Our Glorious Leader has decided to stimulate the economy by giving tax rebates to ordinary working taxpayers. And seniors on Social Security. And people getting the Earned Income Tax Credit. And…sorry, I’m losing track. But I’m pretty sure that none of the people on the list are independent contractors or entrepreneurs. None of them, that is, are the people whose income mostly shows up on the Schedule C.
The Schedule C is the IRS form that people submit with their 1040 to report “profit or loss” from a business. In the political realm, it is the form people love to ignore. The only presidential candidate who is proposing anything that will affect Schedule C filers is Mike Huckabee, who wants to abolish the IRS and the income tax altogether. By implication, that means the Schedule C gets abolished too. This is as close as anybody has come to mentioning it in what passes for political discourse since 1960 or so.
Why on earth should that matter? People talk about the income tax system only to denounce it, or occasionally to protest excessive denunciation. Why should we care about one particular obscure tax form?
Because Schedule C is what our economy increasingly runs on, that’s why. Schedule C is how entrepreneurs, and small business owners, and independent professionals, and contractors, and odd-job men (and women) report their income (or lack of it.)
Lots of people who get most of their income from a job, reported on a W-2 form, also file a Schedule C for doing various odd jobs on the side. And some people who report most of their income on a Schedule C also file W-2s for various part-time job income as well. But the people whose income shows up entirely or mostly on a Schedule C are, arguably, the people our country and our economy are built on. We are the people who make most of the new jobs. (Last I heard, the Fortune 500 had not created a single net new job in the last thirty years.) We are the people who work without a net, outside the corporate welfare state. We provide our own health care, our own retirement, our own office space and equipment, our own training and education, our own unemployment compensation. When we succeed, we may get famous. When we fail, if we’re lucky, we can get welfare. When we just muddle along, we get from one day to the next.
In the meantime, the politicians look out for corporate employees and major business owners. The Small Business Administration, which you might expect to be helpful to the sole proprietor, defines “small business” as including any operation grossing less than $750,000.00. Even in these days of galloping inflation, I find that unhelpful.
Back when “tax simplification” was the mantra (about three elections back), all the “simplifiers” talked about was the 1040 Form. They managed to get it down to the size of a postcard, at least for some filers. I’m still waiting for the Form 1040 BS (standing, not for the obvious barnyard epithet, but for Bumper Sticker, the ultimate simplification), but sooner or later it has to happen. That does absolutely nothing for the increasing number of people who have to file Schedule C.
And why is that number increasing? Well, maybe some of it is the Baby Boomers and their progeny, who are just too individualistic and ornery to make it as employees. But most of it is the result of one round after another of job cuts in one segment of the economy after another, while the erstwhile “safety net” that was supposed to catch workers as they fell out of those industries tatters and shreds. If those of us who have been declared “redundant” (in the elegant British word) stubbornly insist not only on living but on having families to support, the only place most of us can go is into self-employment of one sort or another.
There are different kinds of “self-employment”, some of which are purely fictive. Every now and then the federal government actually sues some large employer for representing that certain of its workers are “independent contractors” (and therefore responsible for paying their own income and Social Security taxes), when in fact they are employees and their employers have that obligation. But most of the time, employees and “contractors” work side by side in the same companies, doing the same work, and nobody knows the difference except the payroll office.
Some “self-employed” people are actually farmed out to employers by “temporary” agencies. Their “temporary” status may be fictive as well. Some “human resources” specialists use charmingly oxymoronic terms like “permanent temporary” and “full-time part-time” to describe workers who do precisely the same work as their fully employed colleagues, but have been arbitrarily defined as “temporary” or “part-time” so that they don’t have to be given the same pay and benefits. Indeed, it is fairly common for a full-time employee to be fired and then allowed to come back to exactly the same job as a “temp” or a “part-timer” or a “contractor” so that the employer can skimp on the worker’s pay and withdraw benefits altogether.
That’s different from the real independent contractors, who at least get compensated for their low pay and total absence of benefits by not having a boss. Or, depending on how you look at it, having lots of bosses, but not being dependent on any one of them for their entire livelihood. That’s basically my situation. I get hired and fired all the time, by one client or another. Sometimes I quit, too. That has its attractions.
It almost makes up for the fact that, so far as I can tell, we “independent” workers are not going to collect one cent in rebates in this upcoming economic stimulus. It’s bad planning on the part of the government, though. If Uncle Sam sends a rebate to an ordinary employee, it will eventually get spent, probably on personal consumption items. But if that same rebate gets sent to an “independent contractor,” that money may very well get spent hiring another independent contractor to do some subcontract work, thereby going through two families rather than one–twice as much stimulus for the same buck. Give it a thought, George.