WASHINGTON - As the Senate continues to move forward with its debate on H.R. 4213, the American Jobs and Closing Tax Loopholes Act of 2010, U.S. Senate Committee on Small Business and Entrepreneurship Ranking Member Olympia Snowe (R-ME) and Committee Member Senator Mike Enzi (R-WY) blasted a provision of the measure that would impose a 15.3 percent payroll tax on S Corporations, the major entrepreneurial form of business ownership that has been the single biggest job generator.

The lawmakers, who said the job-killing tax hike would cripple American entrepreneurs?? ability to hire new workers, filed an amendment to H.R. 4213 to strike Section 413 from the bill late Sunday night.

"At a time when Congress continues to dither on enacting a small business jobs bill, Section 413 is a poison pill in this tax bill, robbing American small businesses of the capital they need to create new, good-paying jobs," said Snowe in a press release. "Indeed, this is a job-killing tax hike that will force entrepreneurs across the nation to retrench and reconsider any plans for hiring employees or expanding their business."

H.R. 4213 would impose payroll taxes (15.3 percent) on S Corporations on the dividend distributions paid to employee-owners, to family members who are shareholders or partners, and on retained earnings in the business. Laudably, the provision is aimed at reducing gaming that can take place by S Corp owners shifting income away from compensation and to "dividends" that are not subject to payroll tax.

However, this is a substantial new tax on the income whether or not it is distributed, thus imposing payroll taxes at a 15.3 percent rate on the retained earnings of S Corporations. Retained earnings are the single biggest form of capital for small business and this provision would decimate that capital at a time when other sources remain difficult to access. The Snowe-Enzi amendment would remove the provision from the bill.

In a June 11 letter to ranking members of the Senate Finance Committee, 24 business associations, including NACS, called for support of the amendment. "While it has been described as a 'loophole closer?? and a ??payroll tax?? it is neither. It is a new tax on small employers that will overturn more than fifty years of established tax policy," the letter said. "We share the concerns of Congress that certain taxpayers are underpaying their payroll taxes, but we believe Section 413 is overly broad and will result in more increased tax collections than increased tax compliance."

Senate Finance Committee Chairman Max Baucus (D-MT) is putting together an alternative payroll tax provision that he plans to substitute for the flawed effort in the House-passed bill. No information about that addition have been forthcoming yet, but will likely be made public later this week.