There is one source of revenue you haven't taken into consideration. This is the only place I could find this information on the Internet.
Disclosure: We run as a Subchapter S corporation.
M
Democrats to Close Edwards Sub-Chapter S Loophole
May 26, 2005
Rush Limbaugh
BEGIN TRANSCRIPT
RUSH: How many of you out there, when you organize your businesses or organize your personal income taxes, file as a Subchapter S Corporation? How many of you are S-Corp filers? (story) "Several Senate Democrats said Wednesday the government should crack down on businesses that evade taxes before Congress considers Social Security or tax changes. Sen. Max Baucus of Montana, the top Democrat on the Senate Finance Committee, said, 'We should not cut the benefits of any law-abiding retiree by one dime or raise the taxes of any law-abiding worker by one dime until we have done our best to ensure that all taxpayers are complying with the current tax laws.' Businesses organized as sole proprietorships pay employment tax on all reported profits. Businesses organized as S corporations pay tax only on the amount described as salary. These S corporations have become a multibillion-dollar employment tax shelter for single-owner businesses. 'Determination of a salary is unilateral, highly subjective and influenced by the knowledge that a higher salary will result in higher employment taxes and therefore lower profits.'" These are the words of some tax guy, J. Russell George, the Treasury Department's inspector general for taxation. He and his auditors "studied tax returns filed by businesses for 2000. They found that 79 percent of S corporations were owned entirely or mostly by a single person." Yes, and that's because that's the way the tax law is written. Most small businesses file themselves as S corps. They've been encouraged to do this. Then the auditors said, "The government would have collected $5.7 billion more in taxes if those businesses were organized differently and paid employment tax on their income."
Let me tell you how this works, and I'm going to give you a name. You may have forgotten this, but we learned this in last year's campaign. Does the name John Edwards ring a bell? He was the vice presidential nominee for John Kerry -- who, by the way, served in Vietnam. John Edwards filed his taxes every year. He's organized himself as a sub-S. You might recall that John Edwards avoided paying Medicare taxes. It's one of two things. I don't remember specifically. He either avoided paying Medicare taxes on $600,000 of income, or he avoided paying $600,000 in Medicare taxes. It's one of the two. Here's how you do it. By the way, all this set up by the government. All of this established by the government. Small businesses have been encouraged to organize and file this way. It allows individuals, sole proprietors to file as subchapter S's. So what you do, let's say that your corporation, whatever it is, takes in $500,000 one year. You, as the sole proprietor, pay yourself a salary of $50,000, and you declare the other 450,000 as dividends. The dividends are not subject to Social Security or Medicare taxes so you only pay taxes on the $50,000 that you have collected and assigned to yourself as income. Perfectly legal, set up by the US government. John Edwards did it. Nobody complained. Not a soul complained, but now you're doing it and all of a sudden there's going to be hell to pay.
They get this figure $5.7 billion by assuming that all these S-Corp filers are just standard employees, and as standard employees all income is income and subject to employment taxes like FICA and like Medicare. Now, Medicare is 2.8% on every dollar you earn. FICA, Social Security, what's the ceiling on it now? Ninety grand, and it's going to go up to a hundred. So you only pay your Social Security taxes on 90 grand of your income. So if you're an S-Corp filer, and your income is a hundred grand, you pay yourself a salary of 30. If you're only going to pay your Medicare and your FICA on $30,000, you take the other 70 as dividends. A lot of people are doing this. The government set it up that way. I'm not one of them, ladies and gentlemen, in case you're asking, you Nimrods. I am not one of them. I just know how it works. I've investigated it. But I know full well that if I did it, it would be a red flag and it's not worth it. And I can tell you right now that if you're an S-Corp filer, they're looking at this and they're going to be cracking down on it because they're assuming now that you are tax cheats. Simply by virtue of taking advantage of the law that was established by Congress, you are now tax cheats and there's probably going to be some movement. I mean, you just heard Baucus, "I'm not doing anything on Social Security till we fix this." Now, I don't know how they're going to fix it, and I don't know if their fix would be signed into law by the president, I have no clue, but it sounds to me like a bunch of people want to do away with this whole concept of an S-Corp being able to declare some income as dividends and some at straight income and you're just going to have to declare it as all income.
The reason, by the way, that so many people were urged to file S corps is because they're small business owners and it was an incentive to help small business owners earn money and plow back into their businesses so that people would be hired. Small business is the largest employment agency, if you will, in the country. Small business employs the vast majority of people in this country and the theory is that if there's more money in the company till, then there will be more money for the company to grow and then hire more people -- and if they make this switch after organizing everybody this way and suggesting that as many people organize this way as possible and they get rid of this dividend versus income delineation and they start making all income "income," then the small businesses are going to suffer greatly because the amount of increased tax they're going to pay is going to have a direct affect on the growth of the business and the ability to hire people. But that doesn't matter because the government just found $5.7 billion, 5.7 billion out of $2.6 trillion. They just found 5.7 billion, they're going to hold up Social Security reform, the Democrats are, over 5.7 billion. They will not do with one dime less. They're not going to ask you about your ability to pay it when they raise taxes. When taxes are cut or are proposed to be cut, the first thing they ask is, "Well, where are we going to make it up? If we cut taxes for that group, where are we going to repay ourselves? How we gonna recollect what we lost?" They never will do with less, and it's your money and they set the rules up and you've been playing by their rules and now they're $5.7 billion short of what they think they ought to get out of 2.6 trillion; 5.7 billion doesn't even fill one half of a thimble in relationship to how much 2.6 trillion is, which is the federal budget. I am simply giving you a heads-up. You S-Corp filers have been warned.
END TRANSCRIPT
|
