NCPA - National Center for Policy Analysis

Growing Ranks Of Self-Employed Meet Restrictions

December 17, 1996

For decades, self-employed persons who work out of their own homes have been subject to governmental red tape ranging from the vagaries of local zoning ordinances to unfriendly federal tax regulations. But as their numbers grow, these solo entrepreneurs are flexing their political muscles. Some analysts say their complaints are being taken seriously by government.

  • From 1970 to 1995, the number of unincorporated, self-employed persons in the U.S. rose from about seven million to 10.5 million -- a 50 percent increase -- according to the Bureau of Labor Statistics.
  • Last year, the self-employed accounted for about 8.4 percent of the work force.
  • The Small Business Administration puts the figure higher -- at 15.5 million, or 13 percent of all workers.
  • Some factors fueling self-employment include corporate downsizing, the economy's growth and cheaper office technologies.

These small businesses encounter a special maze of government restrictions.

  • Strict zoning laws in some areas forbid home-based business owners from seeing clients at home, outlaw storing goods for sale in homes and dictate the maximum sizes of home offices -- if they are permitted at all.
  • Tax issues which have been a thorn in the side of start-up home businesses include the deductibility of office space in the home, the deductibility of health insurance and the complexity of the tax code itself.
  • Confusion in IRS classification of independent contractors versus employees has cost companies and individuals $750 million in fines and back taxes since 1989.

Home businesses achieved some victories in Washington this year. The Kennedy-Kassebaum health care reform bill raised the deductibility of health insurance for the self-employed in stages over ten years from today's 30 percent to an eventual 80 percent -- even though other companies can deduct 100 percent of the cost of employees' health insurance. The self-employed also won the right to take part in a federal experiment with Medical Savings Accounts.

Source: Laura M. Litvan, "When Home Is Where The Firm Is," Investor's Business Daily, December 17, 1996.


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