Bill Introduced to Stop Interest Rate Increase

April 25, 2012

As President Obama began a three-state tour of college campuses, making a speech in North Carolina about the importance of keeping the interest rates for federally subsidized loans at 3.4 percent, House and Senate Democrats said they intend to introduce legislation today to stop the rate from doubling and pay for the extension by ending a tax break for self-employed. The interest rate for subsidized loans, currently at a historic low, is scheduled to double to 6.8 percent on July 1 if Congress takes no action.

The bill, the Stop the Student Loan Interest Rate Hike Act of 2012, would pay for the lower rate -- which costs about $6 billion per year -- by limiting a tax provision that allows owners of certain kinds of corporations, called S corporations, to avoid payroll taxes on their earnings. About 4 million S corporations exist in the US, including many professional offices like doctors or law firms, the Associated Press reported. They do not pay corporate earnings taxes, instead redirecting the income to their owners, who pay income taxes on that money (but not payroll taxes for Medicare or Social Security). Under the Democrats' bill, such corporations making more than $250,000 per year and with fewer than three owners would no longer be able to avoid payroll taxes.

It was unclear whether the plan would get any Republican support.

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