It’s interesting to hear my close friends gripe about the “lazy” people their hard-earned dollars are wasted upon. These are small business owners who’ve put everything on the line to scrape by, have left blood, sweat, and a few tears in their wake. Calling a class of people lazy is, of course, passing moral judgement. To be clear, I’m a small business owner. I understand the complexities during tax time, even though most online programs have removed most of the accounting labor.
So here is a cold, hard look at the waste and fraud of two major entitlement programs (medicaid and food stamps/SNAP), compared to the amount of money unreported by small business owners.
First off, 71% of Americans have a favorable view of small business owners, which is 8% higher than church officials, and 10% higher than college professors. You are far more likely to get punched in the face for bad-mouthing the owner of a car dealership than if you slander the local Catholic Priest. And trash talk those lowly adjunct professors all you want.
But in the most recent data available, there was $122 billion of unreported business income on individual income tax returns. Fifty-six percent of sole-proprietors’ cash receipts are not disclosed to the IRS. Yes, more than half of the income taken in by small business owners goes unreported, compared to about 1% of wage employee income (due to the fact that wage earner income is reported by employers to the IRS.)
So what about all this cheating by lazy poor people? About $500 million (9% of the entire combined Medicaid/SNAP expenditure) was found to be “waste or fraud” in a non-partisan audit, and was confirmed in a government audit. The vast majority of fraud was committed by middle-class earners cheating the system. The waste was attributed to government errors in implementation at Federal, state, and local levels. Fraud was committed by the lower-class in 1% of cases.
Why don’t small business get audited more often? Because a business owner earning $155,000 pays a tax rate of 22.5%. If that person under-reports 25% of his income, the IRS only yields $7,800 for the effort. Thus, the IRS only audits 1% of people making under $200,000/yr, but 12% of those making over $1 million/yr.
The two most common reasons given by small business owners who have been caught cheating:
“We can’t survive if we don’t cook the books.”
“I consider it my money, not the wasteful government’s money.”
So the majority of small business revenue is kept hidden from the IRS. The justification for this crime is that proprietors cannot survive without cheating, or the government will waste the money anyway. And while only 1% of waste and fraud is committed by the poor, these mostly non-criminals are considered “lazy’, no matter their circumstances. The high moral ground occupied by us small business owners is earned – despite our crimes – because we work harder than others.
Small Business Owner