Business Groups United Against Payroll Tax Hike

In advance of next week’s vote to raise taxes on S corporations by $9 billion, a group of 38 business associations wrote Senate leadership strongly opposing the provision. Signed by S-Corp, the US Chamber, NFI and other leading groups, the letter details the numerous flaws in the provision. As reported in The Hill:

A coalition of business groups is pushing back against a Democratic proposal to pay for lower student loan rates with tax revenue. The U.S. Chamber of Commerce, along with roughly three dozen other groups, said ‘the plan could increase the payroll tax burden on business owners who are already fully complying with the law. For those businesses, this provision represents a tax increase rather than a clarification of existing tax burdens,’ the groups wrote in a letter to Senate leaders.

Under current law, S corporations pay taxes through the individual code. Democrats say that some business owners are underpaying their payroll taxes by counting certain income as company profits that have passed through to the owner. The Democrats say their proposal, which is scheduled for a vote next week, would end that practice for those making more than $250,000 per year. But Republicans have said that the Democratic efforts would undercut entitlement programs because the payroll tax helps fund Social Security and Medicare.

And this in the National Journal:

In a letter to Senate Majority Leader Harry Reid, D-Nev., and Minority Leader Mitch McConnell, R-Ky., the business groups said they opposed legislation supported by Democrats that would cover the $6 billion cost of keeping interest rates on federal student loans from doubling by subjecting S Corporations to payroll taxes.

They said the bill would make tax collection “less enforceable than current law and will do little to increase compliance.”

The Senate plans to take up the student-loan legislation, with the S Corporation pay-for, next week. … Increasing taxes on S Corporations has long been viewed as a potential revenue raiser, but the offset is unlikely to survive at this time.

As the Journal indicates, they are scheduled to vote on Tuesday on cloture to close out debate on a motion to proceed to the bill. It takes 60 votes to close debate in the Senate, and we expect they are well short of that level of support for raising taxes on closely-held businesses. The underlying student loan issue is popular, however, so assuming this version fails, we expect a scramble by both House and Senate leadership to identify a $6 billion offset that can clear the Senate. Let’s hope the new version doesn’t target Main Street.

Senators Come Up BIG!

On the positive front, four S-Corp champions in the Senate — Senators Cardin (D-MD), Snowe (R-ME), Roberts (R-KS), and Landrieu (D-LA) — wrote to the Finance Committee Chairman this week in support of extending the shorter, five-year built in gains provision.

As Washington Wire readers know, this shorter holding period expired at the end of last year along with all the other so-called tax extenders and itb’s been a priority for us to see it renewed. This letter in the Senate builds on the testimony last week in the House by Congressman Reichert (R-WA) and sends the signal that BIG relief enjoys strong support in both bodies.

According to the letter:

S corporations are the cornerstone of the business community. Such corporations are located in every state, participate in a broad range of industries, and employ one out of every four private-sector workers. For many of these Main Street businesses, access to capital is a primary challenge that inhibits their ability to invest, expand, and create jobs. Much like bonus depreciation, the shorter, five-year holding period serves as a powerful incentive for these closely-held businesses to increase their investment efforts.

Could not have said it better ourselves. Thanks to all the Senators who signed the letter. We’ll be working to build on that support this spring and summer.

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