that there are some sick demanders of the republican caucus in the house who would wt set forthrightly that they willy not vote to raise the debtone ceiling under anyof tho circumsa one of those of course being representative othman, who is seeking the presidentialia nomination said they would not vote to raise it under anyshe wt circumstance, any circumstance.w democrat, either in the house or the senate, who has said they will not vote to raise the debt ceiling under any circumstance? i ask the senator, is there one? i have not been able to find one. mr. schumer: i thank my colleague from iowa for the question. i concur in his findings. i haven't found one either. democrats know -- we have differing views on this side of the aisle and many of us would write deficit-reduction bills differently than some others of

us would, but we realize that to let the debt ceiling lapse would be a disaster, to not raise it. and so i have not, i have not heard of a single democrat who has said the debt ceiling ought to lapse. and i've heard scores of republicans, elected official republicans, and thousands of others and groups in that right-wing firm mean firmament g their members to let this debt ceiling lapse. my guess, is god, forbid, it happens, and we're doing everything we can to prevent it from happening, they will retract that language or they will find ways to explain what they really meant because their analysis that it doesn't matter or it won't do much harm is unfortunately dead wrong. happy to yield. mr. harkin: if the senator would yield for another question, again, there's a lot of misunderstanding and i can -- i

sympathize with this among the general populous that somehow raising the debt ceiling means that somehow we can go and borrow more money in the future and go further in debt. isn't it true that raising the debt ceiling just simply means that we're going to pay for what so many of us, republicans and democrats, have voted in the past to appropriate money for? it's like using your credit card, i ask my friend from new york, isn't it, it's like using your credit card, you go out and buy something, and now you say, "but i don't want to pay the bill." i think that kind of puts it in terms that the average american can understand. if you've used your credit card and you've run up a debt, you've got to pay the bills. otherwise, your credit is going to go down and you're going to lose your credit card, you're not going to be able to do anything else. isn't that sort of what we're confronting here, is that -- is

confronting here, is that -- is >> otherwise your credit is going to go down and you are going to lose your credit card, you are not going to be able to do anything else. isn't that sort of what we are confronting here? is that the republicans and democrats in the past have blamed in the past for having deficits. we are can go into the causes of that. the fact is the united states of america has an obligation to pay it's bills. the republicans say, no, they don't want to pay the bills. doesn't that strike the average american. we have to honor our debts. isn't that the fact? >> that is absolutely the fact. my colleague from iowa is correct. the bottom line is, yes, what we are talking about with the debt ceiling is debts we have occurred. no american has the luxury to

tell the bank i'm not going to pay you unless you do abc. no american family has the luxury of telling the credit card company, hey, unless you buy me a year's supply of groceries, i'm not going to pay my credit card debt. once you incur the debt, you have an obligation to pay. that is one the foundations of american life. it's been that foundation since alexander hamilton argued with thomas jefferson. and it served our country well. the awful example that it would set if america, this great land, the federal government said, well, i'm not going to pay the debt. we're not going to pay the debt unless abcd is done. what kind of example does that set to american families? to american young people. it's the opposite, frankly, of the conservative philosophy,

part of which i agree with in this regard, that you pay your bills. that you pay your debts, and if you don't, you have a consequence, there's a consequence. so it is just amazing. this is the first time, i believe, check the history books, in american history where a large group in either house of this congress has said, has made it a campaign not to pay the debt unless they get their way on certain other issues, whatever they be. if every one of us did that, this country would be paralyzed. we wouldn't be able to do a thing. it is leading down the road that nobody should want to travel. >> i ask the senator -- if you could ask one more question. then i would yield. isn't it true that we, i could say the senator from new york has been a leader in this and so many others here.

look, we want to first of all, pay our bills, but then we want to get our deficit under control. and reduce our debt. and that end, we have, i think, on the democratic side, i would say that we have tried to propose a balanced approach. a balanced approach, i ask my friend from new york who's been a leader of the area of both cutting spending and also raising revenue. so that we are kind of all in this together. we are not -- we are asking everyone, everyone. not we're not willing just to cut the deficit on the backs of the poor or people who are out of work, the elderly on medicare. everybody has to take a little bit. we're also going to ask some sacrifice for those who have much in our society. we want to raise some revenues from those who have benefited in the last ten-15 years so much.

and have gotten so much wealth in our society. we're asking for them also so share in this. we have proposed that, have we not? i ask the senator. and has it not been true that the republican side has been unwilling to ask the richest people in our country to help us reduce the deficit. they will not agree to any revenues. i asked my friend from new york. >> again, my colleague from iowa is on the money. there needs to be balance. the president has stressed this, i think everyone on this side has stressed this, we do have a serious deficit problem and a serious debt problem. we have to deal with it. i think there's agreement in this chamber. we'll give some credit to those on the other side of the aisle who made it there signature issue in influencing policy. but if you are going to have to do that and do bell tightening,

shouldn't it be across the board. here's the fact of the matter, if you are a middle class person, it's hard to pay for college. it's hard to pay for say prescription drugs. it's hard to take that paycheck and make sure it deals with all of the needs that you and your spouse and children have. and over the years, we established ways that the government helps with student loans, or with prescription drug programs, other kinds of help. it so happens that the wealthy among us, god bless them, they don't need a student loan. they have plenty of money to pay for their children's college. they don't need prescription drug plan. even with the high expense of these prescription drugs, they can afford it. god bless them. the way that we wealthy benefit from the tax code, because they have a lot of money, is they are tax expenditures. tax breaks.

that they get. they think they are important. i understand that. but they are no more important than helping young people go to college or helping our elderly average folks pay for their prescription drugs. and if you are going to be across the board, and you are going to say no revenues, you are going to have an unbalanced and unfair approach. and let me say this, our colleagues on the other side of the aisle have tried to scare people. this is not happened just this year. but for many years. they say democrats want to raise your taxes. that is not the case. if you are an average middle class american. in fact, the president has made it a watch word, we have religiously concurred and followed that no one that makes below $200,000 a year should get any kind of tax increase. that's 97% of all americans. when we see we want revenues,

we're talking about two things. we're talking about tax breaks, tax loopholes for the very wealthy, whether they be individuals or corporations, and we are talking about tax breaks for the wealthiest among us who under the previous administration got much greater breaks than anybody else. that is all we are talking about. so i would ask my colleagues -- i would ask the american people to understand that. don't be scared when somebody gets up and says they want to raise taxes that it means your taxes. it doesn't unless, god bless you, you have a whole lot of money or you are a corporation with a very nice little break that may not be as necessary as say, paying, helping middle class students go to college or helping the elderly get life saving prescription drugs. so there has to be balance.

now i know my good colleague from iowa who has spent his lifetime creating government programs that help people, it pains him when he hears there has to be spending cuts in those programs. but i have never heard him say if there were any spending cuts, i'm not going to vote for deficit reduction. but the mirror image on this side says i will not vote for any bill if it even has one plugged nickel of revenues. that is not fair. that is not right. that is not balanced, and it is totally against what just about every american believes, including a majority of republicans. so that's why we are here making this fight. and i'd say one other thing in reference to my colleagues question. it is unfair when the commentators and the people say, well, on the one hand, the

democrats aren't compromises. the republicans aren't compromises. i understand that we should always not just look at our own position and try to understand someone else's position. that's the way it works. otherwise we have a dictator. benevolent dictator. we don't. but when we are willing to give on spending cuts, serious spending cuts that we don't like, and the other side says they are not willing to give a nickel on revenues, it's not each side is failing to give. it's not that each side is compromise about equally. it's not that each side has walked about the same distance to come up with a compromise. in this case, it's not true every time, they have been unwilling and the republican friends have been unwilling to compromise one jot, and we have been willing to do things very painful to us.

i would say to my friends who comment and write about this, be fair. let the public know who is willing to move away from their hard line position for the sake of compromise for the sake of renewing the debt ceiling, for the sake of getting our large debt and deficit down and who has refused to budge. i think the answer is pretty obvious. i yield the there are. -- floor. >> senator from tennessee is recognized. >> thank you, mr. president. i have some of the same concerns, maybe with different outcomes from the senator from california. i agree we haven't -- we have not done our work. other the course of the last, a little over a year, i've been traveling to the state of tennessee and making citizens aware of the unsustainable deficits that our country has. i'm sure the people on the other side of the aisle has been doing

the same thing. after town hall meetings all across our state in almost every forum that you can imagine, i'm sure the presiding officer has done the same. people are very aware, very aware in my state has they are across the country with the fact that we are unsustainable course. we are now beginning to have investor publications, wall street journal this morning which wrote an editorial about the fact that no matter what we do regarding the actual proposals before us today, it's likely that our country is going to be downgraded. here we are, faced with a situation where the types of legislation that we are looking at in both chambers, i might add, in both chambers probably will take us to a place where our country's debt is downgraded. i want to first applaud both leaders. senator reid for bringing forth a proposal today, or over the last few days.

senator -- representative boehner, the leader of the house for doing the same on the house side. what i want to say about that, to me they don't meet the goals or don't meet the tests that our country needs to have met at this time, at least we are finally talking about proposals that will reduce spending in the this country and put us on a sustainable path. i appreciate the leadership of both bodies, finally, after many, many months, we're finally on the right topic. what i've said all along is that as we approach the debt ceiling, we need to dramatically change the character of spending in this country. my concern is that our work is not quite done. i mean the fact is, there's no question that the deadline is coming up. everybody agrees it's at least a minimum is on august 2nd. i don't think there's any dispute that we have until august 2nd to deal with this issue. i also don't think we've yet come up with a solution that we need to come up with to

dramatically change the character of spending in this country. and so what i would say is, look, our work is not quite done. house has a bill that basically reduces spending over the next decade, $1 trillion. candidly, mr. president, i think we all know that's not a solution that is going to prevent a downgrade in the country. it does have the goal of kicking this to select committee of some kind that's going to try to incorporate another $1.8 trillion in cuts. candidly, that's a big step back from where we were a weekend ago. where at least on the cut side, even on the cut side. even the president had agreed to at least $3 trillion in cuts. that's our understanding. what we have coming out of the house right now as a bill that doesn't cut as much as the president had agreed to last weekend. and so we have on this side a

bill that cuts about $1 trillion after a spin sport. again, i applaud the leader of the senate for putting forth a bill that at least he's moving us in the right direction. but again, it's $2 trillion short of where the president had been with leaders a week ago. or at least that's our understanding. i'm pretty sure that that understanding is correct. we also know that the general mantra, that's been adopted by wall street and by people that are looking at our country around the world that we need to do something that is at least a $4 trillion solution. so i would say to the senator from california who just spoke, i couldn't agree more. we have not addressed this situation the way that we should. i don't think there's anybody -- there maybe a few. the vast majority of this body does not want to see our country default on it's obligations. i don't know of anybody that

wants to do that. i've wanted to see dramatic changes in the character of spending for our country. many people have sought that. our work is not yet done. what i would say is let's have a short term extension. there is no question that we do not want the sovereign debt of this country to be downgraded because we default. nobody wants to see that happen. we are at least finally on the right topic here. we are talking about spending reductions. we certainly haven't done the work necessary to achieve the goal that we need to achieve in this body. but i couldn't agree more. let's have a short-term extension. let's extend another week or two weeks or three weeks. a lot of people say, well, you know the fact is that will royal the markets. what i would say, i don't think that will royal the markets. they are used to us waiting until an hour before the deadline to work out a solution.

i think that's been -- become customary, if you will, in the united states senate and the house of representatives. but what i would say is that if we don't do the work now, we have an historic opportunity right now, right now, the whole world, the whole country, all of our citizens are frustrated. the house and senate are all focused on one thing. that is what kind of package can we put forth to actually cause our country to be more solvent at this time? we are finally on the right topic. yet we haven't even in these aspirational bills that are laid out, we know that with all of the actuary assumptions that exist with medicare and social security and medicaid that if we don't touch trying to make them solvent if the longer haul, we really haven't even done our work. the bills that are before us don't even have as an aspiration al goal, for instance, the house bill is coming over

with a select committee that i know senator reid and senator mcconnell have been involved in. i thank them for their work. it doesn't even lay out one the things we're looking at there is ensuring that social security is sound. i think the future of these young pages who potentially down the road, not potentially, hopefully will benefit from social security, i think they like to know that during this historic time we are actually looking at the real issues. so what i'm afraid of, mr. president, we are missing the opportunity for this to be the seminole moment that we all thought it was going to be, because we don't yet have a product that solves the problem. the product that we're looking at in both bodies, and i thank the leaders of both bodies for bringing them forth. that product does not make the test. it doesn't dramatically change the character of spending in washington. it doesn't even stave off a

downgrade in u.s. sovereign debt. and so we are on the brink of actually doing something great for our country and because we now have our country's focus and everybody in these bodies are focused on this problem, let's have a short-term extension. i agree. let's not default. let's move back a week or two weeks or three weeks. but let's don't miss this historic opportunity to do something great for our country which is exactly what we are doing now. it is hard for me to believe seriously that what we have before us is a trillion-dollar down payment. it's also hard for me to believe candidly, we're going to set up a select committee that's going to report back in four or five months when all of us know what the issues are. we understand the math. i know we get ridiculed a lot for the way we act in this body,

i think most of us candidly pretty well understand what the solutions are. we all know that nobody really gets to work on anything around here until there's an eminent deadline. so even with this committee that's being potentially setup by mutual discussion down the road. i know there's a lot of negotiations. to me, they should report back. i agree with the senator from california. let's report back at the end of this fiscal year, september 30th. there's no reason to wait. and let's see if that type of bill were to pass where you have a two-stage process. let's go ahead and get the work out of the way. i want to go back to the bigger picture for a moment. we'll conclude momentarily. we have an opportunity right now. we've never been focused in the way that we are right now in the four and a half years that i've been here on something as important as this as it relates

to us getting our house in ordinary person we have never been this focused. and what i'm afraid of in the name of political advocacy, people saying, hey, look, let's take what we can get and get on out of here so we don't mess up our potential. and both sides of the aisle for the 2012 elections. take what you've got on both sides. i mean basically, let's think about it. for the other side of the aisle the weigh all of the proposals before us that are laid out, there's really no dealing with trying to make the entitlements sustainable. and so they can run in 2012 on the entitlement issue. and with all of the proposals that are laid out right now. we really don't deal with spending appropriately. and so, you know, our country probably is going to have it's debt downgraded. so republicans can run on the fact that we haven't reduced spending enough.

so if you really look at it, this really works well for everybody expect the citizens of our country. again, we're finally on the right topic. which is a rarity here. we're finally focused on the problem. we have two bills that don't go far enough. again, i applaud both the democratic leader and the republican leader for putting forth proposals. we all know it doesn't do what it needs to do. either proposal. we know the aspirational goals of each proposal don't take us far enough. so what i would say to all, i agree. let's don't default. don't dump up against august 3rd. let's pass the short term time extension, let's take us through the end of the august or the first two weeks in september, or let's take a week. but let's finish our work in this body. let's don't miss this seminole

opportunity where everybody in the this country, and everybody in this world is looking at how undisciplined we've been and the opportunity that we have before us to daily be disciplined and send a signal to the world that our future is not the future that greece has seen today. our future is the continuation of american exceptionalism all around this world. and we are squandering that opportunity right now in this body at a time when we are finally focused on the right topic. mr. president, i yield the floor. >> the house small business subcommittee on health heard opposing views today on the 2010 health care law. the hearing focuses on issues such as tax credit to help for employers pay for insurance, health exchanging, and businesses pooling their resources, and small business perceptions of the law.

this hearing chair by republican rene ellmers is an hour and 40 minuted. >> all right. we're going to go ahead and get started. good morning to everyone. i call to hearing to order. i want to thank the witnesses on both panels. we will have two panels today who are testifying and we certainly appreciate their attendance and participation in this important subcommittee hearing. although the health care law won't be fully implemented until 2014, businesses are already feeling the affects. a study released this week by the national federation of independent businesses found that small firms are worried that the law could lead to higher taxes, more administrative burdens, and bigger budget deficits. without lowering cost or making america's healthier. under the law, many small business owners will be required

to offer coverage to their employees or pay a penalty. and the small business tax credit that has been touted to offset the postof health insurance is in react a temporary and a narrow one. where the full credit applied only to the smallest of businesses. if your firm has more than 25 employees, you are one of the 23 million self-employed, you qualify for no credit whatsoever. we have heard small businesses are concerned that regulatory requirements on insurers such as the medical loss ratio may drive some carriers out of the market. resulting in fewer options and premium hikes. small firms are uncertain about whether they will be able to continue offering coverage. if so, at what cost, and if not, what their penalties will be and what the coverage will cost taxpayers. this is all while our economy is

still very fragile, an economy that is adding fewer jobs than forecast and still has a high unemployment rate. in this environment, it is not surprising that small business owners continue to be hesitant to create jobs, expand, or invest, and there are more regulations ahead. during the health care debate, one the most repeated assurances was that if you like your current health care coverage, you would be able to keep it. however, for a number of reasons, a small business maybe driven out of its current plan. the department of health and human services predicts that over half of all employers and up to 80% of small firms may relinquish grandfather status by 2013. this means they maybe forced to go to a higher price plan or

drop coverage altogether. although the goal of the health care law may have been to make health care insurance more accessible, it's taxes, mandates, regulations and administrative burdens are causing many small businesses, our best job creators, to postpone hiring and expanding. again, i thank the witnesses who are here with us today for participating. i look forward to hearing their input on how we can help to reduce the impact of some of the health care laws uncertainty, mandates, regulations, and requirements for our small businesses. i know-year-old to ranking member richmond for his opening statement. >> thank you, madam chairwoman. thank you for yielding. today's hearing will focus on the health insurance landscape in small businesses since the passage of the health care bill. currently employers are the principal source of health insurance in the united states, providing benefits for more than 158 million people.

given the world of business in providing insurance, two questions have been raised about the affordable care act. first, will small firms will able to keep existing health plans? equally important, how will the affordable care act affect small firm decisions to cover health insurance? these are the questions that we face. small businesses face numerous challenges when choosing a health care. this includes making tough choices about benefits, which position should be part of the insurance network, and what co-pays should apply. with all of the challenges, cost remain the greatest barrier. according to one report, over the last decades, health insurance premiums have increased 113%. the affordable care act was enacted to lower cost and cryuate more quality health care choices. still, the legislation has not been without it's critics. some have argued that small firms will not only lose their ability to keep their plan, but most will drop coverage

altogether. we are hear from the administration and witnesses on both of these issues. oneone, on the matter of retaing current health. cms has issued regulations outlining how firms can maintain grandfather status. the regulation provides latitude for firms to make changes because of rises prices. it also clarifies for firms what they need to do to keep their plan despite the changes. while protecting small businesses ability to retain plans is important, the reality is many firms will make changes. historically, small firms change plans due to rising prices or different benefits. now small firms will be afforded better service and choice for choosing a new plan. the affordable care act not only creates new incentives, but maintains laws that encourage employers to purchase insurance. most notably, the employer provided benefits remain free,

and employees can still pay premiums on the pretax bases. since 2010, they have been eligible for a new health insurance credit. one of my constituents provides a great example of how firms are using this successfully. shows a private health clinic in new orleans and was able to avail herself of the new tax credit. now all 12 of her employees have health care coverage. she said she was pleased with the new health care legislation and its benefits from her employees. in addition, insurance reforms are on the books that benefit small firms. no longer can insurance companies discriminate based on preexisting condition or raise premiums without adequate justification. again, starting in 2014, private health insurance exchanges will create a virtue market for buying insurance. exchanging will provide another option and enhance competition. something lacking in the small market. with all of these changes --

what will all of these changes mean for small businesses. one study predicted that employee sponsored will shrink over 20%. however, others such as those by the rand corporation and robert wood johnson corporation found that small firms would increase. this hearing will give members of the committee the opportunity to discuss the affordable care act and it's implementation, ensuring that small firms can keep their plan, while making coverage more affordable. i want to thank direct already lawson and the witness that is have taken their time out of the busy schedules to be here today. i look forward to hearing from all of you all. with that, i yield back. >> thank you, mr. richmond. as you can see, some of our other committee members have not arrived yet. i will say for the record that if they have any opening statements, they can submit that for the record. i'd like to take a moment just to explain the timing lights. you will each have -- you will have five minutes to deliver your testimony. the lights will start out as

green. when you have one minute remaining, the light will turn yellow. finally it will turn red at the end your five minutes. and i ask you to try to adhere to your five-minute time limit. and you have the button there to push to speak into the microphone. our first witness is steve larsen, director of consumers information and insurance oversight or the cchio, the center of medicaid and medicare services. prior to his current position, mr. larsen served at director of the division of insurance oversight at cchio. welcome, you will have five minutes to present your testimony. thank you. >> good morning, chairwoman ellmers, ranking remember richmond, and members of the subcommittee. thank you for the opportunity to discuss the affordable care act is improving the affordability,

accessibility, and quality of health insurance available to small businesses and their employees. providing health insurance coverage if employees has been a charge for many years. states have struggled for decades really to improve their small group health insurance market. i know this from many many years experience as a commissioner in the state of maryland. small businesses pay more than large firms for the same health insurance policy. some estimates put that 18% more. there are a number of reasons for this. small businesses lack the purchasing power that large employers have, administrative cost for insurers are smaller. small businesses don't often have the human resources staff to navigate through the difficult process of choosing between health plans, prices for insurance for small businesses can be more volatile due to the smaller risk pool compared to larger businesses and employees are subject to medical underwriting in many states.

this means that the rates that small businesses are charged can spike if just a single employee becomes very pip -- very ill. the affordable care act addresses this and helps close the gap to offer insurance to their employees. first starting in 2014, small businesses will be able to produce administrative cost and pool their buying power by purchasing insurance through the exchanges. the exchanges are state-based, competitive marketplaces for buying private health insurance. small businesses will be able to buy insurance through a part of the exchange, called the shop. shop will give small businesses and their employees many of the answers that large employees, such as more choice, more competition, and more clout in the marketplace. these s.h.o.p. exchanges are a one stop shop where small businesses and their employees already able to compare, get

answers, and enroll in high quality health plans. health plans that participate in the state exchanges will compete for business on the basis of price and quality. and this type of market competition has the power to drive improvement in both plan quality and affordability. we recently issued draft regulations which will provide the flexibility to give employees a range of options on how they offer coverage. for example, a small business participating in the s.h.o.p. exchange may choose a level of coverage and a level of contribution wards that coverage and then employees will then choose among the health plans available on the exchange within that level of coverage offered by their employer. or employers may provide to their employees a broader change, such as shopping for any level among competing health plans. under the proposed reallations,

the employee would write a single check to the s.h.o.p. for administrative purposes. the s.h.o.p. would handle the administrative funks that burden the small business owner. it will simplify the process providing side-by-side comparisons of health plans, benefits, premiums, and cost sharing. not only will the affordable care act benefit, but enabling them to pool the buying power, it will protect them from premium spikes caused by the employees illness. beginning in 2014, the aca prohibits new health plans from raiding on the basis of health status or claims. in addition, the law limits how much insurers can increase. these new rating limitations will help make small businesses health insurance rates fairer, more predictable, and easier to understand. in addition, limits on health plans medical loss ratios also save small businesses money as

insurers fail to meet the mlr will provide rebates. finally the law established a small business health coverage that's making business more affordable. the tax credit is designed to encourage small businesses to offer health insurance to their employees for the first time, or to maintain coverage that they already offer. small businesses are already benefits from the affordable care act. those benefits will expand dramatically as the aca continues to take effect. thank you for the opportunity to appear before you today to discuss the affordable care act's critical provisions to support small businesses ability to offer health insurance to their employees. >> thank you, mr. larsen. i will begin the questioning. generally grandfathering should allow you to keep the coverage that you had when the health reform law was enacted. with some exceptions. the june 17th, 2010 and november

17th, 2010 rules on grandfathering list several changes that disqualify a plan from being grandfathered. the rules seem to be -- the rules seem to leave open whether other changes will be disqualified and leave over the possibility of additional administrative guidance. to exchange how plans must comply to continue to be grandfathered, i'm wondering how can small businesses count on grandfathering if the guidance is vague and the rules may change as we go along? >> sure. well, as you point out, we put out the initial final rule back last summer which laid out broad categories in which small businesses in health insurers have flexibility to alter some provisions of their health coverage but not so much that it really changes the fundamental nature of the coverage. we received and have reviewed various comments on many aspects

of that regulation. we did, in fact, amend the interim final rule to provide actually more flexibility to businesses and small businesses to maintain their existing coverage by allowing them to, for example, switch carriers if they wanted to switch carrier if they thought they could get a better deal. we have amended the initial guidance that we put out last summer, we've done so in a way that really provides more flexibility to small businesses and to the health insurance issues that provide that coverage. >> i have another question for you at this time. small businesses are concerned about the possible mandates in the health care laws, minimum essential benefits package. because many new services, treatments are likely to be required, the cost of premium is also likely to increase. what can you tell us about the institute of medicines forthcoming recommendations on the essential benefits package?

>> well, i can't tell you much about what they are going to say. we haven't received their recommendations. but if i could just summarize the process that we will follow and i would add that we are, i think, like you, very aware and tuned into the need to make sure that the package of essential health benefits is an affordable package. there's kind of a multistep process that we are following at hhs. the first step was the department of labor performed a survey of employers to gauge what were the typical benefits offered in employer-sponsored coverage today. we have to survey, that's been published. the secretary also as you point out did ask the institutes of medicine to recommend to us methologies -- methodologies or ways to think about how to define the central health benefits. i want to be clear, i know

there's been confusion. the ion is not the body that will be charged with defining the list. that's left to hhs. we will do that. i think we've announced previously our objective is to have that guidance out sometime this fall. we know there's a lot of interest in that. and both in the states and among businesses and insurers. so we are hoping to get that guidance out this fall. >> so basically you do anticipate that there will be additional administrative guidance on the grandfathering? >> well, on the essential health benefits, yes. on the grandfathering, i can't speak to that. at this point i don't think we are anticipating anything. but we continue to review these. as they need to be tweaked and improved if they need arose, we can look at that as an opportunity. >> okay. i now yield to congressman for his questions. >> thank you, madam chair. director larsen, thank you for being here. economist like dr. holtz-eakin

who we are going to hear from shortly predicted that the employer mandate will lead to decline in employer-sponsored coverage. in your view, will most small firms drop their coverage or simply pay the penalty? and what you do expect -- do they expect they will continue providing health care to the workers? what do you expect the outcome? >> we do expect small employers to continue to offer employer-based coverage. it's really a corner stone of our economic system of our employer-based insurance system. if you look at a number -- and i know there are a number of different studies out there. but if you look at it, for example, the rand analysis, or the urban institute, there are those two, for example, i think predicted significant increases in the offer rate. not decreases, but increases, for example, rand predicted that you would see an increase for very small businesses. i think, for example, less than nine -- nine or less employees

from about 50% today to about 70% in the future under the aca. numbers were similar for the urban institute. >> regarding the medical loss ratio in particular as you know, the aca requires insurance companies to spend at least 80% of our premiums they collect on medical care. what will the change mean for small firms? how will it affect the cost of coverage in your review? >> the medical loss ratio provision of the aca is a very important and helpful provision to small businesses and individuals because of the mutual purposes as well. it helps to provide value to small businesses when they are paying their insurance premiums by ensuring that issuers are not spending amounts on administrative expenses. it drives efficiency in the issue for the insurance company and that creates value for the

small businesses. >> companies might drive it doesn't just drive efficiency, but it's going to drive small insurers out of the health insurance market entirely. do you have a response for that? >> we don't think that's the case. we haven't seen that. i guess i would also hasten to add that the affordable care act specifically provides states and the secretary with their flexibility to address at least in the individual market the medical los or provisions. in the small group market, in fact, many states had been had in place medical loss ratio targets. i think there were around 10 that had 80%. there were a handful with less than that. that was already present in the marketplace. and many insurers were used to pricing. >> do you envision cms in a role in sharing competition in the market. were you given that authority under the law? >> well, i mean -- when we get

to the exchanges in 2014, competition is the corner stone of what we are trying to accomplish. and we will be working actively with the states as they set up their state exchange and to the extend that we are operating a federal facilitated exchange, we will do everything that we can to make sure there's competition among insurers. exchanges are all about the benefit of the small businesses and individuals. >> last question. madam chair, since 2010, small firms have had the ability to o obtain a small health care health credit. according to the nfib information, 1.1 million small businesses are eligible for a partial or full credit. while i realize the irs administers the credit, do you have any stats on the people taking advantage of the credit and how it lowering the cost? >> i know there are varying

about the eligibility and rate. we are currently working with our colleagues at treasury and irs to get an estimate. i apologize i don't have it for you here today. we hope to get that soon. >> okay. thank you. >> thank you. i have a couple more questions for you, mr. larsen. small business owners have told us the new law and it's regulations are vague. and we mention that already. and they don't know what is required of them. for example, many aren't sure of the employer-mandate if they have employees who are working 30 hours a week or less. if they currently offer insurance to the individual employee, they aren't certain if the new law requires them to cover the employees family. how are the small business employers who have -- who don't have the benefit to large administrative staffs or outside benefit counselors to advise them to be expected to comply

with the complicated law and regulations? can you clarify some of that? >> yeah, that's a very important question. i think some of the surveys that are done, and although we don't necessarily agree with many of the points that came out in the nfib report or the mackinze report. one thing is clearly already still a lot of questions among small businesses owners and they don't understand the law or have enough information. that's an important point that we have to take note of because now and 2014, we have to continue our efforts to reach out to small businesses and educate them. there are tools that will be available, for example, in the exchanges that are -- there's a role of these entities called navigators which are going to help people understand the health care, understand how to access the exchanges. there's more work to be done there. there's been confusion, misinformation, and it's something that we need to focus on between now and 2014.

>> new regulations require insurers to spend 80 to 85% of premiums on direct care for patients. these requirements maybe difficult for small insurers to meet driving them out of the market, limiting consumers choice and raising the cost of insurance. which is, of course, as the market decreases, that's always the risk. how can small insurers compete when they don't have the resources or economy of scale to do so? >> well, we are certainly sensitive to the need to maintain competition. ultimately, the affordable care act provides some flexibility in the individual market about less flexibility to modify the mlr standard in the small group market. however, again, i think as i mentioned earlier, there were already existing in many states a medical loss ratio standard that at or about the standard set out in the aca. i think that provided a

benchmark for which carriers, you know, could launch from. >> interesting enough, very recently, in fact, last friday, the -- last friday edition of the hill newspaper had a front page article titled health care law could leave families with higher costs. the article describes the debate over what the story terms a major provision of the health care reform law which provides if a worker has employee-based coverage, that it's affordable for the employee only, the family is expected to take the employer coverage even if it is unaffordable. is this the credit interpretation and can you clarify some of that for us? >> we're actually looking at the very issue which is the interpretation of the application of the tax credit to the individual to the family,

and who qualified at what point when employer makes an offer? snap -- is that binding on the dependents of the family members of the employee? we are anticipateing in future guidance to clarify this and a number of issues relating to the application of the tax credit and how it works. you know, we put out a first kind of wave of guidance just a couple of weeks ago on the exchanges. and the next phase of that which will deal with eligibility and enrollment and the application of the tax credit will hopefully clarify some of those issues. >> then i have one last question. this also addresses one of the issues that mr. altmire referred to. the tax credit, along the tax credit issue, may apply temporarily and narrowly if the business has fewer than 25 full time or equivalent employees, making an average annual wage of

50,000 or less. what about every other small businesses? what advantages do they have as far as a tax credit? >> well, you are correct. and the tax credit was targeted towards the smallest of the small businesses with, you know, under nine getting the maximum credit, and you can get up to 25, depending on what the wages are you that pay your small business. you know, one the reasons why it was targeted because that -- those were the small businesses that had the lowest offerings. as you move up to say employers with 50-100 employees, you have offer rates of insurance coverage that can be in the 80 to 90% range. tax credits were targeted towards that segment of the market that was most in need of help in terms of getting the offer. there are still many benefits as i mentioned in the affordable care act for businesses that are larger than 25. rating restrictions are

important. and i know this from my other experience. in many states, small businesses get rated up if they have members. that practice is going to go away and create a lot of fairness and benefit. the benefits of the exchange. much lower of the administrative cost. cbo found that as well. that applies to all small businesses, not just those on 25 employees. >> so you do see some possible changes or flexibility? >> well, there are benefits to small businesses. you are right, the tax credit is targeted to the smaller small businesses. because again it was -- those are the ones that have the lowest rates of insurance coverage for their employees. >> thank you, mr. larsen. does mr. altmire have any other additional questions? okay. mr. larsen, i thank you for joining us today to answer our question and providing your insight on the issue. we will continue to closely follow them and want to work with you and help ensure that small businesses have

flexibility and choices in their health care coverage decisions. i want to suggest that mr. larsen ask a member of his staff to remain here during the testimony of the second panel and would you please identify and i believe we have already spoken, thank you. perfect. wonderful. thank you, again, mr. larsen for your time. i truly appreciate it. now i'd like for the second panel to come forward. [inaudible conversations] [inaudible conversations]

>> wonderful, let's go ahead and get started. thank you so much for coming today to be with us for this subcommittee hearing. our first witness is douglas holtz-eakin. he's served as commissioner for the financial crisis inquiry commission from 2009 to 2011. and director of the congressional budget office from 2003 to 2005. dr. holtz-eakin received his ba from denison, and his phd in economics from princeton. welcome, dr. holtz-eakin, you have five minutes to present your system. >> thank you, chairman ellmers. i appreciate the chance to be here to talk about the affordable small act and

employer sponsored insurance. you have my written testimony which i submitted for the record. let my make a couple of points. the first one is ultimately the ability of small businesses to offer insurance is on the health of those businesses and they are voting to grow. the affordable care act containing many provisions that i think are detrimental to small businesses. there are accidents, 3.8% investment tax is going to be a direct hit on small business. there are a large number of mandates and penalties and the regulatory implementation, i think, is daunting to any small business in an environment where in 2010, we had a record number of federal register. that was require to the affordable care act and dodd-frank and a whole bunch of other things. this adds. and even some of the so-called help. the tax credit is structured in a way that penalized growth. if you have workers and pay higher wages. even the temporary tax credit gets scaled back and it's

ultimately a penalty against those. the structure of the aca is not one that you would call good economic policy to promote growth on the small business. the second that the affordable care act is going to raise insurance cost. there's now consensus on the cost curve which is the fundamental driving force. it has $500 million in taxes. many of them are taxes that are going to go directly to the bottom line. it outlies the impact of the so-called premium tax on health insurers, medical device taxes. all of these are higher cost in the food chain that leads to higher premiums that's going to hurt the ability of a small business to continue to offer insurance and leave many of them to elect to drop their coverage, and or never offer it to begin with. third point, i guess, is that in issue that mr. altmire mentioned with the previous witness. that's the question of the

incentives for employers to drop coverage and send their employers. there have now been a number of studies. this was mentioned, the one that i did with cameron smith that looked at the pure financial incentives for employers and employees tomia chilly agree that it would be in their financial interest to provide the insurance through the exchanges and we concluded up to 35 million american workers would benefit from their arrangement and their their employees would agree they should go off of the exchanges. the other loser is the taxpayer. a recent paper by cornell professor and colleagues comes to roughly the same conclusion. i'm aware already other studies that say, no, that won't happen. their leading argument appears to be it won't happen because we've always offered insurance. in the face of a dramatic policy change, i don't see why that's compelling. we now see the leading edge. i'll let mr. denison speak for the international business.

this financial from is not only real, it will be pursued by businesses. that is a serious concern because the subsides are enormously generous. we are talking about the 7,000 for someone making $59,000. that's well over 10% of their income. it would be irrational to ignore that kind of money. if it's true, the budgetary cost of the exchange is going to explode. have this come in much more expensive than was budgeted i think is an extreme danger which means we are back to my first point. in the end, it is going to be the environment for small businesses to grow and prosper that is crucial. there is nothing about sailing directly toward a debt crisis that is good economic policy or beneficial for the small business community. at the heart of our debt problems are explosive entitlements and my view is that

the affordable care act has a whole series of upward risks on the budgetary side that make the possibility that that crisis much higher and as a result, have to be viewed as a threat not just to the economy but to small businesses in particular and certainly to their ability to continue to offer insurance to their employees. i understand the sentiments behind the affordable care act but i think on balance its structure is one that hurts the small business community and doesn't aid it in the end. thank you. >> thank you for your comments. we do have your testimony, as we do all of our panelists. i now yield to representative kingston from georgia for the purpose of introducing his constituent as a witness. >> thank you, madam chair. it's a great honor to be with you on this dais. i appreciate all the hard work that you do on this subcommittee to try to promote jobs in this tough economic environment.

appreciate the panel for being here. i have a hard deadline at 11:00 with another committee on which i serve so i'm going to be leaving shortly before then but i wanted to say hello and introduce my constituent, brian vaughn. he is no stranger to the struggles of an entrepreneur. he has been with the burger king franchise operation since 1980 and kind of came up through the corporate structure working in florida and in georgia, and then in the 1990s, took the plunge to become a franchisee himself. since that period of time, has bought out his partner and been on his own with his wife. not sure if cindy's here. but knows the importance of keeping employees happy by offering good compensation package, including a good benefit package, worker safety, a good environment to work in,

and has many employees who have been with him on the management side for over ten years, which is remarkable. he has four stores in three different cities and also knows what it's like to compete in this environment and to get the customers back in when it's very hard on their pocketbooks in today's economy, but knows all the challenges that small business people face, really labor, environmental regulations, safety regulations, franchise regulations. i think he's been through it all but has done it successfully so i'm very proud to have him as a constituent and as an example of an entrepreneur and then want to point out also, one of his jobs before he became an entrepreneur was to recruit entrepreneurs. so he looked at it and did not have to take that plunge, yet he made it anyhow. i'm proud to have brian vaughn here today and i look forward to his testimony.

>> chairwoman ellmers, distinguished members of the subcommittee, thank you for inviting me to testify before you today on how the new health care law will impact my business and my employees. as the congressman stated, my name is brian vaughn. i own nearly famous, incorporated which consists of four burger king restaurants in georgia and i'm happy to be here today on behalf of the u.s. chamber of commerce. i'm also a proud member of the national franchisee association and have served on their board of directors for three years. nothing i say here today reflects the position or opinions of my franchisor, burger king corporation. when people think of burger king, they think of a big international corporation. even though the sign on the door says burger king, in my four restaurants, are small family-owned and run businesses. i began working as a burger king assistant manager in 1980 as the congressman said, earning $14,000 a year. after working my way up, i

partnered in 1993 with francis lott to open our own restaurants in georgia. in 2001 i bought out my partner's interests and today, i operate these four restaurants with my wife cindy. at our four restaurants we are proud to have created 182 jobs. we have 59 full-time employees and 123 part-time employees. 14 of our full-time employees are managers for whom we currently pay 100% of their health care premiums at an annual cost of nearly $56,000. we also pay for term life, short term disability, vision and dental insurance. my wife and i participate in this very same plan. for our other employees, we offer a value mini med plan at a cost of between $106 and $165 per month. currently only 19 of the more than 100 part-time employees have elected to participate. many employees choose to keep the wages they earn to help pay for their day-to-day living expenses rather than use a

portion of their wages to pay for the coverage. as the president of my company, i also have to decide how much of the company's income can be used to pay for wages and benefits and how much has to be used to cover the expense of daily operations. there is only so much money and first and foremost, we all have to cover our daily expenses. washington it seems really doesn't understand this. a lot of noise was made last fall about the types of plans that i offer my employees. under the health reform law, washington has decreed that these so-called limited benefit plans are not acceptable. despite repeated promises that if you like your plan, you can keep it, the law has outlawed these plans beginning in 2014. i understand that for many, a more comprehensive plan seems a critical and by comparison, these limited benefit plans are slim. however, it's important to acknowledge reality. these plans are less expensive and allow my team members to choose to take more of their wages home and use a smaller

amount of their wages to pay for some coverage. prior to health reform, i had the flexibility to hire more workers, pay them a wage and offer them access to this moderate coverage. now i'm being told by washington that i have to offer all my full-time employees washington-defined health coverage or pay a penalty. because of the cost of offering this prescribed coverage and the size of the penalty, i'll have no choice but to restructure my work force in a way that protects me from losing everything i have worked for. what does this mean? given the law and the unfinished regulations and i mean unfinished regulations, it's hard to say. i have no idea. prior to the law's enactment, my goal had been to hire fewer people for more hours. it's easier to retain employees that work full-time. however, now that the law is passed, i have to consider options other than what makes practical business sense. now because of what washington has mandated, it may make more sense for me to hire more people for fewer hours at a time when

millions of americans are out of work. is this really the right incentive? this is not what i want to do and it's not what's best for my employees but in order to survive and be able to pay the employees that i have to, it's what will have to do. i have not read the entire law and i'm not able to follow the regulations which are being issued at record speed, mind you, i'm trying to figure out how to protect the company that i have spent my entire life building. it's ironic that the law touted as the patient protection and affordable care act neither protects patients, nor makes health care affordable. instead, it's a law of broken promises under which no one will be able to keep the health care they have, even if they like it. it's a law which incents companies to scale back work forces and reduce the benefits offered by their valued employees. in conclusion, i understand that given the existing political realities, washington, d.c., a total repeal of the health care law by congress is an unlikely proposition, at least for now.

however, i am hopeful that congress will repair or eliminate the more onerous burden such as the employer mandate. these provisions saddle businesses with new requirements that actually encourage us not to expand our business and as toundingly, discourage us from creating jobs. the bottom line is that your decisions can help or hinder this. the laws you create can either give small businesses greater confidence and certainty to grow and generate new jobs, or just do the opposite. regrettably, this new health care law is already doing the latter and congress must take the action to rectify it. again, thank you again for this opportunity. look forward to your questions. >> thank you, mr. vaughn. i will just tell you that my very first job at age 16 was with burger king back in madison heights, michigan, in 1980. >> that's great. thank you. >> thank you again for your testimony. at this moment, i would like to introduce mr. william dennis.

mr. dennis is senior research fellow at the national federation of independent business. federation of independent business. he has directed the nfiv's research foundation since 1976. welcome, and you have five minutes to present your testimony. thank you. >> chairman, mr. altmayer representing kingston. last weekend they released a study called small business and health insurance one year after the release of ppaca. what i would like to do is release the results of that study since it's relatively current and relative to what we're talking about today. first of all, to be sure we understand who was included in this, we surveyed only people that were under 50 -- excuse me, small employers who only had 50 or fewer employees. it was a nationally random sample, it wasn't just the nfib

members. there are probably some randomly in there, but this was a nationally random sample. it was done in late april and in may of this year. it wasn't done yesterday, it's current enough so i think we can say it's the state of what we know today. the findings are really quite simple, i think. the first is that we essentially are in this period of declining offer rates by this series of firms. they're 42% now, which is the continuing of the down trend over the last ten years, at least, and our 42% number is not surprising. mex just produced one that was 39%, which is lower. and so it really does cap capti the trend. something else you should understand is basically nothing else has happened in the last

year and nothing is projected to happen in the next year. people who had offered before tend to offer now and expect to offer in the future. and those who do not or have not offered didn't pick it up this year and they don't plan to in the future. so essentially, what we're seeing as this continual down trend is going on and on. the one thing we are seeing, however, is that 20% with insurance expect major changes in that insurance. and virtually all those changes are not to the benefit of the employee. since enactment, 1 in 12 of small employers have lost their specific plan or been told they will lose their specific plan. of those who claim to be familiar with the law or having some familiarity with the contents of the law, they, by

very large margins, overwhelming margins, particularly those who insure think it will not reduce the cost of health insurance, it will not reduce administrative burdens, will increase taxes, will add to the deficit. they do agree more people will be covered, although they're not quite sure about whether that's going to yield greater health outcomes. there are -- i have a whole series of things here, but the -- to begin with, the tax credit, let's just look at the tax credit. we estimate, using some new data that we collected that we don't think is generally available, out of the 5,228,000 small employers in this class, an estimated 245,000 will be able to take advantage of the full

credit. and 1.165 million will be able to take advantage of the partial credit. that's not how many will. fewer will probably take -- fewer will take advantage of that, in part because of knowledge, but that's the maximum that will take part. now, beyond that, there is the whole incentive effect. how many will it incent? one of the things behind this is to not have a windfall for people who are already in it, it's an invent active centive t it. we calculate only 2% will have an incentive based on the full credit and more than that will have an incentive based on the partial credit as well. we also got a bid into the idea that will these small business

owners, if people start to leave, low-income people start to leave for the exchanges, what are they going to do? and 21% said they would seriously explore looking at whether or not they're going to drop their health insurance for everybody. now -- and another 26% said that they would do that with somewhat less certainty. so there clearly is a tendency or there is a thought process which would lead folks in that direction, and once competition actually sets in, new firms continue to churn without health insurance. we're going to see real market pressures not only not to add for those who don't have it but to lose it for those who do. thank you. >> thank you, mr. dennis. i now would like to yield to mr. altmayer to introduce your witness. >> thank you, madam chair, and

it is my pleasure to introduce professor timothy jost. professor jost teaches at the university of school of law. professor jost is the author of numerous articles on health care regulation and comparative health law and policy. he is also consumer representative to the national association of insurance commissioners. professor jost earned his j.d. from the university of chicago school of law cum laude. welcome, professor jost. >> thank you, all. the title of today's hearing is small business in ppaca. if they like their coverage, can they keep it? this was realized in section 1251 that if you like your plan, you can keep it. but notice the aca's commitment

is to individuals, not to employers. it is not if you currently have insurance through your job, you're stuck with that insurance no matter how it changes. it is, if you, the employee, as individual enrollee like your coverage, you can keep it. in fact, most employees do have insurance through their jobs and they give employers considerable flexibility to change their plans without losing grandfather status. employers can change their fo formularies and co-payments and out of pocket contributions. they can introduce their own contributions to premiums by as much as 5%. they can add new employees and new dependents. of course, if the plan changes too much, it ceases to be the plan it was. it's probably no longer the plan the enrollee liked and grandfather status is lost.

the departments projected that 15 to 33% of plans would lose grandfathered status in 2011. private surveys cited by mercer and hewitt in submitted testimony predicted higher levels, though they also noted that they didn't view it a loss and wanted to comply with the law as soon as possible. surprisingly last week it did not express widespread loss. small businesses intending to make significant changes in their plan have not lost their plan. it does report that 12% of employers have had their plan terminated or been told that it will be not available in the near future. this number is consistent with churn in insurance coverage available in previous years which showed this kind of turnover in the early 2000s.

plans are always coming and going in the small market. nfib also reported that 20% of employers anticipated significant changes in their plans over the next 12 months. but last year and the year before, changes and benefits and sharing in premiums as reported in the national kaiser t report were at even greater levels. this is a bad time in the economy, as we all know, and things are changing. another very important question is whether employers will continue to offer coverage after the aca is fully implemented. a number of studies have addressed this question. their predictions range at the extreme from those of dr. holt deacon who predicted isi would shrink by 20% and 9% of employers will definitely drop coverage. those of the ran corporation who estimated that coverage would actually grow by 17%. but studies by booth, urban, lewis, mercer and most

importantly the cbo predict coverage will not change dramatically once the aca is implemented. in fact, all the reason employers offered insurance now continue to exist after health care reform goes into effect. most importantly, employee benefits are exempt from federal and state income taxes and payroll taxes. in virginia where i live, an employee taxed at the minimum tax rate of 28% receives a s subsidy of 49% of every dollar of coverage they receive from their employer. the average coverage has an income of 43% above the poverty level and would not be eligible for the premiums in the affordable care act. employers who dropped insurance would have to dramatically increase to cover this loss of tax subsidy and the law prohibits them from dropping

benefits from their lower wage employees but keeping them for their higher wage employees. health benefits also continue to be one of the most highly valued forms of compensation and also help ensure a healthy and productive work force. after 2014, employees are even more likely to demand health insurance at work because of the individual mandate and large employers, not small employers, large employers will face a penalty if they don't offer insurance. in massachusetts which adopted similar reforms in 2006, employers offer rates grew from 70 to 76%. there is every reason to believe that the aca will not dramatically change the scope of employer coverage in the united states. thank you. >> thank you, mr. jost. i will begin questioning, and my questions are directed to each member of the panel. health care reform was supposed to make health care more accessible and affordable. do you think the new law does anything to help reduce the cost

of health care? and i'll start with mr. jost. >> yes. and one example of that is the medical loss ratios which has already been discussed. i follow the medical loss ratios very closely, i was very much involved with their drafting through the national association of insurance commissioners. one of the things that people are beginning to notice is that growth in health care costs has been dropping in the last couple of years. there's another report on that out this morning. at the same time, in the very recent past, insurance profits have been growing very, very rapidly, and people who follow the insurance industry closely are saying that if insurers have to spend 80% of their premiums on health care costs and costs are dropping, premiums can't continue to rise. they're going to come down. and we already saw that in connecticut where one insurer dropped its rates by 10%, we're starting to see it in other states. i think, in fact, the mlrs is

going to have a dramatic effect in reducing the cost of health insurance for employers and individuals over the next couple of years. if i could just add quickly one question that was asked earlier was, will it drive small insurers out of the market? i've read all the state adjustment requests that have gone final, and only in one state have any insurers left since the law went into effect, and as mr. larsen said, people are talking about it. it isn't happening. thank you. >> mr. vaughn? >> well, i certainly would have no way of knowing. i'm a business person. let me just give you a few numbers so you understand my situation. if you take 2010 and my small business, i'm a sub-chapter s corporation, so at the end of the year, the bottom line of my company was $319,000. if i took -- the way this plan exists now, if i took this plan and i insured all of my employees the way it's designed, it would cost me 307,000, okay,

which leaves me $12,000. now, understand, i'm taxed personally on the net income of my company, all right? but do i take that money? absolutely not. what i do, i have to turn that money around and reinvest in the building, buy new equipment and those sort of things. $12,000 doesn't even leave me enough to pay my taxes let alone reinvest in my business. the other piece of this is, i'm not likely to pay a penalty. why would i do that because i'm not really helping anyone. the penalty would cost me as much as the insurance i'm providing now. so my -- if this thing continues on the path it is, i can tell you right now that i will do everything i can to avoid paying the penalty. i will probably more than likely drop coverage, and what it will do to the cost of insurance, i have no idea. thank you. >> mr. dennis? >> one of the things that's

really important to remember, when we started this thing, small businesses were very much in the forefront of calling for reform on health care. and the reason was cost. cost was driving us nuts. this morning i believe i opened the journal, the wall street journal, and saw a study was out from the social security administration which projected that under the plan, under this bill, costs would rise faster than they would otherwise. it wasn't a great deal, but it was indeed faster. that's first. the second thing is, we're talking about relatively recently we've had some lower rates than we've seen in the past several years, and it's been attributed, some quarters to, indeed, the new law. but in effect what we're seeing is, in this recovery, very different from the last five

years, is the relative demand and the relative purchases, if you will, of various services have been much slower than average. and health care has been one of them. whether it's people not having the money to go or they're more pars parsimonious in considering what they could afford, i have no idea. then we start looking at everything that's inherent. you're going to have minimum benefits, and while we don't know what's going to be in the minimum benefit package, clearly, as mr. vaughn's example, shows there's going to be a whole series of folks that will have to add a lot more or don't do anything. then we have a lot of expensive things we haven't even talked about which don't directly affect smaller firms but some

things like the class act and all these kind of things. then we have, of course, a whole lot of new folks coming on. so all this together is going to drive costs higher. >> thank you, mr. dennis. dr. holt? >> i concur. in analyzing the bill that passed and became a law, the actuary concluded that it would raise, not lower, the national health expenditure. if the national health expenditure bill is larger, the coverage for that bill has to be larger. when the ceo put out its long-term budget expectations, it found that things went up, not down. the law contains two spending programs. they estimate it grows by 8% as far as the eye can see. there is no evidence of bending the cost curve anywhere to be found in those kinds of numbers. so if you dial your clock back to the beginning of the debate,

there were two criteria in which any health care should be judged, the ability to cover americans with quality insurance and the ability to deliver that insurance with lower cost and quality. it flunks the latter which is openly the fundamental driver of insurance costs in the united states. so things like the mlr are mere fiddles at the edges of tidal wave spending. and unless we get the tidal wave under control, premiums go up. >> thank you. i have one more question for you at this time. do you think the health care's mandate and taxes along with the new regulation that are being issued make it less likely that small businesses will hire more workers and expand their companies? again, i'll start with mr. jost. >> well, the -- small businesses, there is some incentives and disincentives. there are benefits under the law that small businesses get, that large businesses get and don't

get, and there are some benefits that large businesses get that aren't available to small businesses. for example, large businesses need to cover the essential benefits package. it's not clear to me that's going to be a major expense, because, in fact, what happens is state mandates are going to go away, and it's not at all clear the federal benefits package will cost more than state mandates. but that is something that large businesses need to cover that small businesses don't need to. on the other hand, large businesses need to cover the penalty if they don't pay and small businesses don't. i come from a family that started a small business about 20 years ago. my brother-in-law started it, borrowing money from us in the rest of the family and it is today a $300 million publicly traded company and its product is a household name. they didn't worry about am i going to win this benefit or lose this benefit if i grow a little bigger? they put out a good product and

i think that's how american businesses work. i think under this law it's going to continue to work that way, it's just that employees and individuals are going to have better health care coverage. >> mr. vaughn? >> well, i can start out by saying that overregulation is killing small business. let's just go back to minimum wage. i've already scaled down my staff and i'm running, frankly, as lean as i can run right now and make a living. the reality is there are going to be virtually no full-time jobs in this industry. i can tell you the way it will work in my company is only my management staff will be full-time, everyone else will work 29 hours a week or less, and it's just that simple. we cannot afford this thing. >> thank you, mr. vaughn. mr. dennis? >> right now, immediately, the overwhelming issue is uncertainty. we have absolutely no idea

what's going on, and i think everybody would agree to that. i don't think that's a very controversial statement. nonetheless, that has an enormous impact in terms of what you're willing to do in terms of investing. we're seeing that very clearly within the small business population. we do this monthly survey that we've been doing since 1973, and it's constantly showing that small businesses are much more pessimistic and feel much less -- how can i say -- favorable toward the economy than the larger folks. and that's borne -- their sentiment is borne out by a whole series of measures, including some that are contained in a recent federal reserve of new york paper. but that's the immediate thing. longer term, you have the whole issue of cost and takxes, and

they go together, and what does that have to do with it? it simply means if the government has it, then you don't have it, and you have less available to do that. so the question is, you know, you can't invest if you don't have it. then we have the interesting issue of growth and does the divide mean anything? for some firms, it will. it's simply do i go over 50, do i hold back some from 50 for fear of being held up on that thing. there will be a lot of firms who are growth firms that, as mr. jost used as an example of his brother-in-law, that will just go blowing right on by. they're going to be high growth firms, and they're not going to pay any attention to anything. but it is going to have impact on a whole lot of other smaller

firms. >> dr. holtz-eakin? >> i guess i would echo the firm level cost that mr. vaughn mentioned, i think i would echo the firm uncertainty in the growth levels mr. dennis highlighted, but if you step back and look at the affordable care act, it says, let us spend $10 trillion over the next five years and finance that by raising $5 billion in taxes, most of it paid by insurance and let's make insurance rates more expensive, and let's cut roughly $5 billion out of medicare, something they said is economically unrealistic and will make hospitals unable to serve those beneficiaries. so i take that with a grain of salt. what you have in the end, then, is higher taxes, much larger deficits in a recovery that's utterly unsatisfying, and i cannot conclude that's going to be beneficial for the hiring practices of small businesses.

>> thank you, dr. eakin. i now yield to mr. altmire for questions. >> thank you, and i'm glad our panel brought up the subject of taxes and the burden it places on small businesses. i want to ask mr. dennis and mr. vaughn, as you are aware, currently health benefits for employees is non-taxable, and some proposals have recommended requiring employees for the first time ever to pay taxes on health care benefits. and i was wondering from mr. dennis, how would a fundamental change like that impact a small business's decision to offer health care to its workers? >> the question is really equity in the whole thing. right now we have a system where, if i'm an employer and i contribute to $1,000 or $5,000 to help my employee buy their own insurance on the market, whether it's through the exchange or whatever, there is

no tax deduction -- excuse me -- no tax exclusion for the employee where if i'm paying for it, there is an exclusion. that clearly is inequitable, and really, i think in the long term, it's going to hurt smaller firms and their ability to provide this sort of thing is the fundamental inequity involved. you're not asking about the inequity, though. you're asking about whether or not the tax itself, you know, is important. and the question is, yep, it does lower the amount that you have to pay up front. long term, now, what it does is it encourages more people to use more services, and more services mean higher cost. long term, we just can't have that. we have to start being more parsimonious on these things. >> so you're in support of that

policy change? >> of -- we would be in support of making it equitable. i am not sure that our organization has taken the position on whether or not they would be in favor of -- how they would be in favor of handling the tax exclusion issue. >> thank you. mr. vaughn, as a business owner, what would your -- how would your employees react if they had to pay taxes on the health care benefits that you provide? >> well, that's a hypothetical and i apologize for really not having an answer to that. i can't predict how they would react, but there is something really important here that i don't want to get lost. small employers, let's define, what is a small employer, what is a large employer? the method that's being used right now, and frankly, i can't understand it, and what is a full-time employee and what is a part-time employee, i can't understand that, either. there was a study done recently by the university of tennessee

funded by the likes of the burger king, mcdonald's and different ones to determine, what would be the best way to determine what a small business is and what can they afford? have you heard about profit for employee? as opposed to this drawn-out, sort of complicated formula for figuring things out, it's a real simple formula. it's how much money do i make net divided by the number of employees. guess what it is in my industry? $1300. if i pay the penalty, it's $2,000. is that equitable? does that make sense? there are other industries, whether it's financial or insurance industries, they're $10,000 plus per employee, profit per employee. so my position is this. this thing has to be repealed. i mean, it has to be repealed, and if it's not repealed, at the very least, the regulatory aspect of it should be changed to a system-like profit per employee. i apologize for not answering it directly, i just really don't

know how they would react. >> are you concerned to hear that that is a proposal? is that something -- if your representative came and sat down before you and said, hey, here's something i'm thinking about supporting, taxing your employees' health care benefits? >> of course, i would be concerned about that. i'm for lower taxes for anyone. yes, absolutely. >> mr. jost, do you want to comment on what type of fundamental change like that, what the impact would be on the health market? >> i think it would destroy our employment-based health insurance system in this country. we have a long tradition in the united states that actually has been very successful in providing health insurance to people through their jobs. we're now trying to get beyond that to reach those people who are not covered through that, and that's what the affordable care act is going to do. but to pull the rug out from under employment-sponsored health insurance by removing the tax deductions and exclusions

would destroy it and would throw our health care system into chaos. >> dr. holtz-eakin, do you want to comment on that? you look like you have something to say. >> there are two aspects that were mentioned. one is it figures in this discussion how many employers will drop coverage of the affordable care act. the basic premise is how much cash is put out for lower paid workers to drop the coverage, pay the penalty, give them the employee wage, let them go get insurance. and another subsidy favors high wage workers. those who conclude there will not be an employee drop are counting on the fact that that tax subsidy for high wage workers will dominate, employers will continue to use it to pay their high-wage workers. i think that's a fantasy, quite

frankly. be aware that in the end, all you're doing is playing a federal horse race between the two. second thing is, most people who talk about changing the insurance are looking at revenue tax reforms that broaden the base, thus bringing in subsidized coverage for health insurance, and it's about having a tax system that is fair across the low-end and high-wage workers and provides better growth incentives because margin rates are better. >> last question. i wanted to give you a chance to answer that because i thought i knew what you were going to say. sgrz it w >> it was a shocking question. >> the question i want to ask you and you're not here to pontificate upon taxes, but you

bring a lot to the debate and your involvement in the past. i ask, just out of interest, given where we are, this is the law. the bill has passed, it's the law. the supreme court may or may not rule absent knowing what's going to happen there. repeal has failed in the current political environment. we don't know what the future holds there. what would, to the degree you're comfortable assessing it, what would you suggest that congress do as far as tweaking the current law, assuming this is a fact, this is going to continue, or continue to push for repeal even though it doesn't look like it's a viable option? >> wow. and i have five hours instead of five minutes? >> well -- >> briefly, i think you can point to a couple things. there are some provisions in law that i think universally have garnered some suspicion, i'll use that word, and i think the class act is first among those and probably should go away. it's something ill designed and

dangerous to the american taxpayer. the second would be in the array of coverage expansion, the heavy reliance on an unreformed medicaid program, i think many people find problematic. we know medicaid beneficiaries have much more difficulty finding primary care physicians and seeing specialists to simply put more americans in a substandard health care system is problematic, and i think there is just too much money on the table for exchanges. in terms of the coverage expansion pieces, i think you have to look at all that. i won't say a lot about the regulatory issues. i think making them cleaner, they're getting them done in a fashion that doesn't leave people so perplexed. entirely beneficial. and on the delivery system reforms, i think there are two very big concerns. one would be the role of the independent payment of the advisory board which, as structured, appears to be inevitably led to productions

instead of quality improvements. just can't get there. it's got a one-year target on probably the most expensive new therapies. that's detrimental for health care. i would worry a lot about that, quite frankly. and the acos appear to be a respite for industry compensation, not better care. so i think there is work to be done on improving the delivery system and expansion coverages and making sure this thing hangs on budgetarily, of which i deep concerns. >> are there things in the bill that you worry about in isolation that should be kept? >> i've always been a proponent for exchange type amenities. a better opportunity to shop, compare and pursue health insurance, i think every economist would like that, and i certainly do, so the design of those and exchange decision

making i think needs to be part of this law. >> i would now like to recognize mr. king for his questions. >> thank you, madam chair, i thank all the witnesses for being here to testify. i admit my schedule didn't allow me to hear all in depth, so i hope i don't duplicate anything raised before this panel. first i think i would make a statement as to, if anybody wornds whe wonders where i stand on this issue, and i've looked at it from a whole number of different perspectives. i just don't think this is arguable whether it's sustainable or whether it will improve our health care or improve development rationalizing. i think i understand thoroughly that we're not going to see health care at a cheaper price that's more acceptable or more available. you'll see different people that have access but perhaps it's a

shn within the p ship within the population. i began my working life as a small businessman. i started a construction company in 1995, and we provided not the first day because i didn't have employees the first day, but over time, as we began to accumulate employees, i took on the responsibility to voluntarily provide them health insurance. and when i've watched this debate be shifted here in this country, so health care in health insurance, had those meetings inflated. i think it was dishonest, i think it was disingenuous, and i think it was willful, a strategic effort to try to blur the efforts. i remember then governor of iowa, governor cull ver, coming to this capital meeting and saying, 40,000 kids in iowa

don't have health care. i don't know how many times i had to ask him what that meant before i could get through to him that health care and health insurance are two different things. i make the point that i don't believe an employer has -- if they choose to accept a responsibility to provide health insurance for their employees, that's a competitive position in the marketplace, but not a moral obligation for the employer. to hire good people and keep good people is the motive. when the federal government decides to impose an employer mandate, then that sets another standard, and in the minds of people now, they think it's an entitlement that goes with a job. and i think that's a mistake, i think it saps some of our vitality. but i wanted to take this down to the constitutional aspect of it, and just noticing that we had a law professor here, mr. jost, and that's the part that grates on me the worst. we can talk about policy all day

long. i've drawn the conclusions i'm at and i've also drawn them on the constitutional side of this. but i take it down to the individual mandate rather than the employer mandate side of this and ask this question. if the federal government can constitutionally commandeer a portion of a person's paycheck or a portion of the revenue of an employer, for that matter, if they can commandeer that and assign it to a government-produced or government-approved product, which is premiums for health insurance that is approved by the federal government, then what limitation would there be on the commandeering of that revenue stream beyond health care? is there a constitutional line here i don't understand, or could it also be for a car or an appliance, buying certain types of health food or a member in a health clinic -- excuse me; perhaps a gymnasium. is there a constitutional line beyond that?

if the supreme court rules in favor and upholds this bill, this act, this law of the land as mr. altmire referred, i believe, if they do that, what can the rest of the workers in america look forward to being commandeered? where is the line? >> again, i only have five minutes rather than five hours, probably less than that. i would refer you to an excellent opinion on this topic written by judge sutton of the sixth district, a very well-known conservative judge who, in fact, has been prominently mentioned as a supreme court potential nominee. what judge sutton said and what the other federal-federal judges, a majority of federal judges who have considered this question said, in favor of the constitutionality in the statute, and number one in the constitution, commerce has authority to regulate commerce. under earlier decisions commerce must regulate economic

decisions. it cannot regulate non-economic conduct. but what judge sutton and the other federal judges have found is that the health care marketplace and often the insurance marketplace are interstate commerce. in fact, it's the largest sector of our economy -- >> excuse me. if an individual doesn't engage in purchasing health insurance, then they're not engaging in commerce with the purchase of health insurance, and if you expand the argument to utilizing health care services, if an individual is born and dies in a state and doesn't cross the state line and doesn't use medical care of any kind, and that happens, it's always happened in every generation, how is it that they're engaging defacto in interstate commerce? >> well, what judge sutton said is on its face the statute is constitutional. he has implied there may be some situation where somebody will come forward who says, i have

never used health care in my life, i will never use health care in my life, i can prove it, the law should not apply to me, and that might be a different case. we'll cross that bridge when we come to it. >> we have come to it, because the constitution has to apply to everybody. >> right, but a statute -- the first question is, has congress written a statute that is facially constitutional? could it be constitutional as applied to some people and as applied to 99.999% of the population people use health care. >> you say the statute presumes that everyone does use health care and it presumes that health insurance is an obligation that's a component of health care, and if it presumes that everyone is utilizing, then the constitutional rights of those who do not are directly, then, incorporated into that. so they don't have their constitutional rights unless they assert them. we have to pass legislation that constitutionally protects everyone. that's the point i would make,

and i went way past my time, i'm sorry, but i appreciate the indulgence and i yield back the balance of my time. >> thank you. that was a very interesting exchange, so i appreciate that question and the line of questioning. i think those are definitely some of those issues that as we move forward that really does need to be discussed. so even though we went over, that was -- i can say it's all right. do you have any other questions at this time, and mr. altmire, do you have any? i have a couple questions i would like to ask starting with dr. holtz-eakin. you have said in the health care law that it's a threat to the health of small businesses and the mandates and penalties are a financial burden. do you think small firms disproportionately affected by the various mandates, penalties, and taxes in the law, will this

affect their ability to increase employee wages, purchase equipment and hire new workers? >> absolutely. if you think of the smallest of the small businesses that the proponents of the law like to say, look, they get the credit and they're exempt from the mandate, so it's all going to be good. the reality is they will face the upward premium pressures that inevitably come from the benefit mandates that already have begun to be implemented and have drawn premiums up. the taxes that will be imposed on insurers and others, i've walked through the arithmetic of this, this is $5,000 for a family in five years. every time those premiums go up, they come up at expensive wages. there's no way around that. so even those ostensibly spared the greatest cost burden and even were temporarily helped, although i'm not a fan of that

credit, i think it's a bad deal. >> thank you. mr. vaughn, i have a question for you. you currently have 30 full-time employees, is that correct? and a number of part-time employees, so 30 full-time and a number of part-time. with the employee mandate in the health care law, is it likely you will create any additional full-time positions? >> well, as i mentioned earlier, it's not likely. it's likely that i'll cut to fewer full-time positions. what's interest about what m mr. -- i want to pursue this without tax exempt dollars. this thing is extreme. mr. jost said earlier the large firms, they're not worried about it. it's probably not even on their radar screen. that's just the cost of doing business for them, but again, it's clearly, in my case, going to create more part-time jobs,

and frankly, people more dependent on the government and i will be cutting even more jobs. >> do you feel you might have to cut wages also? now, especially, of course, we have minimum wage, but as far as like potential increases in wages, do you think you may have to draw back on that as well? >> i think so. obviously, someone mentioned earlier that wages should be a function of competition in the market. and i think those of us that are in this business, we're all pretty much in the same situation. we're in a pennies business, and our margins, literally, you know, we said this thing about burger king and people look at us as very wealthy and very rich. out of a dollar, we keep less than a dime at the end of the day. and so there is just no way we could afford it, absolutely

none. >> thank you, mr. vaughn. and my last question -- i have two questions, actually, for professor jost. if the forthcoming mandates minimum essential benefit package requires employers to offer a base amount of coverage, that package will undoubtedly exceed the coverage that the small businesses currently offer, aren't the premiums likely to increase for the employer or the individual or both? >> i'd like to refer to a study that was published last month by the urban institute in which they projected that the firms for small employers, average employer contribution per person covered would in fact decrease by 7.4% after the affordable care act is fully implemented. and the reason for that is the exchanges. right now small employers have to deal with individual insurance companies, and they don't have the economies of scale large employers do. they often have risk pools that

are less favorable than large employers, and they're on their own. even if they get a good rate this year, they could be canceled next year or they could get a higher rate next year. in the exchanges, their business is going to be pooled with the business of all the other small employers, and there's going to be lots of competition in the exchanges, there's going to be national insurers as well as the domestic insurers, maybe some of these new cooperatives that they're going to be talking about today, and so the projection is that, in fact, costs will go down. now, with respect to the essential benefits package in particular, i had always assumed that small businesses provide less rich benefits than large businesses, but i tried to check on that the other day and found out that, in fact, if you look at the national compensation survey, the benefits are pretty much comparable. they cover pretty much the same things. and the reason, again, is because of the state mandates that require in many states employers to cover a lot of the same benefits, insured

employers. so the essential benefits package only covers benefits. it doesn't prescribe cost sharing. and right now a lot of the game is in trying to increase cost sharing in various ways. that's probably one of the reasons why health care costs are going down, because employees have more skin in the game, and i think that under the essential benefits package, number one, it isn't going to change that much what the benefits employers are going to have to offer, and number two, they'll still have the ability to do considerable adjustment in the cost sharing to try to save costs. >> can you just describe to me the difference -- you mentioned national insurers and domestic insurers. can you identify for us what you mean by that? >> yeah. under the affordable care act, the office of personnel management is supposed to come up with at least two, maybe more, national multi-state insurance plans that will be available in every state. it's going to be like the insurance you have,

congresswoman, where, through the federal employees self benefits package where you have a choice of national insurers as well as local hmos or other small carriers at the state level. and that's going to introduce more competition into the insurance market. again, i've been looking at all these adjustment requests that come through, and what you see is in many states, you have what you have in my market, where you have 80% of the share of the market. well, they set the price. nobody else can really compete with them. but we're going to see a number of insurers competing and competition brings down prices. >> and so can you describe to me, then, the domestic insurers? >> by that i meant insurers that are already there that are licensed in the state. >> and when you describe the national, are those private insurance companies, or would that be the government plan? >> no, they have to be private insurance companies. they have to be a company

licensed in the state. >> okay, well, thank you all so much for your participation. if you did have another question, i'm more than welcome -- we'll definitely approach that. this subcommittee will continue to closely follow the issues related to this implementation of the health care law. it's very important that we stay on top of this as it moves forward, especially since things seem to be evolving as we go along. i ask unanimous consent that three articles be submitted for the hearing record, an article from cranes new york business dated june 23, 2011 entitled "health reforms, grandfathering rules likely to raise costs." an article from forbes dated july 4, 2011 entitled "health

care tax credits are having a miniscule impact," and an article from the hill, which i had mentioned earlier, dated july 21, 2011 entitled "health care law could leave families with high health care costs." without objection, so ordered. all those in favor, signify by saying aye. all those opposed signify by saying nay. the ayes have it, the request is agreed to. i ask unanimous consent that legislators have five business days to submit materials and support for the record. without okbjection, this hearin is now adjourned. thank you so much.

[inaudible conversations] [inaudible conversations] >> coming up tonight on c-span2, a house hearing on an economic impact of the newly created consumer financial protection bureau.

>> visit carlston this weekend. confederate charleston on south carolina's secession. and american history tv on c-span3. charleston during the revolution. historian douglas bostic. throughout the weekend, discover more about history and literary wife with plantation life, and a catastrophic 1886 earthquake. charleston, south carolina, this weekend on c-span2 and 3. >> like any business, the postal service is subject to marketplace trends. unfortunately, we've seen a significant long-term decline in the most profitable product category, first-class mail. which accounts for approximately 50% of our revenue. >> that was postmaster general,

patrick donahue, in may. this week he announced plans to close more than 3600 branches across the country. learn more about postoffice operations online. search, watch, clip and share. it's what you want when you want. >> the dodd-frank financial regular laces law established a new watchdog agency. called the consumers financial protection bureau. the new agency has just recently beagain it's work in regulating credit cards, loans, and other financial products. this house small business subcommittee hearing looked at the bureau's potential effect on small businesses and the economy. it's a little more than an hour. >> the committee is now in session. i would like to take a moment to mention the subcommittee has received a statement from the

independent community bankers of america. without objection, i would like to insert this statement in the record. hearing none, the statement will be inserted into the record. if committee members have an opening statement prepared, i ask that they be submit for the record. i would like to take a moment to explain the timing rights for you. you will each have five minutes to deliver your testimony. the light will start out as green, when you have one minute remaining, the light will turn yellow. finally, it will turn red at the end of your five minutes. i ask that you try to keep it to that time limit, but i will be a little lenient as you finish. our first witness today is here representing the consumers financial protection bureau. dan sokolov, have i got that right?

sokolov is deafty associate director for research, markets, and regulations. this division is response for understanding consumers financial markets and evaluating whether there is a need for regulation and the cost and benefit of potential or existing regulation. prior to joining the cfpb, mr. sokolov held positions with the department of treasury and served as an attorney for the federal reserve. mr. sokolov, we look forward to your testimony. [inaudible comments] >> on the subject of small business in the consumers financial protection bureau. the cfpb is the agency accountable for establishing clear rules of the road for the marketplace. mr. chairman, you mentioned the corporation of an vibrant marketplace. that is what we are striving for. although the bureau's jury diction is limited with regard

to small business credit, we take our responsibilities in this area seriously. we recognize that small businesses are chris -- critical to the nation's economy and service providers had a critical source for products and services for millions of consumers. today, i want to provide a brief update on the standup of the cfpb, as well as explain our efforts to produce and avoid unwarranted regulatory burdens on small providers, and how we at the cfpb believe we maybe able to assist small business borrowers over time. the bureau open for business last thursday, july 21st. inspectors general of the treasury department and federal reserve board have reported favorably on our efforts to stand up to the agency. we already at work strengthen in consumers and financial markets. we are working towards a market when consumers can see prices and risk and compare products. so they make the choices that they believe are best for them. we have taken input from thousands of individual consumers and mortgage lenders and brokers on how to simplify

federal mortgage disclosures and make them less burden burdensome. we are launching the program for the largest banks and affiliates. we are taking our first consumers clients about credit card. we have set up a strong office of service affairs, reaching out to military families and working to address the unique financial challenges they face. to fulfill the mandate, we hired an expert staff from the private, public, and nonprofit. they are striving to build an agency smart, effective and balanced. at the cfpb, we have been building into the agency outreach to small financial institutions such as community banks and credit unions. we believe in the importance of a financial service marketplace where small providers can thrive. we are work to reduce regulatory burdens on small financial service providers whenever possible and we can take as an example disclosure reform. we understand lenders deep

frustration with the current mortgage reforms required by federal law. they are complicated, and more costly to fill out than they need to be. we have solicited feedback from thousands of consumers, lenders, and brokers to help us make the disclosures simplers to use and easier to complete. minimizing regulatory burden will continue to be a priority for us. often a regulation is not the best answer to a problem. congress has given us many different tools to address problems in consumers financial markets. we will strive to address the problems as we see them as effectively as we can and through the least burdensome means available to us. in addition, we are consider the potential benefits and costs of proposed regulations for consumers and covered persons, including small lenders. we will diligently comply with the regulatory flexibility act and we will follow the requirements of this small business regulatory enforcement fairment act, known as sbfefa.

we do focus on financial products and services for consumers. the bureau does not have jurisdiction over business credit, expect in limited cases where congress had granted the bureau such jurisdiction. we recognize that the vibrant small business sector is critical to our economy. many small businesses report have difficulty obtaining credit. difficulty rooted until the most severe financial crisis since the great depression. so although our role with respect to small business credit is quite limited, we hope to help many small business owners in three ways. first, we will implement diligently the equal credit opportunity act, this law prohibits discrimination and business lending. second, as required by law, we will provide the public new data that may shed new light on the demand for and supply of small business credit. we will move deliberately and consult widely to attend to maximize the benefit of these loan data for small businesses

and minimize the cost for the lenders reporting the data. third, we will work to ensure that consumers credit histories are as accurate as possible. more accurate credit histories would help startups. new business owners frequently rely on their personal credit histories to apply for their first business loan. we believe that a fairer and more transparent consumers financial services marketplace will be a boom to financial services providers of all sizes and a more level playing field will benefit the smaller ones in particular. thank you, and i look forward to your question. >> thank you, mr. sokolov. the cp p -- cfpb recently sent a letter to the ceos of financial institutions, informing them that they are now subject to the jurisdiction of the bureau. 26 of these lenders are on sbas list of 100 top sba lenders.

they issued a total of 5334 loans for approximately $1.5 billion. that's just looking at sbas top 100 lenders. and only at their sba-backed loans. if cfpb b -- is cfpb considering how actions against larger institutions will impact small business lending? >> so the letter that you are referring to to this ceos, mr. chairman, was sort of introducing our program of supervision. that's a program that is by statute focused on the depository side. it is focused on the depositories with $10 billion in assets or larger. and their affiliates. just to put that into full context. and those -- that process is supervision which is essentially working with the institutions by

sending examiners to them and understanding how they operate and understanding their businesses and understanding where there maybe questions about their -- about their compliance with applicable federal law. that's focused on the consumers protections. as i said, our jurisdiction over business credit is quite limited. where it's -- the main exception, the main exception is in the area of implementation of the equal opportunity credit act. and in that area as we are required, that would be an important part of our process. >> federal reserve chairman bernanke recently stated that there has been no examination about the impact of the new regulatory environment will have on the overall economy. has cfpb done any such study on how the bureau fully implemented

will affect the economy? >> mr. chairman, can you repeat the question again? >> sure, federal reserve chairman, bernanke, said there was no no examination about the impact of the new regulatory environment and what it will have on the overall economy. and it has -- has your organization done any studies about its -- when you are fully implemented -- what impact it will have on the economy? >> well, we're still in the process of building out our processes. we have launched our supervision program, we are taking complaints from consumers on credit cards. we are working diligently to -- on the area of regulations, the focus is on regulations that congress has directed us to adopt and implement, directed us under the dodd-frank act. and so, you know, in cases such

as that, we're doing congress' will or congress has made judgments about the benefits of certain policies for the economy. >> one of my concerns about cfpb is that when you have an agency charged with looking for problems, they have a tendency to find them. whether they exist or not. how will we know when we have a financial system that is free of abusive practices? what steps are in place or benchmarks exist to know if cfpb has achieved it's mission? >> indeed, our focus is part of our core mission of working towards a marketplace that's free of unfair practices. it can be challenging to identify, you know, the full range of acts and practices in an economy as large as ours. we are going to use all sources

of information though to see where the risks may lie for consumers and compliance risk may lie. our sources will include our examination function which is one the important tools that congress has provided us and a tool that we can use to provide a level playing field and financial services providers that compete in the same market. but are not banks. and we have a research capacity that we are building as well. we have teaming that are designed to be expert in particular markets where ann we are hiring people of expertise in specific industries. so we plan to take in information from a wide variety of sources to best understand what it going on, to be responsive, and to have a smart, balanced, and effective approach. >> thank you. mr. altmire. >> thank you, mr. chairman. as i mentioned in my opening statement, one in five entrepreneurs reportedly using

home equity loans for business purposes and nearly half of all small businesses relying on personal credit cards, consumers financial products provide a critical source of capital for small firms. how will your agency tailor to ensure that small businesses do not find their access unduly restricted by the new regulations. >> thank you for that question. we talk about this in a written testimony as well. there is certainly some overlap. there are some small businesses that for some periods in the life of the business do use personal credit. and we're aware of that. we want to, in fact, as we said to address that in our testimony. i think the amount of overlap varies over time. and what we are going to look to, for example, in understanding that overlap is just as an example to what extent small businesses are

using credit cards designed for consumers to conduct to make payments and to what extent they are actually borrowing on the card. we bring data on our point in that testimony, based on a trillion reserve study and a survey by the national and independent businesses. we have already started to reach out to the other organizations to make sure we do understand where their overlap might be. >> we on this committee and back home, i as well, continue to hear from small firms who are concerned that they will be subject to cfpb oversight for financial transactions they provide to other businesses. will your agency attempt to exercise oversight over financial products when no consumer is involved? >> as i mentioned, our jurisdiction over small business credit is quite limited. there are a couple of fairly limited provisions in the truth

in lending act where congress is extended protections to business credit cards. and then there's our obligation to implement the equal credit opportunity act. well, we and other agencies are also responsible for enforcing it. and equal credit opportunity act prohibits discrimination and lending both in consumers lending and in business lending. and, therefore, we have to fulfill, of course, and will do diligently the mandate that congress has given us in that area. >> the original bill that dodd-frank act created new data reporting requirements that are aimed at helping regulators understand credit conditions for small women-owned and minority-owned businesses. some have said these requirements will be burdensome and could rise privacy concerns for those types of firms? how will you balance the firms while ensuring policymakers have sound and accurate information on small business credit?

>> congressman, you are referring to section 1071 of the dodd-frank act which does require -- does amend the equal credit opportunity act to amend the data collection on small business lend. and this is potentially an important source of data to better understand demand conditions and supply conditions in the market for small business lending. where data to date has tended to be limited. we see it as a boom to have the data as a boon both to small business borrowers and lenders to better understand the market. inevitably, nothing is free. there's some cost involved. congress has said, they have set the parameters. within that, we have deliberation about how to do it. we are going to seek to make the most of the benefits of the data for public. only impose the burdens that are

necessary to achieve those benefits. and we tend to make sure the data have integrity and will be useful in the end. and the issue of privacy that you mention, of course, there's an important consideration that consideration that it is arisen in other data collections. those issues are important and we intend to pay attention to them. >> thank you. no further questions. >> mr. west. >> thank you, mr. chairman, and mr. ranking member and thank you for being here today. one the things that i tonightly hear from our district in south florida is small business owners in the access to credit. of course, everything worth reacting to can sometimes be worth overreacting with dodd-frank. do you think that we need to have willing review of some of these regulations to make sure they are effective and efficient and not constraining as far as the relationship with our community banks and also our

small business owners? >> that's a good question. and the dodd-frank act to some extent contemplates this. it does provide for significant regulations that the bureau adopts that we should be assessing the regulations within, i think, it's about five years. and so that's a statutory requirement. and one that we intend to follow diligently. >> well, i'm concerned with that because with the last jobs report that came out, small businesses are saying that they are going to freeze hires for the next year. 70% of them said that. we are going to wait five years to go back. that's not setting the conditions. can we come back and look at a semiannual review and make sure we include some of the people this could be affecting, community banks or small business owners, instead of waiting five years for a review? >> we have a process. a statutory process, the small

business regulatory enforcement and fairment act to provide the small businesses with the opportunity to provide input before we issue a proposal in certain circumstances. >> there was that part of dodd-frank? >> there were amendments, dodd-frank included amendments to regulatory flexibility act and the related small business, sbrefa. it extended sbrefa obligations we are the third agency to subject to sbrefa. that will be one way that we get input for all businesses even before we have adopted regulation. i think we are trying to do is go beyond the statutory requirements. the prime example of that is how we have been handling the reform of federal mortgage disclosures. long before, we have put a regulation out there that would

implement the reforms to the disclosures. we put initial prototype forms, and created a channel for industry and consumers to respond. both have produced thousands of comments and detailed comments. we have used the wonders of the technology. we have used the internet to make it easy and comment and give feedback on specific parts. and in addition, we are conducting sort of more controlled laboratory testing of the -- of these potential disclosures where we are going into a room and ask individuals consumers questions about it. i think maybe for the first time for an agency, in any event, we have found it productive to also include in this testing lenders and brokers. we are asking individual lenders and brokers to sit down with us and test performance. we do round after round of this testing. we will continue to use the internet to allow thousands of others to be able to get input. so that by the time, as i said

in my written testimony, we plan to construct sbrefa panels around the forum. we will have received that kind of input. then under the dodd-frank act, when we get to the point of implementing these newly reformed disclosures, we will wait an appropriate period of time and come back and review it again. >> once again, i come back to the original question? what i heard you say is right now that's five years? in the type of fiscal or economic situation which we find ourselves, where our small businesses are suffering and i applaud you for looking for their input before the regulation comes in. can we have a semiannual or annual review of these regulations so that once again we with go back and do the checks and balances to make sure they are working properly? >> we can certainly consider that. i think an important factor is that when we do sort of -- when

we review the disclosures, unless you want to go back and test the disclosures again and see if it was still working in light of whatever changes in the market may have occurred, it's a pretty extensive process. it takes many months. and it can involve both what we call qualitative testing, and more statistically valid testing, something we plan to do. and that can take a while to do correctly to gather useful data. when we do that, we want to do it in the most careful way. we want to put out the results of our testing and research for people to, you know, learn from and to comment on and to do their own research. so the process of doing good analysis on a regulation that give us a meaningful answer can take some time. >> thank you, mr. chairman. i yield back.

>> with no other questions, mr. sokolov, thank you for your testimony today. i really appreciate it. >> thank you. >> i want to thank associate director sokolov again for being here today to tell us about the s -- cfpb and how they are limiting the burden on regulations on small business. i hope they will continue to think about how small businesses will be affected as they begin to exercise their regulatory authority. we will continue to closely follow the impact of the cfpb on small businesses and want to work with you to reduce the regulatory burden on our nation's job creators. i also subject that your staff

listen to our second panel of witnesses so you can learn about the concerns that small businesses have about the cfpb. i'd like now to call the second panel of witnesses to the witness table. >> i would now like to welcome our second panel to the hearing for the benefit of the witnesses, i will take a moment to again explain the light system that you see before you. you will each have five minutes to deliver your testimony. the light will start out as green, when you have one minute remaining, the light will turn yellow. finally, it will turn red at the end of your five minutes. i ask that you try to keep it to that time limit. but i will be lenient as you finish. our first witness is just sharp. executive director of the u.s.

chamber of commerce. center for capital market competitiveness. this organization was founded in 2007 with the mission of supporting capital markets that are the most fair, efficient, and innovative in the world. prior to becoming executive director at the center, mr. sharp served as deputy assistant to the president for domestic policy and special assistance to the president on the white house domestic policy council. welcome, mr. sharp, you have five minutes to present your testimony. >> thank you very much, mr. chairman. ranking member altmire, and distinguished members of the subcommittee. my name is jeff sharp, i'm the executive director at ss.h.o.p. at the u.s. came per of commerce. -- chamber of commerce. the chamber supports sound protection regulation that we dub fraudulent and ensures consumers receive clear and concise disclosures about

financial products. we want to ensure that the bureau takes a targeted approach to regulation and enforcement. without making sweeping policies that would impose duplicative regulatory burden on small businesses and perhaps even more importantly, would prevent small businesses from obtaining the credit they need to expand and create the

>> hr13 with the bipartisan multimember leadership team giving the agency more stability

and balance over the long term. we give small community credit unions in the voice that gives process that announced the oversight to override bureau regulation that is harm safety and soundness. the risk of agency tunnel vision are real for any government regulators, including the bureau. if these risks are not properly addressed at a truck choral level, agencies inevitably will over time abandon sound regulatory principles. i want to speak about sbrefa. it's a very important point that has already been mentioned. the bureau is included on the list now of agencies that must follow sbrefa. very important requirement. it's a very important requirement for the bureau to follow in order to get small business input upfront. however, the panel process is not a perfect mechanism. it's not necessarily enough to ensure an independent check on the bureau's activity that affects small businesses. so this committee's role is

incredibly important in overseeing the bureau's work and it's implementation of sbrefa. just to mention a few of the concerns that we have about how the process could play out. first the bureau itself is responsible for threshold determination that the proposed is directed to impact the substantial number of small entities and term significant is basically subject to the cfpb's discretion to define. pardon me. the panel does not have to adopt, and need only explanation for adopting or objecting them. third, they cover only the rule-making process. i think you heard the first witness, mr. sokolov, describe that regulation isn't always the best way. they can use compliance, supervision, enforcement to dictate broader policies. of course, none of those are subject to sbrfea, or any sort

of formal process. and just to again put a fine point on it. actions do speak louders than words. it's been mentioned this afternoon, the bureau does have rule makers, essentially in progress. if not technically, one to merge these two mortgage forms and other to define the types of businesses that the bureau will supervision in the nonbank space. and either case is a sbrefa panel been put together. technically, it's not required at any particular stage. if we want to get this right, we will encourage the bureau to begin that process as soon as possible. with that, i thank you all for having me here. i'm happy to answer questions. >> oh, thank you. i would now like to introduce our next witness who came here from my home state of colorado,

terry jones. mr. jones is from the city of castle pines, california, where he resides with his wife, carl. -- carol. he's testifying on behalf of the colorado business lenders where he serves adds chairman as the legislative and regulatory affairs committee. i'm pleased he could be here today. i look forward to your testimony. mr. jones? [inaudible comments] >> oh. thank you very much, chairman, ranking member altmire, and distinguished members of the subcommittee. the colorado mortgage lenders association is a 56-year-old organization made up of over 100 companies employing over 2500 individuals. over 75% of our members are small businesses that employee rather than 25 people. in my 42 year career in mortgage lend, i've been a loan originator, manager, entrepreneur, and small business

loaner. i've always been proud to be part of the industry that helps people and families reach their dreams. i've seen many people in the business start as loan originators, and then go on to start their own small mortgage lending businesses. these people have lived their own american dream. in doing so, they have served the real estate markets and buyers and borrowers of their local communities. the dodd-frank act creates a superregulator for the mortgage lending industry and the cfpb. this is in addition to the oversight already in place by the states, fha, va, fannie mae, and freddie mac. this the cfpb is tasked with issues lend rules over the next 18 months. it will be difficult for small mortgage lending businesses to keep up with so many new rules in such a short time frame. it is essential to develop an orderly process for the rule-making initiatives, not

only for input in industry, small business, and other stakeholders, but to develop well con received and clear rules that are neither duplicative or in conflict. the cfpb must develop a process for providing timely, reliable guidance to the industry and to the state regulators well prior to the implementation of new rules. we believe that the cfpb has an historic opportunity to set the tone for the future regulation of the mortgage industry in finalizing the ability to repayroll and defining the qualified mortgages of safe harbor characterized by traditional, well underwritten, and properly documented loans. by pursuing such a course, the cfpb can help the practices of the industry and still curving the early 2000s. if they take the approach, it will create a safe harbor to rely when making loans.

if the cfpb choosing to adopt the qualified mortgage as a rebuttable presumption, we believe the increased levels of litigation will force many small lenders out of business. the cmla believes a qualified mortgage safe harbor will wine the arena in which most loans will be made. the risk to smaller business in particular will be two great for most of them to venture outside of the qualified mortgage parameters. consumers in colorado and across the country need a viable, small business mortgage lending industry to provide a competitive, local alternative to the large national lenders that dominate the marketplace today. the cfpb is also responsible for enforcement of the safe act which requires loan officers for nonbank firms to meet education, testing, and financial standards, while bank loan need to only be registered. this creates an unleveled playing field and additional cost for small nonbank lenders and create unequal protection

for consumers. in addition, licensed originators can move freely to depository lenders from licensed originators. but the reverse is not true. that a lender -- loan originator working for a bank will have to go through the entire licensing process in order to be able to be employed by a small business lenders. we ask that the cfpb undertake rulemaking as soon as possible to create a transitional license to allow registered originators to move from depository to nonbank lenders for a limited time while we complete our licensing requirements. finally, it is important for the cfpb to address the loan officer compensation under the truth and lending act, reconsider some of the requirements that were recently imposed by the fed on the ability of a small business to pay it's employees in a manner consistent with the profitability of the loan products they produce. confusing standards and lack of efficient guidance from the fed

has created unusual outcomes. for example, the current rule severely impacts revenue bond programs that serve low to moderate income and rule borrowers. these programs typically limit fees and that can be charged to the borrowers, yet the loan officer compensation rule specifies the loan officer must be paid exactly the same on these loans as any other. that can cause prolasses and many will be unable to offer the affordable loan programs. we urge the bureau to clarify this and other problematic issues with the compensation rule. we respectfully urge congress and the subcommittee to carefully coenamor all of these new rules and be certain they do not harm american families, small business, the mortgage market, housing recovery, or the nation's economic recovery. i thank you very much for the opportunity to testify before you today. >> thank you. thank you, mr. jones. i would moe now like to recognize ranking member altmire

from pennsylvania who's going to introduce our next witness. >> thank you, mr. chairman. it is my pleasure to introduce adam levitin, mr. levitin is professor at the georgetown university law center in washington, d.c. where he teaches courses in bankruptcy, commercial law, and consumers finance. he is previously served as a scholar in resident at the american bankruptcy institute and as special counsel to the congressional oversight panel supervising t.a.r.p. before joining, professor levitin practiced law and served as a law clerk for the u.s. court of appeals for the third circuit. professor levitin holds a jd and degrees from columbia and harvard. welcome. >> mr. chairman, ranking member, members of the committee, good afternoon. my name is adam levitin. my research and teaching focuses

on consumers finance and regulation. i'm also a small business loaners. the consumers financial protection bureau has limited generally in direct to small business finance. with three very limited exceptions. the cfpb's jurisdiction is restricted to consumers financial products. while many small businesses use consumers financial products like personal credit card and home equity lines of credit, small business needs, deserve, and want the same protections on their financial products whether they are using them for personal or business use. thus, the national small business association has advocated for truth and lending act protections to small business credit cards. there are only two ways the cfpb might directly affect small business lending. first, the dodd-frank act requires the cfpb to collect data on small business lending under the equal opportunity act. this is to ensure against discriminate tour lending in the small business space.

it will also provide an important protection for small businesses, particularly those owned by women and people of color. more generally though, the cfpb has regulatory authority over almost all consumers financial service providers, large and small. the cfpb regulations could affect the cost or availability of business credit. but i want to emphasis, this is premature to judge the impact on financial service providers, much less -- or the impact of the cfpb on small business credit costs and availability. instead, individual rules will need to be evaluated on their own merits when and if they are proposed. the dodd-frank act imposing numerous safeguards on cfpb rulemaking to ensure against unnecessary regulatory burdens. cfpb rulemaking and adjudication is subject to the procedures act and the regulatory fleckability act. the cfpb is one of three agencies required to have

regulatory flexibility review panels under the small business regulatory enforcement fairness act. the cfpb is required to consult with regulators and to re-evaluate within five years. initially, the cfpb is subject to financial stability oversight council for the rulemaking, which is unlike any other bank regulators. finally small banks and all but three credit unions are exempt. they remain with the existing regulators. i want to emphasize that this is a battery of safeguards that's not -- that does not apply to any other bank regulator. also pointing out the cfpb is likely to help. the cfpb can help improve competition by ensuring that consumers -- that consumer financial products which are used by small businesses are fair and transparently priced. small businesses want to use fair and transparent products.

second, the cfpb can help small businesses by help small business customers. when consumers feel confident that they won't get caught by financial product tricks and traps, they are going to have greater willingness to make purchases including from small businesses. and the cfpb can help protect against consumers asset, and thus smooth the volatility of consumers spending, that means more same business which benefits. in short, the cfpb has limited jurisdiction over small businesses. it's subject to numerous safeguards to ensure against accessive regulatory burdens on small business and may help increase the efficiency of small business lending by increasing consumers confidence and spending stability. thank you very much. >> thank you, mr. levitin. >> the final witness is daniel fleming, president and truck renting and leasing business in

springfield, virginia. fleming leasing is a family-owned business founded in 1903 with a transportation services they were provided -- providing consistent of a horse and buggy when they started. mr. fleming is testifying on behalf of the truck renting and leasing association that mr. -- mr. fleming, you have five minutes to present your testimony. >> thank you, mr. chairman. thank you, mr. altmire. as you said, my name is dan fleming, i'm president of fleming national lease in springfield, virginia. our company is a member of the truck renting and leasing association or trala. i'm testifying on the dodd-frank act section 751, the collection provision. fleming national is a family-owned business with 18 permanent employees, locations in springfield, virginia, and landover, maryland. we're a proud member of trala,

an association of 550 companies, employing 120,000 throughout the united states. not only are all of trala's 550 members small businesses themselves, but the vast majority of customers that we deal with are also small businesses, in search of vehicles or equipment for rent or lease. part of the process in acquiring is to fill out an application of credit. as written section 1071 adds new application requirements to the ecoa. these requirements will be offered by and monitored through the cfpb. while they certainly do not operate a bank, under the definitions listed within the new law, i am considered because i have an application for credit for my customers. in my opinion, the small business data is counterproductive, contradictory, costly, and confusing.

it's counterproductive in that cfpb was created with the intention of giving consumers protection from the predatory lenders and allowing them to find more information for obtaining a loan, but now intended to regulate commercial loans and lenders. it's contradictory in a statutory language conflict -- >> the senate is returning now. we're going to leave the program. it's available to watch online c-span.org. here's harry reid.

>> after spending much of today debating, the senate has recessed while they wait to react. a vote in the house on that will not take place tonight. when the senate returns, we'll have live coverage here on c-span2. we now go back to the small business subcommittee hearing. >> exemptions that exist. just a touch on this final point, since section 1071

amended the ecoa, both the cfpb and the federal reserve now have jurisdiction over entities such as auto dealers. i believe it's imperative if the new law was enacted and enforced, regulators must coordinate the implementation of the new requirements. if not physical companies might receive different data from the dealers that than which would be required to file with the cfpb and open an entirely new problem. while i recognize the fact that the cfpb has now decided it will issue a formal rule that will address and answer some of the consumers qualities within the law, ultimately, i remain unconvinced there's a reason to have such a rule implemented for businesses like my own. i'm not a banker. i lease trucked. to be placed in the same category makes no sense to me. in my opinion, making a truck leasing company or any small business comply with section 1071 is a mistake.

thank you for allowing me to issue my testimony today. >> thank you, mr. fleming. questions. i'll start with mr. jones. on a scale of 1-12, -- 1-10, how would you rate the outreach on the mortgage disclosures forms that they are currently in the process of revising? >> thank you, chairman, coffman. i would rate them at a six or seven. especially compared to previous regulatory form changes. i think they really have reached out and provided an opportunity for our members and members of the mortgage lending community to comment on those forms. >> thank you. with your 40 years of mortgage lending experience, can you tell me what happens if an entity is

seen by it's customers as being abusive? >> i think what -- if an effectty is -- entity is seen as abusive, they stop using the lender. i think good business is in our business and any business have to be close to the customers. and that's, i think, is one the real benefits of being a small business. and being located with your customers in the same towns and going to the same meetings and the same social functions and it's critical that you have good customer relationships. >> mr. sharp, we hear frequently there's a fight between main street and wall street. however, the economy is interconnected, we must make sure both are healthy if we want to grow our economy. can you tell me about the impact that financial regulations will have for main street small businesses? >> yes, mr. chairman. thanks for the question.

as i said in my testimony, it's hard to know exactly what the impact will be. and i think we heard that from the first panel as well. our concern that, you know, small businesses have the hardest time and the most expensive time really complying with new regulations. as you know, there are, you know, a flood of regulations headed their way. and in this space in particular, our concern is that come companies maybe directly regulated who didn't expect to be regulated as my fellow panelist has mentioned and others may find the access to credit lines or credit instruments that they rely on are more expensive or unavailable. there's no way to know for sure what the impact is going to be. but those are the two areas where we are hopeful that there won't be an adverse impact. >> can you tell me how small businesses use the equity in

their home to finance small businesses, particularly in early stages of development? >> sure. i think it's pretty widely accepted that the smallest businesses, you know, the two guys in a garage kind of, you know, very early stage of the small business. i think, you know, if you look at google or some of the tech giants, you can trace them back to a couple of guys in a garage with a personal credit card or someone borrowing against their house or car. of course, you grow out of that phase at some point. you know, you have access to the capital markets. but it's -- each of those tools which are not, you know, designed to be for commercial lending have become critical lifelines for small businesses. >> based on your experience in government and observing the cfpb, do you think they are prepared to assume authority? or do you feel they have been rushed? >> well, you know, a year sounds like a lot of time.

but it's really not to stand up a brand new agency, particularly when you have a responsibility to sort of gather up bits of law, i think in seven other agencies. i think the statutes are consolidating under one roof. so we do have a concern that they are moving awfully fast. we don't -- you know, i think on the transfer date, they began to issue, they began to issue interim final rules which essentially says this is the final rule, but reare going to continue -- we are going to take comments and adjust as needed. some cases that's good, some case we may have concerns that we are trying to keep up as well. i don't think a year is enough time for the bureau to have gone active. particularly without a confirmed director. i think it creates serious challenges. >> mr. fleming, you mention compliance cost in your testimony. can you reiterate how much will it cost for your business to

comply with the new data requirements? >> again, mr. chairman, i'm estimates that we may have to add at least a part-time clerk. it's such a small business and plat. that's really a significant investment for a position that doesn't add to the bottom line. i prefer to spend those funds on a mechanic or some equipment that adds to revenue to our customer. you know, we are constantly look for good qualified diesel technicians to fix our truck, keep them on the road, to help produce revenue. while again i said one part-time position seems small, that really would be better used in a revenue-generating type position rather than an administrative burden to comply with potentially new federal regulations. >> do you feel taken advantage of by the banks that you work with? if so, do you just switch banks or providers? >> we -- actually we did switch our banking relationship. i wouldn't say i felt taken

advantage of. but just didn't feel that it was working for us. we had a relationship with banks out in ohio and changed those banking relationships. i think as other members of the panel said, it's a free market. there are certainly plenty of other opportunities for us. we took advantage of other opportunities when they presented themselves. >> thank you. mr. lev tin, according to the office of advocacy, small businesses create seven out of every ten jobs. yet you claim that small businesses contribution is limited. do you disagree about the importance of small businesses and helping our country recover from 9% unemployment? >> no. i do not disagree with that. they point out that what i said is entirely consistent with the small business administration's offices -- office of the advocate. small businesses create a tremendous number of jobs every year. but the general sort of small businesses unfortunately

failure. most small businesses don't last for more than a couple of years. instead, you get churning, rather than stable long-term employment. >> okay. as a professor, i would assume that you see the value of lawyers drafting contracts and committing agreements to writing. this creates certainty. how can in plain language increase certainty in contracts. i can see the value in getting rid of legalese, don't contracts require language that cannot always be made into quote unquote plain language? >> it really depends on the specifics here. i think the cfpb, i think where your question is going, how is the cfpb going to help make markets more efficient? getting rid of unnecessary legalese is something that everybody would think is wonder. that's move one. as you point out, not everything can be boiled down to legalese. the second part is ensuring when business goes out, or consumers goes out and compares financial

products, they can compare them on an apples to apples basis. it's actually very difficult to do right now with many financial products. it's not like going to a grocery store where there's unit pricing where you can see the cost for an ounce of orange juice for brand one and brand two. many financial products are designed in a way too complex to compare on apples to apples bases. the cfpb maybe able to encourage that by encouraging standardization to the things that consumers want. >> thank you. mr. altmire? >> thanks, mr. chairman. mr. levitin, i wanted to follow up on a question that i asked to the earlier panel, regarding the fact that injures use personal credit cards and home equity loans. many of mention that in your testimony. how should you in your opinion the cfpb account for these small business owners when drafting

regulations specifically for credit cards and home mortgage products? >> well, as someone who actually using a small business credit card for some purchases, i think it's important to note that many small businesses use the same credit card for the business transactions and personal transactions. and so say you are going and filling up your car with a tank of gas. :