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Old 10-15-2017, 01:02 PM
1 posts, read 227 times
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Another aspect of the Trump proposal that would lower the rate on pass-through entities such as Limited Liability Corporations is the impact on the social security and Medicare trust funds. As was seen in Kansas, where the top rate paid by pass-through entities was reduced so that it was advantageous for those collecting salaries to reorganize themselves into pass-through entities, many highly paid individuals did so. Bill Self the state's highest paid employee does not pay state income tax on millions he earns as the University's men's basketball coach since he uses a Limited Liability Corporation to be compensated for his services rather than a salary. Medicare payroll tax is paid on wages and salary with no limit and an extra Medicare tax is imposed on wages and salaries above $200,000 for single employees and $250,000 as a married taxpayer. Social Security payroll taxes is due on up to $127,500 in wages. By switching from being a salaried employee to being paid via pass-through entity allows one to not pay Medicare and Social Security tax on the income passed through.

Aside from the fact that highly paid professionals will pay lower income taxes when they reorganize themselves into pass-through entities, the Medicare and Social Security taxes they avoid by doing so will have to be made up by ordinary wage earners. The wage earners will either have to offset the Medicare and Social Security taxes lost when highly paid professionals reorganize themselves into pass-through entities by paying higher payroll taxes, or see Medicare and Social Security benefits reduced..."
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