Friday, October 08, 2004

Do Self-Employers Count As Employers?

Via Prof. Bainbridge, I came across this post at Tax Prof discussing a report from the Tax Policy Center on the number of small businesses that would face tax increases under Kerry's plan. I think this is in response to questions about VP Cheney's claim (also repeated in a Bush ad) that Kerry would raise taxes on 900,000 small businesses.
As with anything having to do with taxes, the report is almost impossible to follow, so I could be misreading it completely. But the bottom line seems to be this:

"Based on these assumptions [about how many small businesses that pay pass-through taxes have employees], a total of 471,000 small employers would face under the Kerry plan."

Even if that's accurate I don't see why only "small employers" should be counted. A sole proprietorship at least keeps the sole proprietor gainfully occupied. He is contributing to the economy, even if not employing someone, by 1) providing some good or service that others are buying (otherwise he would have no income to tax), and 2) not being unemployed (or taking a job from someone else).

Bush's point is that tax increases on the "rich" (which is actually the "high income") make it harder for all these kinds of small businesses to thrive. If a sole proprietor has to pay more taxes, his business is less appealing and he may end up being (or trying to be) an employee. Isn't laying himself off just as bad as laying off an employee?

And in fact, the different kinds of employment surveys recently have shown a discrepancy that suggests that the Bush tax cuts have indeed encouraged more people to be self-employed. The higher employment numbers in the household surveys (where actual people are asked: do you have a job?) than in the payroll surveys (where businesses are asked how many people they employ) makes sense if we accept that there are more self-employed workers than there used to be.