00:00Here's an idea for Social Security. We should tax the employers of independent contractors at the same rate that we
00:06tax employers of workers. Hear me out. Right now, if you are self-employed, you pay both the worker and
00:13the employer side of the Social Security tax. Whatever you pay for just the employer, you double it if you're
00:20self-employed.
00:20Now, when Congress raised this tax in 1983, they understood it would be burdensome to the self-employed, and so
00:26they gave them a tax deduction on the income tax side to try to ease that burden. But self-employed
00:32are a really important pipeline to small businesses in our economy. We want people to go out on their own
00:38and try to start their own business, which often starts as self-employment. So having a heavy tax on the
00:42self-employed doesn't necessarily make sense from a kind of business dynamics perspective.
00:47At the same time, the self-employed are highly encouraged to under-report their income and therefore under-report their
00:53earnings to Social Security, ending up with lower tax collection in the near term and lower benefits in the long
00:58term in order to keep their tax rate low.
01:01Well, that under-reported income can hurt in more ways than one for Social Security's bottom line and for the
01:06worker down the road.
01:07It creates a massive incentive on behalf of employers to use independent contractors over workers because now they can save
01:14their FICA contributions through independent contractors.
01:18Misclassification has been a problem in our economy this century, where employers, rather than hire someone as an employee, hire
01:24someone as a contractor so they don't have to meet Fair Labor Standards Act requirements, and then they don't have
01:29to pay in Social Security taxes.
01:31That tax imbalance essentially incentivizes employers not to hire people as workers but as independent contractors.
01:37So get rid of the incentive. Tax workers and independent contractors equally from the employer side.
01:44That allows you to lower the tax rate on the self-employed, encourage more business, startups, and self-employment on
01:50the back end, and should even out in the finances, maybe it'll cost a little less.
01:55Because the shortfall for Social Security has been around for 41 years, almost everything that's brought up in relation to
02:00Social Security is brought up in relation to the shortfall.
02:03But that's not the right way to evaluate policies for the program. It needs to be built to be purpose
02:09-fit for the 21st century economy.
02:11And what we've learned in the 21st century economy so far is that employers are trying to drop responsibility for
02:16their employees.
02:17They misclassify workers into independent contractors. Social Security doesn't have to suffer for that for the next 75 years.
02:24It can build in some protection and some revenue into their program's design, helping workers and the program in the
02:30long run.
02:31Now, the people who would be hit hardest by this would be the companies whose profitability is built off of
02:36having workers as contractors as opposed to employees.
02:38But it's not necessarily fair for either Social Security, the worker, or other employers that some companies get to be
02:44built off of a profit of paying less in taxes into a program.
02:48At the end of the day, Social Security is pretty simple in its fairness.
02:51Do you work? You pay into Social Security. Do you employ? You pay into Social Security.
02:57If for some reason that's not true, we ought to change it.
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