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Tax Breaks for Wealthy Targeted By Democrats in Budget Conference

Tuesday, November 12, 2013
By Heidi Przybyla

Millionaires who avoid payroll taxes by claiming income as business profits are among those in Democrats' sights as congressional budget negotiators seek a deal by next month.

Limiting the ability of some business owners to use the S corporation structure would save $12 billion over the next 10 years, according to a list of tax breaks obtained by Bloomberg News that Democrats say should be among those considered for elimination.

That provision allowed Newt Gingrich and John Edwards to avoid payroll levies, according to tax returns the two filed during their 2012 and 2004 campaigns for the White House. Both men paid themselves relatively small salaries subject to payroll taxes, then took the rest of their compensation in the form of dividends from their firms, allowing them to avoid payroll taxes on that portion of their income.

“Some wealthy business owners knowingly mischaracterize their income as business profits instead of salary to avoid Medicare and Social Security payroll taxes,” the Democrats' list of options says.

Gingrich didn't respond to messages left on his phone asking for comment. Edwards also couldn't be reached through his former campaign scheduler, Matthew Nelson.

Sen. Patty Murray (D-Wash.), chairwoman of the Senate Budget Committee and the lead Democratic negotiator, said Nov. 5 that it shouldn't be difficult “for Republicans to agree to put just a few of the most egregious, wasteful loopholes and special-interest carve-outs on the table.”

The clash with Republicans over revenue stands in the way of the lawmakers reaching a deal by a Dec. 13 deadline. Democrats have long urged Republicans to agree to scrap at least some of the tax preferences, while Republicans argue that doing so would undermine efforts for a broader tax-code revision.

To contact the reporter on this story: Heidi Przybyla in Washington at hprzybyla@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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