All Commentary
Thursday, April 27, 2017

A 15% Tax on Freelancer Income Would Be Yuuuge

This could be a much needed windfall for entrepreneurs.

President Trump finally came out with his tax plan. Overall it’s a solid plan, though it was pretty much what was expected, given the market response.

You could effectively lop the top rate from 39.6% to 15% in one go.

The new rates themselves are pretty standard; Trump wants 3 brackets topping out at 35%, sweetened with a doubling of the standard deduction to $12,600 per taxpayer. Decent, but about what you’d expect from, say, Bush.

After that it gets more interesting: Trump proposes repealing several nasty taxes including the alternative minimum tax, the estate tax, and Obamacare’s 3.8% investment tax.

Finally, and most important, he wants to cut business tax to 15%, and has argued for that rate to apply to small businesses including freelancers. This is potentially game-changing since millions of high-earners could simply recategorize their earnings as business income. You could effectively lop the top rate from 39.6% to 15% in one go. If that happens, the cuts could be Reaganesque in impact.

As The Atlantic reports in their comprehensive guide to the new plan:

“Professional workers of all stripes—particularly consultants, lawyers, architects, and other white-collar workers who take on many different clients—would rush to set up companies in their name and ask to be paid exclusively through these entities. This would reduce their tax burden by tens of thousands, if not millions, of dollars. Right now, pass-through entities are mostly for richer workers and entrepreneurs. According to the TPC, 60 percent of such business income reported on individual income tax returns goes to households making more than $500,000. Under Trump, that number would probably rise, as more high-income professionals sought to classify their individual earnings as “business income.”

Still, it’s too early to get too excited; the Congressional meat-grinder awaits, and Paul Ryan’s not entirely a trusted brand among fiscal conservatives. Still, so far so good.

  • Peter St. Onge is an assistant professor at Taiwan's Fengjia University College of Business. He blogs at Profits of ChaosFor more videos and articles like this, subscribe And if you’d like to see more on future topics like this please consider donating at Patreon.