TL;DR
US policies on taxation, healthcare, and retirement make pursuing work as a creator extremely risky, and the consequences of that risk enormous. The US could draw inspiration from European countries like Spain and France, which have established a more secure safety net for the aspiring middle class of creators, as well as incentives for creators and other artists.
We’ve previously written about how platforms and their policies affect creators and their means of earning a living. What we haven’t yet addressed is how a state’s policies can affect creators, and the creator economy more broadly.
Specifically, policies around employment and social welfare make life precarious for creators in the United States, in contrast to the conditions creators and freelance workers experience in other high-GDP nations. With no fixed paycheck coming in every month, and a career that hinges on ever-changing algorithms and viral trends, becoming a full-time creator means foregoing safety for the ability to pursue your dream. Creators, like artists of all kinds, live with the anxiety that everything they’ve built could disappear at any time.
That precarity is largely caused by creators’ tax designation as self-employed workers. This means they pay significantly higher state and federal income taxes compared to employees, but do not enjoy any social benefits—no universal healthcare, paid sick leave, disability benefits, maternity benefits, or retirement funds. In the US, your ability to access healthcare and related benefits is tied to employment, while in other high-GDP nations, the government provides free healthcare and quality-of-life benefits to all its citizens (and visitors). This means that creators have to pay for their own healthcare out of pocket or pay for their own health insurance at typically higher rates than what conventional employees pay, because creators don’t have an employer who sponsors their healthcare. The same applies to pension plans like the 401(k), where employers have traditionally made a contribution.
While the majority of Americans support moving toward universal health care, creators aren’t usually thought of as needy recipients. Though creators are stereotyped as mansion-dwelling teenagers in LA with millions of followers and a healthy bank balance, there’s a much larger class of aspiring individuals that form the burgeoning creator middle class—individuals who juggle their Instagram presence and a full-time job. Our current system is making this middle class of creators anxious—there is no safety net to fall back on if their careers don’t work out.
But it doesn’t have to be this way. Many countries around the world have recognized the risks self-employed individuals like creators face, and have enacted policies to mitigate them—and even incentivize creators. Most countries in Europe, as well Japan, Singapore, Hong Kong, South Korea, Kuwait, the United Arab Emirates, and on, have provided universal health care as early as 1900 (Iceland). Most also offer illness and disability benefits, maternity and paternity benefits, unemployment allowances, and other forms of social security.
The difference between how self-employed individuals are treated in the US compared to much of the rest of the world is stark: But what exactly are the problems with US policy, and what can be done to fix them?
Let’s unpack three areas—taxation, healthcare, and retirement to understand the problem, and then move on to some potential solutions.
Creators Pay More in Taxes
Creators in the US pay much higher taxes than full-time employees. This is due to the way Medicare and Social Security funding in the U.S works.
For any full-time employee in the US, 15.3% of their salary goes to fund these programs. Half of that—7.65%—is paid by the employee, and the other half is paid by the employer. But if you’re a self-employed creator in the US you are not just an employee, you’re also technically an employer. That means you’re responsible for both sides of the tax obligation, or 15.3% of your full income.
For example, if you’re making $50,000 a year as a full-time employee you will pay out $3,780 for your Medicare and Social Security contribution. But if you’re a creator making the same amount of money, your tax obligation doubles to $7,560—and that’s not even your take-home pay. You’ll still need to pay city, state, and federal income taxes on top of that.
These laws don’t really affect celebrity creators who often run their operations as small to mid-sized media companies with an army of lawyers, accountants, and taxation experts to ensure that they enjoy the best financial outcomes. They actually end up hurting the emerging middle class of creators, who are trying to patch together disparate revenue streams to ensure they can pay next month’s rent.
Of course, a higher tax burden could be a fair trade-off if it came with a significant safety-net. European countries have higher taxes, too. But their tax burdens come with a benefit that creators in the US don’t enjoy: access to healthcare.
Creators Pay More for Healthcare
The cost of healthcare in the US is a complex issue that we cannot cover in great depth in this space. But we can say this: our system is based on an employer-sponsored model that makes it more affordable for people with full-time jobs, and less affordable for creators who are self-employed.
For example, in 2019 the average monthly premium for a full-time employee was $103.50, and the average annual deductible was $1,655 (source). By contrast, in 2020 the average monthly health insurance premium for self-employed individuals (like creators) was $484—almost 5x higher than the average premium paid by full-time employees. On top of that, the average annual deductible on those plans was $4,394—a little over 4x times higher than for full-time employees (source).
Health insurance is the biggest concern among freelancers, and worries about losing employer-sponsored healthcare prevents many aspiring creators—especially those with families—from leaving their jobs. Many who do charge ahead may forego insurance entirely—risking financial ruin or adverse health outcomes for the sake of pursuing their version of the American dream. And for the ones who have already started on their journeys, it creates a sense of constant worry about paying for ongoing coverage, and what might happen if they were to become seriously ill.
Even if creators are able to navigate the burden of healthcare coverage, they still need to plan for a time when they are no longer able to work.
Creators Have Less Retirement Savings
TL;DR
US policies on taxation, healthcare, and retirement make pursuing work as a creator extremely risky, and the consequences of that risk enormous. The US could draw inspiration from European countries like Spain and France, which have established a more secure safety net for the aspiring middle class of creators, as well as incentives for creators and other artists.
We’ve previously written about how platforms and their policies affect creators and their means of earning a living. What we haven’t yet addressed is how a state’s policies can affect creators, and the creator economy more broadly.
Specifically, policies around employment and social welfare make life precarious for creators in the United States, in contrast to the conditions creators and freelance workers experience in other high-GDP nations. With no fixed paycheck coming in every month, and a career that hinges on ever-changing algorithms and viral trends, becoming a full-time creator means foregoing safety for the ability to pursue your dream. Creators, like artists of all kinds, live with the anxiety that everything they’ve built could disappear at any time.
That precarity is largely caused by creators’ tax designation as self-employed workers. This means they pay significantly higher state and federal income taxes compared to employees, but do not enjoy any social benefits—no universal healthcare, paid sick leave, disability benefits, maternity benefits, or retirement funds. In the US, your ability to access healthcare and related benefits is tied to employment, while in other high-GDP nations, the government provides free healthcare and quality-of-life benefits to all its citizens (and visitors). This means that creators have to pay for their own healthcare out of pocket or pay for their own health insurance at typically higher rates than what conventional employees pay, because creators don’t have an employer who sponsors their healthcare. The same applies to pension plans like the 401(k), where employers have traditionally made a contribution.
While the majority of Americans support moving toward universal health care, creators aren’t usually thought of as needy recipients. Though creators are stereotyped as mansion-dwelling teenagers in LA with millions of followers and a healthy bank balance, there’s a much larger class of aspiring individuals that form the burgeoning creator middle class—individuals who juggle their Instagram presence and a full-time job. Our current system is making this middle class of creators anxious—there is no safety net to fall back on if their careers don’t work out.
But it doesn’t have to be this way. Many countries around the world have recognized the risks self-employed individuals like creators face, and have enacted policies to mitigate them—and even incentivize creators. Most countries in Europe, as well Japan, Singapore, Hong Kong, South Korea, Kuwait, the United Arab Emirates, and on, have provided universal health care as early as 1900 (Iceland). Most also offer illness and disability benefits, maternity and paternity benefits, unemployment allowances, and other forms of social security.
The difference between how self-employed individuals are treated in the US compared to much of the rest of the world is stark: But what exactly are the problems with US policy, and what can be done to fix them?
Let’s unpack three areas—taxation, healthcare, and retirement to understand the problem, and then move on to some potential solutions.
Creators Pay More in Taxes
Creators in the US pay much higher taxes than full-time employees. This is due to the way Medicare and Social Security funding in the U.S works.
For any full-time employee in the US, 15.3% of their salary goes to fund these programs. Half of that—7.65%—is paid by the employee, and the other half is paid by the employer. But if you’re a self-employed creator in the US you are not just an employee, you’re also technically an employer. That means you’re responsible for both sides of the tax obligation, or 15.3% of your full income.
For example, if you’re making $50,000 a year as a full-time employee you will pay out $3,780 for your Medicare and Social Security contribution. But if you’re a creator making the same amount of money, your tax obligation doubles to $7,560—and that’s not even your take-home pay. You’ll still need to pay city, state, and federal income taxes on top of that.
These laws don’t really affect celebrity creators who often run their operations as small to mid-sized media companies with an army of lawyers, accountants, and taxation experts to ensure that they enjoy the best financial outcomes. They actually end up hurting the emerging middle class of creators, who are trying to patch together disparate revenue streams to ensure they can pay next month’s rent.
Of course, a higher tax burden could be a fair trade-off if it came with a significant safety-net. European countries have higher taxes, too. But their tax burdens come with a benefit that creators in the US don’t enjoy: access to healthcare.
Creators Pay More for Healthcare
The cost of healthcare in the US is a complex issue that we cannot cover in great depth in this space. But we can say this: our system is based on an employer-sponsored model that makes it more affordable for people with full-time jobs, and less affordable for creators who are self-employed.
For example, in 2019 the average monthly premium for a full-time employee was $103.50, and the average annual deductible was $1,655 (source). By contrast, in 2020 the average monthly health insurance premium for self-employed individuals (like creators) was $484—almost 5x higher than the average premium paid by full-time employees. On top of that, the average annual deductible on those plans was $4,394—a little over 4x times higher than for full-time employees (source).
Health insurance is the biggest concern among freelancers, and worries about losing employer-sponsored healthcare prevents many aspiring creators—especially those with families—from leaving their jobs. Many who do charge ahead may forego insurance entirely—risking financial ruin or adverse health outcomes for the sake of pursuing their version of the American dream. And for the ones who have already started on their journeys, it creates a sense of constant worry about paying for ongoing coverage, and what might happen if they were to become seriously ill.
Even if creators are able to navigate the burden of healthcare coverage, they still need to plan for a time when they are no longer able to work.
Creators Have Less Retirement Savings
Theoretically, retirement savings would be taken care of through the extra 7.65% creators pay in self-employment taxes which go to Social Security and Medicare. But Social Security payouts in the modern era are often not high enough for individuals to live on if it’s not supplemented by their own significant savings or other income streams. So creators (just like everyone else) need to find another way to fund their retirement. And they must do so with 7.65% less money to invest than employees do. And that’s not the only disadvantage.
Of course, creators can open IRAs to sock away part of their present-day income tax free. But in the US, full-time employees often enjoy 401(k) retirement fund matching by their employers—allowing them to grow their savings more rapidly—which creators are locked out of because they employ themselves. Companies can do 401(k) matching because US laws make it a pre-tax benefit: it allows them to increase employees’ compensation without paying taxes on it. But US policy hasn’t caught up to the reality of self-employed individuals like creators making their living on online platforms: there are no incentives for YouTube or other creator platforms to offer something similar.
The way these policies are structured is not some unfortunate accident—the current system has been actively lobbied for by employers who see employment-based healthcare and employment-based retirement as crucial strategies to retain their workforce. Employers also enjoy sizable tax breaks from the government if they offer these benefits. But as the creator economy matures and redefines our conceptions of work and employment, old systems of taxation and social welfare that were built for an era of full-time employees need to be reconsidered.
But we needn’t look too far for solutions. Better ideas may lie just across the pond.
The US could draw inspiration from European Countries like Spain and France
Practical solutions to employment-based healthcare already exist. We spoke to creators in Spain and France to find out what it’s like to be a part of the creator economy there.
Creators in Spain are entitled to social security benefits which include universal healthcare, illness benefits, maternity benefits, disability funds, and pension plans after retirement. Creators feel more secure about their careers, are more free to take risks, and can provide for their families, without excessively worrying about the financial consequences. “Yes, it's true that the taxes are higher and self-employed individuals have to pay a fixed €300 monthly contribution. But the public healthcare system here is world class—we have universal healthcare. We also get a pension fund which guarantees us a stable income even after we stop working and retire,” said Alex Demarco and Erea Louro, two creators based in Madrid.
In neighboring France, things are even better. Creators enjoy a host of benefits: universal healthcare, illness benefits, maternity benefits and parental leave, disability funds, and retirement plans—with even lower contributions compared to Spain. The French government gives a fixed salary to artists and creators who have variable or seasonal income streams. “I benefited from that system for two years and felt protected and secure about my artistic career. It’s so much easier to create when you know your basic needs will be taken care of,” says Paris-based musician Crys Nammour.
Not only do French policies support creative work, they proactively incentivize it. The Bureau Export is in charge of promoting French music internationally. Institutions like Afdas fund creator education and training. A system called crédit d'impot helps emerging creators develop their projects—they enjoy a 15% tax refund on the amount spent on these projects.
State support for the arts has always been something the French are very proud of, and the government enthusiastically supported creative workers who were affected by the pandemic. Paris-based music creator Therry Marie Louise said, “The French system is good at keeping us on our feet—they walked the talk during the pandemic—the French Society of Authors, Composers and Publishers of Music (Sacem) created an emergency relief fund to help artists by offering a loan at 0% interest based on past income, as well as a non-returnable grant. It gave me some degree of financial stability to weather out the pandemic.”
The hypothesis behind these creator-friendly state policies has been very clear for European countries: by making the pursuit of artistic creation a low-risk activity, the countries foster a broader, diverse, and more vibrant entrepreneurial community that in turn has many tangible and intangible economic benefits. As early as 2015, creative industries represented €860 billion or 6.8% of European GDP and created 14 million jobs.
Of course, it’s not all rosy. Some of Spain’s celebrity creators, who earn above €300,000 a year, are not very happy about having to pay a 47% income tax. Many of them are moving to Andorra to enjoy a much lower flat 10% tax.
Making the US Creator Friendly
The European system isn’t perfect, and by no means are we suggesting that our policies should be modeled exactly like what we see across the pond.
However, it’s fair to say that our current system disproportionately favors traditional employer-employee work arrangements over striking out on one’s own. We are in desperate need of a system that helps people choose their vocation based on their passions and proclivities, rather than out of fear of social and economic insecurity. Looking towards the future, we’re excited about solutions that help provide additional financial security to workers, for instance, portable benefits that are tied to individuals rather than to employers.
Li recently made a compelling case for Universal Creative Income: “In the digital world, user rights are civic rights, and creator rights are worker rights.” Today, individuals can monetize activities that are a natural extension of themselves. But with great freedom comes greater risk—the risk of economic downturn, algorithmic changes, and fickle minded fans. Societies should enact policies that are relevant to this redefinition of work, potentially reducing these risks, and taking the first steps toward creating a healthier middle class of creators.
Passion Economy News Roundup
Discord Announced New Discovery and Monetization Features
What Happened?
Discord announced a set of new features:
- They are launching Stage Discovery—a feed that will list all public audio rooms a.k.a. Stage Channels in an interest-based audio feed to enable user discovery.
- Discord is also testing ticketed live audio events, similar to the functionality Twitter announced for Spaces.
Stir Launches a New Product to Help Creators Manage Payments
What Happened?
- Stir, a company that is building financial management and analytics tools for creators, recently launched Pay, a product that enables instant bank-to-bank transfers between brands and creators, as well as their collaborators.
- Stir wants to help creators save the 2.9% fee that PayPal charges, and directly compete with other payment services like Venmo and Cash App.
- Stir also announced Splits and Collectives, which settle finances among creators and collaborators—helping them share YouTube Adsense revenue and Podcast CPM.
- Andreessen Horowitz’s recent investment in Stir valued the company at $100 million.
Twitter Announces A New Verification Program
What Happened?
- Twitter recently relaunched its public verification program, an open application process that had been closed since 2017.
- Verification applications will be evaluated by human moderators based on specific criteria laid down by Twitter.
- Twitter also announced other upcoming features: an About section for accounts, a section to add users’ preferred pronouns, and a label that distinguishes bot accounts.
Twitch is Localizing It’s Subscription Prices For Developing Markets
What Happened?
- Twitch recently announced that it will be adapting its subscription prices based on local purchasing power. Twitch acknowledged that this will make subscribers earn less money. However, it reassured creators by stating that the price change will actually help acquire more subscribers in developing markets, who find the current starting price of $4.99 prohibitively high.
YouTube Announces a $100 million Creator Fund & New Creation Tools
What Happened?
- The newly announced Shorts Fund will pay out $100 million to creators over the next two years. Payouts will come through every month based on the engagement and viewership creators’ Shorts get.
- YouTube also launched new creation tools—creators can now rip and remix the audio from other YouTube videos, provided the original creators have opted in.
Roblox Generated $387 Million in Q1'21
What Happened?
- The company’s revenues grew 140% compared to last year according to their Q1 financials. Currently, the platform has 43.3 million DAUs. However, the platform is still not profitable—recording a net loss of $134.2 million.
Passion Economy Financings:
- Fave, a platform that connects creators with their fandoms, recently raised a $2.2 million seed funding round with participation from Female Founders Fund, HYBE, Sony Music, Warner Music, Concord Music, Quality Control, Right Hand Management, Techstars Music and Betaworks. Fave helps fans discover communities where they can exchange merch, and artwork with each other. The platform charges a 10% take rate on transactions.
- Legionfarm, a platform that pairs pro gamers with aspiring ones, raised a $6 million Series A funding round. Aspiring gamers can either pay $12/hour per session or a $25 to $50 monthly fee to play with professional gamers.
- Jellysmack, a company that helps creators diversify their social following across multiple platforms, raised a Series C funding round led by SoftBank. The funding amount has not been revealed, but the company stated that it is now valued at more than $1 billion. Currently, the company is working with 200 creators, including celebrities like MrBeast, PewDiePie, Brad Mondo, and others.
- Kajabi, a platform that helps educational content creators run their business, recently raised a $550 million funding round led by Tiger Global, at a $2 billion valuation. Currently, creators using Kajabi are generating $1.5 billion in revenue annually.
Li Recommends:
Portrait of a Lady on Fire (Movie)
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can get from an AI subscription."
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