Mr. HOBDAY. We will take care of that.

Mr. KLUCZYNSKI. We would appreciate it.

If there are no further questions, thank you very much, Mr. Hobday, for your splendid statement.

Mr. HOBDAY. Thank you, Mr. Chairman.

Mr. KLUCZYNSKI. The next witness will be Mr. George S. Bullen, legislative director, National Federation of Independent Business. Mr. Bullen, for the record will you let the reporter know the gentleman with you.

TESTIMONY OF GEORGE S. BULLEN, LEGISLATIVE DIRECTOR; ACCOMPANIED BY JEROME GULAN, CONGRESSIONAL LIAISON, NATIONAL FEDERATION OF INDEPENDENT BUSINESS, WASHINGTON, D.C.

Mr. BULLEN. Mr. Chairman, I am George S. Bullen, legislative director, National Federation of Independent Business. I have with me my assistant, Mr. Jerome Gulan.

Mr. KLUCZYNSKI. You may proceed.

Mr. BULLEN. Mr. Chairman, I want to take this opportunity to thank you for inviting the National Federation of Independent Business to testify before your subcommittee on a matter which we feel is of prime importance to millions of small businesses located in "smalltown America." I am sure I can freely say that the small business community of this country will be eternally grateful to this committee, if as a result of these hearings, you will be able to recommend solutions to at least some of the complex problems our rural small businessmen are encountering.

The National Federation of Independent Business, founded 24 years ago, now represents more than 234,000 independents. This means that approximately one out of every 20 small businessmen in the country is a Federation member. Our membership is representative of all facets of the business spectrum including retailing, wholesaling, manufacturing, and the service trades.

A check of membership percentages in each category shows that the composition of the federation is within a very few percentage points of the national makeup of the small business community. Therefore, we feel that we can reasonably say that the views expressed by our members can be taken as valid cross section of the views of all 4.7 million small businesses. I would also like to add here that of our almost one-quarter million members, 85 percent are located in submetropolitan or rural areas, so their views should be apropos to the area you are looking into.

It has already been established that "smalltown America" is steadily growing smaller and that the metropolitan megalopolis is growing larger. The most recent information available at the Census Bureau shows no reversal of this trend as yet.

The Federal Government, with all the vast resources and technology at its disposal, has not yet been able to solve this problem. Many of its programs have helped to ease small business problems, while others have not done as well. We believe that those programs which stress the self-help idea are the more worthwhile for they place

upon the business community itself the prime responsibility for its success or failure. Small businessmen tell us repeatedly that they are more than willing to go into the marketplace to fight for survival. Provided there is a favorable opportunity climate for small business, they have always come through. This has been the history of small business, and this is why they have always been called the backbone of our Nation.

The problems faced by rural small business today are almost innumerable. It would probably take hours of continuous testimony to merely explore a small portion of them. Accordingly, we would like to confine our remarks to two areas which we feel are most significant to the present unhealthy posture of rural small business. These two areas are concerned with wages and tax treatments as they apply to small business.

WAGES

Our members are becoming increasingly disturbed with problems which seem to have been brought about by the recent increase and extension of coverage of Federal minimum wage laws. As you are aware, the small business community accounts for more than 30 million jobs out of a national labor force of a little more than 70 million. To small business has fallen the task of employing the lesser skilled, the marginal employee, the part-time employee, et cetera. Small business has fulfilled this task admirably, but whether it can go on doing so is questionable.

The federation is in the process of conducting a yearlong survey designed to give us some sound data on small business employment trends, financing problems and capabilities, franchising arrangements, expansion potential, et cetera. Thus far, based on approximately 15,000 responses, we are finding that 15 percent of the businesses who say they have reduced their employment claim that such action was necessary due to the imposition of the new minimum wage laws. This result is noted largely in smaller communities and rural areas. With your permission, Mr. Chairman, I would like to quote from the remarks made by some of our survey respondents:

A beverage distributor in the Rocky Mountain States employing 30 people reports, "We are now paying $1.40 per hour for people to sort bottles and paper cartons. This is work we used to hire high school boys to do." This firm then goes on to report, to avoid paying this rate for this task, and also to avoid overtime, they are installing this year some $60,000 worth of machinery to do the work, and will then reduce their employment by a minimum of 15 percent. A laundry owner in a central midwest town of less than 25,000 population, employing 40 people, reports being forced to lay off five people with more to be dismissed. He reports, "Prior to the present minimum wage law we had several persons *** slow thinking and slow in physical movement. We had taught them to do a specific job. They did the work-at a slow production rate and earned about 75 cents per hour. This rather small income enabled them to be self-supporting. In terms of productivity their wages were equal to employees earning $1.25 per hour. The 75 cents per hour was all that these people were physically able to produce. These people have been unable to find work since leaving us. Now the sad part is that we will be forced to lay off some more of our marginal people *** that have been with the company for years." Another laundry and dry cleaning operation in a wheat belt town of less than 6,000 population, employing currently 20 people, reports the minimum wage law forced it to lay off six full-time employees and two part-time workers.

The owner reports he has a ten-year loan from the Small Business Administration to enable him to handle school laundry contracts. However, he could not meet the new minimum wage required to hold the contracts and so lost them. The business is hopeful of retaining the present reduced working force by going into new operations such as rug and carpet cleaning. He writes, "We don't feel the high economy and profit has reached us out here in the country, but costs have magnified, giving a squeeze effect to the small operator."

A druggist in a New York City suburb reports, "I have used several students to do menial tasks such as shoveling snow, window washing, sweeping floors, et cetera, but can't afford them at $1,50 per hour. The clause allowing the special permit for this at $1.25 does not help, as it allows only 10 percent of the employees to work at $1.25 per hour."

A Florida citrus packer who normally employs 50 people is cutting down employment rapidly and at the same time is also reducing the quantity of fruit handled for concentrated juice. He writes, "We are faced with the possibility of some of our lower grade fruit going to economic abandonment. Some citrus fruit now being delivered to processors will not pay out the cost of picking and delivering the fruit much less the cost of production. The Fair Labor Standards Act should be repealed."

From all parts of the Nation we are getting equally as detailed reports of the physically handicapped being thrown out of work, of businesses closing, of automation being installed to cut down on labor costs, and even of farm products going to waste rather than being processed. We are watching these responses very carefully to see how much deeper the current job attrition will go, and we are planning a full-scale review later this summer.

Although the Fair Labor Standards Act presently exempts many businesses who have annual gross sales volume of less than $500,000, this dollar volume test is scheduled to drop to $250,000 in 1969. Since so many small businesses are already being adversely affected, we shudder to think how many more will be hurt when the dollar volume test is cut to one-half its present amount. Furthermore, as a result of the 1967 extensions of coverage, certain categories of business such as laundries, drycleaners, clothing or fabric repair shops, construction firms, et cetera, have been brought under the act, regardless of their business or sales volume. These are the small businesses who seem to have been the hardest hit.

Mr. Chairman, we urge that this committee study the effect of the minimum wage laws as they apply to these small businesses, with the idea in mind of once more providing exemptions to certain categories, particularly those which are finding it impossible to comply with the present law without being forced to drastically reduce employment, or worse yet, cease doing business.

TAX TREATMENT

In 1962, the Congress passed the 7-percent investment credit as an incentive to manufacturers to increase their investments in machinery and equipment. The resulting stimulation of capital expenditures proved the wisdom of this legislation. Business spent money, modernized, increased production capabilities. The investment incentive proved to be a boon to the manufacturing segment of the country. But what of the retail, wholesale, and service firms? These firms that comprise almost three-fourths of all small businesses do not make extensive use of heavy machinery or equipment, and therefore, have only been able to profit marginally from the tax relief brought about by the 7-percent investment credit.

For a number of years now, many Members of Congress have supported a plowback principle; that is, assisting small business by granting a tax credit based not just on additions to machinery, but also on increases in inventory and accounts receivable. These two factors represent the most important financial elements to the majority of small business enterprises. Adoption of this plowback principle would be especially effective in rural areas where the majority of small businesses are engaged in retailing. Since such legislation has already been introduced by several Members in the House, we feel your subcommittee might do well to study the merits of such a tax credit, and if deemed desirable, recommend that the appropriate legislative

committee take action.

Another tax incentive already introduced by the chairman and several members of the full committee could go a long way toward combating rural problems, and create new enterprises and jobs in needy areas, all without additional expenditure of Federal funds. As you are probably aware, this legislation provides tax incentives for setting up new enterprises employing at least 20 people in areas defined by the Secretary of Agriculture as "economically underdeveloped." A tax credit equal to 7 percent of the initial investment would be allowed. In addition, if property is developed to set up a business, an additional tax credit as high as $25,000 per year would be granted for a 5-year period. A business launched under this program would have to guarantee hiring at least 50 percent of its employees from the local area. Exceptions to this hiring policy would apply to people who, immediately preceding employment, had been serving in the Armed Forces or the Peace Corps.

We feel that this type of tax incentive could prove quite beneficial to rural areas in need of local business enterprises to help bolster their economy.

In closing let me assure you that the 234,000 members of the National Federation of Independent Business have been long aware of, and are experiencing the problems inherent in the development of rural America. Although we have no hard or fast solutions to these problems, I think that perhaps the best summation of the attitudes of our members might be contained in a statement by James Sundquist of the Brookings Institute as published in a recent issue of the Grange:

What is lacking is a national policy toward rural America. There is no policy to check forced involutary migration from the countryside to the cities * * * there is no policy to relocate economic opportunity instead of relocating people. Mr. Chairman, these hearings could well prove to be the beginning of the formation of this much-needed policy.

Mr. IRWIN. Thank you, Mr. Bullen.

Mr. Burton, any questions?

Mr. BURTON. I would like to compliment Captain Bullen on an excellent statement, a statement which offers solutions as well as raising some problems.

Mr. Bullen, on page 6 you mentioned that a number of the Members of Congress have supported this plowback principle that you outlined for us. Can you tell us who some of these Members are?

Mr. BULLEN. Yes. Mr. Multer of the Small Business Committee introduced a bill; Congressmen Corman and Chamberlain have introduced bills.

Mr. BURTON. Who?

Mr. BULLEN. Chamberlain of Michigan.

Mr. BURTON. That sounds like a pretty good principle to me. You can add my name to that list.

Mr. BULLEN. Mr. Burton, we polled our members on this plowback principle any number of times. It has great appeal to them, and they have consistently voted 88 to 89 percent in favor of such.

Mr. BURTON. It is your organization that sends the Members of Congress these polls we get from time to time.

Mr. BULLEN. Yes.

Mr. BURTON. I appreciate receiving those and pay attention to them. I would also like to say that the federation has very competent Washington representatives.

Mr. BULLEN. Thank you.

Mr. BURTON. That is all, Mr. Chairman.
Mr. GULAN. Thank you, Mr. Burton.
Mr. IRWIN. Mr. Horton.

Mr. HORTON. Thank you, Mr. Irwin.

I, too, want to add my congratulations to you on a very fine and a very succinct statement. At the introduction of your statement, you indicated that there are innumerable large problems, but you concenrated on two areas which I think the small businessman should be very much concerned about. You have done an excellent job in treating these two problems in a very concise manner.

I know from experience in my district, where there are great numbers of small businesses, that these are two areas of concern to the small businessman. There are other areas I am sure where tax treatment can be beneficial. I am sure that you don't mean to exclude them in your statements here.

Mr. BULLEN. No, sir.

Mr. HORTON. What you are trying to do is to point out that we have to stimulate interest in small business by giving tax credits or tax benefits to the small businessman so that he can favorably compete with the large businesses.

I think that part of the problem we have is that in order to keep people in small business we must give them some incentive to stay in business and to fight this big competition that they encounter. I want to emphasize also, as you have, that tax treatment is one of the means by which it can be accomplished. We can, by giving incentives in the tax field, encourage the small businessman.

In addition to the things you are talking about here I have introduced legislation and testified before the Ways and Means Committee with regard to the amount that the small businessman contributes for social security purposes. This, I think, is something that ought to be looked at very closely. In the case of big business and big industry the employer pays half and the employee pays half, but the small entrepreneur, the small businessman, has to pay the full amount by himself. Yet, he gets very little benefit. I have made some recommendations in regard to that.

Mr. BULLEN. I think our members would certainly back you on it, Mr. Horton. We haven't polled them on it, but I think it would be a very good idea if we did poll them on this question.