Policy penalizes home businesses

Some of America's most visible and competitive companies began as home businesses: Apple Computer, Borland Software, Baskin-Robbins, Disney, Ford, Gillette, Hallmark Cards, Hershey Foods, Johnson's Wax, Mrs. Field's Cookies, Nike, Pepperidge Farms and Steinway Pianos. Today, according to Link Resources, 41 million people work at home some time during the week, including 12 million who work at home full time.

Despite the economic and social importance of the SOHO (small office-home office) sector, there are significant public policy impediments to people working at home as law and policy lag behind the exploding SOHO movement. According to SOHO gurus Paul and Sarah Edwards, there are at least six areas where federal policy needs to be changed:

1. Restore the home office tax deduction. Prior to the Supreme Court's 1993 Soliman decision, a home office qualified as the homeworker's principal place of business if 1) the office is essential to the taxpayer's business; 2) the taxpayer spends a substantial amount of time there; and 3) no other location is available to perform business office functions. This test should be restored by Congress.

2. Eliminate discriminatory tax burdens. The tax code and IRS regulations are littered with provisions that require the self-employed to pay more taxes and do more paperwork than people with the same or higher incomes who work for others. These unfair and counterproductive burdens should be eliminated.

3. Make health insurance available to the self-employed. Self-employed individuals and those who work for very small firms who do not provide their employees with health insurance should be permitted to deduct health insurance costs as a business expense, just as corporations can. Any reform of America's health care system should eliminate this inequity.

4. Make disability insurance tax deductible. Some 48% of Americans in executive positions have suffered disabilities lasting more than 90 days. Disability insurance is tax deductible if it is a fringe benefit paid by an employer. But the self-employed have no such tax deduction. This kind of discrimination against self-employment is unsound public policy.

5. Expand retirement finance options. Most corporate employees have a pension plan to supplement income from Social Security. Because the self-employed pay twice as much in Social Security taxes (they pay both the employer and employee contributions), they should be permitted to use the employer contribution portion to fund an IRA, self-employment plan, Keogh Plan or other private retirement plan.

6. Allow people to receive "safety net" benefits while they launch home-based businesses. Pilot projects in Washington state and in Massachusetts have allowed people to use unemployment funds to capitalize micro businesses -- including self-employment. Programs in 38 states permit welfare mothers to use their benefits to start their own businesses. Preliminary results show these programs are helping people make the transition from welfare to work. Federal laws and regulations should be changed to make this kind of experimentation and innovation easier.

This is just the beginning of the list of public policy changes needed to make the U.S. business climate more hospitable to SOHO workers. Someday a politician who understands that the best jobs program is a job will champion these changes.