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Statement of the Honorable Judy Chu, Ranking Member

House Committee on Small Business

Subcommittee on Economic Growth, Tax and Capital Access

“American Competitiveness Worldwide: Impacts on Small Businesses and Entrepreneurs”

Good morning!  Today’s hearing will provide insights into U.S. competitiveness and what we as policymakers need to do to keep America one step ahead of this rapidly changing world.  Professor Michael Porter and his team at Harvard Business School have spent years studying this topic, and today Professor Porter will share the insights that they’ve put forward in their study, “Restoring U.S. Competitiveness.” Among the suggestions we will hear about are the need to reform our tax code and fix our broken immigration system. I look forward to exploring each of the witnesses’ recommendations on how we can make America more competitive.

American competitiveness is fundamental to what makes this country so great. The United States continues to be the world’s largest economy, with a Gross Domestic Product of nearly $15 trillion, followed far behind by China at only $7 trillion. We continue to be the world’s largest manufacturer.  Our military’s power and technological capabilities are rivaled by no other country on earth. In my own state of California, we have Silicon Valley and Hollywood – the world’s leaders in technology and entertainment industries.

Small businesses are central to achieving this high level of innovation. Research has found that small firms are much more likely to develop emerging technologies than are large firms. Although small firms accounted for only 8 percent of patents granted, they accounted for 24 percent of the patents in the top 100 emerging clusters.  Ensuring that small firms have the tools and resources they need to continue this work is critical not just to their own success, but also for America’s leadership in the global economy.

In recent years, however, both small and large businesses are struggling to recover from the worst recession since the Great Depression, and experts worry that as a result, America is losing ground on competitiveness.   Americans’ wages have been stagnant for years.  Our roads, bridges and ports are crumbling.  Our immigration system is broken.  Scholars and experts worry that the U.S. is falling behind on manufacturing, education, infrastructure and innovation. 

Today we will hear experts share with the Committee a variety of policy recommendations on how to make America the leader in global competitiveness.  One of those key issues is improving the tax code.  I certainly agree that we need tax reform to make the code simpler.  I would ask, however, that we keep in mind a recent study by the Government Accountability Office which found that most American profitable companies only pay a fraction of the taxes they owe under the official corporate rate of 35 percent.  When they took into account deductions and legal loopholes, American corporations only paid a 12.6 percent tax rate on corporate profits! So as we engage in a conversation about tax reform, we must ensure that corporations pay their fair share and that our country’s middle class and small businesses don’t end up carrying the tax burden.

Corporate tax reform could also have a significant impact on small businesses. Although corporations like to advocate for a simpler tax code that gets rid of credits and deductions, lowering the tax rate by eliminating these could negatively impact small businesses that depend on these tax credits. As we start having a conversation about corporate tax reform, we need to ensure that small businesses are not negatively affected.  

One of the policy recommendations we will hear about today, offered by Professor Porter, concerns the importance of reforming our immigration system by allowing high skilled individuals who study in American universities to stay and work in this country.  Indeed,  immigration reform is vital to maintain American competitiveness.  Immigrants have made extraordinary contributions to America’s competitiveness - 25 percent of the highest-growth companies in America, including iconic success stories like Intel, Google, Yahoo, and eBay, were started by immigrants. In Silicon Valley, the world’s hub of innovation, immigrants helped found half of all technology and engineering companies, many which began as small start-ups.

I would point out, however, that we won’t be able to attract the best and brightest, if those with employment-based visas can’t live and work in the U.S. with their families at their sides. That is why fixing the family-based visa system is also critical to fixing America’s competitiveness.  In fact, immigrants are twice as likely to start a business as native borns, and there are many who come to the U.S. through the family visa system. Comprehensive Immigration Reform is a key issue in Congress right now, and it is my hope that we will to reach a bipartisan agreement that will put us back on track to restoring American competitiveness.

With this in mind, I am looking forward to today’s hearing, which will provide insights into what our country needs to do to remain the most competitive nation in the world.  Thank you Chairman Rice for convening this hearing and I yield back.

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