This is the untold story of tax reform: It’s a boon for freelancers, contractors, and the 24 million American workers who participate in the “gig economy.”
Next year, Uber drivers, Web designers, and contract janitors will see large reductions in their taxable income, leaving them more money to spend taking care of their families or reinvest in their businesses. Contrary to the #resistance memes, these aren’t “big corporations” or “the rich” taking advantage of the new “pass-through loophole.” They are the smallest of small businesses — sole proprietors, married couples, and contractors — and they’re more than worthy of a little extra at the end of the month.
I work professionally as a documentary filmmaker and spend much of my time with other artists, freelancers, and creatives. During the tax-reform debate, most of the people in my orbit accepted the atrocious mainstream-media coverage about the Tax Cuts and Jobs Act as gospel. In three typical headlines, Vox called the tax bill “the wholesale looting of America,” Newsweek labeled it “middle-class America’s final death knell,” and U.S. News & World Report predicted it would be “the 21st century version of the Kansas-Nebraska Act” — i.e., morally equivalent to allowing slavery to expand and propelling the nation towards Civil War. Just imagine the good people of Malibu and Greenwich taking up arms to forcibly reclaim their SALT deductions.
The media did such fine work, they actually persuaded the vast majority of Americans of a total fiction. According to an NBC News/Wall Street Journal poll, more than 80 percent of American voters believe they will not get a tax cut as a result of the legislation. The reality is a near-perfect inverse — according to the Tax Policy Center, 80 percent of households will see a tax cut, while only 5 percent of households (mostly led by wealthy professionals in high-tax states) will see a tax increase. Families, contractors, and small-business people will see a significant tax cut through the doubled standard deduction, the expanded child tax credit, and the new 20 percent pass-through deduction.
I’ve cautiously suggested to some of my freelancer friends that the tax bill may not be all that bad for their personal finances. I’ve walked them through simple back-of-the-envelope calculations to show them that, despite what they’ve heard from NPR and the New York Times, the law will actually shake out quite well for them. A single freelance photographer in Seattle making $60,000 a year, for example, will save roughly $4,000 next year (per these calculators). A married couple with one child and an interior-design business making $90,000 a year will save roughly $4,500. For working artists, $300 or $400 a month in additional income is no trivial matter. It’s four weeks of grocery bills, the rent for a studio space, or an after-school program for the kids.
Whether they intended to or not, congressional Republicans have begun the critical work of adapting our legal and tax system to the “gig economy.” As more and more Americans work as freelancers, contractors, and sole proprietors, we’ll need to develop new rules that allow for maximum simplicity, flexibility, and opportunity for this quickly changing work force. The pass-through deduction and doubled standard deduction are a good start, but more work needs to be done to increase the portability of health insurance, retirement savings accounts, and individual insurance plans.
If we lived in a perfectly rational world, we might have seen abstract painters and Uber drivers rallying for the tax bill.
Beyond this, however, is the critical work of political persuasion. If we lived in a perfectly rational world, we might have seen abstract painters and Uber drivers rallying outside Mitch McConnell’s office during the tax-reform debate, shouting and waving homemade signs reading “Artists for Tax Reform!” and “Pass-Through Tax Cuts Now!” But we live in a distinctly irrational world. Politics is as much about cultural affiliation as about economic self-interest.
Even after accepting the mathematical logic of their future tax savings, my creative friends remained deeply skeptical of the tax bill. One called her personal good fortune “a silver lining within a terrible monstrosity,” while more than a few expressed their concern about income inequality and the national debt. None became cheerleaders of the bill and all continued to heap scorn upon congressional Republicans. As it turns out, it’s very difficult to change cultural and partisan identity, even by giving people large sums of money.
Our task as believers in the free market is to demonstrate its results beyond a reasonable doubt. I hope that beginning in February, when W-2 withholdings change, and in April, when freelancers file their first quarterly tax estimates, more Americans will recognize the value of lower income taxes and what the legislation truly means for their family finances. If the bill can deliver concrete, meaningful results next year, we might see an opening as sculptors and yoga teachers question their tribal loyalties and wonder if the Tax Cuts and Jobs Act wasn’t so bad after all. If we’re lucky, perhaps we’ll even convert a few to the cause.