May 08,2012

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Julia Lawless, Antonia Ferrier, 202.224.4515

Facts Are Stubborn Things: Senate Democrats’ Latest Partisan Tax Hike Raids Medicare, Hurts American Job Creators

Despite the bipartisan desire to protect students from being hit with increased interest rates for student loans, Washington Democrats have instead chosen to play politics by raising taxes on small businesses and raiding Medicare to pay for it.

Take a look at what the Senate Democrats’ latest partisan tax hike would mean for Americans: 

Raids Medicare: This legislation diverts $6 billion that would go to Medicare in the form of payroll taxes.  Medicare is already facing a $36 trillion unfunded liability and will be broke by 2024.

Picks winners and losers: This $6 billion tax hike on small businesses targets actuarial, accounting, and engineering firms, but exempts others like escort services and gaming establishments.

Attacks small businesses:  The ill-conceived, heavy-handed approach of this legislation inappropriately subjects billions of dollars in small business income to the payroll tax, making the price of doing business for entrepreneurs more difficult in an already weak economic environment.

Creates nonsensical consequences: The bill imposes marginal tax rates exceeding 100 percent on some, creating an extreme cliff effect, meaning taxes will rise dramatically once a taxpayer reaches an income threshold. The cliff effect is present simply because Senate Democrats neglected to phase-in the proposal. In some cases, a single extra dollar of earnings will trigger thousands of dollars of additional taxes, hindering business expansion and, ultimately, limiting an employer’s ability to hire new workers.  

Hurts family-owned businesses: The bill forces family members to pay payroll taxes twice. Under the bill, the earnings of one family member could be attributed to other family members that perform services for the business. This means the family member performing services will pay Medicare taxes on the earnings of other family members as well as their own.

Source: Analysis by Senate Finance Committee Republican Staff