News From the
Committee on Small Business
Nydia M. Velázquez, Chairwoman

For Immediate Release CONTACT: Press Office

June 12, 2008 (202) 226-3636

Committee Reviews Potential Effects of Proposed Electronic Payments Tax Reporting

WASHINGTON, D.C.- In a hearing held today, expert witnesses and the Committee on Small Business explored the effects of a new tax reporting proposal. The measure would require small companies to file tax reports on all credit card receipts and, while developed with the best intentions, would threaten both the privacy and livelihoods of countless entrepreneurs.

“At first glance, this measure seems like a reasonable means of tracking financial records and a sensible way to plug the nation’s tax gap. Upon further review, however, it becomes clear it could have some potentially disastrous effects on small businesses,” said Committee Chairwoman Nydia Velázquez. The Chairwoman added she would be sending a letter to Ways & Means Chairman Rangel on the matter and asking the General Accounting Office to conduct a study detailing the costs of implementing the proposal.

Chairwoman Velázquez also went on to say that: “Rather than driving new revenue, the measure would saddle small firms with a myriad of privacy concerns and undue financial burdens.”

On a logistical level, the proposal would make for an accounting headache of colossal proportions: For a small business owner who receives thousands of electronic payments—many for sums of $20 or less—reconciling returns with records would be a painstaking, time-consuming process. Banks, meanwhile, would be required to report merchants’ Social Security numbers on these returns, opening a Pandora’s Box of potential privacy concerns:

“Given the vast array of privacy issues already facing Americans, a tax proposal that compounds the problem just doesn’t make sense,” said Chairwoman Velázquez. “It’s troubling to think that we would knowingly increase the potential for identity theft.”

The proposed measure would also place an undue financial burden on many small businesses. Entrepreneurs could see up to 28% of their proceeds siphoned off and sent to the IRS. In other words, a small business with earnings of $100,000 would only receive $72,000. The additional $28,000 would languish in IRS coffers. With the majority of small firms operating on tight profit margins, a 28% earnings loss could force many small businesses to close their doors permanently.

Chairwoman Velázquez added, “This proposal would do far more damage than good. When it comes to running a successful business, entrepreneurs have enough on their plates—the last thing they need to worry about is losing capital or having their identities stolen.”

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Click here to read witness testimony.

Click here to view video of the hearing.