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Sens. Snowe, Enzi Offer Amendment to Halt S-Corporation Tax Hike

Sens. Olympia Snowe (R-Maine) and Mike Enzi (R-Wyo.) introduced an amendment (S. Amdt. 4342) late June 10 that would strip new, tighter tax rules on...
June 15, 2010

Sens. Olympia Snowe (R-Maine) and Mike Enzi (R-Wyo.) introduced an amendment (S. Amdt. 4342) late June 10 that would strip new, tighter tax rules on Subchapter S corporations from the tax extenders bill (H.R. 4213) currently on the Senate floor.

In a statement, Snowe called the tax a "poison pill" that would "cripple" so-called S corporations, the most common business structure. The proposal would force such corporations to pay as much as a 15.3 percent payroll tax on earnings reinvested in the business rather than taken in salary, she said.

"This is a job-killing tax hike that will force entrepreneurs across the nation to retrench and reconsider any plans for hiring employees or expanding their business," Snowe said in the statement. The provision raising Snowe's ire is aimed at closing the so-called "John Edwards loophole" in tax law, a name coined by Republicans after the former North Carolina senator organized his law practice in a way that avoided the 2.9 percent Medicare tax on about $26 million in earnings. Edwards, a Democrat later nominated to be vice president, was the sole shareholder in his S corporation.

The legislation would impose the Medicare tax and applicable Social Security taxes on such earnings when the company's "principal asset" is the "reputation and skill" of less than four employees. The provision is projected by the congressional Joint Committee on Taxation to generate about $11.3 billion in revenue over a decade starting next year. According to the Internal Revenue Service, S corporations comprise about 62 percent of all corporations and have been the most commonly used business entity since 1997.

Sen. Snowe Calls S-Corporation Tax a "Poison Pill" (Bloomberg 6/12/10)