Sunday, February 8, 2009


The other day, the St. Pete Times invited its readers to weigh in with their ideas on how to stimulate the economy.

What a novel idea! Asking the citizens and taxpayers what they think ought to be done! Does the St. Pete Times really think that just maybe all truth and knowledge may not reside in Washington D.C.?

I confess that the invitation intrigued me. I like to work Sudoku puzzles and play Spider Solitaire on my computer. Solving problems is my thing. So here's my idea:

Congress should provide a tax deduction for all money paid for services rendered.

Think about it. There must be trillions of dollars paid out every year in America for all kinds of services. Dollars paid out by homeowners, and citizens of every stripe for personal services that are not rendered to businesses.

Hire a man to paint your house. You pay him with dollars on which you have already paid taxes. He will have to pay taxes on what you pay him. How many times should the government tax that money? If he is painting your store or your office, his bill is tax deductible. But if he paints your house, it isn't.

Do we want to stimulate employment? Making service invoices tax deductible will encourage Americans to hire people. Not only that. It would slice into the underground economy. How many tradesmen don't declare all their gross receipts? What about undocumented aliens? Most folks don't ask to see a green card from the fellow who cuts the grass or trims the bushes.

I wouldn't make it mandatory for people to give tradesmen a 1099. But if you want to take the tax deduction, you'd have to do it.

Of course we all know deserving men and women who live in the underground economy. They get paid in cash. They don't report all their income. They don't pay self employment taxes. They just stay under the radar and try to make ends meet.

The Federal government should have a threshold amount that a person can earn from self employment before tax liability -- either income tax or self employment tax -- is imposed. We all know that small business is where most jobs are created.

People who go into business for themselves should be encouraged. Making them pay taxes, even making them file complicated tax returns does just the opposite. The cleaning lady who grosses less than $20,000 a year shouldn't have to pay taxes. Instead, the feds should credit her with a contribution to the social security system, so that she will have some modest retirement benefit when the time comes.

Current law requires anyone making more than $400 a year from self employment to pay self employment taxes of 7.65%. The cleaning lady who makes $20,000 would have to pay $1,530 in self employment taxes. No wonder most of them are driven underground.

Is that how our Congress plans to stimulate the economy and create jobs? There has to be a better way.

1 comment:

  1. Unfortunately, this new administration doesn't seem to believe that the tax code can be part of stimulus unless it involves raising taxes paid. The idea of a deduction that has a positive consequence so far is off the table. But as usual, Old Judge, it's a good idea.