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. FUNDAMENTAL TAX CHANGES NEEDED TO UNLEASH AMERICA'S SMALL BUSINESSES Y4.SI1 104-60 1; Fundanental Tax Changes Needed to U. . HEARINGS BEFORE THE SUBCOMMITTEE ON TAXATION AND FINANCE OF THE COMMITTEE ON SMALL BUSINESS HOUSE OF REPRESENTATIVES ONE HUNDRED FOURTH CONGRESS SECOND SESSION INDIANAPOLIS, IN, FEBRUARY 9, 1996 MENTOR, OH, MARCH 25, 1996 SEATTLE, WA, APRIL 3, 1996 Printed for the use of the Committee on Small Business Serial No. 104-60 ^ ^^^ J ? U.S. GOVERNMENT PRINTING OFFICE 22-775CC WASHINGTON : 1996 ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-053688-X . FUNDAMENTAL TAX CHANGES NEEDED TO UNLEASH AMERICA'S SMALL BUSINESSES Y 4.SH 1; 104-60 Fundanental Tax Changes Needed to U. . HEARINGS BEFORE THE SUBCOMMITTEE ON TAXATION AND FINANCE OF THE COMMITTEE ON SMALL BUSINESS HOUSE OF REPRESENTATIVES ONE HUNDRED FOURTH CONGRESS SECOND SESSION INDIANAPOLIS, IN, FEBRUARY 9, 1996 MENTOR, OH, MARCH 25, 1996 SEATTLE, WA, APRIL 3, 1996 Printed for the use of the Committee on Small Business Serial No. 104-60 U.S. GOVERNMENT PRINTING OFFICE 22-775CC WASHINGTON : 1996 ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-053688-X COMMITTEE ON SMALL BUSINESS JAN MEYERS, Kansas, Chair JOEL HEFLEY, Colorado JOHNJ. I.AFALCE, New York WILLIAM H. ZELIFF, JK., New Hampshire IKE SKELTON, Missouri JAMES M. TALENT, Missouri NORMAN SISISKY, Vii^nia DONALD A. MANZULLO, Illinois FLOYD H. FLAKE, New York PETER G. TORKILDSEN, Massachusetts GLENN POSHARD, Illinois ROSCOE G. BARTLETT, Maryland EVA M. CLAYTON, North Carolina LINDA SMITH, Washington MARTIN T. MEEHAN, Massachusetts FRANK A. LoBlONDO, New Jersey NYDIA M. VELAZQUEZ, New York ZACH WAMP, Tennessee CLEO FIELDS, Louisiana SUE W. KELLY, New York EARL F. HILLIARD, Alabama DICK CHRYSLER, Michigan DOUGLAS "PETE" PETERSON, Florida JAMES B. LONGLEY, Jr., Maine BENNIE G. THOMPSON, Mississippi WALTER B. JONES, Jr., North Carolina CHAKA FATTAH, Pennsylvania MATT SALMON, Arizona KEN BENTSEN. Texas VAN HILLEARY, Tennessee WILLIAM P. LUTHER, Minnesota MARK E. SOUDER, Indiana JOHN ELIAS BALDACCI, Maine SAM BROWNBACK, Kansas STEVENJ. CHABOT, Ohio SUE MYRICK, North Carolina DAVID FUNDERBURK, North Carolina JACK METCALF. Washington STEVEN C. LaTOURETTE, Ohio Jenifer Loon, Sta/fDirector Jeanne M. ROSLANOWICK, Minority StaffDirector SUBCOMMnTEE ON TAXATION AND FINANCE LINDA SMITH, Washington, Chairwoman JACKMETCALF, Washington MARTIN T. MEEHAN, Massachusetts FRANK A. LoBIONDO, New Jersey KEN BENTSEN, Texas WALTER B. JONES, Jr., North Carolina JOHN ELIAS BALDACCI, Maine MARK E. SOUDER, Indiana CLEO FIELDS. Louisiana SAM BROWNBACK, Kansas ROSCOE G. BARTLETT, Maryland STEVEN C. LaTOURETTE, Ohio LIGIA Salcedo-McWiluams, Subcommittee StaffDirector (II) CONTENTS Page Hearingsheldon: February9, 1996, Indianapolis, Indiana 1 March 25, 1996, MentorOhio 49 April 3, 1996, Seattle, Washington 85 WITNESSES Friday, February 9, 1996 Brothers, Sandra J., GRI, Coldwell Banker Graber Realtors, Fort Wayne, Indiana 13 Hartman, Craig S., President, Preferred Industrial Services, Forth Wa3Trie, Indiana 21 Pitts, Peter, on behalf of Alan Reynolds, Senior Fellow and Director of Re- search, the Hudson Institute, and DirectorofResearch, The National Com- missionon Economic Growth andTaxReform, Wasiiington, DC 4 Souers, Steven M., MST, CPA, Manager, Geo. S. Olive & Company, LLC, Fort Wayne. Indiana 25 Stovall,AlfreaJr., President, The CellularShoppe, Fort Wayne, Indiana 23 Stjrring, William III, Director, Benjamin Rogge Chair for Public Policy, Indi- anaPolicyReview Foundation, Indianapolis, Indiana 7 Villwock, Don, owner, Villwock Farms, Eawardsport, Indiana 27 APPENDDC Openingstatements: Smith, Hon. Linda 141 Souder, Hon. Mark E 143 Prepared statements: Brothers, SandraJ 146 Hartman, CraigS 152 Reynolds, Alan 157 M Souers, Steven 163 Stovall, AlfredJr 172 Styring, William III 176 Villwock, Don 180 Additional material: Unleashing America's Potential, Report of the National Commission on Economic Growth andTaxReform, January 1996 183 Statement of the Honorable Linda Smith before The National Commis- sion on Economic Growth andTaxReform, September 26, 1995 211 Statement of Marilyn Moran-Townsend, Presiaent, Custom Video Com- munications, Inc., Fort Wayne, Indiana, and Chairman, Board ofDirec- tors, Iidiana ChamberofCommerce 218 Questions and Answers to Chairwoman Smith from Alan Reynolds, Sen- iorFellow and DirectorofResearch, The Hudson Institute 231 WITNESSES Monday, March 25, 1996 Anderson, Robert L., Chief Executive Officer, Wiseco Piston, Inc., Mentor, Ohio 69 Blackwell, Hon. J. Kenneth, Treasurer, StateofOhio 51 Brown, Nancy, Owner, Ladies and Gentlemen, Mentor, Ohio 70 Pendleton, DonaldE., Owner, Don's Used Cars,Ashtabula, Ohio 71 (III) IV 5b6ejh?epr,RLicahrarryd,GfPerneesriadleMntanaGgrearn,dSRtiavmercoRuIbndbuesrtrainesd,PIlnacs.t,icEsu,clAisdh,taObhuiloa, OhVo" 7742 bmvitfht,meKnotberAtdviCs,erPs,resIincd.e.ntonanbdehCalhfieoffItnhveesCtomuennctilOfolficSerm,alSlpeerroE-nStmeirptrhisIens- ot Ihe Growth Association, Cleveland, Ohio Iatman, Kathiyn E., CPA, CPC, Ciuni andPanichi, inc.7cieveiandrOhio7.'.;!'.'. 56 APPENDIX Openingstatements: Smith, Hon. Linda noe LaTourette, Hon. Steve C !!!!!"'."!!!!!.'."!!;!"..' 2S7 Prepared statements: Anderson, Robert L ooq Blackwell, J. Kenneth '"ZZZ^'Z'^Z^^ZZZZ. 242 Kleckner, Dean R., President,American Farm Bureau Federation 254 Reber, Larry okq Selip, Richard i%% Smith, Robert C ,7^ Tatman, Kathryn E ™™""!"™Z!!!!"!!I!!!!Z!!"!!!!!!;;!! 277 WITNESSES Wednesday, April 3, 1996 Adnaimas, Loretta H., President, Market Development, Inc., San Diee*o Califor- gj Anderson, Hon. Ann, State Senator, Washington State I^gisiature',''oiympia Washington 115 Emaotriyon,.MUeniavdeer,siPtryooffesWsaosrhionfgtLoanw, SacnhdooDlioif^tUorw,'S"eGartatdlue,atWea'sPh^icntgtbo^n 98 Feulner, Edwin J Jr., Ph.D., President, the Heritage foundation, and Vke Chairman, the National Commission on Economic Growth and Tax Reform Washington, DC ' gg Logue, Carolyn, State Director, National Federation orindep^ndentBu Ulympia, Washington ' J27 Morrison, Craig L President and ChiefExeciiti've"omcer,"CMilncoro^ bnohomish, Washington ion Sherman, WilliamA., Jr., President, WiiiiamSheman"& Company'^^ bjoWbalsohmi,ngKtnosns,,onPhb.eDh.a,lfEocfotnhoemiBsuti,ldiWnagshInidnugsttornyARsessoecaiartcihonCoofunWcaislh,inSgeattotnle.'. 125 Washington ' gg Terry, Priscilla S Partner and Managing' Broker,'''iMmeT^'a^^^^^^ and President, Ucey/Thurston County Chamber of Commerce, Olympia Washington ' jgi Wilkerson, Patricia, A., owner. The Enchanted Eagie'Gaiiew.'u ington ^ -^ J22 Williams, Bob, President, Evei^green FreedomFoundation, Olyrnpia.WasM^^ ^n !. „. 93 APPENDIX Openingstatements: Smith, Hon. Linda 281 Metcalf, Hon. Jack ."......"!."..."......."!."]..... 284 Prepared statements: Adams, LorettaH 289 Emory, Meade ."!!!!!!."!!!!!."!!.".."!!!!."."!! 294 Feulner, EdwinJ.,Jr "!.""."."!!!..".!!!!!..""...!!! 309 Logue, Carolyn ...".."!.."."...". 315 Morrison, Craig L '."!!!!!.....!"!!!."!!.."."..."!!!! 320 Sherman, WilliamA.,Jr !!!.!!!!!'!.".""!....."!!!!!!."!.".."."!!!. 324 Sjoblom, Kriss 328 TWeirlrkye,rsPorni,sciPlaltariScia A !!!!".!!"!."...'"!!!!.!"!!!.."!!"!!!!!.!"!!.!.!"!!!!"!!!.!...!.!. 333373 Williams, Bob qao Additional material: Statement ofFred Chittenden, DDS, Owner, Lake Stevens Dental Clinic Lake Stevens, Washington ' 343 V — Page Additional material Continued Statement of Robert O. Dorse, President, Dorse & Company, Incor- porated, Seattle, Washington 351 Statement of George Eusterman, President, Riverside Health CJub, Inc., Mount Vernon, Washington 354 Statement ofMichael A. Metcalf, Cutter Company, Ridgefield, Washing- ton 357 Statement of Muriel E. Mobley, President, Humane World Community, Inc., Onalaska, Washington 362 Statement of the National Association of Realtors before the National Commission onEconomic Growth andTax Reform 368 Miscellaneous letters 380 FUNDAMENTAL TAX CHANGES NEEDED TO UNLEASH AMERICA'S SMALL BUSE^SSES FRffiAY, FEBRUARY 9, 1996 House of Representatives, Subcommittee on Taxation and Finance, Committee on Small Business, Washington, DC. The subcommittee met, pursuant to notice, at 9:09 a.m., in Pat- ton Hall, Indiana World War Memorial, 431 North Meridian Street, Indianapolis, Indiana, Hon. Linda Smith (chairwoman of the Sub- committee) presiding. Chairwoman Smith. Good morning and welcome to the congressional field hearing ofthe Subcommittee on Taxation and Finance. This is an official congressional hearing. It is one of many that will happen over the next 2 years and maybe 3, as we work toward a simpler tax system. This is not a secret that it needs to be done, but we are going to try, in this Subcommittee, to look at the nuts and bolts of the tax system and how it relates to small businesses. I am Linda Smith from Washington State, which is being flooded this morning, and my background is as a tax consultant, licensed in the State of Oregon. I live in Washington and I have about 15 years experience running a business that both prepared taxes and also rewrote the tax code and laws for the States involved around us as well as the Fe—deral Government, for tax preparers each time Congress simplified they always called it simplification, the tax code. So, I have been very interested in this and have worked a lit- tle bit with such people as Mr. Jack Kemp, Chairman of The Na- tional Commission on Economic Growth and Tax Reform, in trying to look at some ofthe transitions. This morning, what we will be doing is taking testimony from this area first because Congressman Souder has been a key figure already in looking at the proposals and actually coming up with proposals ofhis own. It takes a courageous person to step into this fray and make proposals, especially during a campaign year, because if you have a suggestion, someone is always there to shoot it down. But it also is very important that people start weighing in early, taking testimo—ny and listening very carefully to people who are affected; that is the small business community will be affected pos- sibly the most ifwe do not do it right. The transition is what we are looking at and we are looking at the transition predominantly as to how it will affect small businesses, farms and communities in the rural America Mr. Souder (1) and I have, and throughout America. The engine that drives Amer- ica is the small business community. We will start this morning with a panel that will be talking about this very thing. The first person on the panel will be ft-om the Kemp Commission. We had thought it would be one gentl—eman, who is ill, and now it is going to be another gentleman who ^you are not Alan, are you? Mr. Pitts. No, but I am also slightly ill. Chairwoman Smith. From the Hudson Institute, Mr. Peter Pitts, will be speaking for Mr. Alan Reynolds. He will be commenting on the Kemp Commission report. We will be focusing on it because it is relatively broad, it gives principles toward tax changes but it does not tie down rates. It does not answer all of the questions yet and that is what we think the American public needs to do in the next 2 years. They are not going to accept anything that they are not comfortable with. Now without objection, I will introduce the testimony that I gave before the Kemp Commission at the end of last year, and this statement for the record, and applaud t—he Kemp Commission and both Jacks, Jack Paris and Jack Kemp carry back to them that I think this was a very good report and gave the Nation a begin- ning place for this debate and a good framework for the debate. [The referred to material may be found in the appendix.] [Chairwoman Smith's statement may be found in the appendix.] Chairwoman Smith. With that, I am going to turn the micro- phone over to Mr. Souder, who will open with his statement. Again, I would like to say that you have been one ofthe leaders in looking at this issue and in starting to make proposals. Mr. Souder. Mr. Souder. Thank you very much. I would ask that my statement be inserted into the record and I will just make a couple ofinformal remarks. I appreciate those of you who came to testify today in addition to those who are here to listen to som—e of the testimony. We have a fair number of rabble-rousers here Bill Styring, for years has been stirring up tax policy in the State of Indiana and we appreciate his leadership. We have a number of different segments here as the chairwoman has mentioned. I appreciate the opportunity to have a hearing here in Indiana. She has been a leader in Washington. We have had Hall and Rabushka kind ofthe leaders of the origi- nal flat tax ideas as well as all the different variations and have looked at, in the Subcommittee, all sorts of angles as to how they affect the—different types of businesses in this country. It is very important as the Ways and Means Chairman has said, it may take 5 years until we really have the substantive change done. Steve Forbes inserting many TV commercials into a Presidential campaign may have accelerated the timetable slightly. The Kemp Commission report and all the other candidates then scrambling to have a variation has certainly brought the issue to the national forefront. Now it is almost like we have to untangle the confusing misinformation that comes from the crossfiring of the TV ads as well.