NCPA - National Center for Policy Analysis

Growing Ranks Of Self-Employed Meet Restrictions

November 17, 1996

  • 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.


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