by Kitty Testa
1. Deregulate the Subsistence Economy
The IRS and the state Departments of Revenue are adamant about tracking financial transactions so that they can wet their beak every time money changes hands. This is especially true of those who make ends meet by working odd jobs or have micro businesses, such as daycare or itinerant computer repair. These are often cash businesses with marginal incomes.
The federal requirement for companies to collect a W-9 for every payee who is paid over $600 in a fiscal year is ludicrous and bars subsistence entrepreneurs from commercial markets. If you hire someone to wash your store windows for $50 per month, that vendor is required to supply you with a W-9 with his tax ID so that you can issue a 1099 at the end of the year, putting that income on the IRS’s radar.
Those who provide daycare in their homes are put under enormous regulatory burdens in many states, and the federal child care credit has ensured that the income daycare providers receive is taxed as personal income because you can’t take the credit without a receipt from the daycare provider.
Micro-business start-ups must deal with the same burdens as small and middle-sized businesses. They need to get an FEIN number, choose whether to be a sole proprietorship, partnership, LLC or corporation. For most people, this requires hiring accountants and lawyers. Why should this be necessary for someone who wants to babysit, mow lawns or fix fences? The regulations discourage entrepreneurship in micro-businesses that can sustain a family, or grow into a larger business that employs others.
If the laws were changed to exempt businesses grossing less than $50K per year on services, it would be a boon to the subsistence economy and help people graduate out of the poverty cycle without being penalized with fees and taxes.