QUERY : Is there any tax loophole that the Republicans would be willing to close as an offset for maintaining Stafford Loan interests at the present level ?
For those who doubt Mitt Romney’s assertion that Corporations are people, need to consider Gingrich Holdings, Inc. or the John R. Edwards, P.A. … yep, just a couple small businesses struggling to get by and most likely NOT to be an hiring any new employees … but these are just two business that “work” the tax code to their advantage … a loophole that should be closed.
Let’s take Newt Gingrich, who for 2010, reported $444,327 of his earnings as wages from Gingrich Holdings, Inc. and Gingrich Productions. By classifying another $2.4 million in profits or dividends he avoided paying an estimated $69,000 in Medicare taxes.
Better yet, as a trial attorney, John Edwards paid himself $600,000 in salary in 1996 and also received $5 million as his share of the S corporation’s net income. That $5 million (which Edwards earned as legal fees) was not subject to Medicare taxes, saving Edwards $145,000.
While any normal person would say that Edwards was being paid for his work, he told the IRS that most of the income generated was income from assets of the S corporation, including his famous name. In other words, Edwards claimed that he did not actually have to work to obtain most of his income, because clients came to him purely because of his fame as a star attorney.
During the entire time Edwards was using his S corporation, it is reported that he took $26 million out of the S corporation free of Medicare taxes, saving him $754,000.
Ah, that’s the beauty of the “S” corporation. An S corporation does not pay a corporate level tax. Instead, its income is “passed-through” to the individual shareholders who report the income on their personal income tax returns. If the shareholders are also employees, the S corporation pays them a salary and deducts that expense in calculating the income that is passed through to the shareholders.
Employee-shareholders at S corporations can use an existing loophole to shield earnings from the Medicare tax by classifying them as profits or dividends instead of as wages.
This is what Newt Gingrich, John Edwards and many other professionals have done … the Joint Commission on Taxation estimated that closing the tax loophole would generate $11.2 billion over 10 years.
It’s a question of TAX FAIRNESS …
The Senate voted today to Reject Tax Fairness
S. 2343 was an offset to pay for Stafford Loans (student loans)
This bill was narrowly targeted :
— S corporation which is engaged in a professional service business if 75 percent or more of the gross income of such business is attributable to service of 3 or fewer shareholders of such corporation.
For purposes of this subsection, the term `professional service business’ means any trade or business (or portion thereof) providing services in the fields of health, law, lobbying, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, investment advice or management, or brokerage services.
Gross income had to exceed $200,000 or more.
Now, that’s narrow … 3 or fewer … professional (yep, not a drug store owner or farmer) … and at least $200,000.
The Senate Republicans said NO DEAL. The House could have used the same offset if it had paid for Stafford Loans by citing H.R. 3826 – Narrowing Exceptions for Withholding Taxes, or NEWT Act.
No, the Republican-controlled House led by John Kline (R-MN-02) as Chairman of the Education and Workforce Committee opted to target cutting healthcare funding after calling low-interest federal student loans “bad policy”.
Chairman Kline’s challenger in November, Mike Obermueller commented :
“How can Congressman Kline claim that investing in our children’s future is bad policy? This is exactly what happens when politicians spend too much time in Washington—they lose all common-sense. Congressman Kline will give tax breaks to billionaires and oil companies, but he won’t help make college affordable for Minnesota students and their families. Student loans are one way we can make sure that America is continuing to innovate and when we stop investing in innovation, we start falling behind. We’ve got to balance our budget, but we can’t do it on the backs of students.”
Voters will have a choice in November … the issue will be TAX FAIRNESS … and thus far, the Republicans have shown which side they are on. They will protect Newt Gingrich and John Edwards and complain about “bad policy” TAX FAIRNESS is.