I’m a retired engineer who formed an S corporation as a vehicle for post-retirement consulting on a part-time basis. The Internal Revenue Service requires that I pay myself a “reasonable” salary (in my case, at the hourly rate I made as an employee before retirement) out of my corporation’s gross receipts. As explained by my accountant, the basis for this requirement is that I must not exploit the more favorable tax treatment of my business profits (the money the corporation brings in less my salary and my business expenses) vs. my salary.

My business profits (referred to as “pass-through” income) are included in my personal taxes as ordinary income. However, I pay no payroll tax (FICA at 15.3 percent) on that profit. On my salary I do have to pay payroll tax; therefore, my salary is not allowed to be unreasonably small. The absence of payroll taxes on my pass-through income gives me a tremendous advantage over those whose income comes only by way of a regular paycheck.

Now, the Republican Party is seeking to increase my advantage. Instead of having my business profits (already free of payroll taxes) taxed at my standard personal rate, they would be taxed at a special lower rate. Good for me (and even more so for those with pass-through incomes vastly greater than my modest part-time profits), but bad for people who earn a regular paycheck.

And don’t be fooled by claims that more after-tax money in the hands of S corporation owners will foster business expansion (as asserted by Trump administration officials like Office of Management and Budget Director Mick Mulvaney). If I wanted to expand my business with an assistant and another computer, for example, that expense is already tax deductible; more personal income won’t make that expansion any more likely. But it would support a better vacation. Got the picture?

James Metcalf

Hampton, N.H.