Too much has already been written about the complexities of the Internal Revenue Code, how it's so complex that the Commissioner of the IRS doesn't even do his own taxes, and how every attempt at "tax reform" serves only to make things even more confusing, generating still more work for people like my trusty accountant, Jack Dwyer, who's probably in an advanced state of cerebral overload at this moment. I can't add much to what's already out there -- but there's one particular area of the tax system that strikes me as particularly perverse: the fact that businesses can write off their expenses while individuals can't.
My line of work (computer consulting, to use a catchall term) has made me acutely aware that there are essentially two ways to work: in the employ of a company, and on a self-employed basis. Most of my career has been spent as a technical writer and/or customer support representative -- sometimes on a corporate payroll, and sometimes as an independent contractor. I do pretty much the same work either way. At the present time, in fact, I'm doing some of each -- I'm a part-time employee of a company, while I work for another as an independent contractor.
Here's where the weird part comes in: I can be doing
a certain kind of work -- say, writing software manuals -- and if I'm a
W-2 employee of a software company, I take my paycheck home a couple of
times a month, and it's got the Federal and state income taxes taken
out, as well as FICA, and what's left is mine. However, if I do
the same kind of work -- I'm talking exactly the same stuff --
but on a contract (1099) basis, I can deduct all kinds of expenses
related to earning a living. I can deduct mileage driven on the
way to the client site, I can deduct a portion of my meal expenses, I
can deduct the cost of any and all computer hardware and software I
need to accomplish the project, training I need to develop professional
skills, computer magazine subscriptions, dues paid to technical
organizations, and all manner of other stuff. None of these items
is deductible if I'm working as an employee, but all are deductible if
I'm a contractor -- doing exactly the same work. What, I
ask you, is the rationale for that? Why are individuals taxed on
revenue, while businesses are only taxed on profit?
I think people should be able to deduct the cost of working. If you work in an office building, a factory, or some other place of employment, you should be able to take a tax writeoff for your mileage. If you pay for lunch, that should be a writeoff, too. Work clothes, professional training, and any other expenses you incur solely because of your job -- those should be deductible. Why should a business be able to deduct the cost of doing business, but an individual can't? Makes no sense to me -- but then, it's especially clear in my case, because I often do exactly the same kind of work, but sometimes as a W-2 employee of a corporation, and sometimes as a self-employed "businessman."
Why will such a tax-fairness measure never be implemented? Probably because it would cost the government too much money, and it would allow too many difficult-to-verify financial shenanigans, i.e. shady deductions. Of course, shady deductions are the American Way, when it comes to big business (or even small business, for that matter); but when it comes to the individual, no dice -- you pay your taxes, and that's all there is to it; no deductions.
When I took Economics 101 in college, the textbook the professor used impressed upon me a very important precept: government policies tend to reflect special interests. This is not an indication of the venality and corruption of politicians, but simply a reflection of the fact that special interests are those to whom it's worth the time and effort to lobby their legislators. It's not worth it for Joe Citizen to go to Washington and ask his Congressman to allow him to deduct the cost of work, but it's worth it for, say, an insurance industry trade association to lobby for a law allowing variable annuities to function as capital-gains tax shelters; such a lobbying effort pays direct dividends, which is not true for the average person, who just gets a pat on the head.
But I digress. The long and short of it is that if I'm writing software manuals in the employ of XYZ Software, Inc., why shouldn't I be able to deduct my expenses, as I can when I'm just John "Urbie" Kafalas, d/b/a JK Consulting, and XYZ hires me to do exactly the same job?
Copyright © 1998 John J. Kafalas