February 25,2011

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Julia Lawless, Antonia Ferrier, 202.224.4515

Hatch Calls on Obama Administration to Take Additional Small Business Tax Hikes Off the Table

Utah Senator Responds to Report About New Layers of Taxes the Administration is Considering

WASHINGTON – Responding to press reports that the Obama Administration is considering hitting small business with more tax hikes, U.S. Senator Orrin Hatch (R-Utah), Ranking Member of the Senate Finance Committee, today called on the White House to take these tax increases off the table that threaten to “destroy the economic recovery our nation deserves.”

“What does this Administration not understand?  Hitting America’s small businesses with job-destroying tax hikes, as the President proposed in his budget last week, is not how we right our economy and jump-start job creation. And, if that wasn’t bad enough, now the Administration is talking about subjecting them to double taxation.  With the vast majority of small businesses – the engines of job creation in our economy - organized as flow-through business entities, this latest idea being pushed by Secretary Geithner will pose a serious threat to the economic health of American entrepreneurs,” said Hatch. “This is a terrible idea and I urge the White House to reverse course and stop tax increases that will threaten the economic recovery our nation deserves."

During last week’s Senate Finance Committee hearing on the budget, Treasury Secretary Tim Geithner said, “Congress has to revisit this basic question about whether it makes sense for us as a country to allow certain businesses to choose whether they’re treated as corporations for tax purposes or not.” Today, Bloomberg News reported Secretary Geithner reiterated this recommendation this week in a meeting with reporters.

Flow-through businesses are entities that do not pay tax themselves, but whose income flows through to each business owner’s tax return and is therefore taxed to the business owner at their individual income tax rate.  Under current law, businesses have the option to pay income tax as a corporation or through another structure that would allow the business income to “flow-through” to the owners and be reported on the owners individual tax returns.  According to the nonpartisan Joint Committee on Taxation, 50 percent of all flow-through business income would be subject to the tax rate hikes proposed by the Obama Administration's budget released last week.

Although Secretary Geithner has consistently asserted flow-through business income is largely made up of hedge funds and law firms, data from the Small Business Administration (SBA) fails to support his theory. According to the SBA, of firms with more than $50 million in gross receipts, only 18.7 percent of gross receipts are found in the categories that contain hedge funds and law firms. (Notably, these categories contain many more business than just hedge funds and law firms.) Should Secretary Geithner act on his latest idea, a whole new level of taxation could be imposed on American small businesses.  

Senator Hatch has long advocated for comprehensive tax reform to spur investment, economic growth, and job creation in the nation.  In a speech on Monday, February 28th, Hatch will outline the need to overhaul the U.S. tax code an American Action Forum event at the Newseum, in Washington, D.C.  Next week, the Senate Finance Committee will also hold its first in a series of hearings in this Congress examining why the tax code needs reform.