Self employed vs employee

Today's Globe says the Conservatives may extent parental leave benefits to self-employed people.



Let's pass over the specific issue and look more generally.



Self-employed people generally do not get employment or similar benefits but have the advantage of tax deductions not available to employees.



Thus, as an employee I cannot deduct business expenses. As a result, if I make a salary of $65,000 I pay tax on $65,000. But if I am self employed I can deduct many "business" expenses that give me a personal benefit and which I'd pay regardless of being self-employed or not (look at auto or travel expenses).



In theory the business expenses should be deductible only to the extent they are not of personal benefit but that's not the reality.



What really happens with many "self-employed" is that people who are functionally employees become, say, a consultant, and take a smaller income which amounts to the same as an employment income once tax advantages are considered. It means the government is silently subsidising employment (albeit disguised as "self-employment").



Giving the "self-employed" the federal benefits of the employed merely increases the subsidy.



What is happening is a distortion of the labour market as a result of tax policy. This is a major issue that underlies the specific issue of parental benefits.