Congressman Pete Stark (D-Fremont) introduced a bill Tuesday dubbed the Narrowing Exceptions for Withholding Taxes or NEWT Act to close what he called a tax loophole that could cost Medicare $11.2 billion over the next 10 years.
Stark, whose district currently includes San Leandro and Castro Valley, chose the bill's acronym to link it to Republican presidential candidate Newt Gingrich who, the congressman said, had availed himself of this "loophole" on his 2010 tax returns.
Stark said current law allows self-employed individuals -- whom he described in an e-mail to constituents as "typically lobbyists, lawyers and investment managers" -- to avoid paying Medicare payroll taxes.
How? By routing their earnings through an S corporation and classifying them as profits or dividends, instead of as wages.
Stark cited news reports that Gingrich avoided paying an estimated $69,000 in Medicare taxes by classifying $2.4 million in proceeds from his Gingrich Holdings, Inc. and Gingrich Productions as profits or dividends instead of wages.
A report on NEWT -- the act not the candidate -- by AccountingToday.com talked about the estimated $11.2 billion that Medicare could recapture if Stark's bill passes, and listed some of its supporters.
Stark says he is standing up for "teachers, firefighters and nurses" who can't restructure their income to avoid Medicare taxes.
But of an estimated 4 million S corporations (according to AccountingToday) how many are "lobbyists, lawyers and investment managers" versus small to mid-sized companies that would be negatively affected by the bill?
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