There are over 23 million self-employed Americans. They account for nearly three-quarters of American businesses, with over a trillion dollars in receipts. The labors of the self-employed are as old as agriculture, and as new as computer programming. The self-employed cut across political party, age, sex, education, religion, creed and geography. They are the backbone of rural and many local urban economies. Because of the Self-Employment Tax, they are acutely aware of their identity as “self-employed,” but not of their large numbers and diversity in the United States. The self-employed are also the fastest growing and largest untapped voting block in the country. Their influence can easily swing future Congressional and Presidential elections.
In 2000, for the first time since well before passage of the National Labor Relations Act, nonfarm sole proprietorships outnumbered union membership. From 1980 to 2000 nonfarm sole proprietorships doubled from 8,892,000 to 17,905,000, while union membership declined about 1.5 million to 16,258,000. By 2006, union membership had declined to 15,390,000, while the number of self-employed had increased by 3.5 million to over 23,000,000 (including farmers). This hugely important change in the demographics of the American workplace must be recognized and acted upon by the Democratic Party, if it is to build its majority in Congress and retain the Presidency.
In a Republic, identity creates power. Consequently, the most important step in getting the self-employed to exercise their political clout, and thereby to defend themselves and their country, is to give the self-employed the welcome news that there are over 23 million of them, and to recognize the self-employed by name and need.
Unfortunately, the Democratic Party, like the Republican Party, has little recent history of supporting legislation that would help the self-employed. Federal, state and local governments have made the self-employed the highest taxed, most regulatory burdened, least protected citizens. Consequently, the majority of the self-employed are voting Republican in the hope that government will leave them alone. The self-employed are the backbone of rural America, and any change in the political direction of rural America will come about only when Democrats recognize and promote the importance of the self-employed to the rural economy and its quality of life.
Politicians indirectly refer to the self-employed as “small business,” but the term “small business” is code to the self-employed for being ignored. The Small Business Administration gives the self-employed less than one-tenth of one percent of SBA loans, and the SBA defines a “small business” in manufacturing as a firm with less than 500 employees.
Republicans use the term “small business” often because they have calculated that using this term will win Republicans votes; their avowed economic policies, however, have not helped the self-employed. Democrats can turn the Republican Party’s small business mantra to their own advantage by reaching out to the 23 million self-employed Americans by name and recognizing their issues.
If the Democratic Party wants to reach the self-employed, they must first use the name of this producer group: “self-employed.” If proposed economic plans do not refer exclusively to the self-employed, but include other small businesses, then Democrats should use this phrase: “small business and the self-employed.”
Enable the self-employed to deduct their health insurance premiums as a business expense.
Restore the option for selecting a catastrophic health insurance plan.
Couple voluntary enrollment in health insurance with a health insurance tax credit.
The Affordable Care Act is a disaster for the self-employed, particularly the young. Arguably, the Democrats lost the House in 2010 because they were clueless to the ill effects on the self-employed of the Affordable Care Act, which galvanized many millions of self-employed producers and their families to vote for Republican candidates. Guising itself as a means to offer affordable healthcare to all Americans, the Affordable Care Act does not even enable the self-employed to deduct their healthcare premiums as a business expense, as can corporations. Currently, and under the Affordable Care Act as well, the self-employed must pay the Self-Employment tax on their healthcare premium, which translates into about $1,500 tax on a $10,000 premium.
The Affordable Care Act also does not recognize that the majority of self-employed people who have health insurance carry catastrophic health insurance with large deductibles. These policies will not be offered after the Affordable Care Act is implemented, except for those individuals that already carry catastrophic health insurance and maintain it without changes. For many self-employed, catastrophic health insurance is not only what is affordable, but is also the best business decision, a decision to be phased out through the Affordable Care Act.
For the young self-employed, the Affordable Care Act mandate to buy corporate health insurance is truly onerous because the young self-employed often make the wise business decision to invest in their new businesses rather than a health insurance plan which it is unlikely they will use. President Obama claims that mandating the young into this system is the only way the country can afford the Affordable Care Act, but candidate Obama in 2008 promised not to mandate inclusion in his healthcare plan, the only recognizable difference between his healthcare plan and candidate Clinton’s. This unconscionable transfer of wealth from the young to the health insurance corporations is a scourge to the democratic principles and future prosperity of this country.
The unincorporated businesses of the self-employed deserve the same deduction for health insurance as incorporated businesses. Allowing a self-employed business to deduct a health insurance premium of $10,000 as a business expense would save that self-employed business about $1,500 on its Self-Employment Tax. This deduction represents very basic economic and social justice for the unincorporated businesses of the self-employed, and demands immediate attention from Democrats and Congress. The Equity for Our Nation’s Self-Employed Act, which would make this deduction law by amending the Internal Revenue Code of 1986, has been introduced with bipartisan cosponsors of each new Congress for about a decade, but always fails to be enacted. The reason is unfortunate but simple: representatives do not generally pay attention to principle, but to what organization can deliver them election results. The self-employed have no such organization.
At least 30% of the self-employed have no health insurance. This is primarily because the current market approach to the purchase of health insurance reflects a market economy in which the economies of scale reward large buyers. Consequently, health insurance rates for the self-employed are much higher than for any other producer group, and are often unaffordable. If the United States does not adopt a single payer universal healthcare system, the federal government must at least offer a public option, or step in to broker health insurance rates that reflect the over twenty million self-employed producers in the United States, without mandating inclusion in these pools.
Most self-employed people pay far more Self-Employment Tax than they do Income Tax. A tax credit to offset health insurance costs would effectively address the crisis of health insurance for the self-employed, if this tax credit could be applied to the Self-Employment Tax. Applying a health insurance tax credit to the Self-Employment Tax would succeed in mobilizing self-employed voters; addressing both the crisis of health insurance, and the inequity of the Self-Employment Tax.
While some analysts and politicians may claim that the Affordable Care Act will enable the uninsured self-employed to finally get health insurance, these scenarios ignore the nearly universally negative experiences that the self-employed have with federal and state regulatory mandates on their small businesses. The self-employed do not want to prove that they are “worthy” of a health insurance subsidy, and arguably will drop employees before subjecting themselves to this process. Currently, there are about 1.5 million self-employed businesses with employees, employing over 5.6 million people. The Affordable Care Act is a job killer.
Increase SBA’s micro loan program.
Less than one-tenth of one percent of Small Business Administration loans go to the self-employed. The Small Business Administration loan program must be made to reflect the fact that nearly three-quarters of businesses in the United States are self-employed. One option is for the SBA to greatly expand its micro loan program.
Make the Self-Employment Tax equal only the employee’s share of the Social Security and Medicare contributions—7.65%.
The self-employed are the highest taxed, most regulatory burdened, least protected Americans. Between 1951 and 1990, the Self-Employment Tax rate increased nearly 700%.
When the Truman Administration extended compulsory coverage of Social Security to the self-employed in 1951, the self-employed paid the employee share of the Social Security Tax, and one-half the employer share, at a combined rate equal to a flat tax of 2.25% on all earned income below $3,600. (In 1951 the maximum Self-Employment Tax was $81.) Not until the Reagan Administration came to power had anyone dreamed that the Self-Employment Tax would rise to 15.3%. The 1983 Social Security Reform Act structurally changed the Self-Employment Tax so that the self-employed paid both the employee and employer shares of payroll taxes; by 1990 the rate had nearly doubled from the 1980 rate of 8.1% to today’s rate of 15.3%. Now, the self-employed pay both the employee and employer shares of the Social Security Tax, at a combined rate of 12.4%. Together with their contribution to Medicare, the self-employed paid in 2011 a flat tax of 15.3% on all earned income below $106,800; there are no personal exemptions or standard deductions. This is called the Self-Employment Tax. Consequently, a self-employed family of four making $45,000 has as their first expense a Self-Employment Tax of about $6,500.
The Self-Employment Tax should equal only the the employee share of the Social Security and Medicare contributions—7.65%. With this savings the self-employed would have a better chance to invest in themselves and their businesses, as well as pay for health insurance. They would also be better able to compensate themselves for protections taken for granted in corporations and government, but lacking in their own producer group, i.e., minimum wage, workers compensation, and unemployment insurance. Cutting the Self-Employment Tax in half would initially cost the Social Security Trust Fund (currently over $2.5 trillion) about twenty billion dollars a year, but would also be a powerful economic stimulus, particularly in rural areas.
Ninety percent of farmers are self-employed; to save the family farm, the self-employed must be saved.
End the practice of enforcing antitrust law on the common demands of the self-employed.
In the last two decades, self-employed producers have banded together to collectively challenge the small number of corporate purchasers that dominate their respective industries (doctors in private practice versus HMOs, independent truckers versus shippers, farmers versus processors). In a profound perversion of antitrust law, corporations and government have responded to these challenges by applying antitrust laws to these self-employed groups; their common demands are punished by the law as price fixing. The practice of enforcing antitrust law in order to maintain corporate dominance of the self-employed must end; the future of family farms and physicians with a family practice is at stake.
When regulations for saftey and effectiveness are written, distinctions in accountability of the self-employed producer and corporations must be taken into account. Regulations that would be too costly or burdensome for the self-employed producer should not be applied to this sector of the economy when the judgment of the consumer and the integrity of the self-employed producer are society’s own best protection.
Innovation has been the hallmark of America’s economic engine. Dating back to Benjamin Franklin, the notion of the common man doing uncommon things and being rewarded for it is well established in our culture. Regulations for product safety and product effectiveness, however, can be devastating to the self-employed because these regulations are often too expensive or too time consuming for the self-employed to comply with. Representatives of corporations, rather than consumers or small producers, often set “government” standards. Consequently, innovation is stifled because the relative cost in time and money for most regulatory compliance is much higher for the self-employed than for large corporate enterprises. These regulations regularly drive small producers out of business, or keep producers from entering the market at all. Product safety scares are often used as an excuse and means to drive small competitors out of business through the creation of costly regulations which only large corporations can afford, even if injuries occur only through the practices of these same large corporations.
Regulatory burdens for the self-employed include, but are not limited to, mandates for processing, handling, equipment, paper trails, inspection, testing, licensing and insurance. When the self-employed and small producers go out of business because they can’t afford to comply with regulations, rather than because they offer a useless product or are a proven danger, neither the consumer nor the economy is served. Barriers to market entry are always barriers to innovation, and usually to service.
It is a nearly iron law of modern democracy that when a regulator is created, a target of influence is created, and when a target of influence is created, those in the best position to influence will throw their efforts upon that target. The self-employed and small producers are usually unorganized, and seldom have the time or resources to influence regulatory outcomes. They must abide by the law, but seldom make it.
Under the law, self-employed producers are liable for damages their products or services may cause. Corporations are liable for damages as well, but, as legal entities, it is corporations and not executives of corporations that are usually held responsible. To escape personal liability is in fact one of the primary reasons businesses incorporate.
When regulations for safety and effectiveness are written, distinctions in accountability of the self-employed producer and corporations should be taken into account. Regulations that would be too costly or burdensome for the self-employed producer should not be applied to this sector of the economy when the judgment of the consumer and the integrity of the self-employed producer are society’s own best protection.
The right to be one’s own boss is as fundamental to American freedom as the right to privacy or free speech. In a rural community, the self-employed may include a carpenter, farmer, lawyer, accountant, plumber, electrician, barber, fisherman, musician, masseuse, chiropractor, real estate agent, house painter, trucker,
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logger, excavator, stonecutter, artist, computer programmer, shopkeeper, photographer, herbalist, welder, mechanic or writer. The diverse lives and services of the self-employed need to be promoted and protected; if the Democratic Party chooses to be an advocate for the self-employed, it will gain a large majority in the Congress and retain the Presidency.
Had a number of voters equal to 5% of the self-employed in Iowa, New Hampshire, New Mexico, and Wisconsin switched Presidential candidates, the outcome in those states would have been reversed.
Had a number of voters equal to 10% of the self-employed in Minnesota, Ohio, Nevada and Pennsylvania switched Presidential candidates, the outcome in those states would have been reversed.
Had a number of voters equal to 15% of the self-employed in Michigan and Oregon switched Presidential candidates, the outcome in those states would have been reversed.
Had a number of voters equal to 20% of the self-employed in Florida and Colorado switched Presidential candidates, the outcome in those states would have been reversed.
Had a number of voters equal to 25% of the self-employed in Arkansas and Missouri switched Presidential candidates, the outcome in those states would have been reversed.
“We say to you that you have made the definition of a business man too limited in its application. The man who is employed for wages is as much a business man as his employer; the attorney in a country town is as much a business man as the corporation counsel in a great metropolis; the merchant at the cross-roads store is as much a business man as the merchant of New York; the farmer who goes forth in the morning and toils all day, who begins in spring and toils all summer, and who by the application of brain and muscle to the natural resources of the country creates wealth, is as much a business man as the man who goes upon the Board of Trade and bets upon the price of grain. We come to speak of this broader class of business men…
“There are two ideas of government. There are those who believe that, if you will only legislate to make the well-to-do prosperous, their prosperity will leak through on those below. The Democratic idea, however, has been that if you legislate to make the masses prosperous, their prosperity will find its way up through every class which rests upon them…”
—William Jennings Bryan
“Cross of Gold” Speech to the Democratic Presidential Convention, 1896
(Bryan lost to William McKinley not because of the weakness of this message, but because he was outspent 10 to 1.)