When former Kansas Governor Sam Brownback eliminated the state's income tax on owner-operated business (sole proprietorships and S corporations), the result of the policy was a wave of people, from bankers to farmers, declaring themselves businesses so they wouldn't have to pay any taxes.
Trump and the GOP's package of tax cuts for the rich doesn't entirely eliminate taxes on owner-operated business, but it does cut the tax rate by over 20 percent and some fear it will lead to a wave of people declaring themselves businesses.
The Tax Policy Center estimates the change could cost the federal government $650 billion in lost revenue over 10 years.
While Treasury Secretary Steve Mnuchin has promised to come up with rules to prevent this kind of tax avoidance, tax policy experts says it would be hard to stop. “You can always pay a high-priced accountant to find a way around it,” says Eric Zwick, a finance professor at the University of Chicago.
So here’s what you’d have to do: If you stop being an employee, and make your employer hire you as an independent contractor, the tax cut could save you thousands … and blow a hole in the federal budget, if enough people try it.
Hiring employees as independent contractors is already a very common practice especially in the technology industry where all of the money is made these days. Many if not most of the people who work for the likes of Microsoft, Apple, and Google are independent contractors.
I wouldn't even trust Steve Mnuchin to pour me a beer so I certainly wouldn't trust him to prevent millions of people from declaring themselves businesses to avoid taxes. This would have to be addressed by Congress in the law itself.
Ideally, we won't have to worry about this because the GOP will fail to pass their insane tax cuts for the rich in the first place.