When I got up this morning, I was all set to blog more about the disaster that is (and let me type it out one more time) the American Jobs and Closing Tax Loopholes Act of 2010.

Specifically, I was going to focus on the S corporation provisions, which seem to be taking a beating in this bill. But then I read this piece by Joe Kristan. It’s a brilliant summary of much of exactly what’s wrong with the apparently poorly thought out efforts on Congress’ part to reform/fix/muddle up even more the Tax Code.

In the piece, Joe points out the most obvious concern about the new provision:

It would penalize the smallest personal service providers to the benefit of their larger competitors. A sole proprietorship would pay taxes at a rate at least 2.9% higher than a competitor whose “principal asset” is the reputation of more than three employees.

That’s right. Congress is penalizing small businesses. That’s exactly what we need in a recession. If you read through the bill, you’ll see that we’re giving tax incentives to NASCAR, to Hollywood, to mining companies… And at the end, we’re thumbing our nose at what keeps this company going: small service-based businesses.

And we wonder why we’re in this pickle to begin with.

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Kelly Erb is a tax attorney, tax writer and podcaster.


  1. Kelly, perhaps you are right, but the penalties run up much further back in the history and complexities of our tax system. S corps are an attempt to straighten the distortions caused by the two-tier tax on limited liability businesses (corps). But the rules for S-corps are quite arbitrary. Why should we even have such two tiers imposed on any business?

    Further, I think that the problem begins right with the preference that the tax code gives to debt financing. Deductibility of interest penalizes equity holders and businesses with fluctuating cash flows (as most small businesses are).

    If we wanted to get serious about stimulating the economy and saving more, lets make interest non-deductible and scratch the corporate income tax (or, alternatively, the capital gains tax).

  2. This is was rightone Tax girl. I’ve been following the American Jobs… and not sure how I missed this “Loophole” but I’m glad I found your blog. I’m outraged at this especially as an African American women who’s main business is in professional services. I like what Bobby said “Yay for the government biting the hand that feds them”

    You are right about that!

  3. Note to Congress. You sock this on me but not on my bigger competitor down the street? Anyone who votes for this monstrosity will never get my vote again.

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