February 02,2010

Grassley: Treasury Secretary Downplays Impact of Tax Increases on Small Businesses, Jobs Affected

Small businesses, tax increases, jobs

Treasury Secretary Timothy Geithner, in testifying before the Committee on Finance today, said that raising taxes on upper-income taxpayers would affect only 2 percent to 3 percent of small businesses. Sen. Chuck Grassley, ranking member of the Committee on Finance, made the following comment in response.

“The Administration continues to downplay the effects of raising taxes on small business owners. The 2 percent to 3 percent figure assumes a one-person hot dog stand employs the same number of people as a 100-worker metal fabrication plant. When you look at the numbers, you see there are more than 20 million workers in those firms directly targeted by the higher marginal tax rates. When looking at the impact of raising taxes on small businesses, we need to consider the number of potential jobs on the line. So far, I see a real disconnect between the Administration’s stated interest in helping small businesses and creating jobs and the response my colleagues and I get when we try to drill down on the real-world effects of Administration policies, including choking small business with higher taxes, new regulations and mandates, and restrictive lending.”

Here is some background analysis:

According to the Small Business Administration, there are almost 120 million private sector workers in the United States. Slightly more than half those workers, 60 million, work for small business. About two-thirds of the nation’s small business workers are employed by small businesses with 20 to 500 employees.

According to Gallup survey data conducted for the nation’s largest small business advocacy group, the National Federation of Independent Business (NFIB), half of the small business owners in this group fall into the current 33% and 35% tax brackets. This means there is a pool of more than 20 million workers in those firms directly targeted by the higher marginal tax rates.

The 20 million worker calculation is a conservative estimate. It does not take into account the millions of regular “C” corporation small business firms. It also does not take into account the flow-through entities with one to 19 workers. Finance Committee Republican staff are working on these estimates. When these analyses are completed, they will be made available.

Moreover, data from the Joint Committee on Taxation, the nonpartisan official scorekeeper for Congress on tax issues, show that 47 percent of income from flow-through entities is subject to the tax increases resulting from the increase in the top two rates. These entities tend to be the entities of choice for small businesses.

Last December, Grassley protested the Treasury Department’s favorable tax treatment for government bailout participants, including Citigroup, while the agency was placing certain liens on small businesses contrary to congressional intent. The IRS ultimately agreed to stop placing new liens on small business in the category at issue and to review cases where liens were already placed for hardship.