Domestic Taxes

Business groups push back against Dem student loan proposal

A coalition of business groups is pushing back against a Democratic proposal to pay for lower student loan rates with tax revenue.

The U.S. Chamber of Commerce, along with roughly three dozen other groups, said the proposed tax-code change from Democrats would make it more confusing and difficult to follow.

The plan “could increase the payroll tax burden on business owners who are already fully complying with the law. For those businesses, this provision represents a tax increase rather than a clarification of existing tax burdens,” the groups wrote in a letter to Senate leaders.

{mosads}Top Senate Democrats have pushed changes to tax law as a way of offsetting the roughly $6 billion costs of extending low interest rates for certain federal loans for another year. The current 3.4 percent rate is scheduled to double at the end of June, potentially affecting more than 7 million borrowers.

President Obama and both Democrats and Republicans on Capitol Hill have said they want to prevent the rates from going up.

But the two parties also seem far apart on how to pay for that extension, with the House GOP passing a bill last week that wrung savings out of a public health prevention fund that is part of the Democratic healthcare overhaul. 

Senate Democrats, on the other hand, describe their plan as closing a loophole they say has been exploited by Newt Gingrich and John Edwards, among others. 

Under current law, S corporations pay taxes through the individual code. Democrats say that some business owners are underpaying their payroll taxes by counting certain income as company profits that have “passed through” to the owner. 

The Democrats say their proposal, which is scheduled for a vote next week, would end that practice for those making more than $250,000 per year. They say Republican opposition to the idea shows that the GOP is out to protect the rich.

But Republicans have said that the Democratic efforts would undercut entitlement programs because the payroll tax helps fund Social Security and Medicare. 

The business groups, which include the National Association of Wholesalers-Distributors and the National Restaurant Association, said the proposal would hit far more than the lobbying and law firms that the Democrats are focusing on. The also noted that a similar proposal failed to clear the Senate in 2010.

“Closely-held businesses engaged in health, real estate, engineering, architecture, consulting, financial services, billing, and other fields could be affected,” the groups wrote. “Moreover, once the line between earnings from labor and capital is removed, we are concerned that this provision could be expanded to include other, more capital intensive industries.”

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