Shareholders with S corporation income will pay social security and medicare tax

I don't like this.  Not because it's a scheme that only a select few are using but because it will tax only certain S corporation shareholders.

The proposed law in the new tax bill passed by the House of Representatives and sent to the Senate to approve has S corporation income flowing through to shareholders, not as salary, to be subject to social security and Medicare tax.  Aha! the catch is that it applies to only some S corporation shareholders: those whose business is personal services with 3 or fewer employees--including shareholders--and those personal service corporations with more than 3 employees--including shareholders-- whose principal asset is not the reputation of more than 3 employees.  Whew! and the language in the law is even more convoluted.

Why the distinction?  If they are to be taxed, tax all of them!  How will "personal services" be defined?  Only those professions like law, accounting (me!), engineering etc? Those where the individual's efforts form 50% or more of income from the business? Why discriminate against the person who works alone versus the one who happens to have 3 employees? What is the "principal asset"?  Who picked the arbitrary number of 3? [Full disclosure, I am not organized as an S corporation].

Currently, S corporation shareholders are subject to social security and Medicare tax on any salary they take from the company, just like any wage earner.  Any income over and above flows through to the individual shareholder and is taxed as ordinary income, but not subject to these "payroll" taxes.  However, if the same business were organized and taxed as a sole proprietorship or a partnership, all of the income flowing from that business would be subject to the "payroll" taxes.  The IRS can, and does, examine S shareholders to make sure they are taking a "reasonable" salary--subject to payroll taxes.  Why enact a complicated law that will be litigated forever?

Putting  personal service S corporations on parity with sole proprietorships and partnerships is not inherently bad, but this one is bad law.