WASHINGTON, D.C. - As the Senate continues to move forward with its debate on H.R. 4213, the American Jobs and Closing Tax Loopholes Act of 2010, U.S. Senate Committee on Small Business and Entrepreneurship Ranking Member Olympia J. Snowe (R-Maine) and Committee Member Senator Mike Enzi (R-Wyo.) today blasted a provision of the measure that would impose a 15.3 percent payroll tax on S Corporations, the major entrepreneurial form of business ownership that has been the single biggest job generator. The lawmakers, who said the job-killing tax hike would cripple American entrepreneurs’ ability to hire new workers, filed an amendment to H.R. 4213 to strike Section 413 from the bill late last night.
“At a time when Congress continues to dither on enacting a small business jobs bill, Section 413 is a poison pill in this tax bill, robbing American small businesses of the capital they need to create new, good-paying jobs,” Senator Snowe said. “Indeed, 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.”
“Congress should not be taking from David to pay Goliath. The original bill would have raised taxes on Wall Street, but when Wall Street howled, lawmakers went looking someplace else - small businesses. They aren’t as able to defend themselves when the tax man cometh,” Enzi said. “This isn’t a loophole. The IRS already has the tools its needs to ensure proper compliance with self-employment taxes. This is a solution in search of a problem.”
H.R. 4213 would impose payroll taxes (15.3 percent) on some S Corporations on the dividend distributions paid to employee-owners, to family members who are shareholders or partners, and on retained earnings in the business. Laudably, the provision is aimed at reducing gaming that can take place by S Corp owners shifting income away from compensation and to “dividends” that are not subject to payroll tax. However, this is a substantial new tax on the income whether or not it is distributed, thus imposing payroll taxes at a 15.3 percent rate on the retained earnings of S Corporations. Retained earnings are the single biggest form of capital for small business and this provision would decimate that capital at a time when other sources remain difficult to access. The Snowe-Enzi amendment would remove the provision from the bill.