Statements on Introduced Bills and Joint Resolutions

STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS -- (Senate - February 01, 2005)

By Mr. KERRY (for himself, Mr. LEAHY, Mrs. MURRAY, Mr. ROCKEFELLER, Mr. DURBIN, and Ms. STABENOW):

S. 240. A bill to mend the Internal Revenue Code of 1986 to allow small business employers a credit against income tax with respect to employees who participate in the military reserve components and are called to active duty and with respect to replacement employees and to allow a comparable credit for activated military reservists who are self-employed, and for other purposes; to the Committee on Finance.

Mr. KERRY. Mr. President, the continuing activation of military reservists to serve in Iraq and the war on terror has imposed a tremendous burden on many of our country's small businesses, their employees and their employees' families. Too many small businesses, when their employees are asked to leave their jobs and serve the Nation, are unable to continue operating successfully and face severe financial difficulties, even bankruptcy. At the same time, more than 40 percent of military reservists and National Guard members suffer a pay cut when they're called to defend our Nation. Most large businesses have the resources to provide supplemental income to resist employees called up for active duty and to replace them with a temporary employee. However, too many small businesses are unable to provide this assistance (or temporarily replace the employee called up to active duty. I believe the Federal Government must take action to help small businesses weather the loss of an employee to active duty and protect small business employees and their families from suffering unnecessary financial hardship to serve our Nation. That is why I am again introducing legislation that will provide an immediate tax credit assist both military reservists who are called to active duty and the small businesses who must endure their absence.

The Small Business Military Reservist Tax Credit Act that I am introducing today will provide immediate help to affected small businesses through a Federal income tax credit and a reduced withholding requirement to help pay the difference in salary for a reservist called up to active duty and the cost of temporarily replacing that employee while he or she is serving our Nation. Specifically, the bill will provide a tax credit of up to $21,000 to any very small business, defined as any business with up to 50 employees, whose employee has been called up for active duty. Up to $15,000 for businesses that pay any difference in salary for the activated reservist and up to an additional $6,000 for the business to offset the cost of hiring a temporary replacement. For small manufacturers with up to 100 employees, the bill will provide a tax credit of up to $30,000, up to $20,000 for small manufacturers that pay all or part of the difference in salary for the reservist called to duty and up to $10,000 for small manufacturers to offset the cost of hiring a temporary replacement. This tax credit is critically necessary if we are to immediately help struggling entrepreneurs keep their small businesses running after the loss of an employee to temporary military service. Too many American small manufacturers are already facing a difficult economy and strong international competition. This legislation provides higher thresholds for small manufacturers because they need greater help and they employ more technical workers who typically command higher salaries and are more difficult to replace. It will also help cushion the financial cost of being a citizen solder for our reservists.

To fight our wars and to meet our military responsibilities, the United States supplements its regular, standing military with reservists, citizen soldiers who serve nobly. Since 1973, the United States has built an all-volunteer military of which reservists are an essential part. Our reservists are much more than weekend warriors. When they are called to active duty, they are an essential ingredient of any long-term or significant deployment of American forces. Everyone knows the contributions our reservists have made in the Army, Navy, Air Force, Marines and Coast Guard. They have been serving our country with distinction and pride for many years and should not be penalized financially for their honorable service. The use of reservists is a significant way to reduce the costs of maintaining a standing army, and those costs, in lieu of having a critical reservist component, are far higher than the cost of providing the small, targeted tax credit offered by this legislation.

Reservists have become a vital component of U.S. forces in Iraq and the war on terror. On September 14, 2001, President Bush issued Executive Order 13223 authorizing the activation of up to 1 million military reservists for up to 2 years of active duty. Since October 2002, there has been a presidentially approved ceiling of 300,000 on the number of reservists that can be on duty at anyone time. Some 475,000 reserves have been called up cumulatively since the issuance of the original Executive Order. Today, there are about 193,458 reserves on active duty in the war against terrorism. Of the approximately 150,000 troops serving in Iraq, 40 percent are reserves. This number is expected to increase to approximately 50 percent in the near future as current troop deployments mobilize.

Earlier this month, published reports showed that Lt. Gen. James R. Helmly, the Commander of the Reserve, has told Army Chief of Staff General Peter J. Schoomaker that the burdens placed on military reservists since the September 11, 2001 attacks, combined with dysfunctional Pentagon policies, have damaged morale and retention and threaten to turn the Army Reserve into a broken force. Lt. Gen. Helmly criticized Pentagon decisions to extend reservists tours in war zones, giving troops as little as 3 days' notice before mobilizations, and calling reservists to active duty after they had served and returned to civilian life. Such policies have strained the Army Reserve to the point that the 200,000 force could be unable to carry out future missions.

Both the Army Reserve and National Guard have suffered shortfalls in recruitment because of the unpredictability, extended call-ups and stop loss policies associated with the Iraq war. National Guard officials said last month that the service must be overhauled.

Everyone knows that small businesses continue to be a most effective at creating new jobs and spurring economic growth nationwide. Small businesses employ over 50 percent of the nation's workforce. Nationwide, small businesses are currently creating 75 percent of new jobs. Furthermore, many of these small businesses provide quality goods and services that are a vital link in the supply chain for our national defense. Many of these small companies need immediate help to keep their business going while their employees are sacrificing for our country in Iraq and elsewhere.

Many of our reservists left their companies in good shape. They were profitable, providing goods or services, creating jobs, adding to the tax base. Our Nation should do everything possible to ensure that upon their return, reservists and their businesses do not suffer unnecessary hardships, which range from impaired operations and financial ruin to deserted clients, layoffs, and even closure. Pedro Sotelo, a 33-year-old veteran from Kansas City, MO, was a reservist for 9 years. From 1997 to 2004 he was called up to active duty 10 times. Each time he was activated, he saw his income drop from $60,000 a year as a small business sheet metal worker to about $30,000 the Army paid him as a staff sergeant. While he was away serving his country, the bills would just keep pilling up. Eventually his credit rating plummeted. The continual financial strain contributed to the end of his first marriage, and after 9 years of service, Mr. Sotelo left the military to take a job selling cars. He is still recovering from the financial ruin created by his service, but I am happy to say that Mr. Sotelo has remarried and was recently promoted to manager at his dealership. Had the bill I introduce today been available for Staff Sergeant Sotelo, his small business employer could have kept his income steady and received a tax credit to cover half of the costs of doing so.

Beyond the hardship of leaving their families, their homes and their regular employment, 41 percent of military reservists and National Guard members, like Staff Sergeant Sotelo, face a pay cut when they're called for active duty in our armed forces. Many of these reservists have families who depend upon that paycheck to survive and can least afford a substantial reduction in pay. Unlike many big businesses that can afford to provide supplemental income to make up for the salary disparity for military reservists called to active duty, most small businesses cannot afford to provide this benefit. This makes it more difficult for small businesses to attract and keep workers. I think it is imperative that we help families of reservists maintain their standard of living while their loved one serves our Nation. We must ensure that our great tradition of citizen soldiers does not fade or stop because of the effect service has on work and family.

Back in 1999, I wrote the Military Reservist Small Business Relief Act, which was enacted into law during the 106th Congress and authorized the Small Business Administration (SBA) to defer existing loan repayments and to reduce the interest rates on direct loans that may be outstanding, including disaster loans, for small businesses that have had a military reservist called up for active duty. It also established a low-interest economic injury loan program administered by the SBA through its disaster loan program. These loans have been available to provide interim operating capital to any small business when the departure of a military reservist for active duty causes economic injury. However, in today's economy, many small businesses are unable to take on additional debt to continue their operations. These small businesses need immediate tax relief to assist them in hiring a replacement and to pay their reservist worker who is away serving our country.

This bill will help every small business whose owner, manager or employee is called to active duty. Most immediately, this bill will assist those small businesses whose employees are in service in Iraq and elsewhere but the act also applies to future contingency operations, military conflicts, or national emergencies.

By helping our reservists and the small businesses that employ them, we can ensure that our great tradition of citizen soldiers does not fade or stop because of the effect service has on work and family.

I ask all my colleagues to support this important legislation to help both military reservists and the small businesses they are forced to leave when they are called up for active duty.

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