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Reviving America’s Economy by Incentivizing Entrepreneurship

For self-employed business consultants, writers, DJs, power-washers, fixed-gear bike repair technicians, photographers, personal chefs, canine obedience trainers and countless other professions, tax form 1099 is the one that you send to the IRS every year on April 15th. In general, the “1099” status is pretty great. As long as you dutifully set aside the amount you anticipate to pay to the federal government at tax time (for most people, about 30 percent), you don’t have to worry about filing anything during the year. And there are a number of useful deductions—car and computer purchases, for instance—for legitimate business expenses. All in all, it’s a sweet deal.

But the self-employed tax is still too high.

Man Frustrated With Taxes

Most Americans don’t mind contributing to Social Security or Medicare, which takes up 15 percent of a self-employed person’s earnings. But the other 15 percent of earnings is paid as pure income tax. While there is variance in the amount of taxes each self-employed person pays, and the tax was reduced by 2 percent as recently as 2010, the rate still ought to be lessened.

Primarily, such reform would incentivize entrepreneurial activity, which—today especially—is a necessary step toward revitalizing America’s economy.

Currently, the uncertainty of the healthcare law and the future of the federal budget and tax code are depressing hiring. Businesses crave certainty in the regulatory and fiscal environment, even if they are certain it is a climate adverse to their purposes.

There is also more concern than ever that technology is cannibalizing jobs. A law firm once needed 15 associates to dig through cases. One associate with a LexisNexis account can do the equivalent of that work in a few days, or hours.

[pullquote]     By taking up self-employment initiatives, workers can create value for themselves and their communities.[/pullquote]

A lack of income mobility is also a persistent problem. Forty-three percent of Americans raised in the bottom quintile remain stuck there as adults. Real hourly wages for people at the middle of the wage distribution were no higher in 2012 than in 2000. In light of this persistent stagnation, more individuals will need to create their own economic destiny, not wait by the phone for an HR manager to call back.

By taking up self-employment initiatives, even part-time ones, workers can create economic activity that creates value for themselves and their communities.

I love getting paid to write part-time. But what makes it so worthwhile is the sense of accomplishment in creating an original work and contributing to an intellectual or faith community. One of my projects is contributing to a newsletter for a Christian missionary organization. I can’t take a vacation off of the pay, but I love building God’s kingdom on earth with my talents. And as I see success on different projects, my hunger to keep doing quality work grows. This type of work should be encouraged.

Cutting the 1099 self-employed tax would also be a boon to individuals who do self-employed work but are unprepared to form an LLC or corporation to fulfill their tax responsibilities. These are often young people chasing a dream or supplementing their income with a little business on the side. Cutting the tax by 10 percent or so would help these self-employed persons re-invest revenues in their business.

What impressed Alexis De Tocqueville most about business in America was “not so much the marvelous grandeur of some undertaking as the innumerable multitude of small ones.” It is very rare that a self-employed writer, DJ or chef is going to become Dan Brown, Deadmau5, or Bobby Flay—entrepreneurs with an enormous amount of money and cultural cachet. But it is quite possible to be a self-sustaining, self-employed business person who contributes to society. It is part of the American heritage, and must be a part of our future.