WASHINGTON (Reuters) – The Securities and Exchange Commission should not get a budget boost until it dedicates its existing resources to reforming its internal operations, two key House Republican lawmakers said on Wednesday.

"The SEC has not undertaken a serious, objective self- examination of the way it does its job," said Republican Congressman Scott Garrett, who chairs the House Financial Services capital markets subcommittee that oversees the agency.

"Some will suggest the solution to this…is more funding. That is one position I would vehemently disagree with at this point."

Garrett's comments before an audience at the U.S. Chamber of Commerce come at a critical moment for the agency, which is still hoping for approval of a big 2012 budget increase to help pay for the implementation of nearly 100 new rules required by the 2010 Dodd-Frank Wall Street overhaul law.

Democrats and Republicans are locked in a dispute over taxes and spending that has jeopardized the passage of a spending bill to keep the government operating beyond Friday.

It is still unknown what the final figure for SEC spending will be. House lawmakers have sought to keep the agency's budget flat at $1.185 billion amid frustration with provisions in the Dodd-Frank law, the agency's past missteps with conducting economic analyses of its rules and the SEC's debacle in missing Bernard Madoff's massive Ponzi scheme. Senate lawmakers are seeking to boost the SEC's budget to $1.407 billion.

Congresswoman Jo Ann Emerson, a House Republican who chairs an appropriations subcommittee in charge of the SEC's budget, said an agreement for the SEC budget had been reached, but she declined to provide the number. She too echoed Garrett's sentiment that reform at the SEC must come first.

"I think they have to prove that they can reform before they get any more money," she told reporters on the sidelines of the U.S. Chamber's event on Wednesday.

REFORM PROPOSAL

Some of the kinds reforms that Republicans would like to see implemented at the SEC were outlined in a new report at the U.S. Chamber on Wednesday.

That report, drafted by former SEC Secretary Jonathan Katz, calls for a major overhaul of the SEC's structure, rule-making process and enforcement procedures.

Concerned that the chairman of the agency has far too much to manage alone, the report calls for dubbing one commissioner a deputy chairman in charge of management and operations,

It also seeks to expand the number of commissioners from five to seven and diversify the skillset of commissioners to include accountants and economists.

The report also urges the SEC to improve its cost-benefit analysis process for rulemaking, an area that has dogged the SEC over the years. In July, a federal appeals court tossed out a rule that gave shareholders more power to nominate directors to corporate boards after judges said the agency did not properly weigh the rule's economic impacts.

Under Katz's plan, the SEC should start cost-benefit analyses earlier in the process and let those findings drive policy-making. He also calls for an economic look-back after a rule is implemented to ensure it has the desired effect.

Garrett said improvements to the SEC's cost-benefit analysis process as well as the addition of more economists on staff are among the reforms he wants to see happen first.

The agency has argued that Congress should not worry about raising its 2012 budget because it will be offset by fees on the industry and will not impact the U.S. deficit, but Garrett said that argument does not sway him.

"Any time you are taking money out of the economy, it affects the economy," he said.

(Reporting By Sarah N. Lynch, editing by Dave Zimmerman)

WASHINGTON – The House put aside its differences over how to promote economic growth Thursday to pass two bills making it easier for small, privately owned businesses to raise the capital needed to expand with fewer federal restraints.

The bills remove Security and Exchange Commission restrictions that now make it difficult for small businesses both to solicit funds from wealthy investors and to turn to the Internet to attract small-scale contributors.

The measures enjoyed wide bipartisan support and follow the near-unanimous passage Wednesday of two similar bills aimed at relaxing SEC rules for small entrepreneurs and community banks seeking to gather capital.

The lack of controversy on the SEC bills stands in contrast to the usual sharp divisions between the two parties over how to promote job growth. Republicans have been united in rejecting Democratic proposals for a greater federal financial role in stimulating the economy, while Democrats have generally opposed GOP proposals to expand domestic energy production or cut back on environmental regulations.

Democrats veered from the debate to criticize the GOP leadership for not bringing up President Barack Obama’s jobs bill and legislation to punish China for keeping its currency undervalued.

One SEC bill on Thursday, H.R. 2940, removes the regulatory ban on small, privately held companies using advertisements to solicit wealthy investors.

The bill’s sponsor, House Republican Whip Kevin McCarthy of California, said current law requires a business owner to have a pre-existing relationship with a potential investor, and that if he wants to advertise for outside investors he must register with the SEC, a process that can take months and cost millions of dollars.

His legislation states that the company can only seek “accredited investors” who have at least $1 million in assets outside their home. Banks, insurance companies and registered investment companies would also qualify.

The bill, said House Financial Services Committee Chairman Spencer Bachus, R-Ala., “gives entrepreneurs the ability to raise capital and that capital translates into jobs.”

The measure passed 413-11 after the House rejected an amendment by Rep. Brad Miller, D-N.C., that would have required disclosure of bonus compensation structures and “golden parachute” arrangements in materials advertising for investments.

The House also passed legislation offered by Rep. Patrick McHenry, R-N.C., that creates an SEC exemption for small businesses and startups trying to use the Internet to raise relatively small contributions from a large number of people.

McHenry said this Internet-based “crowdfunding” is widely used by charitable organizations and political groups to raise dollars, but that the SEC general solicitation ban prevents companies from using the Internet to connect to investors.

The measure, he says, gives “the average everyday investor the opportunity to have an equity stake in their favorite company, not just accredited investors, not just the so-called high net worth individuals.”

The bill, H.R. 2930, creates an exemption for firms raising up to $1 million a year, indexed for inflation, or $2 million if the company provides certain financial information. It contains investor protections and limits individual investments to $10,000 or 10 percent of the investor’s annual income. It was approved 407-17.

The White House, in a statement, said President Barack Obama has proposed a similar exemption, “which would enable greater flexibility in soliciting relatively small equity investments.”

On Wednesday the House passed a bill that raised from $5 million to $50 million the threshold for shares a private company can sell as part of a securities offering before having to register with the SEC and a second measure that raised from 500 to 2,000 the number of shareholder investors a community bank can have before having to register or go public.

All these bills must now be considered by the Senate.

LAS VEGAS – Presidential hopeful Herman Cain says the Wall Street protestors don’t understand the economy and are misdirecting their frustrations.

Cain on Tuesday said the Occupy Wall Street activists should be camped out in front of the White House protesting President Barack Obama, not the bankers and investors in Manhattan. He says Obama and Washington politicians put in place the economic policies that the anti-greed activists dislike.

Cain says he isn’t clear what the protestors want and asks whether the protestors expect Wall Street to write them checks.

Rep. Ron Paul of Texas says both parties are to blame for the 2008 Wall Street bailouts the activists are protesting. Paul says the middle class suffered in the deal.

The candidates’ comments came during a Republican presidential candidates’ debate in Las Vegas.