My taxes will go down, but I do not support lowering "pass-through" business taxes!

The current Tax Reform proposal by the US Congress contains a measure to lower the taxes on S-Corp and LLC businesses and independent contractors. As a small business owner, my taxes will be lower, but the (I assume) unintended consequences of this change will be immediate and severe, leading to a massive exit of employees into the "gig economy". First, understand that small businesses pay NO corporate income taxes at all. We only pay personal income taxes on our net profits at the same rate as our employees. If we re-invest any of our money back into the business in the same year, we are not taxed on it. So, contrary to what you hear in the press and from politicians, lowering corporate taxes will only help large businesses (C-Corp).

Lowering the "pass-trough" personal income taxes will of course save me money, but it will also create a big incentive for our employees to become independent contractors. There is already a huge advantage for being independents, since they can invest up to $53,000 per year into their SEP IRA retirement accounts and employees are capped at $18,000, and they don't have to pay as much employer-side taxes such as Social Security and Medicare. Sounds pretty good for them, but they also don't get benefits, unemployment insurance, workers comp, FMLA or any of the legal protections that employees get. And, of course, they have to pay individual rates for healthcare and disability insurance if they even have coverage.

For these reasons and others (like controlling illegal immigration), the US and state governments make it very difficult to hire independent contractors, and some of our clients don't allow us to use them. The government needs to decide if they want people to have jobs and get their benefits and taxes withheld by employers or have everyone be self-employed - you can't have it both ways. And the latter would mean people depending more on government-provided benefits and safety nets, not less.