Employee versus independent contractor: marginal tax rates

I have a little side job. My boss said she wanted to reclassify me as an independent contractor instead of an employee. Is that OK with you? she asked. I said no problem. But I asked if the reclassification would affect my after-tax earnings. She said she didn't think so, but if I figured out that it definitely does, she could raise my wage accordingly.

So I went through the 1040 and schedule SE to figure it out. I put an X in for regular wages and a Y in for business income, and computed how each of X and Y would be taxed. I assumed that I would not be able to claim significant business deductions. The conclusion: my boss owes me a 9.3% wage increase (unless there are some legitimate business deductions that I could be claiming).

Excluding potential business deductions, the difference in marginal federal tax rates between the employed and self-employed ranges from 7.65% for low-income people, and may fall as low as 5% before disappearing altogether for income earned in excess of $97,500.

This difference arises from the fact that employers must pay half of the employee's social security and medicare (7.65%) taxes. In other words, the cost to an employer of "paying an employee $10,000" is actually $10,765.

Housing Memo II

Mankiw cites an article announcing the fulfillment of prophesy by His Freakwentness:

Homes in cities and neighborhoods that require long commutes and don't provide enough public transportation alternatives are falling in value more quickly than more central locations, according to a May study by CEOs for Cities, a network of U.S. urban leaders.

Essential Campaign Coverage Vocab

Tactics - Your opponent's methods of gaining popularity.

Embroiled - When the media starts reporting on how much the media has turned against you.

Clinched - Something you have done to a nomination that ensures that it's yours.

Straight Talk - Ridiculous lies.

Laughable - Not funny.

Ludicrous - Probably true, and it will be difficult to convince you otherwise, so we'll just call it this.

Housing Memo

Are you a young disgruntled homeowner? Did you buy a townhouse at the peak of the housing market and regret it? Do you want to sell your house and move somewhere rural? Don't do it!

Consider this:

• The price of gas is rising. As this trend continues, people will aim for shorter work commutes. People will gather more tightly into cities. There will be less vehicle traffic and more public transportation. Downtowns will regain the vibrancy of the good old days.
  
• City housing prices will rise in response to the crowding.
• Rural housing prices will fall.
• The time line for the changes in house prices will be only about 5 to 10 years. Within 10 years, the cost of transportation will peak, with gas at $6 to $8 per gallon. At that point, electric cars and alternative renewable fuel sources will become competitive, so the price of gas will become irrelevant.

Therefore, the best time to buy a country home should be in about 5 to 10 years, and the best time to sell a town home should be in about 5 to 10 years.

It has been observed that when you decide to buy a new house and sell your old one, it should not matter whether the housing market is high or low: The sale price of your old house will be high or low at precisely the same time that the purchase price or your new house is high or low.

However, this logic is useless if you are moving from one kind of housing market into another. If the price of city housing is about to rise relative to country housing, timing is everything. Waiting just a few years to sell the city home will leave the prospective buyer with a great deal more buying power in the rural market, especially if rural prices have fallen over the same period.