Warren Plan Would Close Tax Loophole Joe Biden Uses

Mary Schwalm/AP Photo

Former Vice President Joe Biden during a campaign stop in Laconia, New Hampshire

Earlier today I reported on Elizabeth Warren’s plan to expand Social Security benefits by the widest margin in a half-century. There’s a tiny provision in the plan that could loom large in the presidential primary and the campaign of the Democratic front-runner, Joe Biden.

Warren vows to close the so-called “Gingrich-Edwards” loophole, a way for the rich to avoid Social Security and Medicare contributions. Self-employed individuals can set up S corporations to pass through earned income from consulting, book advances, speaking fees, or whatever else. The Trump administration just made S corporations more lucrative by adding large deductions for pass-through income.

If the individual classifies money taken out of the S corporation as an investor distribution rather than a salary, that money avoids payroll taxes for Social Security and Medicare. It gets taxed as a corporate profit (at a lower overall rate) rather than income. Newt Gingrich and John Edwards, the namesakes of the loophole, both used this to funnel millions of dollars into their hands without paying payroll taxes.

Warren’s call to close the Gingrich-Edwards loophole would move more money into the Social Security system, as well as Medicare. Unlike other parts of the plan, a president could accomplish this through IRS regulatory guidelines, without needing approval from Congress.

And that could be bad news for a guy named Joe Biden.

As Ryan Grim at The Intercept flagged yesterday, Biden uses the Gingrich-Edwards loophole. He and his wife have set up S corporations in Delaware, which is notorious for its allowances for shell corporations and financial concealment.

According to The Wall Street Journal, the Bidens have reported over $13 million in profits the past two years through the S corporation, while only taking out $750,000 as salary. That leaves over $12 million, made through book deals and speaking fees, ineligible for payroll taxes, particularly for Medicare (those taxes are uncapped, as opposed to Social Security taxes, which are only collected on the first $132,900 in income). The money is also untraceable, a nice side benefit. As a result, we don’t know who paid the Bidens for all the speeches, or how much he was paid.

The Journal also reported that Warren, Barack Obama, Hillary Clinton, and Bernie Sanders did not take advantage of this loophole for their income made through books and books and speeches. 

One leading presidential candidate vowing to close a loophole that another leading presidential candidate uses to avoid taxes should probably be a topic of discussion in tonight’s debate. The two candidates will be standing at podiums right next to one another in Houston.

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