Sunday, October 19, 2008

Helping the smallest businesses

I got an e-mail today from the Obama campaign inviting me to write a Letter To The Editor about my experiences with running a small business. Realizing that my verbose tendencies will probably mean a gutting - if not outright rejection - of my letter, I thought it worthy of being put up here in its full glory:

Few politicians have addressed the challenges to the smallest of businesses. I'm talking about businesses that gross what many would consider supplementary or part-time income. I have run such a business for almost 7 years.

In these hard financial times, getting any business off the ground is going to be hard. Small business loans will be harder to get, a major disincentive to people starting something that may create employment for others a number of years out.

For me, starting a computer consulting business in 2002 was a way to soften the blow of the so-called 'Dot-Bomb', which resulted in a lay-off. I sought no loans, living simply on a modest severance and the unemployment benefits I was entitled to. It took a year before I started making enough to pay my rent and buy food.

Living this way has not been easy. Grossing $20,000 annually - barely poverty level for a single person in Seattle - by working for someone else, I would be taxed at 10% on about $12,000. Additionally, about 8% of my gross income would have been withheld by my employer as Social Security and Medicare contributions. A total of $2,800 is a major chunk to pay for someone living at poverty level. As an employee, I will probably have an option for health coverage, but probably won't be able to afford the contribution.

It's a different story if I make the exact same gross amount as a sole proprietor of a 'smallest' business. While I can write off modest amounts on a Schedule C, it won't be more than $2000. Then I pay 15% self-employment tax on the entire post-Schedule C amount, plus the same amount in normal income taxes on the amount over about $8000, or about $3,900. Contrary to the employee scenario, I will have no health coverage as I would have to shoulder the entire premium with no discounts or preferential rates.

The first thing the government should do to stimulate small business creation and growth is pay the matching amounts for Social Security and Medicare, and providing affordable health coverage, thus making operation of a small business no more of a burden than being someone else's employee. Anyone who has made a go of being their own boss knows there's a ton of additional stuff to worry about anyway; paying what amounts to a tax penalty for self-employment and living with the anxiety of bankruptcy if you get hurt doesn't make sense.

Encouraging the smallest businesses with smart stimulace, reduced tax burdens, and affordable health coverage for all is the kind of thing an Obama presidency is going to address, and that a McCain presidency will continue to ignore to our country's detriment.
We'll see how much of this survives the meathooks of modern journalism. Look for it in the Seattle Times and/or P-I.