Ehrlich on Washington column, June 1, 1997

MEWS FROM Robert L. Ehrlich, Jr. Second Congressional District of Maryland 1 407 York Road, Suite 304 Lutherville, Maryland 21093 EHRLICH ON WASHINGTON By Congressman Robert L. Ehrlich, Jr. 315 Cannon House Office Building Washington, D.C. 205 1 5 Week of June 1, 1997 NO MORE STEALTH TAXES As your Congressman, I am accountable to your views, needs, and wishes with regard to my votes on issues of the day. If you do not agree with a sufficient number of my votes, you have the right to replace me. This is how democracy is supposed to work. Unfortunately, the Department of the Treasury (DOT) and the Internal Revenue Service (IRS), in at least one particular instance, are seeking to bypass the wishes of the American people and of Congress by administratively enacting a 2.9% payroll tax on certain earnings. As you probably know, the Self-Employment Contributions Act (SECA) requires self-employed individuals to pay both the employer and the employee component of their Social Security & Medicare taxes. Back in 1994, the Clinton Administration and then-Senate Majority Leader George Mitchell proposed broadening the SECA tax to include limited partnerships and shareholders in smaller companies (many of which are owned by people who are “employees” of their own businesses). This proposal died along with the rest of the President’s health care “reform” plan. Now, attempting to accomplish administratively what it could not do legislatively, DOT is attempting to change the definition of limited partnerships. If successful, this administrative change will require limited partnerships to pay what is effectively a 2.9% Medicare payroll tax on earnings retained by the partnerships as well as on the income received. Scheduled to take effect in 1998, the proposed regulation offers no transition or grandfather period for existing entities. Moreover, this “stealth tax,” which the Wall Street Journal calls “a revenue grab through back door regs,” treats all partnership earnings as if they were personal income for the