House Small Business Committee Chairman Sam Graves (R-MO) and Senate Small Business and Entrepreneurship Committee Ranking Member Olympia J. Snowe (R-ME) today sent a letter to Treasury Secretary Timothy Geithner about the Department’s attempt to change the definition of a small business. In the letter, Graves and Snowe expressed concern about the legal authority, justification and purported use of new definitions outlined in a Department of Treasury’s Office of Tax Analysis report from last August, titled the “Methodology to Identify Small Businesses and Their Owners.” Under the proposed definition, there are significantly fewer small businesses compared to the approximately 27 million firms that the Small Business Administration reports.
Treasury’s small business definition significantly narrows the definition based on income, deductions and how a business files its taxes. By changing the definition, the report could require some current small firms to pay corporate taxes. Treasury’s definition has already been used in various reports from the press and outside groups.
The letter was written today because the Treasury’s misguided definition of a small business may be used in this Fall’s debate on the fiscal cliff and its negative effects on small companies. A July study by Ernst and Young found that small business job creation would be hindered by the President’s proposal to raise taxes on about 900,000 small companies, costing more than 700,000 jobs. Changing the definition could make this impact seem less severe than it is in reality, and appears political.
“We understand that the Department of the Treasury’s (Department) Office of Tax Analysis released a report dated August 2011 titled Methodology to Identify Small Businesses and Their Owners (Report). As the Chairman of the House Committee on Small Business and the Ranking Member of the Senate Committee on Small Business and Entrepreneurship, we have serious concerns about the legal authority, justification and purported use of these new definitions.
“The Report states that it offers a ‘revised methodology’ to identify small businesses and their owners for policymakers. However, those policymakers are never identified, and as Chairman of the House Committee on Small Business, we were never approached regarding the need for new definitions. In addition, the Department does not appear to have legal authorization to establish such definitions.
“The Small Business Act provides the federal government’s definitions of small businesses. The Report notes that “[c]urrently, a consensus does not exist regarding the specific attributes that distinguish small businesses from other firms.” To the contrary, since 1953, the Small Business Act has provided the federal government’s definitions of small businesses.”
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