I don't have the exact quote, but Cheney basically said Edwards avoided $600,000 in Medicare taxes by using a sub-chapter S corporation for his law firm.
My business is a partnership, so I'm not completely familiar with S-corp accounting, but I don't think this is possible (not legally anyway).
Anybody know what Cheney meant or is this just another invented lie?
More detail below.
An S-corporation, like a partnership, is what is called a "flow-through entity". What that means is that S-corporations and partnerships don't pay any taxes. All of their income is divided among the shareholders/partners and the shareholders/partners pay income tax and self-employment tax on that income, more or less like it was wages.
The Medicare tax is a tax applied to all earned income. If you work for someone else, you pay 1.45% of your paycheck in Medicare tax, and your employer pays another 1.45% for you. Unlike FICA, Medicare tax applies to every dollar you earn, first to last.
Self-employed people pay the Medicare tax as part of the "self-employment tax", which just means they pay both the employee and the employer portion of the tax. They get to deduct 1/2 of self-employment tax, just like employers deduct their contribution as a business expense.
There are no deductions against the Medicare tax - it's just a gross tax on all income you earn. The only way to reduce Medicare tax is reduce your income. Period.
Every dollar of S-corp income is some individual's income, and is therefor subject to the Medicare tax. On the other hand, a normal corporation (but not an S-corp) can retain earnings (so shareholders don't get that part of the corp's income and aren't taxed on it) or can distribute earnings as dividends, which are not subject to the Medicare tax. So by organizing as an S-corp, Edwards would have paid more Medicare taxes.
What the hell was Cheney talking about? Anybody know? This makes absolutely no sense as far as I can see.