[House Hearing, 118 Congress] [From the U.S. Government Publishing Office] PAYING THEIR FAIR SHARE: HOW TAX HIKES CRUSH THE COMPETITIVENESS OF SMALL BUSINESSES ======================================================================= HEARING BEFORE THE COMMITTEE ON SMALL BUSINESS UNITED STATES HOUSE OF REPRESENTATIVES ONE HUNDRED EIGHTEENTH CONGRESS FIRST SESSION __________ HEARING HELD APRIL 18, 2023 __________ [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] Small Business Committee Document Number 118-008 Available via the GPO Website: www.govinfo.gov __________ U.S. GOVERNMENT PUBLISHING OFFICE 51-814 WASHINGTON : 2023 ----------------------------------------------------------------------------------- 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. Roger Williams.............................................. 1 Hon. Nydia Velazquez............................................. 3 WITNESSES Ms. Lynn Mucenski Keck, Principal & National Lead, Federal Tax Policy, Withum, Bethesda, MD................................... 6 Mr. Russell Boening, President, Texas Farm Bureau, Waco, TX...... 8 Mr. Warren Hudak, President, Hudak & Company, Camp Hill, PA...... 9 Ms. Anne Zimmerman, Founder & Owner/Co-Chair of Small Business for America's Future, Zimmerman & Co CPAs Inc., Cincinnati, OH. 11 APPENDIX Prepared Statements: Ms. Lynn Mucenski Keck, Principal & National Lead, Federal Tax Policy, Withum, Bethesda, MD........................... 41 Mr. Russell Boening, President, Texas Farm Bureau, Waco, TX.. 35 Mr. Warren Hudak, President, Hudak & Company, Camp Hill, PA.. 54 Ms. Anne Zimmerman, Founder & Owner/Co-Chair of Small Business for America's Future, Zimmerman & Co CPAs Inc., Cincinnati, OH............................................. 60 Questions and Answers for the Record: Questions from Hon. Mfume and Answers from Ms. Zimmerman..... 66 Additional Material for the Record: American Rental Association.................................. 70 American University.......................................... 74 National Association of Manufacturers........................ 80 National Federation of Independent Business.................. 85 National Taxpayers Union..................................... 219 Small Business Majority...................................... 225 Small Software Business Coalition............................ 227 PAYING THEIR FAIR SHARE: HOW TAX HIKES CRUSH THE COMPETITIVENESS OF SMALL BUSINESSES ---------- WEDNESDAY, APRIL 18, 2023 House of Representatives, Committee on Small Business, Washington, DC. The Committee met, pursuant to call, at 2:00 p.m., in Room 2360, Rayburn House Office Building, Hon. Roger Williams [chairman of the Committee] presiding. Present: Representatives Williams, Luetkemeyer, Alford, Stauber, Meuser, Bean, Van Duyne, Ellzey, Mann, LaLota, Velazquez, Mfume, Landsman, Gluesenkamp Perez, Scholten, Thanedar, Chu, Davids, and Pappas. Chairman WILLIAMS. I want to welcome everybody here. And before we get started I want to ask everyone to stand for the Pledge of Allegiance and a quick prayer. I pledge allegiance to the flag of the United Sates of America. And to the Republic for which it stands, one nation, under God, indivisible, with liberty and justice for all. Please bow your head. Heavenly Father, God of all people, thank you for allowing us to be here today to have dialogue, to have debate about how to make this great country better. In your name we pray. Amen. I now call the Committee on Small Business to order. Without objection, the Chair is authorized to declare a recess of the Committee at any time. I now recognize myself for an opening statement. Good afternoon, and welcome to today's hearing where we will be examining the tax landscape for small business. First, I want to thank our witnesses for joining us today. Your time here is greatly appreciated. This hearing could not come at a more important time for Main Street America. Our nation's small businesses are facing unprecedented levels of inflation, interest rates that are being raised at the fastest pace since the 1980s, a labor shortage that has windows plastered with Help Wanted signs across the country, and now an increasingly uncertain credit environment. As a small business deal with these economic headwinds, it is imperative that our tax code works for our nation's job creators, not against them. When businesses can keep more of their hard-earned money, they hire more people and invest more into their operations. In 2017, Republicans passed the most significant changes to the tax code in decades. This legislation allowed small businesses to save on tax bills and benefitted families of all income brackets. Today, we will hear firsthand accounts of the many success stories from this major update to our nation's tax code for small businesses in a variety of industries. As this law ages, some of the provisions are beginning to expire or have their benefits reduced. It is imperative that we begin looking at this law and find the provisions that helped main street the most, such as lowering individual income tax rates that helped 70 percent of all small businesses that are organized as pass through entities. There are many more successful provisions such as the one that I hope we explore in greater depth here today. This hearing will also highlight the stark tax policy differences between the two major parties here in Washington, D.C. My democratic colleagues repeatedly use the phrase ``make them pay their fair share'' while talking about the tax code. This simplified talking point dumbs down the intricacies of some of the most consequential policies that come out of Washington and ignores many of the unintended costs of any tax increase that Congress makes. This difference can be seen by anyone willing to dig through President Biden's proposed budget. According to the Tax Foundation, if all the changes were made there would be trillions in new taxes. GDP would shrink by over 1 percent, and in the long term there would be fewer jobs for all Americans. One of the most harmful proposals is an additional 5 percent surtax on small businesses that the White House claims is closing a tax loophole. This could not be further from the truth and could be devastating for small businesses. And I am going to submit this petition right here, led by the NFIB for the record, with the signatures of over 11,000 small businesses that put together in a short amount of time that calls the administration out for this disastrous policy proposal. Additionally included in the democratic misnamed Inflation Reduction Act there was an additional $80 billion in new funding to the IRS. With these new funds, the agency is poised to be more aggressively toward auditing America's small business. And today I hope we can dig deeper into what it means for small businesses when we have an IRS working overtime to target American job creators. Here on the Committee of Small Business, I promise we will be working to create an environment where businesses can thrive and grow. We are eager to find solutions that will help pave a path towards success for both now and the future and it starts by enacting pro-growth policies. In addition to the NFIB letter, I would like to submit the following letters and testimony for the record. A letter from the National Association of Manufacturers that highlights how manufacturers hired more workers, increased wages, and invested in their businesses following TCGA; A letter signed by 597 small software businesses from the 50 states regarding immediate R&D expensing; And testimony from the National Taxpayers Union highlighting the TCGA Biden tax increases and the IRS. I want to thank all of you again for being here with us today, and I am looking forward to today's conversation. And with that I will yield to our distinguished Ranking Member from New York, Ms. Velazquez, for her opening remarks. Ms. VELAZQUEZ. Thank you, Mr. Chairman, for holding this hearing. Main street businesses form the bedrock of our nation's economy, driving innovation and job creation, even during periods of economic turmoil and uncertainty. Regrettably, despite the fundamental importance of small firms, recent tax reform has catered to the interests of wealthy individuals and large corporations instead of American entrepreneurs. Small businesses require certainty and simplicity to compete. However, our convoluted and onerous tax code creates an overwhelming burden for these businesses. Small firms typically do not have tax professionals on staff and must spend substantial funds on outsourcing their tax preparation. Unfortunately, the 2017 tax law did little to simplify the tax code. Instead, it contributed to greater complexity and diminishing returns for small firms. Even tax provisions aimed at helping small firms, such as the pass-through deduction, ended up disproportionately benefiting the wealthy. While only 8 percent of those who took advantage of the 199A pass-through deduction last year had income over $500,000, that 8 percent accumulated two-thirds of the $36.5 billion tax benefit. This is particularly striking given the average income of a small business owner is roughly $70,000 per year. The 2017 tax law saddled entrepreneurs with more complexity and uncertainty by making the small business provisions in the bill temporary while making corporate tax cuts permanent. The fact of the matter is that when it comes to cutting taxes, here small businesses are an afterthought. Over the past several years, evidence has emerged confirming the warnings that the wealthy benefit disproportionately from this law. Corporate profits have surged to record heights, as has corporate tax avoidance, often at the expense of higher prices for American households. This abuse has led to a growing concentration of economic power, fostering corporate monopolies that use their extensive market share to crush the competitiveness of small firms. From offshore tax shelters to local economic development incentives, large corporations leverage these loopholes to undermine small businesses. That is why I was encouraged to see that IRS and Treasury have pledged not to use additional enforcement funds, passed as part of the Inflation Reduction Act, to increase audit rates of people that make under $400,000 per year. Instead, they will focus their efforts on high-income noncompliance, leveling the playing field for our nation's small employers. Additionally, I applaud their commitment to using these funds to help modernize their systems and to help businesses meet their obligations and access eligible tax incentives. This is a crucial step in creating a fair and level competitive landscape for small firms. Lastly, we should not ignore the budgetary consequences of the 2017 law, which has significantly contributed to soaring fiscal deficits. We now find ourselves only weeks away from a potential default on the national debt, which threatens to plunge small businesses into uncertainty and potentially trigger a devastating economic recession. If Congress truly wants to help small firms, we must start working with them to simplify the tax code to bring real reforms that make a meaningful impact to their ability to comply and operate. It is my hope that today's hearing will allow us to start a dialogue to start the process of building a better tax framework for our country's small firms. I thank the witnesses for testifying and providing their valuable perspective. Thank you, Mr. Chairman. I yield back. Chairman WILLIAMS. Thank you, Ms. Velazquez. And now we will introduce our witnesses. And may I call you Lynn to begin with? Can you tell me how to say your last name? Ms. MUCENSKI KECK. Mucenski Keck. Chairman WILLIAMS. Mucenski Keck? Ms. MUCENSKI KECK. You got it. Chairman WILLIAMS. Okay. The pleasure this afternoon to introduce our first witness, Ms. Lynn Mucenski Keck. She has over 20 years of tax accounting experience and is currently the National Lead of the Federal Tax Policy at Withum, an advisory accounting firm. At Withum, she focuses on domestic tax planning for businesses, and in her previous job she worked on business implementation practices surrounding major pieces of congressional legislation, including the 2020 CARES Act and the 2017 Tax Cuts and Jobs Act. She has received her bachelor of science degree in accounting from St. John Fisher College and a master's in taxation from the University of Denver. Lynn is a CPA, licensed in New York, and a Member of the American Institute of Certified Public Accountants. Previously, she was an associate accounting professor at St. John Fisher College. As a contributor for Forbes, Lynn writes extensively on the impact that potential congressional legislation would have on the business community. I want to say thank you, Lynn, for joining the Committee today, and I am looking forward to today's important conversation. So thank you very much. I now want to recognize my colleague, Representative Ellzey to briefly introduce the next witness who is appearing before us today. Mr. ELLZEY. Thank you, Mr. Chairman. It is my honor to introduce the Committee's next witness, my good friend, Russell Boening. Hi, Russell. I am down here on the end, the new guy. Russell is a fourth-generation farmer and native of Texas. He is a full-time farmer and rancher from Wilson County, and he and his family grow feed grains, cotton, and wheat, have a beef cattle operation, and a dairy operation. That is no small task. Russell is president of the Texas Farm Bureau, which probably represents 535,000 Texas Members. Having been elected as president of Texas Farm Bureau in 2014, Russell was first elected to the Bureau's Board of Directors in 2008 and then as secretary/treasurer in 2011. Previously, Russell was chosen as the Bureau's Outstanding Young Farmer--that was many years ago--and Rancher in 1986. He has held every office in the Wilson County Farm Bureau Board spanning across 30 years, and of course, it goes without saying, but I will say it, he is an Aggie. I did not hear the whoop. All right. After graduating from Texas A&M in 1981, Russell jumped right into his family's farm business, Boening Brothers Dairy. His work centered on business management and marketing for the dairy and beef production side of his family's business. Russell's extensive experience in family farming and lifelong service to the Texas Farm Bureau makes him an expert witness in tax policy and examining its impact it has on everyday small farms in America. Not just in Texas, but everywhere. He understands firsthand the contribution farmers and ranchers make to this country in feeding the world, in fact, and he has dedicated his life to being one of those and to serving others. Russell, thank you for joining the Committee this afternoon, and I am looking forward to our conversation. Mr. Chairman and Members, welcome Mr. Russell Boening. Chairman WILLIAMS. I now recognize my colleague, Representative Meuser, to briefly introduce the next witness who is appearing before us today. Mr. MEUSER. Well, thank you very much, Mr. Chairman. It is my honor to introduce my friend, Mr. Warren Hudak to the Committee. Mr. Hudak is president of Hudak & Company, small business accounting firm based just outside of my district in Harrisburg, Pennsylvania, where he specializes in tax, accounting, and consulting advice. And he is also involved in a whole lot of leadership on community projects. In addition to being a small business owner himself, over 90 percent of Mr. Hudak's clients are small businesses as well. Mr. Hudak founded his business after serving in the U.S. Navy and gaining over 20 years of accounting and business consulting experience. He is also a Penn State graduate and holds a bachelor of science degree in accounting. As well as being president of his small business and having served in the Navy, Mr. Hudak has also served his local community as stated in various ways. He has held roles as Chairman of the board and president of the Harrisburg Junior Chamber of Commerce, the Penn State Urban Youth Development Committee, as a Member of the Pennsylvania Chamber of Commerce, and various roles within the NFIB and others. With his vast experience, Mr. Hudak understands firsthand and can speak to how small businesses are impacted by higher costs, whether it be through higher taxes or through an increase in regulatory compliance costs. I thank Mr. Hudak and all of our witnesses for joining us here this afternoon. I yield back, Mr. Chairman. Chairman WILLIAMS. I now recognize my colleague, Ranking Member Velazquez, to briefly introduce the next witness who is appearing before us today. Ms. VELAZQUEZ. Thank you, Mr. Chairman. Our final witness is Ms. Anne Zimmerman, Founder and Owner of Zimmerman & Co. CPAs, a public accounting firm with offices in Cleveland and Cincinnati. Since the mid-1980s, she has provided financial and tax services to small businesses and individuals and acts as the offsite CFO for many businesses. Since 2017, Ms. Zimmerman has served as Co-Chair for Small Businesses for America's Future, a nonprofit focused on ensuring that policymakers prioritize main street by advancing a just and equitable economic framework that works for small business owners, their employees, and their community. Thank you, Ms. Zimmerman. We look forward to hearing your testimony. Chairman WILLIAMS. And I would like to say for all of us, we appreciate again all of you being here today. I now recognize Ms. Mucenski Keck, Lynn, for your 5 minute opening remarks. STATEMENTS OF LYNN MUCENSKI KECK, PRINCIPAL AND NATIONAL LEAD, FEDERAL TAX POLICY, WITHUM; RUSSELL BOENING, PRESIDENT, TEXAS FARM BUREAU; WARREN HUDAK, PRESIDENT, HUDAK AND COMPANY; ANNE ZIMMERMAN, FOUNDER AND OWNER, CO-CHAIR OF SMALL BUSINESS FOR AMERICA'S FUTURE, ZIMMERMAN AND CO. CPAS, INC. STATEMENT OF LYNN MUCENSKI KECK Ms. MUCENSKI KECK. Chairman Williams, Ranking Member Velazquez, and other Members of the Committee, thank you for the opportunity to testify today. My name is Lynn Mucenski Keck, and I help lead the federal tax policy practice for Withum, a top 25 national accounting firm with over 2,200 team members. I have been a tax accountant for over 20 years. Part of my responsibilities include monitoring and disseminating information to clients regarding current and pending federal tax legislation. I appreciate the opportunity to offer my insights as to how existing and proposed tax policies are impacting privately owned businesses. Many business owners today are feeling overwhelmed. They are still recovering from the pandemic. They are now facing higher supply costs and growing labor shortage, as well as rising interest rates. Changes included in the Tax Cuts and Jobs Act that did not take effect until the 2022 and 2023 taxable year are making things worse. These changes, including the tightening of the interest expense limitation and the required capitalization of R&E costs have confused my clients. Their business operations are the same, yet their taxable income under these new policies are skyrocketing. Even when a business's debt structure undergoes no significant changes, its owners are surprised to learn that they are not allowed to deduct the full amount of their interest expense. That is because starting with the 2022 tax year, the 30 percent limitation now applies after deducting depreciation and amortization. This change forces businesses to disallow even more interest expense than ever. And with the rising interest rates the impact is even worse. Meanwhile, businesses making R&E investments are baffled by new rules that allow for only 10 percent of R&E expenses incurred in the 2022 year to be deducted with the remaining costs being spread over 5 years if it is domestic research, or 15 years if it is research performed overseas. This policy is in direct contradiction to the treatment of R&E expenses in other developed countries. For example, United Kingdom and China allow a 230 percent and 175 percent super deduction, respectively. As reflected in my written testimony, these changes have drastically increased taxable income of businesses. The example shows the same operations of a pass-through business owner in 2021 versus 2023, reflected an increase in taxable income over 47 percent and increases federal tax due of 70 percent. The common reaction from business owners facing these tax hikes is frustration accompanied by dread on how they will find the additional funding to pay their tax bills. To fix this, I strongly encourage Congress to revert to the 2021 Interest Expense Tax Limitation calculation and Congress should also act to restore the immediate expensing of R&E expenditures and allow the U.S. to remain the world leader in innovation and technology. My clients are confronting these tax increases right now but they are also fearful of proposed tax legislations being considered by Congress. One of the most prominent concerns regards the pass-through deduction. The critical deduction is scheduled to sunset at the end of the 2025 taxable year. Recent proposals would limit the business owners to making less than $400,000 to receive the deduction or just eliminate the deduction all together. It is important to remember why the pass-through deduction exists. It was enacted as part of the TCJA to provide parity between pass-through entity owners, those who make up the majority of small businesses, and C corporations. With the C corporation tax rate dramatically decreasing from 25 to 21 percent, pass-through owners needed relief to remain a viable option for business owners. This parity was accomplished through the 20 percent pass-through deduction. The deduction allows some taxpayers of pass-through businesses to decrease their tax rate from 37 percent to 30 percent. Not all pass- through owners receive the 20 percent deduction, and the application of a pass-through deduction is far more complicated than the simple tax rate deduction C corporations receive. Absent the pass-through deduction, however, the effective tax rate on small business owners will increase as much as 7 percentage points. For small business owners who must immediately pay tax on their earnings even if they receive no cash distributions from the company, a 7 percentage point increase is severe. It is imperative that the pass-through deduction remains. Instead of threatening to eliminate pass- through deductions, Congress should make it permanent just like the C corporation rate. With all these changes and looming proposals, I fear we are reaching a tipping point where the government is no longer incentivizing small businesses to assist in growing the U.S. economy, but is instead limiting the operations or forcing them to shut down all together. Restoring R&E expensing, increasing the interest deduction cap, and making permanent pass-through deduction would reverse this trend and help these businesses invest and create jobs in the United States. I appreciate the Chairman and the Committee for considering the impact of tax legislation on small business and I would be happy to take any questions. Chairman WILLIAMS. Thank you very much. And now I recognize Mr. Boening for his 5 minute opening remarks. STATEMENT OF RUSSELL BOENING Mr. BOENING. Chairman Williams, Ranking Member Velazquez, and Members of the Committee, as stated in my introduction, we do farm and ranch around southeast of San Antonio, and I really appreciate the opportunity to be here today on this important topic. Farmers and ranchers across our state and across this country continue navigating challenges that we all face--high input prices, inflation, weather, volatile commodity prices, among other things. When adjusted for inflation, 2023 net farm income is expected to decrease by $30.5 billion, or 18.2 percent, from 2022. The average age of the American farmer and rancher is 60 years old with more than a third being at retirement age. It is estimated that more than 370 million acres, or 40 percent of all farmland, will trade hands over the next 15 years. The men and women that work hard to provide the food and fiber of this country and want to pass their operations on to the next generation. Any additional tax burden on them would put our national food security at risk, increase consolidation in our industry, and quite frankly, make America more reliant on foreign countries. President Biden's budget puts farmers, ranchers, and small businesses squarely in the crosshairs. For instance, the president's budget calls for the elimination of stepped-up basis and doubling the rate that capital gains are taxed. These changes combined with the proposed revisions to the death tax law would result in $280 billion in tax increases over the next decade. I am a fourth-generation farmer who has been fortunate enough to hold on to our family property. We have navigated challenges over the years. My family, and those before us, have worked hard to continue operating. Taking away stepped-up basis would devastate my family and many other farmers and ranchers across the country. Stepped-up basis has helped us pass our land from one generation to the next because as we well know, it values the farm at the time of inheritance. If this tool is eliminated, and I pass away, my children would be forced to pay taxes on appreciation from the previous generation. Taking our state for an example, population pressure has driven up land values very high, yet left farmers and ranchers no more liquid than they historically have been. To put a finer point on the pressure of that land out of production, since 2014, 4 million acres have left ag production in the state of Texas, a reduction of 3 percent. Nationally, in those 8 years, nearly 20 million acres have been taken out of production. The tax increases in the president's budget proposal would leave our children with a tax bill that will likely leave them no choice but to sell the property or at least part of it. To make matters worse, this additional tax burden would come on top of paying the death tax. Of course, this assumes there will still be an estate left to tax after paying capital gains on the assets of the estate. That means upon my death, after paying staggering capital gains taxes, the federal government would claim up to 40 percent of the taxable estate from my children. We feel this is a cruel way to generate tax revenue to pay for the president's budget proposals. Many people think that the death tax only affects the wealthy. That is ill advised. We all know that farming and ranching is a land-rich, cash-poor business model. A farmer or rancher might be worth several million dollars, but a vast majority is in land and farming equipment, with only a fraction being money in the bank. Thanks to the 2017 Tax Cuts and Jobs Act, the estate tax exemption was doubled from $11 million per couple to $22 million, which helped prevent most family farms from paying the tax. The president's budget would cut that exemption rate back to $11 million per couple, saddling American farm and ranch families with a devastating tax burden, often forcing them to sell their property. The lower the exemption level, the more ag land you put at risk of being sold off to the highest bidder. To put it simply, death should not be a taxable event. Texas Farm Bureau advocates for abolishing the estate tax, or at a minimum, ensuring the current exemption rate set forth by the Tax Cuts and Jobs Act does not expire. There are other important provisions in the Tax Cuts and Jobs Act. This includes reduced pass-through tax rates, expanded brackets, and the Section 199A 20 percent business income deduction. We feel like those should be extended. We call on Congress and the administration to work together across the aisle to make these provisions permanent and combat these tax increases. Family farms and ranches are the building block for a secure America. We must fight for a tax code that provides for their future, not one that puts them in jeopardy. Thank you again for the opportunity to be here. Chairman WILLIAMS. Thank you very much. And now I recognize Mr. Hudak for his 5 minute opening remarks. STATEMENT OF WARREN HUDAK Mr. HUDAK. Good afternoon, Members of the House Small Business Committee. Thank you for inviting me to testify on Tax Day as an accountant. My name is Warren Hudak. I am president of Hudak and Company, an accounting and payroll firm in Camp Hill, Pennsylvania. We have 11 employees and 90 percent of our customers are small business owners. We provide full resources small businesses would expect from a large accounting firm, while maintaining a personal touch. Our job is to work with small business clients to translate the complicated Federal tax code and frequently changing tax provisions. This challenge comes on top of other economic problems that small businesses are facing, which include high inflation and pervasive workforce shortages, the inability to get competent labor. We also face these challenges as our labor costs are up 40 percent, our software costs have tripled since the pandemic began. Small businesses face an uncertain future that makes business planning extremely difficult. Beginning this year, certain business provisions of the Tax Cuts and Jobs Act of 2017 expire or wind down. In fewer than 3 years, the vast majority of the provisions that benefit individuals and small businesses will also expire. If Congress fails to act, there will be a detrimental tax increase on millions of small businesses. Further, proposals to increase taxes on businesses cloud optimism and also complicate business planning. Finally, small business paperwork burden is increasing while the IRS disproportionately expands enforcement efforts over customer improvements. Small businesses received significant tax savings upon enactment of the 2017 tax law. For the more than three-quarters of our businesses organized as pass-throughs, the 20 percent business deduction, also known as Section 199A, combined with the lower individual tax rates and broader income tax brackets, provided tax relief that was invested in businesses and employees. All these provisions expire at the end of 2025. In 2017, the tax law also contained provisions that encouraged business investment by allowing for immediate deduction of equipment and R&D costs. Two of these provisions expire and wind down this year. R&D expensing is a big deal when cashflow is tight, which is currently happening due to inflation and rising interest rates. The sooner that these beneficial deductions or rates are extended, the better small businesses will be able to plan. Further clouding business planning are the proposed tax increases. President Biden's budget request would increase taxes on small businesses organized as corporations and pass- throughs. While small businesses may not be impacted by those proposed tax changes every year, they will impact when they have profitable years or when they sell their business to fund their retirement or when they pass along their business to the next generation. The budget request describes certain tax increases misleading, like closing loopholes. One example of this mischaracterization is a proposal to expand the 3.8 percent ``Net Investment Income Tax'' (NIIT) to active business and increase the tax rate to 5 percent. It would deliberate policy choice to exempt active business income from the tax. As former President Obama's economic advisor Jason Furman described, it was not applied to active business income, ``because it could be demonized as a tax on small businesses and doctors.'' Nothing has changed. A deliberate policy choice is not a loophole. The proposed expansion of the tax would more than double the revenue collected, further demonstrating that the tax increase proposal is not closing a loophole. If it is enacted, this substantial tax increase would reduce the ability of pass-through businesses to invest in their businesses and employees and leave them further disadvantaged relative to larger corporations. The Inflation Reduction Act provided nearly $80 billion in new funding for the IRS, primarily focused on enforcement. Unfortunately, only 4 percent of that funding was designated for customer service, which is in need of significant improvement. Small business owners are concerned about increased enforcement efforts. The continued backlog of tax returns, the combination of increased paperwork and data privacy, there have been many improvements in reducing the IRS's historic processing backlog but it remains considerable. Paperwork burdens are expanding as Form 100K and beneficial ownership reporting begin next year. Outreach and education efforts on these new requirements are lacking. Nobody knows about these. I also remain concerned about the ability of the IRS to protect personal information, and I worry about prepopulating returns could exacerbate privacy risks. I encourage continued oversight of this IRS expansion and the potential impacts of small business. Congress can help mitigate economic challenges by expanding beneficial small tax proposals, reducing red tape, rejecting tax increases on small businesses. Certainly will help businesses plan and increase small business optimism. Thank you for the opportunity to be here today. Chairman WILLIAMS. Thank you. And now I recognize Ms. Zimmerman for her 5 minute opening remarks. STATEMENT OF ANNE ZIMMERMAN Ms. ZIMMERMAN. Good afternoon, Chairman Williams, Ranking Member Velazquez, and Members of the Committee. Thank you for the opportunity to speak to you today. My name is Anne Zimmerman, and I am a CPA and president and founder of Zimmerman and Co. CPAs, with offices in Cincinnati and Cleveland, Ohio. I am also the Co-Chair of Small Business for America's Future, a national coalition of small business owners and leaders working to give the small business community a voice at every level of the government. As a small business owner myself, I take great pleasure in supporting other small businesses. Every Friday, my grandson AJ and I have a special tradition of treating ourselves to creamy whips on our way home from school. For those of you not from Ohio, creamy whips are soft serve ice cream. We will not be able to enjoy that fun ritual this week because that small business we have grown fond of closed on Sunday. While unfortunate, this is not uncommon. This experience highlights the vulnerability of small businesses during their early years. With a record 10.2 million new small businesses since 2021, establishing a fair tax code is crucial for their success and for the country to capitalize on the potential economic activity that this boom in entrepreneurship could deliver. The Tax Cuts and Jobs Act (TCJA) has primarily benefitted large corporations, offering them a permanent 40 percent cut in their rate, while small businesses received a temporary 20 percent deduction instead. Extending the current small business deduction beyond 2025 would permanently enshrine these tax inequities, maintaining an unfair advantage for large corporations. A public opinion poll conducted for Small Business for America's Future by Morning Consult in 2019 found that changes in the tax code from the TCJA did not significantly help small businesses grow or invest. Almost half of small businesses said the new tax law had no impact on their growth or profitability, while 24 percent said it had a negative impact. Only 19 percent of owners said the law had a positive impact on their business. I have a few ideas about how the tax code can foster small business success. First, create a tax credit for hiring the first employee which would surely foster job growth. Second, make the first $25,000 in business profits tax free to strengthen truly small businesses. Next, let's rebalance the TCJA cuts, reversing a small portion of big businesses' 40 percent cuts to pay for improved permanent cuts for small business. Next, let's simplify tax compliance and improve IRS customer service, including bringing back support for tax code technical help for small business owners. Implement a minimum tax on corporate book income which would not impact most small businesses but would certainly level the playing field. Moreover, it is crucial to avoid destabilizing political fights, such as using the debt ceiling as leverage. Such tactics disproportionately affect small businesses and impede their ability to thrive, create jobs, and drive innovation. In conclusion, I urge Congress to create a more equitable tax system that genuinely supports small businesses and fosters a stable economic environment, rather than merely extending the TCJA. Ensuring the well-being of small businesses is essential to this endeavor, and essential to making sure creamy whip stores, like the one AJ and I loved, can keep serving up smiles in communities across the country. Thank you so much for your time and consideration. Chairman WILLIAMS. Thank you. We will now move to the Member questions, and I recognize myself for 5 minutes. I want to talk about the death tax because it is something that directly affected me when my father passed away in 1990. He left me with a bunch of assets but no cash. Shortly after his passing, the IRS was reaching out to collect the estate tax which was 55 percent at the time. The tax bill was so high I considered selling our successful family business in order to cover the expense. Instead, I hired an accountant to see what my options were and we made an agreement with the IRS to cover the tax liability over time. And after over a decade, right before the start of 2001, I made the last tax payment from his passing. Imagine what we could have done if we were able to invest that money back into our business for 10 years. We could have hired more people. We could have updated facilities. We could have donated more to schools and churches, but instead it went to the federal government for a deficit. So my story is not unique. This tax affects so many Americans across the country. We have heard that already today. And success should be rewarded so people can build wealth for their families to pass along to future generations rather than be hit with this duplicative tax bill that sends a significant portion back to the federal government. So Mr. Boening, my question, can you discuss the implications that the death has for the many farmers and ranchers who are Members of the Texas Farm Bureau? Mr. BOENING. Thank you, Chairman Williams, for that question. Yes, I think I can. While the testimony was going on and the death taxes was one that was mentioned several times, you know, I mentioned the way things have grown in Texas and we have seen it, you have seen it in your area, and there are farms and ranches that are operating in areas that are of high growth. And it does not take long for--and I am just using examples that I am familiar with--it does not take long for land to get to $10,000 an acre, $12,000, $15,000 an acre. We are talking about ag land and farmers and ranchers that are farming it. So, you know, it is pretty easy math. A 2,000 acre farm all of a sudden is worth $20 million. And that sounds like a lot of money, and it is a lot of money if you want to sell it, but farmers and ranchers do not necessarily want to sell it. Chairman WILLIAMS. A lot of people do not understand if you have an asset it is frozen. It is not liquid. That is the problem. Mr. BOENING. And so the death tax is just, you know, and the way I look at it as well, those are assets that you have already paid tax on. So, it would be devasting to farmers and ranchers. Chairman WILLIAMS. Thank you. Thank you. One component of the Tax Cuts and Jobs Act that I want to highlight was the full and immediate expensing provision. For those that do not know, this allowed businesses to write off the full cost of equipment at the time it is purchased rather than throughout the life cycle of the asset. This helps the small business owner in a variety of ways. It helps suppliers because it makes businesses more likely to invest in heavy equipment which in turn helps provide customers the best products and services from the best equipment. It also helps workers do their jobs effectively and efficiently. So briefly, Ms. Mucenski Keck, can you talk about what the private sector's reaction has been to this provision? And can you discuss what you expect to happen if this provision continues to decrease every year until it eventually is down to zero? Ms. MUCENSKI KECK. Thank you for the question. I think it is a very important part of how small businesses learn to operate. And the fact that oftentimes they may not be able to afford that piece of equipment for their property or for their business, but because of the 100 percent expensing they can indeed use that offset for cash purposes to help them get to the cash needed to purchase the actual equipment, which as pointed out would help them operate their business more successfully and employ more people. With the increasing reduction of the bonus depreciation of how we refer to it in the tax world, you are going to essentially cause a lot more businesses to second guess buying additional equipment and expanding their businesses because they just do not have the cash payment to go out and buy the piece of machinery that they need. Chairman WILLIAMS. Thank you for that. Quickly, one of the most well-known components of the tax bill was the cutting of individual income tax rates. We have talked about that already today. This helps small businesses that were organized as pass-through entities and allowed customers to keep more of their hard-earned money. Consumer spending drives growth and this provision delivered. So quickly, Mr. Hudak, can you discuss how your business benefitted from the tax cuts and what you saw some of your customers do with their increase in savings? You have got about 34 seconds. Mr. HUDAK. All of our customers and us invest in property and equipment. It was a game changer for us. The lower rates enabled us the cashflow necessary to grow and increase our business. I would like to make one comment on your previous question. We had a shop provider say I can afford the $400,000 piece of equipment but I cannot afford the $80,000 tax bill. Chairman WILLIAMS. Thank you very much. And with that now I recognize the Ranking Member for 5 minutes of questions. Ms. VELAZQUEZ. Thank you, Mr. Chairman. Ms. Mucenski Keck, thank you for your testimony and pointing out the upcoming tax hikes built into the 2017 tax law. Just to clarify, I was wondering which political party drafted the tax codes and Jobs Act? When Republicans wrote this act, they did it without hearings and they built in a lot of these tax hikes that you are discussing today, like the expiration of the individual rate cuts, the deduction for pass- through entities, and the phase out of bonus depreciation and 179 expensing. Can you tell me, Ms. Mucenski Keck, why they have to build in these cliffs and sunsets? Ms. MUCENSKI KECK. Sure. I believe that both parties have used the Budget Reconciliation Act to pass tax law, and unfortunately, it is the people like us on the other side of the aisle that are faced to deal with the expiring provisions. So within the budget reconciliation, we know that they cannot pass the law with the majority needed within Congress so they have to go through a budget reconciliation process. That process requires that no additional deficit be added after a 10-year period, and so we have these sunset provisions. And we have seen both parties, both Democrat and Republican parties use the budget reconciliation process to pass tax law. Ms. VELAZQUEZ. The fact of the matter is that people are talking about how these provisions that are going to expire are impacting small businesses where those provisions were included in the bill by the Republicans. They were the ones who passed this bill. To pass this law on a party line vote they have to build tax hikes, which primarily impact small businesses while the provisions that benefitted the big corporations and the wealthiest, they were made permanent. That was a choice that was made by the Republicans. As a result, the original tax law gave massive tax cuts to the largest corporations. Can you tell me how this impacts the ability of small businesses to compete? Ms. MUCENSKI KECK. I think, I just want to make sure I am understanding the question. I think the Tax Cuts and Jobs Act was a good bill for small business. I think 199A, I think the reduction in the tax cuts I think it was absolutely well received and still wanted for business. I cannot comment on how legislation can be bipartisan to make those complete I think is the question. Ms. VELAZQUEZ. Well, the issue here is that a choice was made to make provisions that benefited the large corporations and the wealthiest permanent while they sunsetted provisions impacting small businesses. The benefits for small businesses are coming to an end in 2025. Ms. MUCENSKI KECK. But I do think there are provisions in there that do affect large businesses, so the interest expense limitation is a huge limitation that is also going to impact large C corporations, and we also had a fair amount of international tax legislation that was changed, as you know. That is also impacting large C corporations. Ms. VELAZQUEZ. Small businesses that by the way, when it comes to doing business overseas, when it comes to trade, they only have one client. So those types of changes did not impact the 70,000 small businesses in our communities. Ms. Zimmerman, small businesses need certainty to compete in the marketplace. While corporate rates were made permanent by the 2017 law, the individual rates and pass-through cuts expire in 2025. Does this uncertainty affect the behavior of small businesses? Ms. ZIMMERMAN. Thank you for the question. Absolutely. The uncertainty of not knowing what things will look like causes problems when you are hiring, planning, innovating. The uncertainty, when you talk about uncertainty, also you have to look at the issue now with the debt ceiling. There is nothing that is causing us, me, more uncertainty with my business than wondering whether we are going to default on our debt. And we need to resolve that as soon as possible just to let the economic climate settle down. Ms. VELAZQUEZ. How does underfunding the IRS hurt small firms? Ms. ZIMMERMAN. Well, small business owners try to be compliant. And they need that support. It is a disproportionate amount of audits and all for the small taxpayer because it is too expensive and not enough personnel and training for the large taxpayers. The funding for the IRS will increase customer service and educate small business. Even maybe set up a small business hotline. Ms. VELAZQUEZ. My time has expired. Thank you so much. Ms. ZIMMERMAN. Thank you. Chairman WILLIAMS. Thank you, Ms. Velazquez. And now I recognize Congressman Luetkemeyer from the Great State of Missouri for 5 minutes. Mr. LUETKEMEYER. Thank you, Mr. Chairman. Ms. Mucenski Keck, you know, you are an accountant and you followed a lot of folks, I am sure, when the Tax Cuts and Jobs Act was passed. What did the people do with those dollars? Did they take them and go to the bar and blow them? Did they go on vacation? Did they go buy some fancy clothes? What did they do with those dollars, the small businesses? Ms. MUCENSKI KECK. So the first thing I would say is a 10- year window, believe it or not, is significant for taxes. So knowing that small businesses--not we, but small businesses would have the availability to have that for a 10-year period was significant. And there was planning. There was planning in how they were going to potentially transition to family Members because oftentimes they are family-owned businesses. There was planning though more importantly of how to expand, how to build, how to reinvest. And those dollars allowed them to do that. And I think that that is the parity we are talking about when we talk about the difference between pass-through small businesses and C corporations. Mr. LUETKEMEYER. Mr. Hudak, how about your customers, your clients? What did they do with those dollars that they got to save that they did not remember the tax dollars are actually their dollars. It is not the government's dollars. It is their dollars they got to keep. The small businesses got to keep them. The individuals got to keep them. What did your clients do with those dollars? Mr. HUDAK. No small business owner wakes up in the morning wanting to be a tiny guy; right? They all have dreams, big dreams, and they want to get to the next rung on the ladder. And that is what they used the money for, dream bigger than ever before. Mr. LUETKEMEYER. Did they use it to hire more people, expand their business, go out and buy another piece of property? Mr. HUDAK. Absolutely. Plant, property and equipment. Mr. LUETKEMEYER. Buy new equipment, whatever? Mr. HUDAK. Absolutely. Plant, property, and equipment, 100 percent. Mr. LUETKEMEYER. They reinvested it. They did not go blow it on stuff? Mr. HUDAK. Not a single one. Mr. LUETKEMEYER. Thank you. Mr. Boening, when you got your tax cut, what did you do with your dollars? I will guarantee you as a farmer you did not go out and buy you a brand new pickup truck and put a whole bunch of stuff on the outside of it. Mr. BOENING. Well, to be honest, we might have bought a new tractor. Mr. LUETKEMEYER. New tractor, yes. Mr. BOENING. If you needed a new tractor. Mr. LUETKEMEYER. That is a piece of equipment you need. Mr. BOENING. But the second thing, it has been alluded to, you know, we invested in equipment. You know, and if you can possibly add some land or something, if you can hire another person or two, labor is always a tough situation so that is not always possible. But yeah, we invested back in the business. Mr. LUETKEMEYER. So the point being that these tax dollars that were left in the people's pockets, they were left in the small business pockets, were reinvested. And allowed our economy to grow at a record pace. If everybody can recall, just 2 or 3 years ago, the government has record revenues coming in, and still today has record revenues coming in I would argue as a result of the Tax Cuts and Jobs Act. We had record across the board wage growth for every single demographic in this country. Across the board everybody got a nice wage bump. A real growth as a result of minimum inflation and increased actual real growth in your wages. It is nice to see that we had some folks that actually used those dollars wisely. The American people, I think you can trust them with their own money. Remember, it is their money by the way. Ms. Mucenski Keck, you had a comment a while ago with regards to an R&D deduction. I would like to go a little bit farther on that if you would not mind talking about that just a little bit more because that is really important. Small businesses are where a lot of innovation is, and the Chairman has worked hard on this issue to make sure the dollars are there for the SBA to help support small businesses get started. Can you help us with that? Explain how important it is to small business with this R&D deduction. Ms. MUCENSKI KECK. So for those who might be unfamiliar, the R&E originally, if you invested in research technology or expenditures you were immediately take them as a deduction when calculating taxable income. Under the new law, or the revised law, if you are conducting that research in the U.S., it has to be spread over 5 years. If you are conducting that research in foreign lands, over 15. Personally, we have had companies say they think they are going to have to go out of business because they cannot afford their tax bill. It is immensely difficult and challenging. I cannot tell you on average how many calls I take a day where this has become an issue where they are frustrated, cannot believe that it is happening, that we would put ourselves, the United States, behind other economically developed countries in placing R&E solo. But also, and the fact that they are not positive they are going to have enough taxes to pay their tax bill and they might literally have to shut down the doors. Mr. LUETKEMEYER. Okay. Thank you. I just have a couple seconds left. Let me just make a final comment here. What you are saying is that when you raise taxes, to the extent that the individual or small business cannot even pay it, it will force them out of business. And then what happens? You have consolidation. It makes the big guys bigger and all the little guys go home. And this is exactly what we do not want to have in this country. With that, Mr. Chairman, I yield back. Chairman WILLIAMS. Thank you. I now recognize Ms. Gluesenkamp Perez for 5 minutes, from Washington. From Washington State. Ms. GLUESENKAMP PEREZ. Thank you, Mr. Chairman. Ms. Zimmerman, I am very pro corporation. I have owned two of them, an auto repair and a machine shop. And like many small business owners with eight employees, I worked hard every year to figure out how much taxes I paid and how to do it the right way. I think we can all agree that our tax policies should be based in fairness. Small businesses and working people have something to contribute. They work hard to pay their fair share. Corporations and the wealthy should also pay their fair share. But what we see is a system that rewards certain kinds of work over other kinds of work. Small business owners are out here busting our knuckles making things, getting things from A to B, and making payroll. Yet, the wealthy earn their income in ways that are taxed differently and often more favorably than the backbreaking work done by small businesses. This is unfair and it is demoralizing frankly to small business owners who are playing by the rules and doing everything right. What reforms should Congress consider to level the playing field for small businesses and ensure the wealthy pay their fair share? Ms. ZIMMERMAN. In my oral testimony I did suggest a few and I can tell you part of this is because of the different size of small business. The SBA recognizes a small business as less than 500 employees. We represent and work with small businesses who have, like you have, eight. I have 10. Maybe up to 50. A few of them are 100 if they are manufacturing. And they are not getting rich off these tax codes. They are not, we are not able to save enough to even reinvest. Why did I, a small business owner, get half the tax cut of the large corporations in 2017? And if you just renew that as is, you are just making prominent that inequity. It makes absolutely no sense to me why I got half. So that is why things like a credit for the first employee hired or the first $25,000 tax free. A minimum tax on book income. Make it low but make it fair so small business can survive. True small business. Ms. GLUESENKAMP PEREZ. Are there any other key provisions you think should be prioritized in tax reform to better support small businesses and help them grow? Particularly the many millions of new businesses that started during the pandemic? Ms. ZIMMERMAN. Well, when you look at the 10 million that have started since the beginning of the pandemic, they did not start with 500 employees relying on R&D credits to survive. They are mom and pop shops starting up and that sort of thing. I think funding the IRS. It is so unfunded. Their technology is behind the private sector continually. Not to date myself, but we used to be able to call the IRS and talk about tax law and discuss how we are handling something. You cannot do that anymore. All you can do is say did I pay my tax? Did my client pay my tax? What about a small business hotline? Small business owners want to be compliant. Help them. Ms. GLUESENKAMP PEREZ. Thank you so much. Mr. Chairman, I yield back. Chairman WILLIAMS. I now recognize Mr. Meuser from the Great State of Pennsylvania for 5 minutes. Mr. MEUSER. Well, I thank you very much, Mr. Chairman. Again, thank you to our witnesses. Very important hearing we are having here today. I spent a fair amount of time, over 20 years, helping grow a small business into a larger business, and all of my customers were businesses, much like my friend Warren, just dealing with and working with small businesses for most of my adult life. Small businesses, and all of you deal with a lot; right? Not just taxes. I mean, you deal with workforce shortages. You deal with the creditworthiness of your customers. You deal with training and skill development, hiring, insurance, cost of goods, purchasing, payables, inventory needs, cash flow, dealing with the banks, access to capital, new higher interest rates. The list goes on. Today, we are here talking the effect of small businesses. And it seems that the TCGA, the Tax Cuts and Jobs Act is coming up quite a bit. So I work with a lot of chambers all the time and certainly being on this Committee and within my district. And I have not had one small business tell me that, boy, that Tax Cuts and Jobs Act was somehow burdening me in some way. You know, lowering my taxes. So I want to get into this, and also, I have not had anyone tell me that the IRS increase was adding, doubling the size of the IRS was something in their interest. I am also the former revenue secretary for the Commonwealth of Pennsylvania and that was not the answer to increase, not at all to increase revenues. The answer is driving tax compliance, and definitely processing and systems which we did. Not 87,000 new IRS agents. Mr. Hudak, do you think all these new IRS agents is going to be something that is somehow help your business? Mr. HUDAK. Well, to be clear, just a few years ago I testified in this very Committee on increasing funding for the IRS. They destroyed 13 million information tax returns. When the inspector general said where did they go? They said we were shorthanded. We knew we would never get to them. When my client put in an installment agreement directly with the IRS and they put it together improperly, poor training. There are a lot of great people at the IRS. Congress has asked them to do too much. The tax code is for collecting taxes. The more we dilute their ability to do that function the more problems we are going to have. It is compliance. We need simplicity of certainty. Not more rules. Not more laws. And to be clear, I testified on the House Ways and Means Committee right after the 2008 crisis and we were trying to repatriate trillions of dollars. That did not happen until we reduced corporate rates. Mr. MEUSER. Exactly. Mr. HUDAK. And it deployed trillions of dollars into our economy with the efficiency of the private sector. We need more of that kind of policy. Mr. MEUSER. Well said. And also more management. Fifty-two percent of the IRS agents have yet to show up for work. They continue to work remotely, which certainly does not help all the backlogs that exist. And also, just onto the C corps that we are referring to here, how they got a better share of the taxes, you obviously, small businesses very often sell to larger corporations and the fact that they have been repatriated and they are domesticated more so than before, a 21 percent rate only allowed us to be competitive on a worldwide scale where Ireland, where the president just got back from and touted how wonderful their economy is doing, has a 12 percent corporate tax rate. But anyway, because there is reality and then there is the fictional side of things. So let's just get back to what is important to you all. That is what we are here for. We have depreciation that is currently being sunsetted and being phased out. We have the small business tax cut. We have the R&D tax credit that has now been phased out for this year. That has been extended, by the way, for 2023 is my understanding. What portion of taxes do you need us to pass in a bipartisan way, because that is the only way you get things done. Okay, so the Tax Cuts and Jobs Act does not increase taxes it has been alluded to, so we must keep those small business taxes. Which ones, Ms. Keck, would you like us to see? Ms. MUCENSKI KECK. I would like to see the pass-through deduction for small business owners be kept. It is imperative for them to receive that 7 percentage points as it exists now. It would be even greater if the individual income tax rate goes up to 39.6. It is imperative for them to utilize that savings to keep their businesses afloat. Mr. MEUSER. Thank you. And certainly within your testimony as we saw--my time has expired and I yield back, Mr. Chairman. Chairman WILLIAMS. Thank you. I now recognize Ms. Chu, from the Great State of California, for 5 minutes. Ms. CHU. Well, I know how the Tax Cuts and Jobs Act came about because in addition to serving on the Small Business Committee, I am also a Member of the Ways and Means Committee, which is responsible for writing our nation's tax laws. And I was there in 2017 when Republicans pushed through their rushed partisan Tax Cuts and Jobs Act with no hearings, just a markup, and the text revealed only at the last minute. And it was when we saw that text that we saw firsthand that their goal was to lower taxes for the wealthiest individuals and the largest corporations. And that is why TCGA made the corporate tax cut permanent while provisions for small businesses and individuals were only temporary. And even the Republicans said that some provisions were targeted at main street and small businesses because of the burdensome requirements this 20 percent qualified business income deduction for pass-throughs benefitted main the top 1 percent of the businesses. In fact, the Joint Committee on Taxation estimates that in 2024, 61 percent of the benefits will go towards the top 1 percent which is about like those businesses with incomes above $500,000. And businesses in the bottom two-thirds of income will only get 4 percent of the benefit. That is because TCGA made it harder for small businesses to navigate the tax code and take advantage of these deductions. So it is time for us to move past TCGA and create a fairer tax code that works for small businesses, workers, and families, instead of the wealthy and large corporations. And Ms. Zimmerman, I truly appreciate you talking about some provisions that could actually help small businesses. And I especially thank you for mentioning the Progress Act because I am actually the sponsor of it and I will introduce it, reintroduce it in the coming months. It would support the smallest businesses, those without any employees by both helping them expand and incentivize third-party investment. Specifically, it would create a refundable payroll tax credit for nonemployer firms that hire their first full-time employee. Nonemployer firms are more likely to be owned by women and female entrepreneurs on average start out with roughly half the capital as male entrepreneurs. So Ms. Zimmerman, can you talk about how using the tax code could help nonemployer firms hire their first employee and how that could improve the outcome for workers in small businesses? Ms. ZIMMERMAN. Certainly. It is a big leap of faith to hire your first employee and to move forward. I remember when I first moved out of the house and added a person. It is scary. Getting a credit for that makes it possible to perhaps do it a little sooner. And the TCJA, we were added as an afterthought for the 20 percent deduction. And they did not even consider that the smallest C corporations got a tax rate increase when that law was passed. We have one client that I can tell you about that earns about $45,000. They are a C corp. That is their profit. The owner makes about $85,000. The TCJA increased their federal tax bill $2,700 because it eliminated the graduated rates. They used to be at a 15 percent rate. Now they are at a 21 percent rate. So the flat tax, all the money went to the upper side and the wealthy. And small businesses were left out. The credit for hiring your first employee, the standard deduction for a business, the IRS education to help small businesses be compliant without having to hire accountants and lawyers is what is going to take it to the next level so that small businesses can thrive and innovate for this country. And we brought us out of the last recession. We, small businesses. We created 75 percent of the new jobs. And the Wall Street Journal just recently said that small business is actually responsible for 100 percent of the new employment in this country since the pandemic. We cannot be an afterthought next time. We need to do the work and change the law before you reenact. Ms. CHU. Thank you for those eloquent words. And I yield back. Chairman WILLIAMS. Thank you. I now recognize Mr. Hunt from the Great State of Texas for 5 minutes. Mr. HUNT. Thank you, Mr. Chairman. And I want to thank the witnesses for being here. Thank you so much for your time. It is my opinion that the federal government needs to get out of your way as much as possible to allow you to do your jobs, to allow you to provide for America, to allow you to provide for the world. And at this point we are living in a world to where we are trying to punish our hardworking Americans every single day with more onerous government taxes. It is my opinion that the federal government should be taxing you as little as possible because we are, We the People, this is our money and we are investing it back into the government and we should allow you to keep it so you can invest back into your businesses. That is just an overall principle that I believe in, and I feel like it differs from many of my friends on the left. Also, if you are a rancher and a farmer in this country, God bless you. Thank you. Thank you for providing for this country. I cannot thank you enough. And so my first question is actually for my fellow Texan, Mr. Boening. If Congress fails to act and lets the provision of the 2017 Tax Cuts and Jobs Act expire, what will be at stake for Texas farmers and ranchers, sir? Mr. BOENING. Thank you for that question, Congressman Hunt. I guess quite simply, more and more of them will be at risk of going out of business. Their tax bill will go up and if you cannot pay your taxes, and it was pointed out earlier by other folks here on the panel, I mean, you choose from paying the tax bill or going out of business. And those things that we have talked about today, the stepped up basis and where your capital rate is taxed and the death tax, they are hugely important in agriculture. They will make the difference between that operation continuing or not continuing quite frankly. Mr. HUNT. And so, you talk about this death tax, and I oftentimes hear, you know, last year I heard a company or an industry, they had record profits. The first thing I think to myself is, hot damn, that is really good. Yeah, that is called capitalism. And oftentimes these record profits make up for losses in previous years. And so I think that is kind of what you are getting at if I am not mistaken; right, sir? Mr. BOENING. Yes, sir. Yes, sir. Mr. HUNT. Could you also please kind of talk about what audits do. Audits from the IRS, do they help spur economic growth? And do they allow small businesses to flourish? Mr. BOENING. You know, I guess we all will agree that audits are necessary at times. Mr. HUNT. Of course. Mr. BOENING. And we are not going to, but no, they take away resources and time that the owners of the business would be spending on their business. You know, both time resources and money resources. So no, they do not spur economic growth. You know, there is no way that that would work. But again, they are not something that we look forward to. We know they are a necessary evil. But no, they do not spur economic growth. Mr. HUNT. Again, I just want to thank you all for being here. Greatly appreciate it. Those are my only questions but I am blessed to have you all around here. I am blessed to have you in my presence. I want to work, and we want to continue to work as much as we can for you. It is not the other way around. We work for you; not the other way around. It is my goal and our goal, at least on this side, to make sure that we allow you to keep as much in your own pockets so you can reinvest in your own lives, in your own families, in your own companies moving forward for the future. And with that, Mr. Chairman, I yield back. Thank you very much. Chairman WILLIAMS. Thank you. I now recognize Mr. Pappas from the Great State of New Hampshire, for 5 minutes. Mr. PAPPAS. Thank you very much, Mr. Chairman. I appreciate the conversation here today. And Ms. Mucenski Keck, I wanted to start with you with a question. I appreciate the way that you highlighted the change in the Tax Cuts and Jobs Act as it pertains to research and experimentation expenses. I have heard directly from businesses in my home state of New Hampshire on this including one in Hanover. It is a small business that has seen their tax lability more than double in this tax year. And obviously, there are implications to that sort of a change on their operations and their ability to innovate over time. Just to underscore, this is a change in tax law that contradicts 70 years of prior law where all R&E expenditures were immediately expensed in the year accrued. And so discouraging the risk-taking needed for innovation will certainly have negative impacts on entrepreneurial startups and small technology businesses. Clearly, the time to address this was before today, which is Tax Day. That is why you have certainly been hearing about it as businesses have been filing their taxes this year. But I know that legislation will soon be introduced in the house, a bipartisan bill that I will cosponsor because I am hopeful that we will be able to address this in this tax year and potentially even make it retroactive to help provide some predictability to this issue moving forward. Could you just, you have already addressed it, businesses that might be forced to close their doors over this. But talk about the environment around innovation and technology in the United States and how crucial this particular provision is. Ms. MUCENSKI KECK. Thank you. I appreciate the question. It is absolutely vital that we continue with the research and experimental expenditures. I do not think everyone actually realizes how expansive they are across industry groups. We are not just talking about pharmaceutical companies or tech companies. We are talking about engineering companies. We are talking about agriculture, plant growers. It is really something that if we want to keep in the United States at the top of our game for lack of better terminology, we need to give them at least the tax deduction while a variety of other economically developed companies are giving them much, much more. And so if we want to attract and maintain our research in the United States, it is going imperative that that deduction goes back to 100 percent. Mr. PAPPAS. Well, thank you for those comments, and I certainly hope that Congress will focus on this issue and find a fix to it this year. Ms. Zimmerman, maybe I could turn to you. I am the co-owner of a fourth generation family business in New Hampshire. We have been open 106 years. It is certainly a challenging environment to operate a small business. We have lived through a global pandemic. We are seeing supply chain disruptions, workforce challenges. And obviously, as we move forward, we need to ensure that the tax code is fair, t hat it encourages small business growth and sustainability. One provision that I have worked to address is eliminating the federal excise tax that is levied on heavy duty trucks and trailers. It is something that I have heard from small businesses in my district. It stifles their ability to be able to procure new equipment and cleaner and safer trucks out on the roadways. But I am just wondering more generally if you could talk about the tax environment for our small main street businesses and where we should be looking this Congress to help make things a little bit easier. Ms. ZIMMERMAN. Thank you. Yes. Where I would be looking is to give us certainty. That matters. To level the playing field rather than just renewing what is already out there. Again, small business proportionately should have the same advantages that large businesses do. And as a CPA, I think the IRS funding, we need better customer service. We need modernization. And audits, while a necessary part of life, they spur compliance. There is no question. The lower the rates go, the more we believe that we are losing into the coffers, which means we need higher rates for those of us that are honest. And I believe most small business owners are honest and try to be compliant and are not necessarily afraid of that. I do not see a huge increasing worrying them. Mr. PAPPAS. Well, thanks for those comments. I think every congressional office increasingly hears from constituents, including small business owners that are struggling with issues around the IRS. They have been asked through the pandemic period not just to do more with less but to do it at an extraordinary time in our history. And certainly, we have got to make sure that customer service improves, that people get their returns processed, and get their refunds and tax credits when they need them. That is really important for the small business world. So thanks for those comments and I yield back my time, Mr. Chair. Chairman WILLIAMS. I recognize now Mr. Alford from the Great State of Missouri for 5 minutes. Mr. ALFORD. Thank you, Mr. Chairman, and thank you Ranking Member Velazquez for holding this important hearing today. Good to see you all, especially from Texas. I am a native Texan, so glad to have you. I have not seen this many Stetsons in one room since Leddy's down in the Fort Worth Stockyard. So good to see you all today. I firmly believe that America experienced its greatest economy in my lifetime under President Trump. And it was no coincidence, really. It was thanks to the Tax Cuts and Jobs Act of 2017. The TCJA allowed Americans to take the leap, businesses to flourish. It allowed our country to move forward as one nation under God. It ushered in hope. It ushered in the reality of the American dream once again, as small business owners around the country were all living their own version of that American dream. But now, just after really 2 years of the Biden administration it has turned into a nightmare. Small businesses are struggling with record inflation, labor shortages, supply chain issues, and all these factors severely hurt the competitiveness of our small businesses. The 2024 budget proposal has no intention of waking us up from this nightmare. It proposes another $1.8 trillion in new taxes and fails to address the TCJA's expiring provisions. Allowing those provisions to expire and increasing taxes will only hurt the competitiveness of small businesses. It will crush them, the jobs that they provide, and the communities that they serve. It is going to chill the hope and reality of the American dream once again that we all saw was a real possibility just a few years ago. So I want to get to the question. I wanted to start with Mr. Boening. Thank you so much for being here today. Thank you for your service as the president of the Texas Farm Bureau. Missouri, I am proud to say, has the second highest number of farms in the nation, 95,000, but we are outdone with Texas there. I am also proud to sit on the House Ag Committee along with Aaron here and some other Members. And it is great because farmers are small business owners. And this Biden proposal calls for $77 billion in death tax increases. All right? How do you see this impacting family farms and ranchers? Mr. BOENING. Thank you. Thank you for the question, Congressman. You know, I alluded to it earlier. Agriculture, you can go ahead and use the words land-rich, cash-poor business model. It is. It always has been. And whenever, land is one of your most important capital investments. You know, often you lease land when you are getting started normally in your operation, and if you are able to acquire land you do that over the years. And then like I said, land in Texas, as it has in many other parts of this great country has increased dramatically. Mr. ALFORD. Skyrocketed. Mr. BOENING. And to have the size operation that is a full- time farmer ranch that will support maybe your family, some extended family, and then a few employees, it takes quite a bit of land. And then if you want that operation to continue, how does it continue if it is going to be taxed at 40 percent when you pass away? It just does not make sense. We go back to the same mantra; death should not be a taxable event. So that would be my comment. Mr. ALFORD. Well, I hope it is not the death knell on family farmers because that is what it is looking like if we revert to this. Mr. Hudak, your firm focuses on small business accounting in addition to farming. We have a lot of other small businesses in our district in the Great State of Missouri. And I met with a lot of those business owners, listened to their concerns. It is really heartening to hear all they do through the investment, the time, money, the energy they put into being a success. They reinvest in our community every day and every chance they can get. From what you have seen, do businesses typically just sit on a pile of money when they pass, when they pay less taxes? Or what do they do with that money? Mr. HUDAK. They invest in plant, property, and equipment always. But it is not about the tax bill. When we are talking about the death tax, what we are doing is we are preserving a way of life. A small business owner wakes up every single day, and some days he is the only one who thinks it is going to work out. Not the wife, not the dog, not the in-laws. They wake up and everybody says you have got to stop. This is crazy. What are you doing to yourself? They believe every single day. They are the only ones who believe. They have heart. They have soul. They are the backbone of America. We are not talking about taxes. We are talking about preserving a way of life. On the left and the right. And I hear both sides agreeing on all of this stuff. Forget about the personalities. Let's focus on what we agree on. Because without agreement, there can be no certainty. Mr. ALFORD. Thank you, sir. Thank you, Mr. Chairman. Chairman WILLIAMS. I now recognize Mr. Thanedar, I am sorry, from the Great State of Michigan for 5 minutes. Mr. THANEDAR. Thank you, Chairman. Since, and again, this discussion is music to my ears because I am a former small business owner and serial entrepreneur. So I am just excited to be here. But since the Tax Cuts and Jobs Act of 2017, small businesses have been placed at a disadvantage, especially in paying higher taxes and navigating the cumbersome tax code. Contrary, the tax cuts were a gift to large corporations. They have leveraged their resources and fleet of lawyers from paying their fair share and routinely exploit loopholes. As a result of the Inflation Reduction Act, the IRS will be bolstering through increased funding to mitigate tax cheats and ensure that fairness is omnipresent in our business environment. So I have a question, Ms. Zimmerman, if I may. Most would agree the tax code should not pick winners and losers. Unfortunately, it seems that the 2017 tax law did just that. That by cutting the corporate tax rate from 35 to 21 percent, would you say that the structure of the tax cuts is more beneficial to corporations as opposed to small businesses? And what impact does it have on inequity, inequality? Ms. ZIMMERMAN. Absolutely. I, like you, am a serial entrepreneur. It is in my blood. And that is why I talk about the unlevel playing field. That we did not get the same reductions. The answer is it hurt equity. It means that the gap between the truly wealthy and middle class has widened. Most small business owners, and again, there are a lot of definitions of small business, but most small business owners from the Small Business for America's Future, I told you that we concentrate on smaller businesses. They are almost all middle-class. They are lifestyle businesses. They are working to support their families, feed them, maybe send them to school if they get lucky. And they did not get near the break. They did not get near the break that the large corporations did. And I am asking that we rebalance that. We restore, reverse just a slight portion of the larger corporation rates to be able to give a fairer rate to small business. We also got a very complex law that was thrown on us at the last minute because they said, oh, no, we forgot the little guy. Right? And so it became so complex, it limits who can take it. Right? It takes more work to get it. It is not just a rate cut. Mr. THANEDAR. Thank you, Ms. Zimmerman. Also, the 2017 law affected different businesses in different ways. However, as someone who is preparing returns for small firms, what are some common themes you hear from your clients about the law's impact on their business, especially people of color who are business owners? Ms. ZIMMERMAN. Well, I have been told that the extra complexity has wiped out their savings because they have to pay more to an accountant to get it done. Mr. THANEDAR. And everyone on this panel that does tax will agree that our lives changed when that law came through. We had to learn about 163Js and 199As and the pandemic was upon us and all that. So, my client, as I mentioned before, a small C corporation asked me, why did my tax go up? I thought this was a tax cut. Now, a number of them benefited and had lower taxes. There is no question. It was not unhelpful. It was just that it was a complex way to throw a smaller bone to small business while allowing big business to get the burden, the majority of the savings. Thank you. Thank all of you for being here and for your testimony. And Mr. Chairman, I yield back. Chairman WILLIAMS. I now recognize Mr. Bean from the Great State of Florida for 5 minutes. Mr. BEAN. Thank you very much, Mr. Chairman. Good afternoon to you, and good afternoon to Small Business. To those in the audience, who here owns a small business? Raise your hand. Look at that. Thank you for coming. It is great to have a crowd in this audience, Mr. Chairman. It is much more exciting in person than watching C-SPAN, especially when you know what we are talking about. We are talking about your business and we are talking about how changes up here affect your small business. So I am going off script, Mr. Chairman. And that is this: I have heard this phrase several times, even during this Committee, ``Pay your fair share. People are not paying their fair share.'' Can anybody tell me what a fair share is? Anybody? It is a tossup question for our all-star panel. Mr. Hudak, jump in. Mr. HUDAK. I could not reach the button fast enough. Well, we keep on talking about the 2017 tax law complicating the tax code. Does anybody believe it was simple before? Who lived here through URISA? This is crazy. When you start talking about audits and compliance, one-third of all the audits have to do with the earned income tax credit. The program is not working. By the IRS's own admission, one out of every $4 is paid improperly. They say it is because of lack of understanding of a complex tax code. Well, simplify it. More than that, those dollars for the earned income tax credit are supposed to be helping families lift them up out of poverty. It needs to be tied to other programs. Do not do it through the tax code. It causes and motivates honest people who are willing to pay Caesar what Caesar is due to game the system for a variety of reasons. We have tied health care to that. Instead of paying a $10,000 bill, if they file their tax return and did not game the system it would be $20,000. They want to pay their tax bill but they do not want to pay the $20,000 health care bill. Stop using the tax code for other things other than the tax code. People need help. The earned income tax credit, fine. You want to help people, lift them up? Tie it to a program that will help them get the skills they need. Mr. BEAN. Well said. We have got a quick lightning round. Ms. Mucenski Keck, what say you to fair share? Ms. MUCENSKI KECK. [Audio malfunction] Mr. BEAN. Gotcha. Here is a quick question. I already want to jump in but I have got another question. Why is anybody worried if you make under $400,000? President Biden has said so many times he is not going to raise taxes on anybody making under $400,000. So why is everybody worried? Mr. Hudak, are you saying, Mr. Hudak, that that is incorrect? That taxes have gone up on people making less than $400,000? Or should I not be worried if I am making less than $400,000? Mr. HUDAK. You should be worried. There are a lot of unintended consequences. Just yesterday we talked about having a tax bill that they cannot afford. A guy just was bought out of his business. He has got hundreds of thousands of dollars of income. He received not a dime of it. Not a dime of it. Mr. BEAN. So Mr. Hudak, I do not mean to interrupt you but the time is going, the clock is going. Are you saying before this Committee and before all these small business owners right now before us that they should be worried if they make under $400,000 in spite of what the president is saying? Are you saying that before this Committee today? Mr. HUDAK. I am. And I believe the president. It is everybody else I have a problem with. Mr. BEAN. 10-4. Mr. Russell, are we in danger of losing family farms because of unfair tax bills? Mr. BOENING. Yes. But I did want to address the ``my fair share.'' Mr. BEAN. Go right back to it. Yeah, sure. Mr. BOENING. Sitting on a panel with three CPAs, my fair share is whatever my CPA tells me I owe. Mr. BEAN. Amen. Amen. Amen. Thank you each for being part of our panel today. Mr. Hudak, thank you. And your passion. We need a fair, easier way to go and it should not take a rocket scientist to fill out taxes. So thank you very much for coming. Mr. Chairman, I yield back. Chairman WILLIAMS. Thank you very much. And now I recognize Ms. Scholten from the Great State of Michigan for 5 minutes. Ms. SCHOLTEN. Thank you, Mr. Chairman. And thank you so much to our panelists for joining us today. It is Tax Day. I love this theme. We are keeping on the continued questioning about some of the complexity of the tax code. And I wonder, and this is for Mr. Hudak and Ms. Zimmerman, if you can talk specifically about the most complex. I hear from small business owners all the time. In addition to some of the unfairness, it is the complexity, the density, the difficultness, unnecessarily so of understanding this tax code. If you could talk about particularly some of those portions that you find most unnecessarily complex. And what you would like to see us in Congress do to resolve that. And particularly make filing more accessible for small businesses who are not themselves tax experts. Ms. ZIMMERMAN. All right. I will jump in and go first. I believe small businesses, a number of them have to file their own returns. A number of them, most of them do not have a team of lawyers and accountants. Many of them, I believe Ranking Member Velazquez told us that the average small business makes $75,000. With that as your profits, you very possibly are not even hiring an accountant to do your taxes. So the IRS, with their modernization, needs to have education and communication out to the small business community. Use the existing networks that are there. We have chambers. We have groups of accountants like this panel that can help the IRS reach these small businesses. Add a hotline where they can call and ask questions. And try to figure out how do I calculate this 199A, which sounds simple but I need to know if I am a specified service business, and I need to know how much I have in assets and how much I have in W2 wages if I make more, and that sort of thing. Consumer centric. Ms. SCHOLTEN. Thank you. I have a second question. Last year the Inflation Reduction Act included $80 billion in funding for the IRS to hire personnel, modernize systems, and increase enforcement actions. Mr. Zimmerman, Ms. Zimmerman, excuse me. In your testimony, you talked about how the IRS needs better customer service. You talk now about, you know, a more consumer friendly approach. Do you expect this IRA funding to make the agency more responsive to the needs of small businesses and CPAs like yourself? Ms. ZIMMERMAN. Well, I do not think at this point they can be less responsive. It has been a real nightmare through the pandemic. And I recognize they had their issues also. But when I call, and I have a practitioner's hotline that we can call. And get people that are supposed to be even better trained. But we cannot get through to that anymore. And when we call and they have to jump from one computer program to another because that one has this information and this one has that, and oh, we do not have a copy of that in front of us, how can they handle that? How can they be an advocate, part of the team instead of the adversary? They cannot. We need that modernization. Ms. SCHOLTEN. Agreed. Do you have any suggestions or examples from your experience for ways in which this investment could be best, most efficiently utilized to make a more consumer friendly approach? Ms. ZIMMERMAN. Certainly. You know, have a number that I as a business owner, not the CPA in me but the business owner in me, can call and discuss with the agent on the other end, so do you think I qualify for this deduction? And where do I take it? Oh, I do not take it on the business page; I take it over here on my personal return. And that is not a conversation that can even be had now with the IRS. So that to me is part of the customer service I am talking about that we need. Ms. SCHOLTEN. Thank you. What about using some of these IRS funds to focus on education and tax literacy for small businesses? Do you think something like that would be beneficial? Ms. ZIMMERMAN. Absolutely. The report that was released recently really focused on education and leveraging technology so they can put it out there as webinars and common things that small businesses have questions about. Ms. SCHOLTEN. Thank you so much. I yield back the remainder of my time. Chairman WILLIAMS. I now recognize Mr. LaLota from the Great State of New York for 5 minutes. Mr. LALOTA. Thanks, Chairman. And good afternoon, everybody. I represent the 1st District of New York, and New York State has the dubious distinction of having the highest taxes in the nation at 12.47 percent. New York's average income sales and property taxes are almost twice as what Florida's are. And they are the catalyst for so many New Yorkers leaving for states like Florida. We also lead in another category. We led in out of state migration. Said simply, more people leave our state than any other state in the nation. And unfortunately, President Biden's proposed tax plan would only worsen a New Yorker's tax burden and thus exacerbate my state's loss of population. The president's Tax Plan is riddled with policies which will further financially burden my constituents. In fact, according to the tax policies, centers 20, 22 to 20, 32 analysis. The average New Yorker's tax burden will increase by about $17,000. Likewise, many small businesses in my district will be negative imply impacted by these new tax proposals as well. These taxes are especially harmful as they will target the taxpayer's assets and not their income. I am also concerned about the tax penalty on research and development. My district is home to the Brookhaven National Laboratory and the Stoney Brook Neuroscience Institute to name a few. These entities and small businesses which support them depend on the ability to expense their research and development costs. I am tired of Washington treating places like Long Island like a piggybank. I have only been on the job for a few months here but some folks in this town are competing with the folks in my state's capitol for taking my constituents' money. This frustration has motivated me to serve on this Small Business Committee and to ensure that we are doing our part to cap and cut taxes, to ease regulations, and where grant money exists, to ensure that it gets to the right people. My first question is for Mr. Boening. Sir, in your testimony you laid out the grim but realistic future for family businesses if the stepped up basis provision is removed. Like Texas, many of the small businesses where I am from on Long Island are land-rich and cash-poor. If more families have to sell their companies to the highest bidder, how would this affect the local communities in your opinion, sir? Mr. BOENING. Well, I think for one thing, it would accelerate ag land turning into something else. I mean, we all love our shopping malls and our strip centers and those type of things. But, you know, agriculture is still very important in this country. And when those things would d happen, if farmers and ranchers are forced to sell, many times they are not going to sell to another farmer or rancher because I have just discussed what land values have done. So, you know, progress is great. And you know, one of those states that are getting some of your folks as well from New York and other places. But it will definitely accelerate the loss of the agricultural land. Mr. LALOTA. Yeah, the agricultural issue is not as big of a one, although it is on the east end of my district. Any time a change of use of a piece of land happens in Suffolk County where I am from, the community often gets quite excited, rightfully so, about it. So I appreciate you turning our radar onto that. Ms. Mucenski, in your testimony you stated the failure to restore the research and experimental expenditures provision will significantly decrease innovation in the United States and even hindered new business from forming here. In our opinion, how would this affect small businesses which serve entities in the community. In mine, like I mentioned earlier, the Brookhaven National Lab and higher institutions of learning, like Stoneybrook University. Ms. MUCENSKI KECK. I think they are going to either have to scale back the research that they are involved in or they are going to have to let go of certain divisions all together. So currently, it is just not palpable for them to keep paying these taxes related to R&E capitalization, especially when previously they are used to having zero taxes. And a normal grant life, if you were given a grant and you are told that you have to spend all the grant money on certain expenditures, then the grant's income and all the expenditures or expenses. And it is zero taxable income. And now by pushing that out and saying you can only--you still have to include all the income, the grand income, but you have to spread the expenses out. They are not going to be able to operate at the expansion or the growth model that they would have prior to that. Mr. LALOTA. Thanks. And thinking more globally, you mentioned in your statement about other nations' approach to this particular issue. How would you rate the president's proposal compared to some of our strategic competitors like China with respect to R&D? Ms. MUCENSKI KECK. You see most companies want the research and experimental expenditures and the patents and the intangibles in their country because ultimately that brings an income stream in for you to actually tax even more. They are encouraging it through not only saying take the deduction, they are hyping the deduction. They are allowing you 180, 200 percent. And then they go even further to develop something we do not need to get into today but patent boxes where all the income coming in will be subject to much smaller tax rates. They want it. They are striving for it. They are going for it. They are incentivizing for it. We are doing the exact opposite. Mr. LALOTA. Thank you very much. I yield, Chairman. Chairman WILLIAMS. Thank you. I now recognize Mr. Landsman from the Great State of Ohio for 5 minutes. Mr. LANDSMAN. Thank you, Mr. Chairman. Let me just start with the earned income tax credit because you mentioned, Mr. Hudak, that it was not tied to a program. It is tied to work. I mean, it is tied to work. And in a question about whether or not there are certain people who pay their fair share and those who do not, how quickly we got to the earned income tax credit and low-income working families is pretty astonishing. When we know that there are companies who find all kinds of ways out of paying what on paper they are supposed to pay in taxes, and the same is true for millionaires and billionaires who have accountants that can find all of the loopholes and deductions and all kinds of different things to ensure that they do not pay what I pay or what you pay or what my sister who is a teacher pays. And from the part of the country I am from, and Anne is from the same place, we are neighbors, which is a pretty cool moment for at least me. Okay, for both of us. Republicans, Democrats, Independents, we do want folks at the top who have been doing really, really well for a long time to pay what they had in the 1990s. That I think is the fair share. Because it allows us to balance a budget. It allows us to do what we are supposed to do on behalf of small businesses and working families. So the two big tax cuts that were in the 2017 bill that have sunsetted and it does seem like with the majority these should be something we can both agree on. One is the R&D piece, the tax deduction for R&D for small businesses, and the other one is interest payments, which I have to imagine have only gone up; right? To be able to use both interest payments as tax deductible and the R&D, those are two very significant, correct me if I am wrong, but those seem to be two very significant tax benefits that small businesses have now lost, that Republicans and Democrats could come together on and put back on the table, would it make a big difference or am I speaking out of turn here? And since I picked on you a little bit I will let you start. Mr. HUDAK. Every tax payer should pay exactly what they owe. Okay? For every $1 that we spend improperly, and on the IRS website they clearly state one out of every $4 spent in this program is paid improperly. It serves no good purpose to talk about the big corporations who maybe are taking advantage of the tax code in ways we did not contemplate. But likewise, for every $1 in the earned income tax program that is spent improperly by the IRS and the taxpayer advocate's own admission, that is $1 we do not have for someone who really needs it. Mr. LANDSMAN. It is a dollar that is in the economy though. Mr. HUDAK. Okay. We are talking about collecting taxes. We are talking about fairness. Fairness means every taxpayer pays their fair share. What they owe. We are not talking about, well, it is $1 in the economy. We are talking about paying what is owed. The IRS admits it. It is a fact. Twenty-three percent is paid improperly. They are abusing the tax code. It is not working. Mr. LANDSMAN. These are for folks who do not pay. They do not have tax liabilities. We are supplementing what are very, very poor private sector wages so that they can pay their bills. That is it. So instead of focusing on all of the billions and trillions of dollars over 10 years that we could be security if people paid their fair share at the top, we are talking about all these low-income working families that are struggling to make ends meet does not make sense to me. But I guess the question is on R&D and interest payments, that seems like something we could all agree on should be back on the books. No? Ms. MUCENSKI KECK. I am just jumping in. I think from a bipartisan standpoint R&E is a no brainer. I think everyone supports keeping research and innovation in the United States. I think you are never going to get away from the interest expense calculation, but it can definitely revert back to 2021. And I think it would be a welcomed response due to the rising interest rates. Mr. LANDSMAN. Yeah. On that last piece it does seem like it is going to hit small businesses very hard this year. And it is something I would assume both parties would agree on, put it back in play and maybe make it retroactive so that people can get the relief that they missed out this year. Anne? Ms. ZIMMERMAN. Agree. Mr. LANDSMAN. Okay. Well, then I yield back. Thank you. Chairman WILLIAMS. Next I want to recognize Mr. Stauber from the Great State of Minnesota for 5 minutes. Mr. STAUBER. Thank you very much, Mr. Chair. Ms. Zimmerman, why did the ice cream shop close? What was the reason? Ms. ZIMMERMAN. Struggling with their finances. Struggling, I think part of it was the location. I mean, there are a lot of things that cause a small business to close. Mr. STAUBER. Would one of those things, would one of the causes maybe be the additional $320 billion of additional regulations on small businesses and farms since this administration has taken over the White House? Ms. ZIMMERMAN. They did not mention any of that when they told me they were closing. Mr. STAUBER. Do you think that is good for small businesses? As a former small business owner myself I thought the regulations, any regulations that were not necessary would be detrimental to us. Ms. ZIMMERMAN. I absolutely agree that we should simplify things for small business owners. We are on the same page. Mr. STAUBER. Yes. And so one of the things that we have to do is we have to push back on those types of regulations that are hurting small businesses like the new definition of the WOTUS rule for our small businesses and farmers. It is going to be devastating. And it was just this administration that changed the definition without going through Congress. And small businesses, we always talk about small businesses being the engine of our economy. They are not only the engine; they are the innovators of our economy. So let's treat them like that. Let's treat them with respect. I do not see that necessarily coming from this administration. So Mr. Hudak, do any proposals in the president's budget stick out to you as particularly harmful for small businesses? Mr. HUDAK. The pass-through deductions, UBI, the capital gains. We just rain into that recently. The capital gains problem; right? A guy wanted to sell a business to trade in his old digs for new digs. He is a seasoned entrepreneur. He wants to grow his business and sell his business to the new guy; right? One out of five small businesses succeed. The rest fail. Why? Inexperience. A whole bunch of reasons. We cannot not reward success. Business churning is a healthy thing. I want the seasoned entrepreneur to dream a bigger dream and trade out that old dream. But let's not prevent him from doing that because he has got a capital gains bill that he cannot afford. He cannot afford closing on that new thing. That just happened to one of our clients recently. Well, okay, I am sorry, American. There is one business that is not going to grow. One entrepreneur is not going to realize his dream. Mr. STAUBER. Mr. Hudak, President Biden has also repeatedly stated that he will not raise taxes on anyone making less than $400,000. Do you think that is true? Mr. HUDAK. I believe President Biden when he says that. It is not his promise. I remember a certain election. There was not going to be any new taxes, George Bush. Anybody remember that? Right? Both sides break their promises on this. Both sides. Codify it. Put it in the law and I will buy it. Mr. STAUBER. I love that answer. Put it in the law. Exactly. Because in my humble opinion, the current president has been bloviating on Capitol Hill for 51 years now. I have always said you will have to watch what he does, not what he says. Because in 2020 he said he was going to mine domestic critical minerals. In Northern Minnesota we have the biggest copper nickel find in the world and he will not mine there. He changed after he became president which upsets me. Ms. Mucenski Keck, there you go. Can you elaborate eon some of these new reporting requirements that have effects or could have effects on our small businesses, 1099Ks, for example? Ms. MUCENSKI KECK. Oh, sure. The 1099Ks are going to be an administrative burden on our small businesses. So under previous law they used to say you could have to report a 1099 Miscellaneous or K if you use a different type of company that helps you transact payment or acceptance. And they have lowered the threshold, or they are proposing to lower the threshold to $600. So if you pay or you receive $600 from a third party you should have to fill out a form and send it to the person who you have paid or you have received money from. Mr. STAUBER. Is that good for small businesses? Ms. MUCENSKI KECK. I cannot imagine the administrative costs that they are going to have to pay to comply with that rule. It is going to be very overwhelming and it is not great for small businesses as was already pointed out by many. They are struggling already preparing their tax forms. Now you are adding an additional compliance layer that they probably had very little to any actual experience with. Mr. STAUBER. As I said earlier, small businesses are the engine and the innovators in our economy and we have to treat them as such. And I see the devastating effects of this administration and their rules and regulations that they are forcing upon our innovators and entrepreneurs. And I yield back. Chairman WILLIAMS. Thank you. And I would like to say thanks to our witnesses today for their testimony, for appearing before us. And I think through a lot of testimony, there is a lot that we do agree on. And that is encouraging. So without objection, Members have 5 legislative days to submit additional materials and written requests 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 other further business, without objection the Committee stands adjourned. [Whereupon, 4:08 p.m., the committee was adjourned.] A P P E N D I X [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] [all]