The debt ceiling debate has seeped out of Washington and into every corner of American media, but what does it mean to self-employed professionals? There’s a lot of talk about raising taxes, cutting spending and potentially defaulting on the country’s debts, and all of it could have a big effect on the way independent workers function. No matter what happens with the debate, many self-employed professionals could find themselves smashed up against the debt ceiling.
Option 1: Default!
The debt ceiling debates have become progressively more un-productive, and the world is facing the very real possibility that America will go crashing right into that mythical ceiling -- theoretically speaking, of course. If the debt ceiling is not raised, America will default on its debts. America’s credit is no different from an individual's -- if the country defaults on a loan, the country’s credit rating goes down. But, that’s not all that will happen.
If America defaults, interest rates will go up. America won’t be the only one having trouble with its credit -- all Americans will be affected. Self-employed professionals who rely on credit will find it harder than ever to obtain loans and financing of any sort…as if it wasn’t hard enough already. Rates on existing loans and mortgages will go up…as if they weren’t high enough already. Suddenly, everything -- from retirement planning to paying for college -- will get a little bit harder.
Option 2: Raise Taxes
Currently, there are two main options on the table, each proposed by one of the two leading political parties in the United States. The first plan proposes very deep spending cuts in the federal government, a point on which both sides seem to agree. But, this plan also contains tax hikes for the top income-earners in the country, both individuals and companies. Specifically, it proposes higher tax rates for persons earning more than $250,000 per year. Currently, these people pay a tax rate of approximately 9% on their income. Everyone else pays around 22%.
If such a plan should pass, how will it affect the self-employed (provided someone can scrape them off the debt ceiling, of course)? The wealthiest self-employed professionals (which includes successful actors and professional athletes) will be forced to pay higher taxes, but it’s unlikely they will experience a significant drop in credit scores or borrowing potential. Some government-funded programs that provide aid to self-employed professionals and others will have a lot less -- if any -- money to give away.
With less money in the coffers, it could be much harder to obtain government grants, loans for small business and funding for entrepreneurial projects, but such is true of either proposed plan. Ultimately, the first plan (proposed by Harry Reid, D-Nev.) will put an end to debt ceiling debates until 2012.
Option 3: Don’t Raise Taxes
An alternate plan, proposed by Speaker of the House John Boehner (R-Ohio), is quite similar to the first -- with one notable exception. Under the second plan, taxes will not be raised -- and the debt crisis will come up for debate again (yes, again) in a matter of months. For the self-employed, and everyone else, it means going through all of this debt ceiling debate all over again…at least, until America can find a way to get more money.
Put off the problem and wait for a new Administration, solve it through raising taxes on the top wage-earners or default on the country's debts? The President, by virtue of his Monday night speech, is leaving that in the hands of the voters. He urged Americans to inform their Representative of their desires. Anyone, and everyone, may contact their member of Congress through the government's official website.
KC Morgan - KC Morgan has been the featured writer in Self-Employment since 2006, using personal experience to create guides to being self-employed.
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