7. Small businesses by definition are almost capital I personally believe it is imperative that small businesses Should you have any questions regarding my comments, please don't hesitate to call. Senator BAUCUS. Next is George Anderson. George is the head of the Montana delegation to the White House Conference on Small Business.1 Welcome, George. STATEMENT OF GEORGE D. ANDERSON, CPA, PRESIDENT OF ANDERSON ZURMUEHLEN & CO., HELENA, MONT. Mr. ANDERSON. Thank you Senator Baucus. I am George D. Anderson, a certified public accountant from Helena. I'm president of Anderson ZurMuehlen & Co. a local accounting firm that has three offices in Montana. We've been in practice in Montana for about 30 years. As the Senator said, I was the chairman of the Montana delegation to the White House Conference on Small Business and also at the present time I am the nominee for vice chairman of the American Institute of Certified Public Accountants, and will be chairman of that particular organization if elected in 1981 to 1982. January 13 to 17, 1980, was a milestone in bringing to the attention of the administration and Congress the problems of small business in the United States. On those dates in Washington, D.C., in excess of 1,600 small business people met to discuss their common problems and recommend to President Carter and the Congress suggested solutions that could be accomplished through legislation, regulation, and deregulation. It was interesting to learn at that conference that the problems of small business are very much the same no matter what area of the country you are from, the business you are engaged in or what relative size might be to one another. It is interesting to note, I had always felt I was a small business, now I find that John's organization is going to regulate me out of being a small business, because we have more than 25 employees. your Out of this conference came three very clear messages that were concurred in by the vast majority of the delegates at that conference. Those three messages were: One: Taxes are too high and must be reduced. Two: Inflation is the greatest problem our economy faces today and can only be controlled by drastic reductions in Government spending. And the third one, that as far as small business is concerned, Government is too large and has become overinvolved in the day-to-day operation of small business through excessive paperwork, regulation and just plain interference. Of the 15 priority items recommended by the Conference, 5 of them had to do with capital formation and retention; and of those 5, all related directly to the reduction of taxes in the small business sector. The progressive tax schedules and inflation have combined to hobble small businesses with a tax load that discourages increased investment and production. Senate bill 2136 reduces the corporate rate on taxes up to $150,000, but in the recommendations of this particular conference, it was recommended that taxes be reduced on income up to $500,000 as far as corporations are concerned. But of the 14 million small business enterprises in the United States, there is only about 1 The White House Conference took place in Washington, D.C., Jan. 13-17, 1980. A delegation from each State was elected at an open forum in that State, supplemented to minor extent by appointments (Members of Congress each had one such appointment). Chairmen were elected by their delegations. 2 million of them that are corporations. Twelve million of them are individuals, and therefore those individuals pay taxes based on individual tax rates, which run into the 70-percent bracket. As a consequence, it isn't only a matter of having to do something as far as corporate rates are concerned, it is also a matter of having to do something with individual rates as far as small business people are concerned. Increasing production and thereby increasing supply will go far toward curbing inflation. There must be more investment in the small business area in order to get equity capital. One place that small business can get equity capital is through a reduction in taxes. If they have a reduction in taxes, the moneys they save in taxes can then be utilized for investment in their business. In my opinion, since Government spending produces nothing, it follows that a reduction in this area and a siphoning of such funds into the productive sector will help control inflation. Balancing the budget is important, but I don't think it is nearly as important as the massive reduction in Government spending that needs to take place in virtually all the socioeconomic programs. These programs put nothing into the productive stream and therefore must be reduced to a level that this country can afford. Prices have risen drastically in the last few years. Much of that rise has been the result of increased costs imposed by Government in the area of regulation. Small business people are faced with increasing prices in order to cover the costs of preparing Government-required reports and complying with Government regulation. There is only one place to recover those costs, and that is from the consumer-and that causes inflation. We can no longer afford the amount of government we are getting. All of these things have been said before and may sound repetitious; however if they are repeated often enough maybe our representatives in Government will listen and heed the message. The free enterprise system has brought this country to the point of producing for its citizens the highest standard of living of any country in the world, yet we seem to continually do everything we can to weaken that system. Free small business from some of the unnecessary and unneeded fetters of Government regulation and it will go far toward solving the problem of inflation. Thank you for the opportunity to appear before this committee and present the message of small business. I think one of the things that came out of the White House Conference on Small Business was-if we will combine our efforts and will continue to speak out on what we think, we will eventually accomplish the needed reforms that will allow this country to continue to grow. Thank you very much. Senator BAUCUS. Thank you very much, gentlemen. One question comes to my mind, maybe you have already answered it, George. You are a CPA, and a lot of small business clients probably come to your office, and call you up on the phone. I am curious just what is the one problem that you hear most, the most exasperating problem that you hear from them the most. What do they just rant and rave about the most that is tied to some action that Congress can take? Mr. ANDERSON. Well, and since April 15 is only 8 days away, I am sure you understand what the main problem is at this point in time. It is the amount of taxes that people are paying. The amount of taxes that businesses are paying, they would like to have that money to reinvest. They go to the bank to borrow money at rates from 16 to 20 percent. Many of them go to the bank to borrow money to pay their taxes, because they have put it back into their business in order to replace inventories that are completely inflated. They need some type of relief in the tax area. There isn't any doubt about that. Senator BAUCUs. In Montana, what percentage of small businesses are corporate taxpayers, and what percentage are individual taxpayers? Mr. ANDERSON. Just roughly, I would guess the percentage of corporations in the small business area at 10 to 15 percent. I doubt if it runs much greater than that. Senator BAUCUS. So, if we address the problems of taxation, then you are suggesting the adjusting, changing, lowering the individual rates as well as the corporate rates, since they particularly affect small businesses in this region of the country, is that right, George? Mr. ANDERSON. Right. If something could be devised to give a credit for reinvesting back into the business, this would help in the small business sector. Senator BAUCUS. You are talking about some type of investment tax credit for individual taxpayers who are small businessmen? Mr. ANDERSON. That leave their money in their business. Senator BAUCUS. A reinvestment tax credit of some kind? Mr. ANDERSON. Right, although I am not a great believer in utilizing the Internal Revenue Code to take care of all the socioeconomic problems in the country. Senator BAUOUS. Except when it reduces taxes. Mr. ANDERSON. Right. Senator BAUCUs. I guess this would be the way that small businessmen could expand through additional equity capital as opposed to additional debt, that is the main point. Do you all agree that is of primary importance? Mr. ANDERSON. The problem of debt is horrendous right now, because most people cannot afford to go to the bank and borrow to continue their business. There is an excellent example of it going on right now, cattle feeders are not buying feeder cattle. That is why the cattle market is going down, they cannot afford to carry cattle at 20- to 25percent interest rates. They aren't going to make any money. Senator BAUCUS. What about measures to accelerate depreciation for small business? Mr. ANDERSON. Those are definitely needed. I think what is needed in that area as much as anything is to know what the depreciation is. I don't think there is anything worse for small business than to have set up a depreciation schedule, go along about 5 or 6 years, have an Internal Revenue agent come in and say, "Oh, no, you have been using the wrong rates; you can't depreciate that that fast," and therefore find himself faced with a big tax bill on top of everything else. Senator BAUCUS. How often does that happen? Mr. AADSEN. I would like to answer that. Senator BAUCUS. Yes. STATEMENT OF DON AADSEN, AUTOMOBILE DEALER, RONAN, MONT. Mr. AADSEN. I am in the middle of that right now. Internal Revenue is so damn smart, not one of them has been in business, and I am in a small business. I have been in a fight now for a year with these jackasses, who have looked at my building, which one Internal Revenue agent told me originally when I bought it, it could be depreciated out over a certain period of time. He has since retired. A new one came in. They have opened up an old case, and are now doubling the length of depreciation time on that building. Senator BAUCUS. Well, what is the reason he gave for reopening that matter? Mr. AADSEN. I didn't want to bring that up today, but that made me mad. Senator BAUCUs. What is the reason he gave for changing the Mr. AADSEN. Because he said the other one didn't know what he was doing. Now, I am going to go on farther with this. That isn't why I am here today. You guys Senator BAUCUs. Just so I understand, you said the present IRS agent said the earlier Internal Revenue Service agent didn't know what he was doing? Mr. AADSEN. Right. Senator BAUCUs. I see. Mr. AADSEN. Absolutely right. I realize he didn't know what he was doing either, because they fired him. [Laughter.] But this one they have now doesn't know either. Senator BAUCUs. Could you please identify yourself for the record? Mr. AADSEN. My name is Don Aadsen. I come from a little town north of here called Ronan, in the middle of an Indian reservation. I am an automobile dealer who is damn mad. I am paying 22.2 percent interest on a bunch of dead cars I can't sell; up to half a million dollars flooring. And figure that out yourself, it doesn't take you very long to figure out what I am paying in interest. I am not worried about taxes, I am not making any profit. I had an SBA loan, I am one of the few people that's had the SBA loan who went through a total disaster, a burnout, and lost that business and paid off my loan on time. I would like to sit down and make some comments later, but when this Internal Revenue thing came up, I was sitting here pretty calm, and all at once I lost my cool. Senator BAUCUS. OK, thank you Don, I appreciate that. What about starting-up capital versus ongoing operations and retaining capital and so forth? I mean, is there anything, any change in the Internal Revenue Code that focuses more on startup or venture capital, as opposed to working capital for keeping the business going, staying in operation? Mr. ANDERSON. Not really at the present time. There is the investment tax credit, of course, for buying equipment. There is some in the section 1244 provision. If you go broke, you get to write it off as an ordinary loss. That doesn't help a great deal, but it can help in generating some startup capital. There really isn't anything in the code that encourages an individual to go into business. The only thing that |