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Small Business Committee Newsletter Printer Friendly Version

Small Business Committee Notes

Friday, July 28, 2006

Printer Friendly Version

 

Small Business Committee Notes

July 28, 2006 -- Issue 109-52

Phil Eskeland, Policy Director, House Committee on Small Business

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Chairman Manzullo:  Proposed IRS Rule Would Devastate Small Businesses, Hike Costs for Property Investors

On Tuesday, July 25, House Small Business Committee Chairman Donald Manzullo (R-IL) urged the Internal Revenue Service (IRS) to withdraw a proposed rule that would devastate hundreds of American small businesses and increase costs for investors who participate in like-kind property exchanges.

 

Chairman Manzullo, who chaired a full committee hearing on the issue on Tuesday, said the proposed changes to Section 1031 of the Internal Revenue Code would give a monopolistic advantage to large financial institutions at the expense of hundreds of small, independent Qualified Intermediary (QI) businesses.  In addition, the IRS did not complete an adequate Regulatory Flexibility Analysis – required by law – to assess the impact on small businesses.

 

Currently, a business or individual may defer taxes on the sale of certain property if the proceeds are used to purchase other like-kind property.  The proceeds of the initial sale are held by a business or bank that functions as a QI.  These QIs invest funds collected from a sale until the funds are used to purchase new land or personal property.  In most cases, interest earned by a non-bank QI is split between the QI and the entity making the swap.  Existing regulations require both parties to pay taxes on the interest they each receive; thus, there is no “homeless” income.

 

The proposed IRS change would not allow the independent QI to retain any interest and would hurt the ability of these QIs to compete against large banks.  If non-bank QIs are unable to retain any part of the accrued interest, they will have to raise the fees they charge to businesses engaged in property swaps.  As a result, non-bank QIs will no longer be competitive with banks, which can invest the money in other ways and absorb lower fees.

 

In addition to its detrimental impact on small businesses, the proposed rule would increase the costs for investors who participate in like-kind exchanges, Chairman Manzullo said.  Industry officials estimate the few QIs who do survive the rule change would have to skyrocket their up-front fees to stay competitive.  Once all the small businesses are run out of the industry, the larger institutions will feel free to increase fees themselves.

 

“This proposed rule would destroy hundreds of small businesses in America and increase costs for property investors,” Chairman Manzullo said.  “I can’t understand at all why the IRS would want to make this change, especially without fully studying the impact on small businesses.  I strongly urge the IRS to withdraw this rule immediately.”

 

For more information, please contact John Westmoreland, Chief Tax Counsel.

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House Adopts Manzullo Provisions within Export-Import Bank Reauthorization Bill to Help U.S. Small Businesses Export Overseas

On Tuesday, July 25, House Small Business Committee Chairman Don Manzullo (R-IL) voted for legislation to reauthorize the Export-Import Bank and expand its outreach to help more small businesses sell their goods and services overseas.  The House passed the bill unanimously by voice vote.

 

H.R. 5068, authored by Rep. Deborah Pryce (R-OH) and cosponsored by Chairman Manzullo, would reauthorize the Ex-Im Bank’s charter for 5 years and would restore a Small Business Division within the Ex-Im Bank.  Created in 1934 as an independent U.S. government agency, the Ex-Im Bank provides export credit guarantees, insurance, and direct loans to help American companies export overseas.

 

The legislation also includes provisions authored by Chairman Manzullo to give the restored small business division more teeth by authorizing small business specialists within each division of Ex-Im Bank the ability to approve loans, guarantees, and insurance to small businesses up to $10 million.  These provisions will speed up consideration of small business loans by experts who will know what is necessary to help small businesses compete overseas.  In addition, H.R. 5068 enhances Ex-Im’s delegated loan authority to private banks for medium-term transactions.

 

“This legislation will restore a Small Business Division within Ex-Im and place small business specialists within each operating division of the Bank who will be able to expeditiously approve loans, guarantees, or insurance for small employers exporting overseas,” Chairman Manzullo said.  “Although they employ the majority of Americans and create most new jobs each year, small businesses do not sell as much overseas as they should.  This legislation will help them increase their exports so they can prosper and create more jobs for Americans.”

 

Earlier this year, the Government Accountability Office (GAO) released a study requested by Chairman Manzullo that showed the Ex-Im Bank has consistently missed its statutory 20 percent set aside mandate for small business since Congress increased the mandate in 2002 (see SBC Notes 109-36).  Reform of Ex-Im Bank was the subject of a House Small Business Committee hearing in April 2005 (see SBC Notes 109-6).  For further information, please contact Phil Eskeland, Policy Director.

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House Passes Manzullo Provisions to Increase Scrutiny of Foreign Purchases of U.S. Companies -- Legislation Would Have Prevented Fiasco Surrounding Dubai Purchase of U.S. Ports

On Wednesday, July 26, House Small Business Committee Chairman Donald Manzullo (R-IL) voted for legislation to increase the scrutiny of foreign purchases of companies operating in the United States while continuing to encourage foreign investment in our nation.  The House unanimously passed the bill on Wednesday by a vote of 424 to 0.

 

The bill, H.R. 5337, would reform the Committee on Foreign Investment in the United States (CFIUS), a secretive government committee that granted rapid and cursory approval to the deal that gave Dubai Ports World -- a state-owned enterprise of the United Arab Emirates -- management control over 27 terminals at six major U.S. ports earlier this year.  The Dubai government has since announced it would divest itself of the U.S. port management business after House leaders announced plans to kill the deal.  The legislation was sponsored by House Majority Whip Roy Blunt (R-MO), and Chairman Manzullo helped write the provisions concerning the increased scrutiny of state-owned enterprises that purchase U.S. companies.

 

“This legislation would strengthen the CFIUS process to provide greater protections to our national security while continuing to encourage important foreign investment in the United States,” Chairman Manzullo said.  “It’s a good bill that acknowledges greater scrutiny is necessary when foreign governments purchase companies in the United States.  It also provides more transparency to the process to ensure another fiasco like the Dubai ports deal never happens again.”

 

Specifically, the legislation would require CFIUS to conduct an automatic 45-day extended investigation when foreign government-owned enterprises try to purchase companies operating in the United States.  The bill would also require CFIUS to provide more information to Congress on pending deals; it would require CFIUS to consider foreign purchases of infrastructure in the United States as a national security concern; and it would name the Secretary of the Department of Homeland Security and the Secretary of Commerce as the vice-chairmen of the CFIUS committee (Secretary of Treasury would remain chair of CFIUS).

 

Chairman Manzullo has been working for more than a year to reform the CFIUS process (see SBC Notes 109-36).  In early 2005, he led an effort with House International Relations Committee Chairman Henry Hyde (R-IL) and House Armed Services Committee Chairman Duncan Hunter (D-CA) to convince CFIUS to conduct an extended investigation into the purchase of IBM’s personal computer division by Lenovo, a company partially owned by the Chinese government.

 

For more information, please contact Rich Beutel, Special Counsel.

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Update on SBA Reauthorization

On Thursday, July 27, Senate Small Business & Entrepreneurship Committee passed a three-year reauthorization bill for the programs run by the Small Business Administration (SBA) by a unanimous bipartisan vote of 18 to 0.  Key highlights of the bill include raising the 7(a) loan limit to $3 million; reforming the Certified Development Company (CDC) program; revitalizing the Participating Securities component of the Small Business Investment Company (SBIC) program; reforming SBA’s response to disasters (including allowing private banks to provide disaster loans and creating a bridge loan program); making various small business contracting reforms; and amending the SBA’s technology programs, including doubling the size of the Small Business Innovation Research (SBIR) program by 2011.  The House Small Business Committee majority staff welcomes movement on SBA reauthorization but is concerned because the bill (1) creates 16 new programs at the SBA that are not offset; (2) expands the bureaucracy at the SBA by creating a new office; and (3) contains legislative proposals that could be referred to as many as eight other committees in the House, which would slow up progress on passing the SBA reauthorization bill into law.  For more information, please contact Phil Eskeland, Policy Director.

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DoD’s Small Business Innovation Research Program

 

On Tuesday, July 25, House Small Business Committee Chairman Donald Manzullo (R-IL) joined with ranking minority Member Nydia Velázquez, House Science Committee Chairman Sherwood Boehlert, and ranking minority Member Bart Gordon in co-signing a letter to the Chairman and ranking minority Member of the House Armed Services Committee in strong opposition to Section 874 of the Senate version of the FY 2007 Department of Defense (DoD) Reauthorization bill (S. 2766).  Section 874 would establish a pilot program within the Department of Defense’s Mentor-Protégé program to develop technologies that will assist in detecting or defeating Improvised Explosive Devices (IEDs) or other critical force protection measures.  The Mentor-Protégé program enlists large businesses to assist small disadvantaged or minority-owned businesses as subcontractors in selling to the federal government.  Funding for this expanded Mentor-Protégé program would come from the SBIR program.  All four committee leaders asked the House Armed Services Committee leaders to vigorously oppose Section 874 and not agree to its inclusion in the conference report to the FY 07 DoD Authorization bill primarily because it raids the SBIR program to pay for the additional Mentor-Protégé funding.  Section 874 would also allow large non-minority-owned firms to receive benefits from programs designed only to assist small businesses.  For more information, please contact Nelson Crowther, General Counsel.

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Effect of CMS Proposed Rule on Small Ambulance Providers

 

On Tuesday, July 25, House Small Business Committee Chairman Donald Manzullo (R-IL) sent a comment letter to the Centers for Medicare and Medicaid Services (CMS) on a proposed rule to revise the payment policies of ambulance services.  The proposed rule clarifies an existing interpretation of the term “specialty care transport,” limits circumstances in which emergency response is reimbursed, and adopts new geographic standards for the fee schedule.  CMS determined that the proposed rule was not significant and thus did not prepare a regulatory impact analysis.  Chairman Manzullo believes that the conclusion reached by CMS is wrong and must consider the adverse consequences on small providers of ambulance services before finalizing the proposed rule.  For more information, please contact Barry Pineles, Chief Counsel.

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Upcoming Events

 

Saturday, July 29th through Tuesday, September 5th – August District Work Period for the U.S. House of Representatives (the U.S. Senate is in session next week).  Next edition of SBC Notes will be published on Friday, September 8th

 

Thursday, August 10 – Workforce, Empowerment & Government Programs Subcommittee field hearing in Loveland, CO on small business health care issues.  Time TBD.  For more information, please contact Joe Hartz, Professional Staff.

 

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Past hearings/mark-ups/roundtables/meetings in 2006

 

February 1, 2006 – Joint Tax, Finance & Exports (TF&E) and Rural Enterprises, Agriculture & Technology (REA&T) Subcommittee hearing on “Transforming the Tax Code:  An Examination of the President’s Tax Reform Panel Recommendations.”

February 8, 2006 – Regulatory Reform & Oversight (RR&O) Subcommittee hearing on “The Internet Sales Tax:  Headaches Ahead for Small Business?”

March 2, 2006 – Workforce Empowerment & Government Programs (WE&GP) Subcommittee hearing on the “Oversight of the Small Business Administration’s Entrepreneurial Development Programs.”

March 8, 2006 – TF&E Subcommittee hearing on the “Oversight of the Small Business Administration’s Finance Programs.”

March 15, 2006 – REA&T Subcommittee hearing entitled, “The Missouri River and its Spring Rise:  Science or Science Fiction?”

March 15, 2006 – hearing on the Fiscal Year 2007 Budget and Reauthorization Proposals of the SBA.

March 16, 2006 – RR&O Subcommittee hearing entitled, “The State of Small Business Security in a Cyber Economy.”

March 30, 2006 – RR&O Subcommittee hearing on the “Procurement Assistance Programs of the SBA.”

April 5, 2006 – hearing on “IRS Latest Enforcement:  Is the Bulls-Eye on Small Businesses?”

April 6, 2006 – RR&O Subcommittee hearing entitled “Can Small Healthcare Groups Feasibly Adopt Electronic Medical Records Technology?”

April 26, 2006 – hearing on “Cutting Our Trade Deficit:  Can the U.S. Muster Its Diverse Trade Promotion Operations to Make an Impact?”

April 27, 2006 – WE&GP Subcommittee hearing on “Healthcare and Small Business:  Proposals that will Help Lower Costs and Cover the Uninsured.”

May 3, 2006 – REA&T Subcommittee hearing on “The Future of Rural Telecommunications:  Is Universal Service Reform Needed?”

May 3, 2006 – hearing on “What is the Proper Balance between Investor Protection and Capital Formation for Smaller Public Companies?”

May 10, 2006 – hearing on “Bridging the Equity Gap:  Examining the Access to Capital for Entrepreneurs Act of 2006.”

May 23, 2006 – RR&O Subcommittee hearing on “Data Protection and the Consumer:  Who Loses When Your Data Takes a Hike?”

May 25, 2006 – REA&T Subcommittee hearing on “Unlocking Charitable Giving.”

June 7, 2006 – hearing on “Contracting the Internet:  Does ICANN Create a Barrier to Small Business?

June 21, 2006 – Joint hearing with the Government Reform Committee on “Northern Lights and Procurement Plights:  The Effect of the ANC Program on Federal Procurement and Alaska Native Corporations.”

June 27, 2006 – RR&O Subcommittee hearing on “S Corporations:  Their History and Challenges.”

June 27, 2006 – WE&GP Subcommittee hearing on “Immigrant Employer Verification and Small Business.”

June 28, 2006 – TF&E Subcommittee hearing on “The Effects of the High Cost of Natural Gas on Small Businesses and Future Energy Technologies.”

July 13, 2006 – RR&O Subcommittee hearing on “An Update on Administration Action to Reduce Unnecessary Regulatory Burdens on America’s Small Manufacturers.”

July 20, 2006 – Joint REA&T and TF&E Subcommittee hearing on “Does China Enact Barriers to Fair Trade?”

July 25, 2006 – hearing on “Failure to Comply with the Regulatory Flexibility Act:  IRS Endangering Small Businesses Yet Again.”

 

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Small Business Website

 

Check out the Small Business Committee website at http://www.house.gov/smbiz.  The site includes regular updates on small business committee news.  The site features special projects, press releases, hearings and scheduling information.

 

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Phil Eskeland

Deputy Chief of Staff & Policy Director

House Committee on Small Business

Phil.Eskeland@mail.house.gov

(202) 225-5821

 

To contact any staff member listed in the above newsletter, please use the general number for the House Small Business Committee – (202) 225-5821.  Please E-mail me if you want to be removed from the mailing list or if you know of others who might be interested in receiving this publication.

 

Mission Statement of the House Committee on Small Business

 

"We promote the success of America’s small businesses by leveling the global economic playing field and reducing domestic burdens that impede their growth.  In this spirit, we work to ensure that every branch of the U.S. government understands the critical role America’s small businesses play – both at home and abroad – including the jobs they create and the spirit of entrepreneurship they embody.”