At first I thought a large number of unemployed game developers would help my business: Lots of talent, lots of need for employment.

However, instead of encouraging people to work, I’m now getting direct experience that EI causes people not to freelance!

Artists are actually turning down my contract offers because EI punishes ambition. “Gee, that sounds like a great project and I’d love to work with you, but if I accept any form of payment I’ll lose my EI.”

This made me unreasonably angry, and I started thinking. If EI is really difficult for the middle class to collect, and instead designed to benefit people in volatile, low-paying jobs, isn’t it actually a transfer of wealth from one group to the other?

The wealthy do not pay into employment insurance, because it’s a payroll tax and the rich take the smallest possible amount of their income in high-tax salary. The most tax-efficient way to take money out of a company is in the form of dividends, and you get further benefits by taking a bonus instead of straight salary.

For purposes of illustration (I haven’t done the “real” math on this), pretend you run a small restaurant. Over the course of the year your business makes (and pays taxes on) $500,000 profit, and you spend $440,000 of it on non-business expenses (which means it counts as shareholder compensation).

When preparing your taxes your accountant will split that $440,000 into several categories. First, to get you the lowest possible bracket, he will allocate about $40,000 of the amount you spent to salary income. The remaining $400,000 he will first try to declare as a dividend.

Let’s say that your tax bill comes out to $80,000 when he does this (remember that rich people pay tax at the end of the year, not out of their paycheques — getting refunds is HIGHLY economically inefficient). You only have $60,000 on hand (the $500,000 profit your business made less the $440,000 you spent).

But not to worry, the accountant instead decides to give you a bonus. So now your $440,000 looks like this:

Salary: $40,000
Bonus: $20,000 (deferred 180 days into the next year).
Dividends: $380,000

Tax bill: $60,000
Cash on hand: $60,000

So you pay your bill and go back to work.

Notice that the basis for calculating the amount you pay into EI, your salary (remember: EI is a payroll tax), is $40,000, less than 10% of the amount of money you “actually” made. As the business owner you pay over ten times less into employment insurance than an employee earning the same amount.

While the rich restaurant owner goes on French holidays (sampling French food — a business expense!) and buys rental property (hooray, more deductions!), a middle manager at a large corporation getting paid $440,000 per year as salary has OVER TEN TIMES as much of her wealth transferred away (maybe to someone the rich restaurant owner fired).

What is this if not employees subsidizing employment?

Anyway, long story short: I am going to direct my tax preparer to allocate 100% of my 2009 income to dividends from Samhain Incorporated. I don’t care that I’ll pay slightly more dividend tax, I’m just sick of contributing to a corrupt fund that is impossible for me to benefit from and which hurts my business by making it hard for artists to start small shops.