In most places, a dollar is a dollar. But in the tax code envisioned by Republicans, the amount you make may be less important than how you make it.
Consider two chefs working side by side for the same catering company, doing the same job, for the same hours and the same money. The only difference is that one is an employee, the other an independent contractor.
Under the Republican plans, one gets a tax break and the other doesn’t.
That’s because for the first time since the United States adopted an income tax, a higher rate would be applied to employee wages and salaries than to income earned by proprietors, partnerships and closely held corporations.
The House and Senate bills vary in detail, but both end up linking tax rates to a whole new set of characteristics like ownership, day-to-day level of involvement, organizational structure or even occupation. These rules, mostly untethered from income level, could raise or lower tax bills by hundreds or thousands of dollars for ordinary taxpayers and millions of dollars for the largest eligible businesses.
“We’ve never had a tax system where wage earners were substantially penalized” relative to other types of income earners, said Adam Looney, a senior fellow at the Brookings Institution and a former Treasury Department official.
So a decorator, an artist or a plumber would have a higher tax rate than an owner of a decorating business, an art shop or a plumbing supply store. A corporate accountant could have a higher rate than a partner in an accounting firm. And under the House bill, which differentiates between active and passive investors, the head of a family business who works 60-hour weeks would have a higher rate than her brother, who doesn’t work there and can spend his days sleeping on the couch.
