![[ RSS ]](http://blogs.openforum.com/wp-content/themes/amex2.0/images/icon_rss_12_fff.gif){kind=icon}
Subscribe to this page
Previous
Making Life Difficult for the Self Employed
Dawn Rivers | August 15th, 2008 - 05:00 AM
(22) found this useful. Do you? 
Recently, President Bush signed what was dubbed by the New York Times as a “huge package of housing legislation” that is supposed to help thousands of homeowners who may be in danger of foreclosure.
There are other things in the bill, of course. As a matter of fact, there’s a little something here targeting the self-employed, something I bet nobody on Capitol Hill is going to claim credit for including.
Those vociferously fiscally-responsible Congressional Democrats, who want to pay for what they do but know they can’t raise taxes under this President, have spent the last couple of years lusting after a way to narrow the tax gap. The tax gap, in case you were wondering, is the difference between what the Treasury Department estimates it should receive in tax revenues and the amount it actually does receive.
Since the majority of taxpayers responsible for the tax gap (57% of them) have been identified as self-employed (Schedule C filers) and since the currently known tax gap would put a significant dent in the federal budget deficit, a lot of Congressional Democrats seemed to be trying to summon the courage to move their favorite proposal forward.
Parenthetically, the self-employed comprise 57% of taxpayers responsible for the tax gap but only 23% of the money involved — $67 billion of $290 billion, to be precise. Make of that what you will.
The proposal goes like this: credit and debit card issuers will be required to report electronic transactions of business merchants to the IRS. They will also be required to collect and verify Taxpayer Identification Numbers (TINs) and, if they cannot verify a merchant’s TIN, to immediately begin withholding 28% of that merchant’s transactions, which will be remitted to the IRS.
Advocates like the National Association for the Self-Employed have already pointed out that this is a stupid plan (although they were more polite about it than that). For starters, electronic credit and debit card transactions are already well documented and are unlikely subjects for willful under-reporting. So, this isn’t likely to make much of a dent in the tax gap.
It is likely, though, to add significantly to the costs of credit and debit card issuers, who will almost certainly pass those costs on to their microbusiness merchants.
Just what we needed right now, huh? Something else to increase our costs of doing business.
The provision was inserted into the bill as an offset for the new $7,500 one-time tax credit for new homebuyers. I doubt it will actually generate enough additional revenue to serve as a real offset, of course, but it probably looks good on paper. And, by sneaking the provision into this huge housing bill, the lawmakers involved even got to dispense with the need to summon any political courage.
I guess making life more difficult for the self-employed was more politically palatable than hitting up any of the other potential constituencies around.
* * * * *
About the Author: Dawn Rivers Baker, an award-winning small business journalist, regularly reports and analyzes small business policy and research as the editor and publisher of The MicroEnterprise Journal. She also blogs at The Journal Blog.
Dawn is a member of the Small Business Trends Expert Network.
Enjoy this post? Discover more like it when you Subscribe to the OPEN Forum Blog RSS feed.
Discussion Boards
If you accept credit and debit card payments, pay attention : The Journal Blog | August 15th, 2008 at 8:50 am
[…] Making Life Difficult for the Self-Employed Share the micro-nessSubscribeBloglinesDiggdel.icio.usFacebookFurlMa.gnoliaRedditStumbleUpon Email This Post Print This Post Category: PoliticsTags: microbusiness > public policy > self-employed > taxes […]
----------
Ivana Taylor | August 16th, 2008 at 5:55 am
Thanks for bringing this issue out in such clear and easy-to-understand terms, Dawn.
This complements Anita’s article about the 20 some million non-employee businesses out there and their contribution to the overall economy.
The small business owner (and independent solo worker) is a testament to what this country stands for. We should be encouraging this behavior instead of limiting it.
----------
Bianca Aquino | August 18th, 2008 at 2:04 am
I agree with you Ivana. We should encourage this behavior and not to limit it.
----------
Matt | August 19th, 2008 at 7:00 pm
I’m positive that collecting such information is already required under Anti-Money Laundering / Counter-Terrorism Funding regulations, and thus not a huge additional effort for (compliant) card issuers. I can also see the government officials’ logic of leveraging this information to benefit tax collections, and thus themselves (and their budgets and balance sheets) in the process.
The issue I take with this simply falls in the ‘tax complexity’ bracket. And, it will do near NOTHING to close that “tax gap”. Additional complexity = added costs to comply and collect = re-doubled efforts to circumvent the system and preserve wealth = an less efficient and less effective system.
----------
Dawn Rivers Baker | August 21st, 2008 at 9:47 am
Actually, Matt, I don’t think any of this stuff is required of MERCHANT BANKS (as opposed to your primary banking institution where you have your checking and savings accounts). Most of the burden of compliance is on them — as long as you don’t have any typos when you submit your TIN.
The politicians are trying to figure out how to increase compliance without having to require withholding of everybody who hires independent contractors. They wouldn’t hesitate to do that if it were just businesses, I suspect, but all those consumers having to submit additional withholding of their plumbers, landscapers, etc. would be political suicide.
Most self-employed individuals are not tax dodgers. And even among those who are, a certain number don’t do it on purpose; the tax code is so complex that many of them just don’t know how to do it right and can’t afford to hire a third party to help.
And even if they could close the self-employed tax gap, it’s mostly a lot of taxpayers owing relatively small dollar amounts. The GAO advises that they go after the far fewer high net worth tax dodgers owing relatively large dollar amounts to get the most bang for the buck.
We’ll have to wait and see what else they do, if anything.
----------
Look Who is Appearing On The American Express OPEN Forum | Small Business Trends | October 10th, 2008 at 12:56 pm
[…] Dawn Rivers Baker - Making Life Difficult for the Self Employed […]
----------
west coast | October 15th, 2008 at 10:53 pm
If Obama is elected, he will be figurehead, Pelosi will enact any policy she wants–be head of the banking system–decide who gets loans, etc., do away with unions’ secret ballots–there will be no checks & balances in the system. Bush is no good, McCain is no where near perfect, but do you want an unbridled, unchecked system?
----------