down policies and instead invest directly
in workers and small businesses. And that is why we continue to
advocate for expanding their Earned Income Tax Credit, or EITC,
and the Child Tax Credit. These are two of the most powerful
tools at our disposal for not only reducing poverty, but also
helping more Americans enter the workforce. Unfortunately,
Republicans' Tax Cuts and Jobs Act did nothing to strengthen
the EITC. And Republicans in the Senate are refusing to
consider even a modest improvement to the Child Tax Credit that
the House did pass on a bipartisan basis.
So, can you talk about why it is important that the Tax
Code support workers and families instead of just corporations
and the wealthy? What benefits might small business owners and
prospective entrepreneurs experience if Democrats EITC and CTC
expansions under the American Rescue Plan are made permanent?
Mr. ROWEN. So, in the small business world, believe it or
not, taxing is not one of the most important issues that we
deal with day to day. It is employees, it is consumers, it is
how do we get our products out. But more than anything else,
primarily as a manufacturer, we have to have employees. And if
we don't have consistent, dependable employees, we don't have a
business. And if we have--I am an entry level, low skilled--I
have a lot of those jobs. I am hiring a lot of young, new
family members. And hey, guess what? They have kids. And when
they have kids and their kids don't, they don't have childcare,
they are not going to be dependable employees. So, those kinds
of programs, health insurance is another one. If I have an
employee that is going to get sick and doesn't have health
insurance, they are not going to go to the doctors. And the
consistency, dependability of our employees is something that
is vital to us. Those programs are necessary.
Ms. CHU. Thank you for that thoughtful answer. I would like
to follow up with talking about the impact of the Tax Cuts and
Jobs Act on small business. As a Member of the House Ways and
Means Committee, I was there in 2017 when Republicans pushed
through their rushed partisan Tax Cuts and Jobs Act, and I saw
firsthand that the goal was simple, to lower taxes for the
wealthiest individuals and the largest corporations. That is
why the TCJA made the corporate tax cut permanent, while the
provisions for small businesses and individuals were made only
temporary. But even though Republicans said that some of these
temporary provisions were targeted at main street, like the 20
percent qualified business income deduction for pass-throughs,
also known as the Section 199A deduction, we know that the
majority of the benefits have gone to the wealthiest
businesses. In fact, the Joint Committee on Taxation estimates
that in 2024, 61 percent of that benefit will go towards the
top 1 percent; and, businesses in the bottom two-thirds of
income will only get 4 percent of the benefit. That is in part
because the TCJA created a number of complex rules that made it
harder for small businesses to navigate the Tax Code and
actually take advantage of these potential deductions.
So, Mr. Rowen, you indicated in your testimony that we need
meaningful tax reform to help small businesses, but that simply
extending these expiring TCJA provisions is not the answer. Can
you expand upon some of the challenges that small businesses
faced in navigating the TCJA's provisions? How would small
business owners, and especially the smallest and most
underserved, stand to benefit if Congress finally moves past
the TCJA and instead pursues a fairer tax system?
Mr. ROWEN. So, we can talk about what fair means. And I
think that we believe, as small business owners, that if
everybody is doing the same thing and paying the same amounts,
that is fair. The fact is that the corporate tax rate had been
at between 30--the top rate had been around 35 percent to 39
percent, and a 40 percent reduction took it to 20 percent, 21
percent. The small business community only got a 20 percent
deduction as a pass-through. And you just look at those numbers
and any economist and any lay person can be, can understand
that that wasn't fair. And the fact that one was permanent, and
one----
Chairman WILLIAMS. The gentlelady's time is up.
Mr. ROWEN.--was not permanent was also not fair.
Chairman WILLIAMS. You yield back?
Ms. CHU. Thank you. I yield back.
Chairman WILLIAMS. Thank you. I now recognize Mr. Meuser
from a state that is represented well here today, the great
state of Pennsylvania, for five minutes.
Mr. MEUSER. Yeah. Thank you Mr. Chairman, very much. Thank
you all. Great discussion. Really important. A lot of different
ideas, but you can have a lot of different ideas, but facts are
facts, I guess, right. When the Tax Cut and Jobs Act went into
effect, yes, the corporate tax rate came down. You know, for
some reason, we want to beat up on, you know, small businesses
that, you know, become large businesses. That would happen. All
large businesses were once small businesses, and they grow. As
Mr. Huff said, that is the whole idea. When the corporate tax
rate came down to 21 percent, the whole world got far more
competitive than the United States of America. That is why
right afterwards we saw almost a trillion dollars in
repatriation come back. And by the way, many small businesses
have large businesses as their, either their suppliers or their
customers. So, it all needed to be reviewed. Now we are the
Small Business Committee, so that is in fact where we want to
focus.
So, let me just ask you this, Mr. Wetherington, and we had
some past business similarities. I was in the home medical
equipment business. So, when you receive your 20 percent
reduction and you had your 100 percent R&D deduction and
carried interest could be written down, when you were showing
more revenues, in the end, more net income, what did you do
with it?
Mr. WETHERINGTON. It went right back into business.
Mr. MEUSER. Of course. I would have bet and knew exactly
what you were going to say; went right into the business. You
hired, you invested, you grew, you became stronger, more built
to last. Okay? That is where employment comes from. From a
business that is figuring out how to not only sustain itself
but also have some level of profitability. And that is, by all
means, what the TCJA did. I mean, there is no question about
it. You know, the 20 percent reduction, the R&D reduction. Now
the idea is it was a bipartisan vote here in the House, but
that this is going to be, you know, removed. I mean, it is not
being taken up in the Senate and President Biden showing no
interest in and carrying it on. And they are not carrying it on
because the messaging continues to be that this did nothing but
help billionaires, right, and the super-rich. And yet I go to
more chamber meetings as a former small business person that
grew into a somewhat larger business and I never have one
person out of a group of 150 say to me, boy, that Tax Cut and
Jobs Act really was detrimental to me, I am sorry it happened.
No. They are saying bring back the R&D, bring back the bonus
depreciation, keep our 199A in effect.
Mr. Huff, let me ask you something. What if after COVID and
everything else, you know, when you are speaking of the 20
percent reduction: A, what if that never occurred and B, how
devastating is going to be if that gets eliminated?
Mr. HUFF. Well, I can testify today that for the first time
the 199A actually brought funds to my corporation that I was
able to invest. And I believe that if I didn't have that, I
would not be here sitting here today as a business person. It
gave enough funds that I was able to invest in technology and
open up self-serve stores that are still currently operating.
Mr. MEUSER. Yeah, great, thanks. Mr. Wetherington. R&D tax
credit. Very important. I was looking at your products. Of
course, a lot goes into that. Design engineers, all types of
engineers, electronic EEs. That gets reduced or even now with
the, with the 20 percent over a five-year period. How has that
affected your business, your profitability, your hiring, your
growth, and your R&D investment?
Mr. WETHERINGTON. Well, as I stated in my testimony, this
is slowing us down from bringing out major redesigns of our two
flagship products that represent 80 percent of our product
revenue. Our expectation is that we are going to grow by 50
percent once those launch, but we continue to have to push
those out because of the inability to cover the expenses
without the assuredness of having the R&D tax credit. It is
back to predictability and consistency in what the Code is.
Mr. MEUSER. Absolutely. Amen to that. Mr. Hedlund, you in
your work and you working on the TCJA, just related to
inflation. When the former administration, Trump Administration
was talking about tariffs and, and getting to zero percent
tariffs and reciprocal tariffs, was there inflation back in the
Trump days because of that?
Mr. HEDLUND. Leaving 2020, inflation was under two percent.
It wasn't until 2022 that we got to 40-year high inflation.
Mr. MEUSER. Thank you very much. I yield back, Mr.
Chairman.
Chairman WILLIAMS. The gentleman yields back. I now
recognize Representative Landsman from the great state of Ohio
for five minutes.
Mr. LANDSMAN. Thank you, Mr. Chair, and thank you all for
being here and your testimony. The bill that we just passed was
a bipartisan bill, and it put back on the books and or expanded
a number of things that I think we all in this room would agree
were hugely important. And the Senate should pass what we
already passed. The President is very supportive of this, of
course, is the R&D piece of all of this, which we have been
pushing for in this committee in a bipartisan way. And thanks
to the Ways and Means folks, for getting it done and getting it
to the floor.
Being able to deduct the interest payments when interest
payments are so high right now, it has been such a burden for
small businesses, families in general. So, being able to do
that was really important. The Child Tax Credit, hugely
important to help families pay all their bills. And oftentimes
those dollars end up back with our small businesses. So, it is
really good that they are in the pockets of our families as
opposed to up here or somewhere else. It also included the
LIHTC expansion and making sure that this tool for helping to
build more affordable housing. So, these are all really smart
bipartisan tax endeavors, again, passed here and then went over
to the Senate. Hopefully they will pass it.
The issue, and the question for me is, we know what
bipartisan tax reform looks like. We just passed it. The
challenge is that almost all Americans know that the tax system
is rigged for the super wealthy, right, that especially because
of the Trump tax giveaways to millionaires and billionaires and
these big corporations. If all of the companies and
millionaires and billionaires, the super wealthy, were to pay
all their taxes on all their income and wealth, wouldn't we
have the money to invest in healthcare and childcare, which are
at the core of successful small businesses? Wouldn't we have
the resources to invest in additional tax relief for small
businesses?
So I am curious. I will start with you, Mr. Rowen, your
thoughts on that. I mean, it just seems that fixing the tax
system is, for small businesses and families, is the next big
moment of truth for this economy and for the country, for this
Congress. And it does seem pretty straightforward, and the
American people are clear, make those who are super wealthy pay
all their taxes on all their income and wealth, and then put us
in a position where we can invest in childcare and healthcare
and more tax relief for small businesses.
Mr. ROWEN. We keep going back to bipartisan tax reform and,
gosh, all of us would like that to happen. The question becomes
what is fair. And again, what I say is the small business
community that we represent is not coming today to say we don't
want the changes that the TCJA gave to the small business
community in deductions in the pass through 20 percent. It is
not like we don't want those, those were helpful, absolutely.
We all accept that.
Mr. LANDSMAN. Exactly.
Mr. ROWEN. But the bottom line is that the small business
community is basically being taxed at about a 28 percent rate.
And we also know that the corporations are being taxed at the
21 percent rate.
Mr. LANDSMAN. If, if, if.
Mr. ROWEN. If. And the average corporate tax rate is closer
to 10 percent.
Mr. LANDSMAN. Correct.
Mr. ROWEN. So, that is not, in the American eye, fair. We
know that tax policy can incentivize business development. We
know that. We just have to figure out how to do it. And
things--small business people recognize that childcare, health
insurance, making our communities stronger, government policies
that do that do help small businesses, and we grow when those
programs are working.
Mr. LANDSMAN. Anyone else?
Mr. WETHERINGTON. The TCJA wasn't perfect, but it did
create a manufacturing boom and it created a beginning of
onshoring that only continued once we started into the pandemic
and having the supply chain issues. I think it is still very
important that we make that permanent and we stop the
additional provisions from expiring in 2025.
Mr. LANDSMAN. Thank you. And I yield back.
Chairman WILLIAMS. The gentleman yields back. I now
recognize Representative Alford from the great state of
Missouri for 5 minutes.
Mr. ALFORD. Thank you, Mr. Chair. Good to see you back. And
thank you to our witnesses for being here. I know it is a
little bit of a sacrifice to come here away from your
businesses, but we thank you for the investment because I think
this is a very important hearing.
I want to start with four simple truths today. Number one,
cutting taxes is good for American taxpayers and their
businesses. Number two, President Biden's new budget reveals
his intention to tax Americans families into oblivion. Fact
number three, complying with President Biden's war on small
business, including over regulation, is a tax within itself.
And number four, the IRS is now targeting more small businesses
as it looks to claw away money to fund the radical agenda of
this administration. My message to President Biden is, sir, end
your war on small businesses now.
The Federal Tax Code currently sits at over 75,000 pages,
including guidance from the IRS. For context, if you were to
stack 75 pages up, take a look at the ceiling right now, guys,
this is about a 16-foot ceiling. The Federal Tax Code and all
the guidance that goes along with it would be twice the height
of this ceiling. That is crazy.
Next week, hundreds of millions of Americans will be
required to comply with all that paper, 32 feet high worth of
regulations, and contend with the President's new 87,000 IRS
agents. He hired those new IRS agents for a reason: to execute
the extreme taxation policy laid out in his 2025 budget. The
President's budget includes a staggering $4.9 trillion in new
taxes, alongside allowing $2 trillion in tax savings from
President Trump's Tax Cut and Jobs Act to expire. Allowing
these pro-growth tax policies to expire and increasing taxes
will not only further hurt the competitiveness of your small
businesses and all small businesses in America, it will crush
them, the jobs they provide, the communities they serve.
Mr. Huff, one of the most important pieces of the TCJA was
a small business deduction. It allowed a 20 percent deduction
for pass-through business owners, allowing them to keep more of
their own money and invest it in their businesses and in their
employees. It has led to an estimated $66 billion in tax
savings for small entities. Mr. Huff, what will happen to your
small business if the small business deduction expires next
year, sir?
Mr. HUFF. I will not be able to invest in my planned
reopening of my stores. I have stores that are actually
mothballed and planned to reopen as the office buildings fill
up.
And just one other thing I would like to--the 199A was the
first time that I actually felt that the Tax Code affected me
as a small business person. I am grateful to have it.
Mr. ALFORD. These savings that you are realizing under the
tax cuts now, you are not taking fancy trips to Tahiti or
anything like that, are you, with the money?
Mr. HUFF. Actually, I am going to go to Tahiti, but not
because of the Tax Code.
Mr. ALFORD. You are investing this in your business and the
people who work for you.
Mr. HUFF. That is absolutely correct. We reinvest in our
business. And I actually have to do that because I would like
to get back to 23 stores across the United States.
Mr. ALFORD. Mr. Hedlund, our farmers are the backbone of
our nation, working sun up to sundown. In Missouri, we had, 5
years ago, 95,000 farms in Missouri. Now we are down to 87,000.
Our food security is our national security. We are losing 1,000
farms a month in America. And a key policy keeping these
businesses, these family farms going is the stepped up basis
which allows a son or daughter to inherit their family farm
without paying the devastating tax bill.
President Biden wants to do away with this in his budget,
and it is going to hit two-thirds adversely, two-thirds of the
family farms. What impact will that have on our ag industry, do
you think?
Mr. HEDLUND. It would be a very damaging impact. We have
seen overall prices go up by 20 percent and food prices have
gone up by more than that. And that is just part of a trend.
This administration has also talked about taxing unrealized
gains, which would be similarly devastating to the economy.
Mr. ALFORD. Well, I appreciate your answers. Mr. Huff, have
a good time in Tahiti. I appreciate--I wish I could go with
you, but I just got back from spending a week in Israel, and I
am telling you what, we need to pray for those people in Israel
and support them.
Thank you so much. Mr. Chair, I yield back.
Chairman WILLIAMS. The gentlemen yields back. I now
recognize Representative Thanedar from the great state of
Michigan for 5 minutes.
Mr. THANEDAR. Thank you, Mr. Chair. And I have a couple of
questions for Mr. Rowen.
You know, when I ran a small technology business in
Michigan, buying equipment was very critical, keeping up with
the new technology so that I can provide better service to my
customers, create more jobs. And so often I used my profits, so
to speak, to buy equipment and invest in my own business, so I
can grow, grow the business. And at times, you know, I had some
tax benefits that helped me.
Now, we have a bill, I am sure you are familiar, that is
being with discussed in the U.S. Senate. And in terms of
providing some tax benefits, especially able to write off
entirely the purchase of equipment. What would you advise the
senators to do on this particular bill?
Mr. ROWEN. There is no question in my mind, it is the
experience I have had with my business, that every time I can
expense something like a piece of equipment in the year that I
purchase it, it helps my business. It is an absolutely vital
component of what I think should be a fair tax policy and tax
reform, so it should be included in tax reform.
Mr. THANEDAR. All right. The 199A deduction benefits many
small businesses that operate as pass-through, but 50 percent
of the benefits go to the top 1 percent. What can we do to
cater benefits more towards the average small business owner
who makes closer to $70,000 a year?
Mr. ROWEN. So, one of our proposals is to take the first
$25,000 worth of income on a business and make it tax free,
give small business owners who begin to hire employees a credit
for new hires, things like that. So, when you are down at the
level where all entrepreneurs start, at the bottom and build
up, give better tax breaks and incentives that way.
Mr. THANEDAR. All right. Finally, you know, what specific
policies you recommend that would help the small businesses?
Often when we have tax breaks, tax incentives planned, we see a
lot of that benefit go to the top 1 percent who really don't
need those incentives. It is the small businesses which are
struggling, the mama-papa businesses, small businesses trying
to grow. You know, they can benefit more. How can we design
policies that benefit more of the lower end, smaller businesses
and not so much of it goes to the top 1 percent?
Mr. ROWEN. I believe, our organization believes that
government is not necessarily always the bad, evil part, and
taxing is how we fund our government. We have just experienced
4 years', 5 years' worth of a pandemic that would have crushed
most businesses. My business would not be here today, I would
bet you these two gentlemen sitting next to me, their
businesses very possibly would not be sitting here today, be in
business, if we didn't have the protections like the PPP
funding and the Small Business Administration EIDL loans. Those
are the things that backstop the American economy and that is
what America needs to be. We need to strengthen that.
Mr. THANEDAR. Thank you, Mr. Rowen. And Mr. Chair, I yield
back.
Chairman WILLIAMS. The gentlemen yields back. I now
recognize Representative LaLota from the great state of New
York for 5 minutes.
Mr. LALOTA. Thank you, Chairman, for your leadership and
for getting us together to today to hear about the challenges
that small businesses face regarding our Tax Code and the
uncertainty in it. I want to thank our witnesses for being here
today.
I want to spend my 5 minutes today addressing an issue that
is paramount to my Long Island constituents, and that is the
state and local tax deduction, otherwise known as SALT. Long
Island is already one of the most expensive places in the
country to live due to incredibly high state and local taxes.
Specifically, New York State has the dubious distinction of
having the highest effective income, sales, and property tax
rates in the country. It is not even close how bad we are in
our state.
Now, that is a problem mostly created by Albany politicians
and nobody in this town, thankfully. Nevertheless, the complex
Federal Tax Code presents challenges to small businesses and
individuals, like many of my constituents. And to help provide
relief to that problem, many of my colleagues and I are working
to increase or eliminate the SALT deduction cap to help support
our constituents.
One of the first bills I introduced in Congress was my SALT
Fairness and Reduction Act, which would increase from $10,000
for individuals to $60,000 for individuals, $120,000 for
married couples, and would also index that for inflation. This,
many think, is commonsense legislation that provides tax relief
to those who need it, specifically small businesses and middle
class families, who are having to cut costs every day.
I made a promise to my constituents that I wouldn't support
any tax package here in the House without a reasonable SALT
fix. And since day one, I have made that clear to every one of
my colleagues. Unfortunately, earlier on in this Congress, the
Wyden-Smith tax package did not have any reasonable fix for
SALT, and I was forced to vote no on that package.
I am not giving up, however. Many of my New York Republican
colleagues and I then fought tooth and nail to ensure that a
vote on a SALT increase got to the floor. We proudly introduced
the SALT Marriage Penalty Elimination Act that would remove the
marriage penalty and raise the SALT deduction cap to $20,000
for joint filers who have an adjusted gross income of $500,000
or less.
Sadly, this dysfunctional town, every single House Democrat
who previously said they were very much in favor of an increase
in the SALT deduction, and specifically 14 New York House
Democrats, voted against that and blocked that bill from even
coming to the floor. It was pro family, pro worker, pro
American legislation and the dysfunction of this town, the
partisanship of this town prevented that from moving forward.
This leads me to my first question. Mr. Hedlund, I see you
are from Purdue. Sorry about the game the other night. A vast
majority--you guys finished second in the world. That is very
good.
Mr. HEDLUND. A lot better than last year.
Mr. LALOTA. Yes, sir. A vast majority, I understand, of
small businesses are pass-through entities, meaning income is
reported on from the business owner on their individual taxes
and is taxed under the individual income tax. Is that correct?
Mr. HEDLUND. That is correct.
Mr. LALOTA. This means the limitation of the personal
income tax code, like the SALT cap, directly negatively impacts
the business. Is that correct?
Mr. HEDLUND. They are affected by that provision.
Mr. LALOTA. And it is a negative impact. They get to deduct
less?
Mr. HEDLUND. They get to deduct less.
Mr. LALOTA. Which means they have to pay more?
Mr. HEDLUND. Sure.
Mr. LALOTA. And does anybody want to pay more?
Mr. HEDLUND. No one I have encountered.
Mr. LALOTA. We agree on that. Would you agree, moving on,
would you agree that a double tax, where the federal government
and then later on the state and local governments tax the same
income, that a double tax is unfair?
Mr. HEDLUND. So, I would take a little bit of a different
view there. I would say if there is a federal taxpayer living
in Texas and one living in New York and they have the same
income, that the one in Texas should not have to pay a higher
federal tax because of the bad decisions that New York
government is making.
Mr. LALOTA. Great point. I have heard that from some of my
colleagues. Now, what would you say about return on investment?
If you are going to analyze, in your words, that a Texas
taxpayer, God bless Texas, shouldn't have to subsidize the
largesse of Albany politicians, I generally agree with that
concept. But what would you say if the analysis then said that
this town sends more back to Texas and some other states than
they send back to New York based upon the revenue it collects
from those? Specifically, New York State is a donor state,
meaning that for every dollar a New York taxpayer sends to the
federal government, we get a mere 85 cents back. In many of
those same states who claim they are subsidizing my state's
largesse, they are getting $1.25, $1.50, and $2. Would you say
that is unfair, sir?
Mr. HEDLUND. I would say that the money going back to a lot
of these states, no one is really feeling the benefits of it.
Government is way too big. So, I am 100 percent on board with
you about we need to reduce the tax burden on everybody.
Mr. LALOTA. Great. Let's talk about the marriage penalty
real quick. So, certain parts of the Tax Code disincentivize
marriage, and specifically with respect to the most recent
adjustment in the SALT code, the limitation is $10,000
regardless if you are an individual or you are married. So, one
person gets to deduct $10,000 from their taxes, but two people
who happen to be married get to deduct the same 10,000, not
20,000. Is that fair, sir?
Mr. HEDLUND. I am definitely against marriage penalties.
Mr. LALOTA. Great. With that, I yield back, Mr. Chairman.
Chairman WILLIAMS. The gentlemen yields back. I now
recognize Representative McGarvey from the great state of
Kentucky for 5 minutes.
Mr. MCGARVEY. Thank you, Mr. Chairman. Appreciate this
hearing today, especially given that Monday, let's not forget,
is Tax Day. So this is everybody's friendly reminder it is
coming, whether we want to admit it or not.
Mr. Wetherington, I appreciate your statement that the Tax
Code must be simple, consistent, and must support job creation
here in America. I couldn't agree more. We need a Tax Code that
is accessible to every American. And I think everyone needs to
pay their fair share. It is not viable and I think it is
certainly not fair that the top 10 percent of earners are
oftentimes taxed at far less than teachers and firefighters and
people below.
And let's look at what the Tax Code and what has happened
recently. Trump's tax plan was a massive windfall for large
multinational corporations. By implementing a flat 21 percent
tax rate, President Trump gave some of the largest, most
profitable corporations up to a 40 percent break on their
taxes. But this is the deal. We are in the Small Business
Committee. They did this while subjecting the smaller
businesses and C corporations, who were previously taxed at 15
percent, a tax increase. So that 21 percent tax rate that they
imposed, a flat tax, it lowered it for the biggest
corporations, it raised it for many small businesses.
I have got twins at home, and so I say this all the time,
it can be fair, right? It can be equal without being fair. And
that is what has happened. They made the tax rate equal, but it
is not fair to our small businesses and our entrepreneurs who
are trying to grow their businesses.
It is not hard to see why, right? When signing his
corporate tax giveaway into law, President Trump said,
``Corporations are literally going wild over this.'' You heard
that quote correctly. Not people are going wild over this, not
main street is going wild over this. Our largest corporations
are going wild over this. And unfortunately, under the plan, it
is not just people and programs that will suffer. The
Congressional Budget Office estimates that with a full
extension of the Trump corporate tax giveaways, deficits will
rise up to $3.5 trillion, the highest percent of GDP outside of
a war or a recession. We simply can't afford to do that, and it
will be a wasted opportunity to improve our Tax Code if we do.
With that being said, we have a great opportunity to extend
the parts of the tax cut that helped people, like doubling the
standard reduction and the child tax credit. And we can work
together to create a reformed tax system that is simple to
understand, helps small businesses, promotes commerce, and
enhances the welfare of everyday Americans.
Mr. Rowen, what are some of the previous--what are some of
the provisions in the Tax cut and Jobs act that helped small
businesses that you would like to see continued in a new tax
package?
Mr. ROWEN. Well, I do think the 199A 20 percent reduction
was good. I think the 100 percent amortizing, you know, taking
those deductions right away, those are good. There is a lot of
provisions. Anything that simplifies the Tax Code would be
great.
But again, we do believe that if you simply leave this law
in place and keep the corporate rate at 21 percent and give
back to the small businesses their 20 percent reduction, you
are still creating this uneven balance where small businesses
are effectively being taxed at somewhere around 28 percent and
corporations are still at 21 percent.
Mr. MCGARVEY. In my brief time remaining, we talked about
deficits. We talked about that. We heard Mr. LaLota talk a
little bit about recipient states and that sort of thing. I can
tell you, I am from Kentucky. And last week, a few weeks ago,
there was a study by the Republican Committee that proposed
budgets that would cut Medicare, Social Security, and
Affordable Care Act. In Kentucky alone, there are almost a
million people enrolled in Medicare, more than 500,000
receiving both Social Security and ACA benefits. How do
programs like these alleviate the workforce shortages that
small businesses have been struggling with in recent years?
Mr. ROWEN. We can't compete with big businesses that can
give health insurance to their employees. We just can't. We
have finally fallen below 50 employees, so we don't have to
have our own health insurance, which we had to carry for years
and very few people in my company were actually able to afford
it.
Chairman WILLIAMS. The gentleman's time is up.
Mr. MCGARVEY. Mr. Chairman is being nice. I see my time has
expired. I yield back.
Chairman WILLIAMS. The gentlemen yields back. I now
recognize Representative Molinaro from the great state of New
York for 5 minutes.
Mr. MOLINARO. I apologize to the witnesses that you had to
get double teamed by New Yorkers, although my colleague
adequately divided the two of us and said Trump as many times
as he could, and I appreciate the fear in which he expected to
instill upon all of you. But let me offer that, Mr. Chairman,
we appreciate the time at today's hearing, and certainly to
each of you.
This is an important moment for small businesses. As we
know, we are going to have to advance a tax policy that assists
American families and American small businesses. Now, I was
actually, as a New Yorker, very proud to vote for the Tax
Relief for American Workers and Families Act. This bill, I
think, is the first step to delivering relief to millions of
Americans, and I was encouraged to see it come together in a
bipartisan way. I trust and hope the Senate will take action
soon.
I also am proud to introduce the Think DIFFERENTLY Small
Business Accessibility Act. This bipartisan bill will expand
the existing disability--excuse me, disabled access credit,
which helps small businesses invest in accessibility for
customers and employees of every ability. Now, these bills are
proof that there is common ground to be had on tax policy, but
there is a long road ahead to secure long-term extensions of
the essential tax provisions that will deliver relief for
families, farmers, and small businesses across the United
States.
Dr. Hedlund, you outlined what you refer to as the blue
collar boom in the immediate aftermath of adoption of the Tax
Cuts and Jobs Act, actually quite a big benefit to small
businesses and entrepreneurs across the country. According to
your testimony, workers without a bachelor's degree saw a 130
percent acceleration in earnings from January 2017 to February
2020, a big benefit for small businesses and entrepreneurs. For
a district like mine, in which less than half of the workforce
has a bachelor's degree or higher, the impact of this growth
cannot be understated.
So, could you highlight for us some specific industries
that saw the most growth after the 2017 adoption, and then just
speak to sectors where you foresee continued growth if we can
come together on extending these important provisions?
Mr. HEDLUND. Absolutely. Well, I mean, the great thing
about tax relief and a more competitive Tax Code is that it
advantages all industries. There are too many policies where,
unfortunately, the government ends up picking winners and
losers and would go for this industry, not that industry, but
what we actually saw was all industries gaining. We saw a lot
of investment throughout the country and, as you pointed out,
it benefited especially blue collar workers. And that is the
thing with tax policy. It is not just the immediate dollars
that the tax cuts themselves put in the pockets of people. It
is the fact that it creates growth and that growth has massive
benefits.
Mr. MOLINARO. I appreciate you saying that. And for
countless small businesses, and those who, by the way, often
feel like they have the skill and the capacity, but not
society's expected level of education, to show the ability to
succeed and to have policy that supports them, critically
important.
Mr. Huff, good to see you again. I hope you enjoyed the
cherry trees around Washington yesterday.
Mr. HUFF. I could not find a sole, so we are good.
Mr. MOLINARO. Okay, fair enough. Don't want you taking one
home. Now, you highlight the importance of the 199A tax
deduction in your testimony. As you know, over 95 percent of
businesses in the United States are what we call pass-through
entities, which means the TCJA helped millions of small
businesses in New York and across the United States in the form
of the 20 percent pass-through deduction. In fact, over 47,000
business owners in my district alone, small businesses,
benefited and claimed the deduction in 2020. For this reason, I
proudly cosponsor H.R. 4721, this is the Main Street Tax
Certainty Act, with 169 other Members of the House. The bill
would seek to permanently extend the 199A deduction. If that
deduction were to expire today, and I know you have talked
about this, so let's reinforce it, if that deduction were to
expire at the end of next year, could you speak to the impact
on your business and some of the decisions you would have to
make should that sunset?
Mr. HUFF. If this, the 199A and the bonus depreciation,
changes, based upon my projections, rather than opening nine
stores in the next 3 years, I will be only able to open one or
two stores in the next 3 years.
Mr. MOLINARO. Massive benefit to businesses like yours.
Now, Mr. Wetherington, the data shows that in 2018 alone,
manufacturers added over 200,000 new jobs, the best year for
job creation in manufacturing in 21 years. The same year,
manufacturing production grew 2.7 percent, with December 2018
being the best month for manufacturing output. I will run out
of time, but could you--without question, the impact of tax
reform on manufacturing is clear. Can you just elaborate in 10
seconds or less the impact to your sector?
Mr. WETHERINGTON. Thank you for that. Policies have
consequences. When there is a high tax rate, large employers
moved offshore their manufacturing jobs. The lower tax rate,
large employers started reshoring. It was going great before
COVID. With COVID came the supply chain issues. It continues to
go strong. We have got to keep these Tax Codes where they are.
Mr. MOLINARO. Mr. Chairman, the Tax Cut and Jobs Act helps
small businesses, and we have got to come together to ensure
they continue to get our support. And with that, I yield.
Chairman WILLIAMS. The gentleman yields back. I now
recognize Representative Gluesenkamp Perez from the great state
of Washington for 5 minutes.
Ms. GLUESENKAMP PEREZ. Thank you, Chairman Williams, and
thank you to our panel of witnesses for being here today.
So, I own an auto repair and machine shop with my husband.
And actually I have spent a lot of time reading, you know,
books on tax savvy for small businesses and the kinds of things
that make you want to crawl into a sleeping bag under your desk
and never come out. And it is actually very frustrating and
alienating for me to hear from--I will just be candid. I am
grateful you are here. It is hard for me to hear people in ties
tell me that, like, this is helping the trades because I feel
like people in my world will never--we don't have the power to
lobby for the tax cuts that would actually--right. We want a
level playing field, we want a clear policy, we want to see a
return to high-quality manufacturing, not just fueling
consumption.
And I appreciate, you know, the testimony, Mr. Huff,
particularly you were making about the investment in things
like coolers, machinery. And I am thinking particularly, I am
hoping you could expand, because my experience is if you can
buy the nice thing, if you can buy the work boots that will
last 3 years, you have got a real asset, right? You know, if
you have got to buy the cheap thing because you are thinking
about your depreciation schedule, not only does American
manufacturing hurt, but we hurt in the middle class.
So, I wonder if you could talk about that, talk about your
experience with your capacity for hiring and retaining
employees.
Mr. HUFF. Yes, I can. The purchasing coolers, fixtures,
point of sale systems, all of those create jobs and things like
that. But for me specifically, it creates an environment where
I can grow, I can make money and grow my business. And the 199A
and the bonus depreciation actually allowed me to do more than
I planned to do.
Ms. GLUESENKAMP PEREZ. I appreciate that and I think it is
important that we are able to invest in high-quality equipment.
But I, also, when I think about the sort of stuff versus people
dichotomy, I think it is really important that our communities
and our small businesses are able to invest in fixing their
roof, putting more insulation in their shop, things that are
investing in the capital. That is how communities actually
build wealth in the long term. Grow your tax base, right? Make
it so my shop isn't 107 degrees in the summer, things like
that.
And one of the things that we see a lot is--I mean I have
customers who tell me all the time like I didn't really want to
buy a dually, but I needed to get above 6,000 GVW to qualify
for the first year depreciation. And I am like, let me tell you
how much it costs to replace a set of tires on a dually, you
know. And so really thinking about ways that we can encourage a
tax policy that prioritizes investment in human capital, in
people, and not just a churn of stuff. And I am wondering, you
know, to that end, who could speak on what they have seen that
does prioritize investment in people and tradespeople.
Mr. HEDLUND. I would say that human capital investment is
one of the most important types of investment, and it is not
talked about enough. We need a Tax Code that is overall pro
investment. And the challenge with steep tax penalties that are
better now than they used to be, but we can make them even
better, is that they discourage people from investing in
themselves, because work is not just the paycheck you are
immediately earning, it is the investment in your own future
capacity. So if we have simple, low, and fair taxes, we can get
a lot more of that.
Mr. ROWEN. And something like a small business tax cut for
the first employee that they hire or if they send one of their
employees to schools or you are just training somebody onsite,
there used to be programs for workforce development years ago
that had tax incentives. There is all sorts of things that can
be done that small business folks will take advantage of.
Mr. HUFF. As I open stores, I have to hire a manager, an
assistant manager, I have to hire associates. It is really
critical that we continue to come up with tax policies that
allow small businesses to grow because that is where the growth
in employment is really happening, is in the small businesses.
Ms. GLUESENKAMP PEREZ. A workforce that is nimble, that
has, you know, prioritizing the critical thinking, the sort of
skills that you can take to any business, that allow you to
open your own businesses, these are the kinds of investments
that I think we need to see. We want to see shop classes in our
high schools thriving and competitive. But I thank you for your
time here.
Thank you, Chairman. I yield back.
Chairman WILLIAMS. Lady yields back. And we have come to
the end of our hearing today. I want to thank all of our
witnesses for the testimony, for appearing before us and
coming, leaving your home and your business to do this.
Without objection, Members have 5 legislative days to
submit additional materials and written questions for the
witnesses to the Chair, which will be forwarded to the
witnesses.
Again, I want to thank all of you for being here. We are
the backbone of this great country.
And if there is no further business, without objection, the
Committee is adjourned.
[Whereupon, at 11:49 a.m., the committee was adjourned.]
A P P E N D I X
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