Enabling Success: Examining the Competitive Landscape for Small Businesses (House Small Business subcommittee hearing, September 13, 2023)

Summary

Transcript of the House Small Business Subcommittee on Economic Growth, Tax, and Capital Access hearing Enabling Success: Examining the Competitive Landscape for Small Businesses, on September 13, 2023, published as Small Business Committee Document Number 118–024. Subcommittee Chairman Dan Meuser presided, and Representative Greg Landsman also gave an opening statement. Witnesses were James Chung, a Jimmy John's franchisee testifying for the International Franchise Association, Holly Wade of the NFIB Research Center, and Kathryn Judge of Columbia Law School. The appendix adds material from Engine, Goldman Sachs, the National Association of Manufacturers, the Small Business & Entrepreneurship Council and the U.S. Chamber of Commerce. The subcommittee met at 10:03 a.m. and adjourned at 11:11 a.m.

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ENABLING SUCCESS: EXAMINING THE
COMPETITIVE LANDSCAPE FOR SMALL BUSINESSES

HEARING
BEFORE THE

SUBCOMMITTEE ON ECONOMIC GROWTH,
TAX, AND CAPITAL ACCESS
OF THE

COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION

HEARING HELD
SEPTEMBER 13, 2023

Small Business Committee Document Number 118–024
Available via the GPO Website: www.govinfo.gov

U.S. GOVERNMENT PUBLISHING OFFICE
53–364 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
NYDIA VELÁZQUEZ, New York, Ranking Member
JARED GOLDEN, Maine
KWEISI MFUME, Maryland
DEAN PHILLIPS, Minnesota
GREG LANDSMAN, Ohio
MORGAN MCGARVEY, Kentucky
MARIE GLUESENKAMP PEREZ, Washington
HILLARY SCHOLTEN, Michigan
SHRI THANEDAR, Michigan
JUDY CHU, California
SHARICE DAVIDS, Kansas
CHRIS PAPPAS, New Hampshire

BEN JOHNSON, Majority Staff Director
MELISSA JUNG, Minority Staff Director

(II)
CONTENTS
OPENING STATEMENTS
Page
Hon. Dan Meuser ..................................................................................................... 1
Hon. Greg Landsman .............................................................................................. 2

WITNESSES
James Chung, Franchisee, CEO, Jimmy John’s, testifying on behalf of the
International Franchise Association ................................................................... 4
Holly Wade, Executive Director of the NFIB Research Center, National Fed-
eration of Independent Businesses, Washington, DC ....................................... 7
Kathryn Judge, Harvey J. Goldschmid Professor of Law, Columbia Law
School, New York, New York .............................................................................. 8

APPENDIX
Prepared Statements:
James Chung, Franchisee, CEO, Jimmy John’s, testifying on behalf of
the International Franchise Association ..................................................... 23
Holly Wade, Executive Director of the NFIB Research Center, National
Federation of Independent Businesses, Washington, DC .......................... 32
Kathryn Judge, Harvey J. Goldschmid Professor of Law, Columbia Law
School, New York, New York ....................................................................... 37
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
Engine ............................................................................................................... 44
Goldman Sachs ................................................................................................. 47
National Association of Manufacturers .......................................................... 49
NFIB Research Center Banking Survey ......................................................... 53
Small Business & Entrepreneurship Council ................................................ 65
U.S. Chamber of Commerce ............................................................................. 119

(III)
ENABLING SUCCESS: EXAMINING THE
COMPETITIVE LANDSCAPE FOR SMALL
BUSINESSES

TUESDAY, SEPTEMBER 13, 2023

HOUSE OF REPRESENTATIVES,
COMMITTEE ON SMALL BUSINESS,
SUBCOMMITTEE ON ECONOMIC GROWTH,
TAX AND CAPITAL ACCESS,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:03 a.m., in Room
2360, Rayburn House Office Building, Hon. Dan Meuser [chairman
of the Subcommittee] presiding.
Present: Representatives Meuser, Williams, Alford, Landsman,
and Davids.
Chairman MEUSER. Well, good morning. I appreciate you all
being here. The hearing this morning on Enabling Success: Exam-
ining the Competitive Landscape for Small Business will come to
order.
I greatly appreciate our witnesses for being here and making the
trip. And certainly, good morning to everyone, my colleagues on
both sides.
So we will delve into today the critical issue of how regulatory
decisions, particularly by the Federal Reserve, are impacting our
nation’s small businesses, which as we all know are the backbone
of our communities and the strength of your economy. Small busi-
nesses are already navigating a maze of challenges, inflation, regu-
latory costs, access to capital to name just a few. And the last thing
our small businesses need is additional roadblocks, particularly
from institutions like the Fed that limit their access to capital and
ability to succeed.
Take for instance the important issue of interest deductibility. To
address inflation brought on by excessively high levels of spending,
the Fed has raised interest rates to a 2 decade high and small busi-
nesses are capped at the relief that they can receive. The current
cap on interest rates are 30 percent of adjustable taxable income
really unfairly penalizes small businesses that utilize large capital
expenditures to grow their business and hire employees. This ham-
pers domestic investment but also erodes the global competitive-
ness of U.S. businesses.
The Joint Committee on Taxation estimate in its first year this
change will have approximately $10 billion in fiscal cost for Amer-
ican businesses. Most developed businesses do not place such con-
(1)
2

straints on their companies. Putting this onto American entre-
preneurs creates a disadvantage.
The Federal Reserve also, despite its own data in the Beige Book
and the Senior Loan Officer Opinion Survey is in the process of im-
plementing stricter capital standards on banks known as the Basel
III endgame proposal.
Now, the proposal will require banks to keep more money on the
sidelines where it will not be utilized to fulfill the lending needs
of particularly small businesses. This move will exacerbate the al-
ready tightening capital access problem for small business. If banks
have to hold back on lending due to these requirements, it is,
again, small businesses that will suffer.
So larger financial institutions may be able to mostly absorb
these regulatory shocks; not so much for small business. What hap-
pens when a business needs to replace crucial equipment or repair
damages urgently and cannot very simply access affordable capital.
These are not theoretical concerns. They are real issues that can
close the doors of our small businesses, impacting the lives and
livelihoods of everyday Americans. Due to this proposal, banks will
have less flexibility than ever and again, small businesses will re-
ceive the brunt of the lending pullback.
We do have a duty on this Committee to address the problems
facing small businesses. Simple measures like restoring the 163J
interest deductible and reconsidering the Basel III endgame can go
a long way in ensuring we do not add to the problems.
Despite the headwinds of inflation and turbulent economic land-
scape our small businesses are fighting to thrive. Let’s not allow
misguided proposals to tie their hands.
I look forward to hearing the insights of our witnesses today on
all of these topics.
Before concluding my remarks I would like to enter into the
record three separate surveys of small businesses conducted by the
National Federation of Independent Businesses, otherwise known
as FIB and NFIB, Goldman Sachs 10,000 Small Business Voices
and the Small Business Entrepreneurship Council on detailing the
difficulties of small businesses are facing accessing capital. Thank
you.
I now yield to our Ranking Member, Mr. Landsman.
Mr. LANDSMAN. Thank you, Mr. Chair. Thank you all for being
here. This is a very important hearing and discussion about help-
ing our small businesses with the regulatory landscape but also as
the Chair mentioned, some of the tax issues that our small busi-
nesses are dealing with. So I am echoing some of his remarks but,
you know, over the last several years our small businesses have
faced compounding crises from the initial COVID shock to the on-
going repercussions involving the labor market and supply chain
issues, the competitive landscape for these businesses has been a
whirlwind.
Over the past 2 years, however, we have seen an unprecedented
growth in small business startup activity. In 2021 and 2022, over
10 million people filed applications to start new businesses, and
small firms are almost entirely responsible for the strong labor
market we see today. An economic landscape in which the only con-
stant is change, it is our job as policymakers to give these firms
3

some semblance of stability and certainty. By making policy deci-
sions that allow small businesses to gain their footing, we can en-
able their success by creating the ability to plan long term and
have confidence in their decision-making.
Unfortunately, the policy environment is far from a sure thing.
Right now we are facing several changes to tax policy that under-
mines small businesses’ competitiveness and the potential for fi-
nancial market instability as we saw with Silicon Valley and signa-
ture banks. To create more certainty, it is time to take stock and
explore how we can stabilize this landscape for small business.
Let me start by discussing the lending environment, and this is
where I believe there is real bipartisan support. Over the last few
years we have seen the quickest rise in interest rates in our na-
tion’s history to combat the ongoing issue of inflation. While this
helped to stabilize prices, it has pushed the cost of capital for busi-
nesses out of reach for many of our small businesses. With the
prime rate of over 8 percent, the small business loans rates up-
wards of 15 percent, the ability to deduct interest payments is
more important than ever.
Now, some of our small businesses are exempt from these deduc-
tion limitations but others are not and this is an area where Con-
gress can act to make sure that interest payments are deductible
for all of our small businesses. I am very eager to work with my
colleagues to ensure that our small businesses have tax policies
that reflect how they operate.
Tax relief for businesses should also be paired with tax relief for
workers and families. That is why I believe we should be expand-
ing, extending the Child Tax Credit which managed to cut child
poverty in half. Many of you saw that child poverty is up again be-
cause this has gone away. This makes a big difference for our small
businesses as they look to attract and retain workers.
It is crucial that we improve the resilience and stability of the
financial system on behalf of small businesses. Doing so increases
the competitive landscape of our main streets businesses and al-
lows them to do what they do best, which is create jobs and invest
in our local communities.
I thank all the witnesses for joining us today and look forward
to a very productive discussion.
I yield back.
Chairman MEUSER. Our first witness here with us today is Mr.
James Chung. Pleasure to have you with us. Mr. Chung is a
franchisee and CEO of Atlas, located in Pasadena, California. Mr.
Chung began his franchising journey into the great Commonwealth
of Pennsylvania, Pittsburgh. He now owns and operates 33 Jimmy
John’s across four states including a number of stores in Pitts-
burgh, Pennsylvania. In addition to serving as the CEO of Atlas,
Mr. Chung was the CEO of Bacix, an administration organization
that provides HR, payroll, financial services for franchises and pro-
fessional organizations. He also currently serves on the Board of
Nano Bank, among the fastest growing banks in the nation. Mr.
Chung is a graduate of the University of Southern California where
he earned a degree in economics. I am glad to see that is being put
to good use. I was an economics major and wondered what I was
going to do with it as well.
4

Mr. CHUNG. Here we are.
Chairman MEUSER. Here we are.
Mr. Chung, thank you for joining us today, and we look forward
to today’s conversation.
Our next witness with us today is Ms. Holly Wade. Ms. Wade is
the executive director of the NFIB Research Center here in Wash-
ington, D.C. Ms. Wade has over 19 years of experience conducting
research on the small business sector focusing on economic condi-
tions, business operations, and public policy issues impacting small
businesses. In addition to her role at the NFIB, Ms. Wade is a
Member of the Board of Directors of the Global Interdependent
Center and a former Member of the National Association for Busi-
ness Economics where she is the current Co-Chair of the Small
Business Roundtable. She is a frequent media spokesperson on the
small business economy and related policy issues. Ms. Wade is a
graduate of the University of Washington where she earned her
Bachelor of Arts in Political Science and Sociology. Thank you, Ms.
Wade for joining us today, and we look forward to your testimony.
I now recognize my friend, the Ranking Member from Ohio, Mr.
Landsman, to introduce our last witness.
Mr. LANDSMAN. Thank you, Mr. Chair.
Our last witness today is Professor Kathryn Judge. Professor
judge is the Harvey J. Goldschmid Professor of Law at Columbia
Law School. Her research on financial markets and regulation has
been published in top law journals and she has won accolades from
academic peers and from the industry. She served as a clerk for
Judge Richard Posner and Supreme Court Justice Stephen Breyer.
She is a graduate of Stanford Law and Wesleyan University. Last
year she published the book Direct: The Rise of the Middle Man
Economy and the Power of Going to the Source.
Thank you, Professor Judge, and we look forward to hearing your
testimony. I yield back.
Chairman MEUSER. Thank you. The gentleman yields.
And we have some esteemed witnesses. So we appreciate it and
we want to get right to it.
Before we begin, I would like to remind you all that your oral
testimony is restricted to 5 minutes. 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 so I do not have to rap this too
hard.
We now recognize Mr. Chung for your 5 minute opening re-
marks.

STATEMENTS OF JAMES CHUNG, FRANCHISEE, CEO, ATLAS;
HOLLY WADE, EXECUTIVE DIRECTOR OF THE NFIB RE-
SEARCH CENTER, NATIONAL FEDERATION OF INDE-
PENDENT BUSINESS; KATHRYN JUDGE, HARVEY J.
GOLDSCHMID PROFESSOR OF LAW, COLUMBIA LAW SCHOOL

STATEMENT OF JAMES CHUNG
Mr. CHUNG. Thank you, Chairman.
Chairman Meuser, Ranking Member Landsman, and Members of
the Subcommittee, thank you for the opportunity to appear before
5

you today to share my perspective on the competitive landscape for
small businesses in America.
I appear before you on behalf of myself and International Fran-
chise Association, otherwise known as the IFA. The IFA comprised
of franchise companies in over 300 different industries who support
nearly 8.4 million direct jobs. I have experienced firsthand the re-
markable impact that a franchise business can have on local econo-
mies and communities, including job creation, workforce develop-
ment, and economic growth.
While attending the University of Southern California, I was ex-
pected to continue my family’s medical legacy and study medicine.
However, I made the decision to break from my family tradition
and chase my entrepreneurial dreams. Lacking support and busi-
ness knowledge, I decided to pursue a venture that would allow me
to develop a business within an already thriving brand. Therefore,
I created a business plan that redefined how wireless carriers, such
as T-Mobile and their retail partners supported one another.
Through the program, I was able to develop T-Mobile retail loca-
tions throughout California. Once I hit my 10-year anniversary in
2018, I made the tough decision to exit wireless retail. I enjoyed
and flourished in an environment where I was in business for my-
self, but not by myself, and it gave me the skills necessary to build
my confidence.
After T-Mobile, I made the decision to invest in Jimmy John’s,
another well-known brand that built a reputation for their tena-
cious culture, fresh baked bread, and delicious sandwiches. Jimmy
John’s informed me they needed more stores in Pittsburgh, and al-
though I knew nothing about the market, or food for that matter,
I was confident that I could make it happen with the support of
the franchise. To further my chances, I partnered with a mentor
of mine, Tony Gressak. His experience as the VP of Cheesecake
Factory Bakery and a Vietnam vet would prove to be invaluable.
After receiving my first SBA loan, I signed up to open a Jimmy
John’s in Pittsburgh. My team and I hit the ground running and
before we knew it we had opened four more in Pittsburgh and
earned the rights to open 24 more in California.
Unfortunately, the stores in California opened producing half of
the sales we expected. We bared down, close underperforming
stores while acquiring cash-flowing franchisees in other states and
started to turn the corner.
The day we became profitable, shelter in place mandates were
announced. I was sure this was the end. But thankfully, our gov-
ernment had the foresight and grace to provide programs that res-
taurants relied upon to make it through the numerous COVID
shutdowns and restrictions. Because of the grit of my team and
their devotion to our vision, we are now on the path to owning and
operating 100 Jimmy John’s across six states that would employ
more than 2,000 employees.
Entrepreneurs cannot leave their teetering businesses to engage
and participate consistently in regulatory and political matters.
However, the current political climate is making it too difficult, liti-
gious, and expensive to operate. I am deeply concerned that the
American dream is being threatened by the current political land-
scape.
6

One headwind is an aspect of tax policy. The limitation on the
deductibility of interest imposed by the expiration of a provision in
the Tax Cuts and Jobs Act hinders small business growth, and at
the beginning of last year it got worse. Prio to January 1, 2022,
business interest expense deductions were limited by Section 163J
to 30 percent of their earnings before interest, tax, depreciation,
amortization, otherwise known as EBITDA. Interest deductions are
now limited to 30 percent of earnings before interest and tax, oth-
erwise known as EBIT, a much stricter limitation, especially for
businesses with a lot of depreciable equipment such as restaurants.
This change, combined with rising interest rates, is proving to
make incremental investments by small businesses much more ex-
pensive. On average, a restaurant affected by change could see a
threefold increase in its incremental tax burden facing both higher
interest rates and higher tax rates.
Restaurants famously offer entry level jobs with high upper mo-
bility. In fact, one in three Americans begin their jobs or their ca-
reers in a restaurant. Most of my managers and district managers
started as simple delivery drivers.
The EBITDA based interest limitation would allow us to keep
creating jobs and open this opportunity for countless more Ameri-
cans.
I am consistently hearing from franchisees who want to delay
restaurant openings because of the cost of funds. This is hurting
job creation in America.
Fortunately, there is a bipartisan legislation, H.R. 2788, to per-
manently preserve the EBITDA standard and ensure that the Tax
Code does not penalize job creating investments. In addition, H.R.
3398, the Build It in America Act includes retroactive extensions
through 2025, and was approved by the Ways and Means Com-
mittee earlier this year.
I would urge Congress to take either of these approaches to ad-
dress this critical issue as soon as possible but certainly before the
end of 2023.
Finally, I would like to highlight an issue that has potential to
completely dismantle the franchise business model. Any day now,
the NLRB is planning to issue the final rule on joint employer
standard that would reverse its course back to the harmful 2015
version. This rule will take away the equity and independence of
franchise small business owners and will put their success and
livelihoods, including mine, in jeopardy. Franchisers will move to
hire numerous attorneys to oversee employment issues across the
network of independently owned franchises where the franchisor
has no control. Ultimately, the additional cost to the franchisor will
translate into additional cost to independent owners like me.
Additionally, the increased scrutiny by the franchisor would put
into question accountability regarding the success of the franchise
which would make the franchise model untenable.
Mr. Chairman, thank you for your invitation to speak on behalf
of small business owners everywhere. I look forward to any ques-
tions you may have. Thank you.
Chairman MEUSER. Thank you, Mr. Chung. I provided some
leeway so I will do the same for our other witness.
7

Yeah, Washington time tends to be extended. California time I
understand might be as well but we are going to try to stay within
the limits.
Mr. CHUNG. Thank you, Chairman.
Chairman MEUSER. Ms. Holly Wade, your testimony, please.
Thank you.

STATEMENT OF HOLLY WADE
Ms. WADE. Good morning, Chairman Meuser, Ranking Member
Landsman, and Members of the Subcommittee. My name is Holly
Wade. I am the executive director of the NFIB Research Center.
NFIB is the nation’s leading small business advocacy organiza-
tion, advocating on behalf of nearly 300,000 small business owner
Members in Washington, D.C., and all 50 states. NFIB’s mission is
to promote and protect the right of our Members to own, operate,
and grow their business.
Small businesses appreciate the invitation to discuss opportuni-
ties for Congress to create an environment for small businesses to
grow and flourish. Small businesses continue to face economic
headwinds, including stubbornly high inflation, supply chain dis-
ruptions, and pervasive workforce shortages. These headwinds all
affect the competitive landscape for small businesses.
Small business owners’ ability to grow and successfully operate
their business are also constrained by unprecedented growth of
burdensome regulations and red tape under the administration and
the looming expiration of the 20 percent Small Business Deduction
(also known as Section 199A) at the end of 2025.
Small businesses face many challenges. Many of these challenges
are familiar to small business owners but others are quite new,
namely inflation and rising interest rates. NFIB Research Center’s
August Banking Survey found that the cost of credit is small busi-
ness owners’ biggest financial concern. According to the survey,
small businesses’ access to credit is currently not a major problem,
which is consistent with the findings of NFIB’s monthly Small
Business Economic Trends Survey. The Banking Survey found
most small business owners are generally satisfied with their abil-
ity to borrow, however, increased cost of financing is a problem. In
fact, 58 percent of those owners accessing credit in the last 3
months reported interest rates a significant issue.
The increasing cost of financing associated with high interest
rates is a growing concern for many small business owners. If in-
terest rate costs continue to increase, more small business owners
will be priced out of traditional financing options.
Unfortunately, small businesses face many other significant eco-
nomic headwinds in addition to rising interest rates. One of the
biggest concerns for small businesses is the expiration of the 20
percent Small Business Deduction (Section 199A) at the end of
2025. Without Congressional action, millions of small businesses
across the country face a massive tax increase. This looming tax in-
crease threatens the ability of small business owners to plan and
grow operations, as nearly half of small business owners (48 per-
cent) reported the uncertainty of expiring tax provisions is impact-
ing their current or future business plans.
8

It will also reduce their primary source of financing, business
earnings. Small business owners’ primary source of financing for
their business are profits, and a tax increase will directly impact
that source at a time when access to credit is more costly.
Additionally, the historic regulatory burdens and red tape of the
administration are another significant problem facing small busi-
nesses. Since 2021, the Biden administration has imposed more
than $403 billion in regulatory costs and added more than 233 mil-
lion hours in paperwork burdens for businesses. These unprece-
dented burdens are crushing small businesses and there does not
appear to be a regulatory slowdown in sight. Regulations are not
only costly but require small business owners to allocate valuable
time of themselves and often their employees to understand and
implement the regulations.
On January 1, 2024, one of the most expansive small business
regulations in history will go into effect. This substantial new re-
porting requirement, known as beneficial ownership information
reporting, will affect 32.6 million small business owners in the first
year and 5 to 6 million small businesses each year thereafter. The
cost of this regulation is a staggering $22.7 billion in the first year,
and $5.6 billion per year moving forward. Failure to file completed
and updated reports could result in civil penalties up to $10,000
and criminal penalties of up to 2 years in prison. In total, this bur-
densome regulation smothers the smallest small businesses in
America with more than $73 billion in compliance costs, and it only
applies to small businesses with 20 or fewer employees and $5 mil-
lion or less in annual revenue.
Small businesses need certainty to successfully invest, grow, and
operate their business. Congress can help mitigate the many eco-
nomic challenges facing small businesses by providing relief from
burdensome regulations and eliminating the threat of tax in-
creases.
I appreciate your time and attention to these concerns, and
thank you for the opportunity to testify today.
Chairman MEUSER. Thank you, Ms. Wade. We appreciate your
testimony very much.
Now, Ms. Kathryn Judge for your testimony. Thank you for your
opening statement.

STATEMENT OF KATHRYN JUDGE
Ms. JUDGE. Thank you, Chairman Meuser, Ranking Member
Landsman, Members of the Subcommittee. It is a great pleasure to
be here today to be able to address two topics that are close to my
heart. One is how to build a healthy banking system that is capa-
ble of supporting businesses in good times and bad. And second,
how to make sure small businesses have access to the financing
they need to survive and thrive. I am going to focus my opening
remarks on three key points.
First, the proposal known as Basel III endgame reforms are an
important step in efforts to promote a more resilient banking sys-
tem and a healthier economy.
Two, the proposed reforms should enhance the ability of small
businesses to access financing during periods of distress when they
9

often most need it, while likely having limited adverse effect on
their ability to access capital at other times.
And three, small businesses do face very real challenges, includ-
ing with respect to their ability to access outside financing on rea-
sonable terms and more can and should be done to help in that re-
gard.
First, I will do Basel II endgame. What we are really talking
about here is a host of different reforms that are largely designed
to enhance the accuracy and transparency with respect to how the
largest and most complex banks in the country calculate their risk
exposures for regulatory purposes.
For example, the reforms introduce more standardization and re-
duce the ability of banks to rely on internal models for assessing
risk. Sheila Behr, Republican Chair of the FDIC during the 2008
financial crisis recently explained in a Financial Times piece sup-
porting the reforms. The so-called internal ratings based system
failed spectacularly during the 2008 financial crisis. This is just
one of many different ways that the proposed reforms are efforts
to learn the lessons of the past and build a more resilient system.
Second, the proposed reforms are not intentioned with a very im-
portant aim of helping small businesses. First, we can see this by
looking at where the reforms actually have bite. The great majority
of the reforms are really focused on the largest, most complex
banking organizations. By contrast, they will have no impact on
community banks. And this matters because traditionally it is the
smaller community banks that have done the best job really help-
ing to support small businesses. We can look at the Federal Re-
serve surveys and our resources and we know small businesses still
say they have a better experience when they are borrowing from
a smaller bank, and they have a higher likelihood of actually get-
ting at least some of the financing they need, whether it is a loan
or credit line when they are going to a small bank as opposed to
a large bank. And again, the community banks that are the vital
lifeline for credit for small businesses are not going to be at all af-
fected by these reforms.
Just as importantly, the proposed reforms could actually really
help small businesses. Research shows that one of the most impor-
tant impacts of having a better capitalized banking system is that
banks remain more willing and more able to lend after a financial
crisis. And this is doubly helpful for small businesses.
First, it is great news for small businesses because it means they
are more likely to be able to access credit after a crisis sets in when
they most need credit and it is otherwise hardest to obtain.
But second, the research also shows that you have a significantly
shorter and shallower recession. And actually great research by the
NFIB really looked at what small businesses, how much they
struggled after 2008. And if you look like years after that, there
was research from 2012 showing that the uncertainty and the lin-
gering effects of the recession continued to adversely impact small
businesses, and it is going to make those types of deep recessions
after crises less likely.
Third, the title of the hearing captures exactly what is needed:
enabling success, examining the competitive landscape for small
businesses. Right now small businesses do not face a level playing
10

field. They have a harder time accessing financing. They have to
pay more for that financing. And they face a host of disadvantages
in other ways as well.
And again, there are two different ways to try to help this out.
One, you level the playing field from the top down. So you use the
full suite of tools that are available, that Congress has given to reg-
ulators through competition policy to try to make sure that the
largest companies are not abusing the power that they have.
But second, we can also think about really innovative ways to try
to from the bottom up address some of the frictions and the chal-
lenges that small businesses face. And again here, a lot of those op-
portunities lie in helping to support that nexus between small busi-
nesses and small banks that often have received the most relation-
ship lending. They did a good job with things like the Paycheck
Protection Program, which my fellow witness referred to as a really
critical component of how Congress really helped small businesses
get through the challenges of the pandemic, so I would love to see
Congress do more in those regards. There are a lot of opportunities
that exist, but allowing the largest, most complex banks to game
the system and not have regulations that adequately reflect the
risk that they pose the entire economy is not going to be the best
way of achieving that aim.
Chairman MEUSER. Thank you, Ms. Judge, very much.
Before we begin our questioning from our Members I will now
recognize the Chairman of the Full Committee, Mr. Roger Williams
from Texas, for his opening statement.
Thank you, Chairman Williams for participating with us today.
Mr. WILLIAMS. Thank you. And good morning.
I would like to start off by thanking Chairman Meuser for hold-
ing this hearing and thank all of you for the witnesses for being
here today.
I am a franchisee holder. I am a car dealer in Texas and small
business owner.
There is no doubt small businesses are the backbone of our com-
munities and the engines of our economy. Entrepreneurs have
faced many challenges over the past few years from labor shortages
to crippling inflation, yet still prevail while our nation’s job cre-
ators have faced and overcome countless hurdles as the Committee
has heard prior, access to capital has remained a top concern for
small business owners.
In order for a business to get off the ground, small businesses
must invest their time and financial resources. This means taking
out a loan and accruing interest. Currently, interest deductibility
is capped and this cap may very well impact the number of invest-
ments a company decides to make.
To make matters worse, in the current state of our economy we
are raising interest rates at record rates, at record numbers. With
access to capital being the top issue for our nation’s small business
owners, the introduction of the new Basel III rule would be disas-
trous for our primary job creators, and if implemented, this rule
would make it more costly to give out small business loans.
So despite tough times right now, small businesses are still find-
ing ways to thrive because that is what we do, just as they always
do and can. This Committee is focused on making sure our nation’s
11

small businesses have a fighting chance at success, and I am glad
we are going to be looking at these issues today.
So lastly, I ask unanimous consent to submit a letter for the
record from the National Association of Manufacturers, regarding
interest deductibility.
So thank you again to Chairman Meuser, and I yield back.
Chairman MEUSER. The Chairman yields back. Thank you,
again, very, very much.
And now we will move to Member questions under the 5-minute
rule. And I recognize myself for 5 minutes.
So we have got some interesting views, some interesting experi-
ences. We hope to all benefit by that.
Mr. Chung, I would like to begin with you. You offered a lot of
information there. I think your story is not atypical of a small busi-
ness and growth and setbacks and whether it is mistakes or not
there are setbacks and I know that very well from my 20-plus
years in small business and perhaps into the larger business world.
So let’s just talk a little bit about some of the challenges; right?
I mean, Goldman Sachs, 10,000 Small Businesses Voices put out
that 70 percent of small businesses have difficulty accessing cap-
ital. Of course, NFIB offers the same. States that only 19 percent
of small businesses have adequate access to capital. The concern of
the lack of predictability in taxes moving forward, i.e., costs on
small business is a concern from 20 percent small business deduc-
tion to R&D to the interest deduction to the bonus depreciation. So
the list goes on of what changes could occur and the type of prepa-
ration. Small businesses. And we need to address that. Where are
the small business advocates here in the U.S. Congress? And we
need to act vigorously in that way for you.
So that on top of the regulations that you mentioned, Ms. Wade.
So Mr. Chung, those lack of certainty, the challenges, the inter-
est deductibility, access to capital, expand a little bit further. What
are the things that are of concern to you that can be the difference
between your growth, more employment, being built to last, and
survival?
Mr. CHUNG. Thank you for the question, Chairman.
I think you guys hit it on the head. The first thing is predict-
ability. We are in an everchanging environment where when we go
to work with a bank when they are underwriting any requests for
access to capital, the unpredictability causes or makes it difficult
for the bank to consistently underwrite our business.
In terms of specifically what we are discussing today in regards
to the deductibility with interest rates, it would further reduce ulti-
mately cashflow, for any type of cashflow analysis for underwriting.
Another issue that came to mind as one of my fellow witnesses
was discussing some of the programs that were rolled out during
COVID is also the EIDL loans. A lot of these small businesses have
EIDL loans sitting on their balance sheets as well. These EIDL
loans are taken into consideration by the banks and are becoming
difficult for these businesses (1) to pay off, and also to reach or to
access additional capital due to the balance sheets holding these
EIDL loans.
Chairman MEUSER. Thank you.
Mr. CHUNG. I yield back.
12

Chairman MEUSER. Yeah, I appreciate that.
So NFIB, of course, you mentioned, Ms. Wade, a number of con-
cerns. Is access to capital something that comes up often? And as
well, I would like to just ask you both and get to Ms. Judge as well.
When you are dealing with these costs, when you are dealing with
this lack of predictability, when you are dealing with the inability
to invest more in capital investments so you can grow your busi-
ness, your profitability will decrease due to the added costs and
such and the lack of growth. Revenues will be mixed. Your margins
will be squeezed. But also your tax revenues are squeezed. It is one
thing that I think government does not recognize enough. Are you
finding that your sales might be going up but your margins are
tighter?
Mr. CHUNG. Margins are definitely tighter for a multitude of
reasons. You know, our businesses right now are in a vice. We are
facing actually a multifront battle. One is the tax increases that we
are facing. Two is the deductibility we are facing. Three is, well,
ultimately the rising cost of funds. And four is the rising cost of
labor. So we are fighting a multifront battle right now and we are
trying to find ground that we can win on. And it has been very dif-
ficult.
Chairman MEUSER. I want to address one thing with Ms.
Judge. It was interesting how you related to the Basel III. Now,
our concern is that the number of small businesses seeking loans
from the larger banks, over $100 billion that would be affected by
the Basel III will overflow into the smaller banks because there
simply is not enough capital to go around, if you will, and creating
more competition perhaps for the banks but a more challenging
market for the small businesses, and as well at higher costs. So
that will happen. So yes, it might benefit actually in the short-term
the community banks but it will not in my view anyway, and you
can respond to that afterwards, I am over my time, create the type
of environment for access to capital that we want for small busi-
nesses.
And by the way, after the ’08 financial collapse, capital require-
ments were raised significantly at that time. Basel III is asking for
as much as a 20 percent increase, 19 percent to be exact. That is
excessive. I yield back.
And I now recognize the Ranking Member for 5 minutes for his
questions.
Mr. LANDSMAN. Thank you, Mr. Chair.
So let’s stay with you, Ms. Judge. Many opponents of the finan-
cial regulation blame greater regulation for the continued consoli-
dation of the banking sector. We talked a little bit about this al-
ready. Can you discuss how deregulation has created this wave of
mergers that have taken place and taken over much of the commu-
nity banking? This is really a question about consolidation and the
impact it is having on lending and what can be done to revitalize
community banking that encourages more small business lending?
Ms. JUDGE. It is precisely the right question to ask. And we
have seen an incredible wave of consolidation that has now been
in place for over 40 years. We went from having more than 16,000
community-oriented financial institutions that were really focused
on serving businesses and families in their communities, to having
13

massive consolidation. So we have now fewer than 4,000 commu-
nity banks depending on how you are measuring. And more impor-
tantly, a disproportionate share of the banking assets are really
held in the top four or top six banks depending on how you look
at it that engage in a whole variety of different activities, many of
which have little to do with lending or supporting even the domes-
tic economy. And so the core question going forward is how do we
make sure we continue to have a robust community banking sys-
tem?
And so when we look historically, actually, the highest rate of
consolidation was during the late 1980s and really throughout the
1990s where we had a significant period of deregulation. The last
couple of years where there was an effort to build in a more robust
system we actually saw a much slower rate of consolidation among
the banks and kind of more viability for the community banks.
So the question gets at the core issue which is what does the
structure of the banking system look like? And what does that tell
us about who they are really going to serve? And it was actually
during the periods of deregulation that we saw changes in the
structure that reduced the orientation to really serving the needs
of small businesses and communities.
Mr. LANDSMAN. You mentioned that at one point it 16,000 in-
stitutions, banks, now four. So is it fair to say that the consolida-
tion has, you know, reduced the number of lenders by, what is that,
I mean——
Ms. JUDGE. Yeah. They were shrinking and they were growing
at the same time because we did have a new entry for a while and
we have had more credit unions. But it has reduced it by a massive
fraction. And again, it has also changed dramatically the composi-
tion of the banks that are in the market.
Mr. LANDSMAN. Then this gets at the Chairman’s question.
The smaller banks, as you mentioned, provide the bulk of lending
to small businesses in their area. And there is concerned that the
new proposed regulation may impact these small banks. Can you
explain how this proposed regulation will have a limited impact on
small banks? You talked a little bit about it in your testimony but
if you can expand a little bit more.
Ms. JUDGE. Of course. So the regulations really only kick in for
banks that have at least $100 billion in assets and their insured
subsidiaries. The only exception to that is for slightly smaller
banks that engage in a lot of trading activity. So it is not the banks
that are actually focused on lending; it is the banks that are fo-
cused on trading that might be caught that are slightly smaller.
And disproportionately, the real impact is going to be found among
the most global and systematically important institutions. And
again, they do provide important services and it is not going to stop
them from being able to provide loans to small businesses, loans
to businesses of all size. But instead it is going to recalibrate, for
example, how their GSIB surcharge, the surcharge they face be-
cause of the threat they pose to the rest of the economy gets cal-
culated in ways that better calibrate the risks that they are actu-
ally posing.
Mr. LANDSMAN. So as I understand it, this will, or at least
your testimony is that the regulations will probably increase the
14

lending done by these community banks. I mean, more and more
folks are going to look to community banks for loans. What will
that do to the cost of capital. I am just trying to get at the Chair-
man’s question.
Ms. JUDGE. Yeah. So getting to the Chairman’s question, I
think one of the ways we can try to get at it is, well, let’s look at
what happened the last time we really increased capital require-
ments. As the Chairman accurately noted, we really did increase
capital requirements after 2007 and 2008. We realized they had
been too low. So if you look at some of the key years, the 2013
through the 2016-2017 period which is when the post Dodd-Frank
reforms were actually implemented and where you look statistically
bank capital levels were actually going out, if you look at my writ-
ten comments, a couple of economist have done a really nice job of
saying, well, what actually happened to credit access during that
period of time? Credit access remained robust and the banking sys-
tem played more of a role in providing that credit.
Mr. LANDSMAN. Thank you.
I yield back.
Chairman MEUSER. Okay. The gentleman yields back.
I now recognize the Chairman of the Full Committee, Mr. Wil-
liams, from the Great State of Texas, for 5 minutes of questions.
Mr. WILLIAMS. Thank you, Mr. Chairman.
As we have discussed at length today, earlier this year the Fed-
eral Reserve unveiled the Basel III proposal that changes capital
requirements for financial institutions. These proposed changes
will dramatically affect the banking community, and there is con-
cern that the revisions will have broad impacts on small busi-
nesses’ ability to access reliable credit and increase overall bor-
rowing costs.
So small businesses that rely heavily on loans and credit lines
from the banks of all sizes in order to sustain and expand their op-
erations. Implementing additional regulatory capital requirements
will slow economic growth and ‘‘hinder financial institutions’’ abil-
ity to lend and quite frankly make it easier maybe on banks not
to make loans as to make loans.
So Ms. Wade, how will lending access to capital affect the small
business community?
Ms. WADE. Certainly. So small businesses rely on the flexibility,
a ‘‘one size fits all’’ regulation or regulatory environment. It also in-
cludes the banking industry. Well, certainly it impacts small firms’
ability to access credit.
One of the areas of concern is also the added paperwork burden
and the process by which they are applying for credit and that the
process is being lengthened, the amount of paperwork being re-
quired is increasing, and all of this affects small business owners’
ability to access credit.
Mr. WILLIAMS. No question. They find themselves hiring more
compliance officers than officers to do business.
Now, when businesses get to keep more of their hard-earned
money they reinvest it into their business, employees, and the
broader community. Excessive taxation prevents all the positive
things from happening.
15

The interest deductibility tax provision is a perfect example of
making it harder for business owners to make strategic decisions
when they are forced to treat interest as a business expense.
So Mr. Chung, can you talk about some of the things that you
have been able to do for your employees or with the strategic in-
vestments when you were able to keep more of your profits instead
of sending them to Washinton in taxes never to be seen again?
Mr. CHUNG. Sure. And thank you for the question.
One of my mantras is ‘‘People over profits.’’ And my team knows
that. And so the profits that we generate in the company, we rein-
vest within the team and within the business.
One of the programs we are currently evaluating right now is an
EAP program which will give our staff access to mental health pro-
grams. However, one thing we have to take into consideration or
the reason we have not rolled out the program as of yet is simply
because of the uncertainty with the tax provisions that are under
discussion today.
Mr. WILLIAMS. Okay. The government does not understand if
we make money we do not save money; we spend money. And that
is why we need this.
As a small business owner for over 52 years I can tell you that
the Biden administration is completely out of touch with Main
Street America. Inflation is at a record high. Supply chain disrup-
tions leaving stores helves empty. Worker shortages that are hin-
dering business operations, and the constant threat of tax hikes
coming from democrats in Washington have business owners con-
cerned that they will not be able to compete in the future.
So yet this administration, the Biden administration, continues
to create new and unnecessary regulations which overwhelm busi-
nesses with more red tape and administrative burdens. We cannot
except small business owners whose resources are already
stretched thin to handle increased costs and manhours that have
come with increased regulations and businesses are already work-
ing within tight margins and compliance costs can be their tipping
point.
So Ms. Wade, while we have time left, how have NFIB Members
been dealing with the massive web of new regulations coming out
of the Biden administration?
Ms. WADE. Certainly. It has been a huge challenge for small
business owners to navigate the new regulatory system that they
are required to comply with. And a lot of this is the time that is
required for the owner but also their employees. And oftentimes,
their most valuable employees to divert time into figuring out how
to comply and what they need to do to adjust business operation.
And time is one of the most valuable resources of a small business
owner and it is very limited these days, especially in light of the
labor shortage that many are having to deal with.
So the regulatory environment, it is costly in a number of ways.
The dollar amount but also the time that is devoted towards com-
pliance and understanding what they need to do.
Mr. WILLIAMS. Well, the fact of the matter is—let the competi-
tion work and let the consumer drive it, not the federal govern-
ment.
So I appreciate you being here. And with that I yield back.
16

Chairman MEUSER. The Chairman of the Full Committee yields
back.
I now recognize Representative Davids from Kansas for 5 min-
utes.
Ms. DAVIDS. Thank you, Chairman Meuser. And thank you to
you and to Ranking Member Landsman for holding the hearing
today.
Tax and capital access policy absolutely have a major impact not
just on small business owners’ ability to make money but their
ability to hire, upgrade their company, and enhance their products
as well.
As financial regulations change and provisions from the Tax Cuts
and Jobs Act expire it is definitely important for our community to
understand how the nation’s small businesses are going to be im-
pacted. It is also important that we do that in a bipartisan way to
continue supporting the financial stability of these small busi-
nesses.
I have met with a lot of small businesses, with Chambers of
Commerce, and others in the greater Kansas City Metro area
which is where the Kansas 3rd District is. And certainly I have
heard a lot about the uncertain tax landscape facing many business
owners right now. Some of the provisions that would specifically
have a significant impact on main street companies include, we
have heard a bit about it already today, the decrease in the acceler-
ated deduction rate for major purchases, how the adjusted taxable
income is calculated, and then also changes that small businesses
are going to be facing with the deduction of research and develop-
ment expenses.
So there have been a number of us working on this. I have been
working with my Republican colleagues, particularly Tracy Mann,
who sits on this Committee as well, who serves on the Small Busi-
ness Committee as a whole, to try to figure out how we can help
address some of these uncertainties. And I know small businesses
are out there trying to figure out ways to get capital, to hire new
folks, and you know, some of what you guys have been saying has
really been resonating today.
So I wanted to ask a question of everyone. I am curious what ef-
fects specifically we can expect for small businesses when it comes
to the tax provisions from the Tax Cuts and Jobs Act that are
about to expire.
Mr. Chung, I would very much like to hear from you first about
what specifically you are anticipating with those expirations.
Mr. CHUNG. Thank you for the question.
To be clear, you are asking in terms of our strategic growth what
are we anticipating or what are we forecasting?
Ms. DAVIDS. Yeah. And I think specifically when we think about
some of the Tax Cuts and Jobs Act provisions that are going to ex-
pire, what does that impact look like to you and how are you antici-
pating navigating that if Congress is unable to address that?
Mr. CHUNG. Sure. Well, I will put it in real-world decisions.
And real-world decisions would be simply we were looking to build
30 more stores over the next 5 years. We have now trimmed that
down to five stores. And that is going to be spread over 5 years
17

until we understand what the landscape looks like, which ulti-
mately is a difference in about 500 jobs.
As I was explaining to another Member of the Committee as
well, we will also be looking at when and how we roll out various
programs for our employees, such as the EAP program. Because of
the constraints with budgets we will probably push that back until
we have some definition hereinto.
With that I yield back.
Ms. DAVIDS. Thank you.
Ms. Wade, do you have——
Ms. WADE. Yeah. So one of the biggest factors again is their pri-
mary source of financing and reinvesting in their business’s profits.
And so a huge tax hike for many small business owners when this,
if it expires, it will impact their ability to grow their business and
use those dollars to finance their business.
One of the areas that I also think is going to be really important
are a lot of, especially the smaller businesses are not going to be
aware of the expiration and this huge tax hike that they are going
to have to absorb. And so it will be a shock for them to have a larg-
er tax liability at the end of the year that they were not antici-
pating. So the uncertainty element I think is very critical in under-
standing how this is going to impact small firms and their inability
to plan going forward. But it will certainly limit their ability to in-
vest in their business.
Ms. DAVIDS. Thank you.
I am short on time so I will yield back. Thank you, Chairman.
Chairman MEUSER. Thank you, Representative Davids, very
much for your questions. And thanks again to our testifiers.
I now recognize the fact that we are going to—what I think we
are going to do is pursuant to Committee rules, we are going to do
a second round for those who would like to participate at any
length of time under 5 minutes.
So to our Members, if you have one or two questions or if you
want to utilize your entirety of your 5 minutes, you are free to do
so.
I will start with myself. And I will recognize myself for 5 min-
utes.
So Mr. Chung, I want to come back to you. You mentioned you
were planning on 30 stores if it was a more vibrant economy and
you saw the returns and opportunities in a brighter manner. What
would you like to see that would create such a brighter outlook for
you from a tax regulation, access to capital standpoint?
Mr. CHUNG. Thank you for the question, Chairman.
In regards to the deductibility standpoint, EBIDTA would still be
the status quo for considering what portion of interest was deduct-
ible. That is how it was previously and that is what we might need
to maintain.
In regards to access to capital, we do need a vibrant economy
that does provide access to capital, simple underwriting at various
levels, whether it be large institutional banks or smaller commu-
nity banks. So access to capital, stability in terms of the tax provi-
sions, and keeping the status quo.
Chairman MEUSER. Has your bank or banks and the bank that
you are a board member of, do you find that the so-called banking
18

crisis from a few months ago had any systematic effect on smaller
community banks?
Mr. CHUNG. Absolutely. In regards to deposits, we saw deposits
vacate some of the smaller community banks and be consolidated
into larger banks which caused many banks to make tough deci-
sions one way or the other. A very strategic conditions one way or
the other.
Chairman MEUSER. Okay. Yeah. I mean, we saw some of that
initially throughout my district, for instance, and banks that I
speak with. But it seems that it has kind of balanced out. However,
since those deposits have been lost, those assets have been lost,
making loans from community banks to our small businesses, that
much more selective; right? I mean, they will certainly be more
diligent for secure loans and perhaps because the opportunity is
there, where there is great demand, prices go up. And so they can
loan at higher costs, higher interest rates even above and beyond
where the Fed has gone with the Fed rate. So that will happen. I
mean, that is happening with automobiles and it is certainly hav-
ing an effect on where we had a boom in automobiles. I mean, and
now it is at 7, 8 percent interest rates. People are turning away
from it. Our housing market is really being struck hard in that
manner.
So here we had a bailout. We will call it that of three banks. We
had a special assessment to make up for the $44 billion when the
bailout occurred. So that is a whole another story that larger banks
are going to be facing. Interest rates due to inflation and the
causes of inflation are relatively obvious. But the continued in-
crease in energy costs, gasoline is $4 a gallon. I mean, and such.
So the interest rates. Now we throw in there the increased capital
requirements. So there is a squeeze that will be taking place. We
have 19 percent, Ms. Wade, your Members, access to capital is
something that is at the top of the list particularly lately. And so
the idea of having capital requirement increases on banks to me
just adds a significant burden or additional obstacle for accessing
such capital. So they are going to be turning nontraditional lenders
where that is not as regulated and usually with higher penalties
for missing payments and all.
So Ms. Wade, why do you not comment on what your Members
think of a tighter lending environment.
Ms. WADE. Certainly. Well, they are currently facing a lot of
headwinds and challenges. And a lot of that is related to cost in-
creases in business operations. So the inflationary pressures that
they are experiencing right now, if there are additional costs re-
lated to financing that is just another part or a piece of absorbing
higher costs in operating their business that they will have to navi-
gate.
Chairman MEUSER. Right.
Ms. WADE. And all of this makes it very challenging and dif-
ficult for a small business owner to navigate, first, because the
business owner is the one who is having to make all these decisions
themselves generally speaking. So any increase in costs on the fi-
nancing front will certainly be a factor in their ability to operate
their business effectively.
19

Chairman MEUSER. Right. And banks over $100 billion need to
tighten up by 19 percent. Okay? That is not a small amount. It will
clearly drive those looking for such business loans to the smaller
banks who will then be more selective and be able to charge strong-
er fees, so creating more competition, which tends to be good, but
when we are advocating for small business, and small banks are
small businesses, that competition, increased demand increases
prices. And more selective; right? Banks will have the opportunity
to be that much more selective in who they extend loans to which
again might be good but not so much for our small businesses. And
simply, less opportunity.
And Ms. Judge, later on perhaps you want to comment on that
but I am over my time and I yield back.
I will now yield to the Ranking Member, Mr. Landsman.
Mr. LANDSMAN. Thank you, Mr. Chair.
Ms. Judge, just a couple of questions.
The Basel III has been, you know, implemented in other coun-
tries. Can you just talk a little bit about what that has looked like?
And then I am going to ask the questions and then just hand it
over time.
One is what the experience has been in other countries.
Number two is a little bit more focused on these regional banks.
So Ohio is home to three regional banks, Fifth Third, Huntington,
and Key Bank, who as a result of the proposal will largely face the
same capital standards as global systemic banks. So from what I
can see, we have got this ecosystem in Ohio that is one to envy.
So what changes would you suggest for the proposed rule that
could avoid any negative impacts from the current draft as it re-
lates to the regional banks?
So one, it has been implemented globally. Wha have we seen?
Two, you know, as I am looking out for our regional banks, ad-
vice in terms of proposed changes.
Ms. JUDGE. Both great questions. I will take them in opposite
order. And again, I think the ecosystem in Ohio is wind envy. I
mean, I think you have a robust set of different size banks and I
think that is critical to providing a whole variety of services to dif-
ferent types of businesses.
I actually think a lot of the reforms are meant to maintain the
health of that ecosystem over time. So if you think about what
California is going through right now, there are areas of California
where the two biggest regional banks imploded precisely in an en-
vironment where credit standards are already tightening and ac-
cess to credit is becoming more strict and more expensive. And so
right when they need it they are dealing with like the greatest dis-
ruptions.
So part of what they are really doing through all of the different
reform proposals, all of which are implemented very incrementally
over time, many of them not taking into full effect for 5 years, oth-
ers on a 3-year timeframe. 1:07:04xx allow banks to use the capital
they already have, to use their accrued earnings so that there is
no disruption even among necessarily what large banks are doing.
Certainly, not what regional banks are doing to be able to become
stable and resilient. So we do not have huge losses to deposit
1:07:19xx, but also so the banks continue to be there so they can
20

continue to service the small businesses and the other businesses.
So I would say when you are taking a longer term perspective, I
think the real aim here is to maintain that healthy ecosystem and
not have the unexpected disruptions that create uncertainty and
fear for small businesses and for others that has been a concern
running throughout the hearing.
And with respect to other countries, they have not implemented,
and it actually really goes to the process through which the stand-
ards were promulgated. These are standards that came out of dis-
cussions as part of the Basel Committee. And part of what is really
interesting there is it is an effort among different jurisdictions that
say let’s really learn what is the best thing that we can do. And
yes, the U.S. has a huge voice there. Europe also has a huge voice
there. Europe is actually more reliant on small- and mid-size enter-
prises. They are a bigger part of the economy and they are more
reliant on banks. And so these were standards that through years
of research and testing were decided to be like these are the best
overall standards that we can come up with to try to balance out
the need for resilience while also wanting to make sure the banks
have the freedom that they need to be able to really make loans
in good times and bad and to support the real economy.
So I think what we have really seen is there is actually no easy
answers in terms of impact but on a whole it looks like it has been
able to be completely consistent with ongoing and important sup-
port for businesses.
Mr. LANDSMAN. And you have got a minute left.
On the regional banks as I am thinking about them, are there
proposed changes to the rule that you would offer? And this could
be just generally speaking. It does not have to apply just to re-
gional banks.
Ms. JUDGE. No. I think the real key is going to be what is the
timeframe for implementation because it is true as has been al-
luded to numerous times, you do not want to tighten expectations
during periods of distress. But you also do not want to not adopt
the rules that are actually going to have the healthiest banking
system possible. I think right now there is probably adequate lee-
way and I bet on calls where a lot of bank analysts have said that
given the timeframe there is the ability for the market to absorb
the type of changes that lie ahead. That being said, you do want
to make sure that you are not doing this in a way that could ad-
versely impact lending. It does not seem likely but I think paying
close attention to that is going to be important.
Mr. LANDSMAN. Thank you very much. And I yield back.
Chairman MEUSER. The Ranking Member yields back.
I now recognize Representative Alford from Missouri for 5 min-
utes.
Mr. ALFORD. Thank you, Mr. Chairman. I appreciate it. And
thank you to the witnesses for being here today.
A very important hearing for our Subcommittee. I have said it
before, and I am going to say it again that America’s greatest econ-
omy in my lifetime really under President Trump thanks to the
Tax Cuts and Jobs Act. A record number of small businesses were
opening. The American dream was in reach for many more people
than now. A crucial component for small businesses is capital and
21

access to capital has been a challenge for a lot of people. This is
especially true for the rural small business community in Mis-
souri’s 4th Congressional District. Simply put, we have banking
deserts there. I have seen it firsthand. In our Small Business Com-
mittee hearing earlier, I was proud to have a rural small business
owner sitting where you are now. Her name is Jennifer Cassaday.
She testified about starting up her business and financial re-
sources, they just were not available to her when she was first
starting out. So she had to turn to family for financial support. By
the way, she has a great business thriving right now but it could
have been a lot different. She could have had help from financial
resources.
Unfortunately, the landscape for small businesses continually
worsens as we see the TCJ provisions expiring and supervisors
making borrowing more difficult and less affordable. The latest
from Basel III will increase capital requirements and therefore
tighten lending during a time that small businesses need it the
most in America.
Ms. Wade, thank you for being here today. You note in your tes-
timony that H.R. 4721, the Main Street Tax Certainty Act will pro-
vide relief and tax certainty to small businesses. This bill would
make permanent a provision in the TCJA that helps small busi-
nesses. I am a proud cosponsor of this bill.
You also mention that regulatory burdens and red tape from the
Biden administration and using the SBA Offices of Advocacy, you
touch on that. Can you expand on that? Just how important is H.R.
4721?
Ms. WADE. It is incredibly important for the ability of small
business owners to continue to operate and grow their business.
They are under some really challenging headwinds right now with
inflation and worker shortage and all of that. And having some cer-
tainty that their taxes will not increase in a couple years will go
a long way to allow them the room to grow and operate their busi-
ness. The Tax Cuts and Jobs Act was a huge help for small busi-
ness owners to retain more of their profits to then use those profits
to invest in their business. And that was where we saw, you know,
some huge optimism that we track in our Small Business Economic
Trend Survey, and small business owners, you know, felt confident
going forward that they would be able to maintain business oper-
ations and even grow their business if they found the opportunity.
But those expirations of those key provisions, especially the 20 per-
cent small business deduction that they are able to benefit from
now will be a huge tax increase for them if it does expire and will
impair their ability to reinvest in their business and grow.
Mr. ALFORD. You also talked about the cost of borrowing, the
concern of small business owners. Can you talk about how the cost
of financing can really inhibit small business growth? And also talk
about in the minute 20 that we have left, what does this mean for
people wanting to start a business, much less those who are al-
ready committed their family’s time and treasure to get a business
going in America?
Ms. WADE. Absolutely. So the increased cost of financing will be
another hurdle that they will have to absorb those cost increases.
But then also, you know, having to figure out whether it is worth
22

the increased financing costs to purchase that new equipment or
purchase that other building and whether that return on invest-
ment is worth it in this higher interest rate environment. And so
the cost of financing is going to impact their decisions on how to
grow and expand their business or reinvest in their business.
For those starting out, capital is paramount. And so their inabil-
ity to afford financing if available to them to start a business is a
huge hurdle for those who want to bring their ideas and creativity
to the marketplace. In starting a business, financing will be a cru-
cial role in that.
Mr. ALFORD. Ms. Wade, thank you. And I yield back.
Chairman MEUSER. The gentleman yields back.
Well, I think that concludes our hearing. I would like to thank
our witnesses for your testimony and for certainly making the trip
and appearing before us today.
Without objection, Members have 5 legislative days to submit ad-
ditional materials and written questions for the witnesses to the
Chair which will be forwarded to the witnesses. I ask the witnesses
to please respond promptly.
If there is no further business, without objection, this Committee
is adjourned.
[Whereupon, at 11:11 a.m., the Subcommittee was adjourned.]
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