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Can Health Care Reform Help The Self-Employed?

Sep 21st, 2009

health care reformTalk of the new health care tax in order to revamp the current system has been debated since the federal government introduced the proposal.  The American public is torn on the issue.  President Obama views this state of affairs as being healthy and part of the democratic way.  He does not see debate or controversy as necessarily a bad thing.

The question is what impact will this new tax have upon the self-employed?  Currently there are over 9 million self-employed individuals in America who are insured.  This group of individuals includes contractors, freelancers, and sole proprietors.  Some these groups of self-employed will have employees, but the figures are not conclusive on how many.  For example, the census bureau records 22 million sole proprietors, some of which could also be salaried workers for other companies as well.

The system in America is such that self-employed individuals are already paying high health insurance premiums.  Unlike big and medium sized companies who get different tax breaks and much lower group insurance rates, these perks and benefits are not offered to self-employed individuals.

There is a system default that obliges self-employed individuals to pay taxes on their premiums.  The tax code does allow for corporations to deduct this tax as a business expense, but does not allow the same break for self-employed individuals.  Self-employed individuals are further discriminated against because they do not have corporate employees, and are therefore cannot have their employees match payroll tax contributions for programs such as Medicaid or Social Security.  Self-employed individuals must pay these contributions for employees completely out of pocket.  With the self-employment tax, small businesspeople pay an additional1 5.3%.  Basically they are paying twice the rate of wages for their employees in this tax levy. Now, remember these taxes are in addition to all other taxes such as federal or state taxes.

Self-employed individuals and lobbyist groups for the self-employed want reform in the current system to afford them improved health care tax breaks. Abolishing the premium tax for the self-employed would add to the cost of funding and not take away from the cost, which is the government plan.  It would cost the government an additional $25 million dollars in revenue over a time frame of 10 years. This would represent about two and a half percent of the estimated trillion-dollar cost of health care reform.

Reducing the taxes on self-employed individuals would ease the burden and possibly encourage more people to embrace their own business if they new they could afford to buy coverage.

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