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Bedford Ramblings
Steve Mills

Would relaxing the self-employment tax encourage entrepreneurship?

Posted Wednesday, February 24, 2016, at 1:42 PM
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  • Although I am employed, I am also self-employed so I can "feel the pain". However, if I were solely self-employed, I would REALLY feel the pain.

    For those who want to feel the pain immediately, you can go to this link and read all about it. https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employment-...

    Few probably realize what the employer pays in taxes to the government to have the right to employ workers. As a self-employed, you get to enjoy both the taxes you see on your tax statement PLUS.

    Those who think the evil employer and corporations should pay more taxes need to sit in on the tax preparation some day. Then add insurance and other employee benefits and you might start wondering how a company stays in business. (so do they)

    Once you get large enough, it does not seem like stealing food right out of your mouth, but to a small company and even smaller self-employed person, it can me smothering.

    -- Posted by stevemills on Wed, Feb 24, 2016, at 1:42 PM
  • Although I am employed, I am also self-employed so I can "feel the pain". However, if I were solely self-employed, I would REALLY feel the pain.

    For those who want to feel the pain immediately, you can go to this link and read all about it. https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employment-...

    Few probably realize what the employer pays in taxes to the government to have the right to employ workers. As a self-employed, you get to enjoy both the taxes you see on your tax statement PLUS.

    Those who think the evil employer and corporations should pay more taxes need to sit in on the tax preparation some day. Then add insurance and other employee benefits and you might start wondering how a company stays in business. (so do they)

    Once you get large enough, it does not seem like stealing food right out of your mouth, but to a small company and even smaller self-employed person, it can feel like a direct link to your fork.

    -- Posted by stevemills on Wed, Feb 24, 2016, at 1:42 PM
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    It is still about 15% from employer and you if employed or from you if self-employed. Still kinda funny how lazzy thinks he is conservative, altho on this 1 point I think he is.

    -- Posted by fair share on Wed, Feb 24, 2016, at 4:00 PM
  • The self-employment tax is nothing more than your own payment into YOUR social security and medicare accounts with the addition of the employers portion of YOUR social security and medicare tax. It is all for your benefit and is not a penny more than what it would be if you were employed......... It is by law and cannot be changed, delayed, reduced or forgiven.....It is for your benefit and you will get it back in the form of Medicare and Social Security when you retire....

    -- Posted by Palindrome on Wed, Feb 24, 2016, at 4:31 PM
  • I also pay the self employment tax as well as the "Personal Property Tax". The personal property tax is levied against all my equipment and inventories that are used in my business.

    It is the personal property tax that raises my anger more than the self-employment tax.

    The self employment tax is also very painful and cuts into the available capital to grow my business. But, the personal property tax is triple dipping. First, I pay tax on the income through self employment tax. Second, I pay sales tax on the items I buy. Then, third, I pay personal property tax on these same items as long as I have them.

    If more people had to "feel the Bern" of taxation the political climate would be much different.

    -- Posted by Liveforlight on Wed, Feb 24, 2016, at 5:39 PM
  • Liverlight; I don't believe you should be paying sales tax on items you purchase for resale?

    -- Posted by lazarus on Thu, Feb 25, 2016, at 12:51 AM
  • I think the tax LFL was referring to was for supplies and equipment not for resale. But speaking of resale taxes, we used to keep a lot of miscellaneous things in our Coffee/Ice Cream/Diner/gift shop that was not bought from wholesale sources because we only bought 1 or 2 at a time.

    Many merchants who are just aimed at retail do not like to, know how to sell for resale or want to go through the extra paperwork to sell to tax exempt businesses. We just paid tax and figured it into our cost of sales.

    Another reason why some of our quick market prices are higher than the "big" stores. They are trying to supply a service by carrying it and we are complaining about comparison prices. Oh well.

    -- Posted by stevemills on Thu, Feb 25, 2016, at 9:22 AM
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    Back to the original question: yes. But it would be unfair to the employed. Right now, self-employed pay the exact same as employed. The employer portion is paid by the employer whether it is you or someone else. lazyrus, if you do your own taxes I would suggest you get an accountant or at least learn to do math. If you do have an accountant--fire them.

    -- Posted by fair share on Thu, Feb 25, 2016, at 3:15 PM
  • Steve is right, I was referring to equipment and supplies that I pay sales taxes on. I am not a reseller. I am a producer. I pay income tax on the money I earn, sales tax on the equipment/supplies I buy, and personal property tax on the equipment/supplies after I have it.

    My productivity is taxed through income tax, self employment tax, sales tax, and then property tax. Not to mention fuel taxes, registrations, licenses, etc. The amount of money taken from me and the burden of tracking/accounting for it, puts me at the edge of calling it quits.

    Now the county wants to add a wheel tax. This will probably push me on over the edge. It seems the only ones in favor of more taxes is those who are in some sort of political or beneficiary position. This is precisely what Frederic Bastiat said would happen in "The Law".

    http://bastiat.org/en/the_law.html#SECTION_G006

    -- Posted by Liveforlight on Thu, Feb 25, 2016, at 8:43 PM
  • Interesting perspective, Fare Share; clearly marking a difference in our personal philosophies. You are concerned about whether it is "fair" to employed people, in spite of the fact that it has absolutely no effect on them. My concern is that we are creating a negative motivation for working. I think we both believe that it is better for people to work to support themselves, rather than to wait for a government check. But a self employment tax that takes such a huge percentage of earnings at a low level makes it stupid to work. There is actually a threshold on self employment tax now.... $400 a year. Why would it not make more sense to set it at $50,000, $60,000 or even $100,000. Should it not pay better to work than to wait on a check? Wouldn't a person be downright foolish to work and starve, rather than not work and be able to eat on the dole? The government tracks our payments into social security, and if someone never puts anything in, there won't be anything for them to eventually get out. So, it is not like the employed people would be paying their way... Unlike when that same person is discouraged from working. Then, the employed people have to pay for their upkeep on the dole.

    And, yes, I know perfectly well what the self employment tax is... that is not a math question.

    -- Posted by lazarus on Thu, Feb 25, 2016, at 11:18 PM
  • It is obvious that a person who is operating a business should be in full understanding of the tax laws both Federal and State affecting that business. It is also obvious by some of the incorrect statements posted here that this is not the case. I recommend taking a small business class or hiring a good full-charge bookkeeper or accountant. A true understanding of the tax laws and principles of accounting for a small business will help manage that business promoting profitability in ways that are not clear to you now. " You don't know what you don't know "........

    -- Posted by Palindrome on Fri, Feb 26, 2016, at 8:17 AM
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    Well lazyrus, it kinda is a math problem when 1 year 15%=1/2 and the next year 15%=1/3. In the real world 15%=15% every year. At least it did before common core. I really do not get where you get the idea that it has no effect on the employed. The guvment gets 15% (actually 15.something) from anyone that works. They don't care who your employer is---you or someone else. If you are employed, you pay 1/2 on your taxes but the employer pays the other 1/2---it is part of your compensation. When did it become "fare" to tell 1 person they get a tax break because of who they work for and tell the next one they do not get a tax break because of who they work for? You really should pay close attention to what Palindrome just said.

    -- Posted by fair share on Fri, Feb 26, 2016, at 9:35 AM
  • Having a "full understanding" of tax law is probably a never ending, full-time proposition. I muddle by but I know there is much more I could do to get more tax refund.

    I am not big enough to justify an accountant (at least in my mind)large enough to pay attention. At this point I employ no one else besides my wife and myself and after having walked that walk years ago, I am not sure I want to employee anyone again.

    LFL's example does seem like there is more, but I do believe our current system does out so many hoops, fees, taxes, etc on a new business that it can be highly discouraging to try. I believe that was the original intent of the question, could more be done (or less) to encourage business "births".

    -- Posted by stevemills on Fri, Feb 26, 2016, at 10:25 AM
  • A full-charge bookkeeper or accountant can be hired as an outside service ( consultant ) quarterly ( or even yearly ) and paid by the day or even hour. It is best to do this from the beginning with a small business so you don't take the wrong course and end up needing more help to clean up mistakes.......Often easily avoidable mistakes lead to unprofitability........

    -- Posted by Palindrome on Fri, Feb 26, 2016, at 10:42 AM
  • "LFL's example does seem like there is more, but I do believe our current system does out so many hoops, fees, taxes, etc., on a new business that it can be highly discouraging to try."

    -- Posted by stevemills on Fri, Feb 26, 2016, at 10:25 AM

    There is more, I do get to depreciate the equipment and deduct the taxes I pay from my income. But, that only reduces the amount of adjusted gross income based on these items as expenses. It does not alleviate the payments or the extra work that is involved in making the payments and keeping the records.

    I have consulted with accountants and other business owners who are facing the same thing.

    There is basically a threshold you have to reach in order for the expense of an accountant to be justified. For me, that would be when I begin to take on permanent employees. In the mean time, the system of taxation, quarterly payments, license, and insurance hampers my cash flow reducing my ability to make timely investments without accruing debt, which I am opposed to doing.

    The point of this blog is that the system could make it easier for small business. You are absolutely right, that it is highly discouraging.

    -- Posted by Liveforlight on Fri, Feb 26, 2016, at 11:03 PM
  • Thank you, Steve and Liver Light, for addressing the point. While I am touched at the concern everyone has for my tax situation and math skills, none of that was really the question. I do not have to do my own taxes and was merely repeating what was left of that particular income after taxes were paid. The bulk of the difference being attributed to self employment tax..

    However, the responses still might shed some light on why our elected officials put so little effort into addressing problems like this. They can arouse a lot more passion by just the suggestion that someone else might be getting something that their supporters are not.

    -- Posted by lazarus on Sat, Feb 27, 2016, at 11:27 PM
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    It sounded like you were talking about just the self-employment tax. If you were counting all taxes then your math may be right and you have my condolences. Although elected officials put little effort into addressing tax problems they do tweak the tax code to favor some over others. It is their bread and butter.

    -- Posted by fair share on Sun, Feb 28, 2016, at 7:09 AM
  • What would politicians do if there was NO money?

    What would our world be like if all government could do was pass laws about our behavior but not spend money, therefor, no taxes?

    That is hard for me to grasp. All the services, road work, military, etc.. Would we have dependable electricity, clean water?

    -- Posted by stevemills on Sun, Feb 28, 2016, at 7:24 AM
  • The correct function of "The Law" or government is to cause justice to reign. Causing justice to reign means to provide a collective power for the purpose of preventing the "plunder" of life, liberty, and possessions.

    Some spending is necessary to perform those duties/services. Just as some spending is necessary on a personal level for the same purpose such as door locks, security systems, and/or firearms. Spending on the military and police serves the same purpose and is needed by all. These services are proper for taxation as they exist of the sole purpose of the prevention of plunder and causing justice to reign.

    The problem is that government, instead of preventing plunder, has became the instigator of plundering. Various reasons are used as justification such as roads, schools, utilities, etc. This reasoning which has been, and is, ever expanding into areas where plundering is the norm. The government, instead of working to prevent plundering, attempts to control it by spreading it through the use of the power of "The Law".

    However, all of the above non-plunder preventative services, can be created and maintained by other means which do not require plundering the citizenry. For example, roads: Only the ones who use them should have to pay for them. Likewise, anyone who has not paid, should not be able to use them without paying. Anything outside of these simple parameters means that plundering has taken place.

    Plundering begets plundering and soon more energy is spent in obtaining plunder than the prevention of it. This is the lure and basis of socialism and its' downfall. The result is fiscal ruin. Eventually, the plunder reaches critical mass when the producers do everything within their power to prevent being plunder up to, and including, stopping production.

    "The problem with socialism is that sooner or later you run out of other peoples money to spend" (plunder). Then, in order to provide the necessary goods and services, which the people will demand, the government must take control of the means of production as well (Communism). At that point we, as the means of production, are merely slaves, unable to reap the rewards of our own labor but merely a regulated portion of it.

    This is where we are headed in this country.

    -- Posted by Liveforlight on Sun, Feb 28, 2016, at 9:10 PM
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    At least Trump will slow if not stop our journey to ruin. But slick hilly and burny would accelerate our descent.

    -- Posted by fair share on Mon, Feb 29, 2016, at 7:34 AM
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