It’s no secret that I’m a cheerleader for self-employment and entrepreneurship. I now run two blogs, this one here on the Saverocity network and another at freequentflyerbook.com. I’ve never asked anyone permission to start a business, I don’t have a “business license,” I just run a business like a goddamn American. That’s the spirit I’m trying to promote here: if you aren’t willing to start a business until you’re convinced you’ll be able to replace your salary as an employee, you’ll never start a business and you’ll never be an entrepreneur. The only way to start a business is to start a business.
Moreover, there are a number of factors that should make our times a golden age of entrepreneurship:
- comprehensive health insurance is now affordable to entrepreneurs through the expansion of Medicaid and subsidized insurance on the Affordable Care Act exchanges. So-called “job lock,” which kept people slaving away as employees instead of implementing their small business ideas in order to retain access to affordable health insurance should be a thing of the past: today you should be able to start a business with no income whatsoever, and graduate from Medicaid, to subsidized exchange health insurance, to unsubsidized exchange health insurance. While pre-ACA only those confident or stupid enough to go without health insurance, or young and male enough for insurance to be affordable, could ever dream of venturing out on their own, today anyone should be able to quit their job and immediately enroll in comprehensive health insurance with premiums, deductibles, and co-pays corresponding to their income level;
- on the flip side, employee benefits have gotten stingier and stingier as conservative ideologues do everything they can to strip employees of the protections unions and defined benefit pension plans used to provide. While waiting for a pension to vest and seeing your benefits in retirement grow and grow used to be a compelling reason to stick with a unionized workplace for as long as possible, the gutting of both unions and retirement plans in the private sector has made self-employment relatively more attractive than becoming a “company man;”
- meanwhile, current public market asset prices are so elevated that it’s reasonable to expect relatively low returns on investments in publicly traded securities. If you don’t have enough money or contacts to subscribe to one of the few high-quality venture capital funds, you can do the next best thing: start your own private business, and keep every dollar you earn.
Given the confluence of factors above, why is it that I still need to be out here in the wilderness shouting at people to start their own businesses? I don’t have a definitive answer, but I do have some suggestions.
- the refusal to expand Medicaid in many Republican-governed states has created an enormous obstacle to affordable health insurance. Instead of being able to seamlessly transition up through Medicaid eligibility to subsidized and then unsubsidized exchange coverage, these states are left with an enormous coverage chasm. If an entrepreneur knows that she’ll be left without affordable, comprehensive insurance coverage if she becomes pregnant, let alone suffers a serious disease or injury, under what possible circumstances would she risk that?
- Businesses are privileged in the provision of certain benefits. Everyone knows about the exclusion of health care benefits from taxable pay, but there are other considerations as well: when employers match contributions to 401(k) plans or HSA’s, the benefit to participants is subsidized by the contributions of non-participants. In other words, an employer that matches 3% of payroll contributions to a 401(k) isn’t spending 3% of payroll on 401(k) matches. They’re only matching the contributions of participants in the plan, reducing the overall impact on wages of the employer match. While the self-employed are free to open 401(k) accounts, they’re solely responsible for both the employee and employer contributions to the plan. An obvious solution would be to create a generic retirement plan open to everyone, whether employee or self-employed, which would reduce or, preferably, eliminate the role of the employer in our retirement savings regime.
- In connection with the above, businesses which provide paid family or maternity leave have an advantage over the self-employed, since entrepreneurs have to pay for their benefits out of retained earnings (or debt), instead of spreading the cost over an entire workforce. An obvious solution would be to support a universal paid leave policy funded by a modest increase in payroll taxes on all workers, whether they work for themselves or for someone else.
- Bureaucratic malfeasance. There is an important difference between regulation (good) and implementation (typically terrible). It’s the difference between getting a facility inspected and approved before using it to prepare and sell food and requiring 30+ days to get an inspector on site to inspect and approve your facility. It’s the difference between requiring a license to drive and requiring people to wait in line for 2 hours to get their picture taken for their driving license. It’s the difference between requiring entrepreneurs to register for an account to pay estimated taxes quarterly and requiring entrepreneurs to get their bank to notarize a form before getting their estimated tax payment account approved.
- Finally, the self-employed are treated with suspicion and disdain by most civic institutions. If you follow me on Twitter you’ve probably seen me talk about this anecdote before, but it is absolutely representative of the general experience of being an entrepreneur. The Brookings Institution and the American Enterprise Institute recently released one of their “consensus” proposals on a program for paid family leave. On page 25 of the report, you’ll find the following paragraph: “Requiring that employers protect the job of a worker who takes leave is desirable (see Chapter III), but sensible restrictions on eligibility and work history will ease the burden on employers, especially small
businesses, and reduce workers’ ability to abuse the system. Expanding the coverage to the self-employed is potentially vulnerable to fraud and misuse.” I was fortunate enough to attend the presentation of the report (if you listen or skip to the end you can hear me ask the panel about this apparently deliberate insult to the self-employed). Why would anyone, let alone an organization ostensibly dedicated to free enterprise, accuse entrepreneurs, the very people whose risk-taking is the backbone of a competitive capitalist economic system, of fraudulently misusing state programs of support? What would it even mean to fraudulently misuse paid family leave? Faking a pregnancy? This is the United States of America, not a long-running Broadway musical.
We can fix this, but we have to decide to fix it first
If we want to promote entrepreneurship and self-employment, there’s nothing standing in our way. Start with asking actual entrepreneurs a few questions: what obstacles did you face while starting your business? What could be done to help others pursue self-employment? I’ve provided some answers, but I don’t have all of them. Maybe tax attorneys face different issues than restauranteurs, who face different issues than artists, who face different issues than musicians, who face different issues than garment retailers, who face different issues than mail scanning and forwarding services. There may not be a single solution to the problems faced by entrepreneurs in different industries. It may take time and ingenuity. But the first thing required is discovering the issues that entrepreneurs face and tailoring solutions to make entrepreneurship a real possibility for more people who are discouraged by the misuse and abuse of small businesses by the American political system.