[House Hearing, 118 Congress] [From the U.S. Government Publishing Office] 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 __________ [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 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 VELAZQUEZ, 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 C O N T E N T S 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 Federation 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 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: Examining 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 businesses are already navigating a maze of challenges, inflation, regulatory 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 businesses 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 hampers domestic investment but also erodes the global competitiveness 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 American businesses. Most developed businesses do not place such constraints on their companies. Putting this onto American entrepreneurs 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 implementing 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 already 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 happens 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 receive 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 landscape 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 helping our small businesses with the regulatory landscape but also as the Chair mentioned, some of the tax issues that our small businesses 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 ongoing 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 constant is change, it is our job as policymakers to give these firms some semblance of stability and certainty. By making policy decisions that allow small businesses to gain their footing, we can enable 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 undermines small businesses' competitiveness and the potential for financial market instability as we saw with Silicon Valley and signature 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 nation's history to combat the ongoing issue of inflation. While this helped to stabilize prices, it has pushed the cost of capital for businesses out of reach for many of our small businesses. With the prime rate of over 8 percent, the small business loans rates upwards of 15 percent, the ability to deduct interest payments is more important than ever. Now, some of our small businesses are exempt from these deduction limitations but others are not and this is an area where Congress 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 expanding, extending the Child Tax Credit which managed to cut child poverty in half. Many of you saw that child poverty is up again because 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 allows 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 Pittsburgh, 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 professional 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. 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 Washington, D.C. Ms. Wade has over 19 years of experience conducting research on the small business sector focusing on economic conditions, 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 Business 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 remarks. STATEMENTS OF JAMES CHUNG, FRANCHISEE, CEO, ATLAS; HOLLY WADE, EXECUTIVE DIRECTOR OF THE NFIB RESEARCH CENTER, NATIONAL FEDERATION OF INDEPENDENT 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 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 Franchise 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 remarkable impact that a franchise business can have on local economies and communities, including job creation, workforce development, and economic growth. While attending the University of Southern California, I was expected 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 business 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 locations 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 myself, 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 tenacious culture, fresh baked bread, and delicious sandwiches. Jimmy John's informed me they needed more stores in Pittsburgh, and although 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 government had the foresight and grace to provide programs that restaurants 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, litigious, and expensive to operate. I am deeply concerned that the American dream is being threatened by the current political landscape. 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, otherwise 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 expensive. 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 mobility. In fact, one in three Americans begin their jobs or their careers 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 Americans. 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 permanently 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 Committee earlier this year. I would urge Congress to take either of these approaches to address 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 questions 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. 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 organization, 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 opportunities 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 disruptions, 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 business 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 ability 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 interest rate costs continue to increase, more small business owners will be priced out of traditional financing options. Unfortunately, small businesses face many other significant economic 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 increase threatens the ability of small business owners to plan and grow operations, as nearly half of small business owners (48 percent) reported the uncertainty of expiring tax provisions is impacting their current or future business plans. 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 businesses. Since 2021, the Biden administration has imposed more than $403 billion in regulatory costs and added more than 233 million hours in paperwork burdens for businesses. These unprecedented 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 reporting 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 burdensome 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 million or less in annual revenue. Small businesses need certainty to successfully invest, grow, and operate their business. Congress can help mitigate the many economic challenges facing small businesses by providing relief from burdensome regulations and eliminating the threat of tax increases. 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 capable 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 system and a healthier economy. Two, the proposed reforms should enhance the ability of small businesses to access financing during periods of distress when they 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, including with respect to their ability to access outside financing on reasonable terms and more can and should be done to help in that regard. 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 reduce 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 supporting 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 important 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 helping to support small businesses. We can look at the Federal Reserve 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 getting 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 affected by these reforms. Just as importantly, the proposed reforms could actually really help small businesses. Research shows that one of the most important 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 lingering 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 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 regulators 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 challenges that small businesses face. And again here, a lot of those opportunities lie in helping to support that nexus between small businesses and small banks that often have received the most relationship 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 holding 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 communities 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 creators 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 investments 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 disastrous 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 finding 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 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 experiences. 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 business 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 capital. 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 deduction 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 preparation. 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 interest 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 predictability. 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 ultimately 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. Chairman MEUSER. Yeah, I appreciate that. So NFIB, of course, you mentioned, Ms. Wade, a number of concerns. 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 business, 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 difficult. 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 businesses. And by the way, after the '08 financial collapse, capital requirements 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 financial regulation blame greater regulation for the continued consolidation of the banking sector. We talked a little bit about this already. Can you discuss how deregulation has created this wave of mergers that have taken place and taken over much of the community 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 massive consolidation. So we have now fewer than 4,000 community banks depending on how you are measuring. And more importantly, 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 domestic economy. And so the core question going forward is how do we make sure we continue to have a robust community banking system? 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 institutions, banks, now four. So is it fair to say that the consolidation 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 composition 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 focused 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 because of the threat they pose to the rest of the economy gets calculated in ways that better calibrate the risks that they are actually posing. Mr. LANDSMAN. So as I understand it, this will, or at least your testimony is that the regulations will probably increase the 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 Chairman'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 requirements. 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 written 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 system 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. Williams, 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 Federal 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 concern that the revisions will have broad impacts on small businesses' ability to access reliable credit and increase overall borrowing 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 operations. Implementing additional regulatory capital requirements will slow economic growth and ``hinder financial institutions'' ability 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 includes 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 required 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. 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 investments 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 reinvest 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 programs. 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 disruptions leaving stores helves empty. Worker shortages that are hindering business operations, and the constant threat of tax hikes coming from democrats in Washington have business owners concerned 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 businesses 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 working 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 compliance and understanding what they need to do. Mr. WILLIAMS. Well, the fact of the matter is--let the competition work and let the consumer drive it, not the federal government. So I appreciate you being here. And with that I yield back. Chairman MEUSER. The Chairman of the Full Committee yields back. I now recognize Representative Davids from Kansas for 5 minutes. 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 impacted. It is also important that we do that in a bipartisan way to continue supporting the financial stability of these small businesses. 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 accelerated 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 development 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 Business 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 effects 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 expire, what does that impact look like to you and how are you anticipating 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 until we understand what the landscape looks like, which ultimately 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 primary 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 larger tax liability at the end of the year that they were not anticipating. So the uncertainty element I think is very critical in understanding how this is going to impact small firms and their inability to plan going forward. But it will certainly limit their ability to invest 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 minutes. 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 deductible. 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 community banks. So access to capital, stability in terms of the tax provisions, 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 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 decisions 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 having 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 increase 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 increases in business operations. So the inflationary pressures that they are experiencing right now, if there are additional costs related to financing that is just another part or a piece of absorbing higher costs in operating their business that they will have to navigate. Chairman MEUSER. Right. Ms. WADE. And all of this makes it very challenging and difficult 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 financing front will certainly be a factor in their ability to operate their business effectively. 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 stronger 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 countries. 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 relates 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, advice 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 different 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 environment where credit standards are already tightening and access to credit is becoming more strict and more expensive. And so right when they need it they are dealing with like the greatest disruptions. 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, others 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 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 standards were promulgated. These are standards that came out of discussions 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 enterprises. 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 support 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 regional 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 alluded 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 leeway 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 adversely 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 minutes. 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 economy 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 access to capital has been a challenge for a lot of people. This is especially true for the rural small business community in Missouri's 4th Congressional District. Simply put, we have banking deserts there. I have seen it firsthand. In our Small Business Committee 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 resources, 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 testimony that H.R. 4721, the Main Street Tax Certainty Act will provide relief and tax certainty to small businesses. This bill would make permanent a provision in the TCJA that helps small businesses. 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 certainty 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 business. The Tax Cuts and Jobs Act was a huge help for small business 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 operations and even grow their business if they found the opportunity. But those expirations of those key provisions, especially the 20 percent 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 already 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 the increased financing costs to purchase that new equipment or purchase that other building and whether that return on investment 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 inability 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 crucial 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 additional 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.] A P P E N D I X [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] [all]