"I'm Also Unemployed" - How The Way We Work Has Changed

“I’m Also Unemployed” – How The Way We Work Has Changed

During, the 2012 US election, Republican presidential candidate, Willard M. Romney, quipped, “I’m Also Unemployed.”  http://thecaucus.blogs.nytimes.com/2011/06/16/romney-im-also-unemployed/ Some interpreted this as a joke, an attempt at humor. I did not. What Mr. Romney was saying is that under the current Social Security law definition of work, despite his vast earnings, he was not “working.” This is why The BEST Social Security Modernization Plan proposes updating the definition of work to bring it into the 21^st century.

The way many of us work has changed. Some of us still perform physical labor like manufacturing, construction, others in desk-type job including teaching, but many now earn their living by capital investment in areas like rentals, the stock market, and other forms of financial speculation. Make no mistake: those who earn money via financial investment are working. They are merely using their capital, or the capital of others, rather than physical or mental skills to do so.

As I noted in my November 26, 2013 post, Social Security has a history of change and progressively rolling out additions and improvements.

Section 211 of Title II of the Social Security Act was written to specifically exclude rentals from real estate, stock market gains, and capital gains from the definition of covered self-employment income at the time around 1950 when self-employment income became covered under the Social Security program. The fact that it had to be specifically excluded indicates that there had been some consideration then of including this type of income as a self-employment income. Here is a reprinted section of the law:

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Sec. 211. [42 U.S.C. 411]  For the purposes of this title—

Net Earnings From Self-Employment^[163]

(a) The term “net earnings from self-employment” means the gross income, as computed under subtitle A of the Internal Revenue Code of 1986, derived by an individual from any trade or business carried on by such individual, less the deductions allowed under such subtitle which are attributable to such trade or business, plus his distributive share (whether or not distributed) of the ordinary net income or loss, as computed under section 702(a)(8) of such Code, from any trade or business carried on by a partnership of which he is a member; except that in computing such gross income and deductions and such distributive share of partnership ordinary net income or loss—

(1) There shall be excluded rentals from real estate and from personal property leased with the real estate (including such rentals paid in crop shares, and including payments under section 1233(2) of the Food Security Act of 1985 (16 U.S.C. 3833(2)) to individuals receiving benefits under section 202 or 223), together with the deductions attributable thereto, unless such rentals are received in the course of a trade or business as a real estate dealer; except that the preceding provisions of this paragraph shall not apply to any income derived by the owner or tenant of land if (A) such income is derived under an arrangement, between the owner or tenant and another individual, which provides that such other individual shall produce agricultural or horticultural commodities (including livestock, bees, poultry, and fur-bearing animals and wildlife) on such land, and that there shall be material participation by the owner or tenant (as determined without regard to any activities of an agent of such owner or tenant) in the production or the management of the production of such agricultural or horticultural commodities, and (B) there is material participation by the owner or tenant (as determined without regard to any activities of an agent of such owner or tenant) with respect to any such agricultural or horticultural commodity;

(2) There shall be excluded dividends on any share of stock, and interest on any bond, debenture, note, or certificate, or other evidence of indebtedness, issued with interest benefits or in registered form by any corporation (including one issued by a government or political subdivision thereof), unless such dividends and interest are received in the course of a trade or business as a dealer in stocks or securities;

(3) There shall be excluded any gain or loss (A) which is considered under subtitle A of the Internal Revenue Code of 1986 as gain or loss from the sale or exchange of a capital asset, (B) from the cutting of timber, or the disposal of timber, coal, or iron ore, if section 631 of the Internal Revenue Code of 1954^[164] applies to such gain or loss, or (C) from the sale, exchange, involuntary conversion, or other disposition of property if such property is neither (i) stock in trade or other property of a kind which would properly be includible in inventory if on hand at the close of the taxable year, nor (ii) property held primarily for sale to customers in the ordinary course of the trade or business;

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It is now time to acknowledge that those who earn their livelihood from any of these three sources of income are working and should be subject to paying Social Security taxes, which for the self-employed are sometimes referred to as SECA taxes: Self Employment Contribution Act taxes, which is a comparable term to FICA or Federal Insurance Contributions Act, the comparable term for the tax for employees.

While, requiring the self employed to contribute Social Security taxes to the Social Security Trust Fund for rental income, stock market investment gains and other capital gains is an important component of THE BEST Social Security Modernization Plan, more must be done.

I suspect that there is a lower percentage of self-employed businesses than in the 1950’s and that more businesses have adopted some form of incorporation. From the IRS website, here is a list of types of business structures: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Business-Structures .

I will be proposing in future posts that these three types of profits which are earned by corporations should also require corporation businesses to make comparable contributions to the Social Security trust fund.