By Lawrence San

Will Congress Stop Screwing IP Taxpayers?

IPs take note: a bill that would allow you to deduct 100% of the cost of your health insurance, beginning in the year 2001, has passed the House of Representatives by a margin of 257 to 169. Currently, your deduction is more limited, and can't be claimed in any month in which you're eligible to participate in an employer-subsidized plan (for example, through a part-time wage slave-job you might have). This bill would increase the deduction to 100%, and block the deduction only in months when you actually participate in an employer-sponsored plan.

If you're an IP, you've been unfairly treated for many years with respect to health insurance, since what you pay for it has been only partially deductible as a business expense. By contrast, the health insurance that many wage slaves get through their employers has implicitly received a full tax deduction. It's "implicit" because the value of the insurance (or the employer-paid portion of it) never shows up as income on the wage slaves' W-2 forms in the first place -- so they never pay taxes on any of it. By contrast, you have to (1) earn all the money needed to pay the insurance; (2) declare that money as income; (3) pay income taxes on much of that "income"; and (4) fork over the after-tax remainder to a health insurer.

Years ago, I got a congressman, off the record, to admit that the system is totally unfair to the self-employed. When pressed, the congressman said that the government wouldn't quickly change the practice because "it couldn't afford to" and "needs the tax revenues." The congressman also admitted that the reason IPs get screwed in this regard (okay, he didn't actually use the word "screwed") is that they're not organized to resist, and generally aren't even knowledgeable about the issue.

Back to the present: the current House bill also contains several other provisions, mostly concerning tax breaks for small business (not freelance-related). Only 41 Democrats voted for the bill, and President Clinton has threatened to veto it because of "risky tax giveaways."

The bill is called the Small Business Tax Fairness Act (H.R. 3832); the relevant section is Title I, Section 101. The Senate is considering an alternative version.