April 24, 2012 / 5:31 PM / 8 years ago

White House: Closing tax loophole could fund student loans

U.S. President Barack Obama waves before talking about the rising costs of student loans while in Carmichael Arena at the University of North Carolina at Chapel Hill April 24, 2012. REUTERS/Larry Downing

ABOARD AIR FORCE ONE (Reuters) - The White House said on Tuesday that it was reviewing whether a small business tax loophole should be closed to pay for an extension of low interest rates on student loans that President Barack Obama wants Congress to deliver.

The loophole allows some shareholder-employees of so-called “S corporations” to avoid paying the Medicare payroll tax on their earnings.

“We’ve certainly been in discussions with senators about that - that is certainly an option that is a good potential option,” said White House press secretary Jay Carney traveling with Obama. “It meets the standard we set that we cannot pay for it in a way that harms students.”

Obama was heading to North Carolina on the first leg of a tour of three battleground election states in which he will urge Congress to stop interest rates from rising on 7.4 million students. The action could appeal to middle class and younger voters vital to his hopes for re-election in November.

Carney said that closing the tax loophole was among a variety of potential ways to pay for the estimated $6 billion cost of a one-year extension of the loan rates, which otherwise will double on July 1 to 6.8 percent.

An S-Corporation does not pay corporate taxes but passes income through to the individual shareholders, who can report it as profits rather than wages in order to lower their tax burden.

It is sometimes called the “John Edwards” loophole after the former Democratic vice presidential nominee, who formed an S-Corporation in the 1990s when he was a trial lawyer.

Reporting by Jeff Mason; Editing by Jackie Frank

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