Independent Contractors Fix? The Government Wants To Help

Dick Durbin (no relation) and Barack Obama want to help independent contractors.  Or rather, they want companies to pay more in taxes by making it harder to hire talented workers.

Yes, yes, that's not what they say they are doing, but don't be fooled - this is another attempt to raise tax collections, not help business.  From their editorial in the Sun-Times:

But sadly, many working men and women are not being treated fairly because some businesses are using a little-known tax loophole to avoid paying their fair share. It's workers and American taxpayers who pay the price.

Here's how the Section 530 Safe Harbor in federal tax law works: By classifying a worker as an "independent contractor" instead of an "employee," an employer pays less in employment taxes and workers compensation, sometimes cutting costs by 30 percent. Misclassified workers have the employer's tax burden shifted onto them as if they were self-employed, meaning higher taxes for working-class Americans and a growing tax gap. These workers are also denied basic employee protections, such as workers compensation and overtime pay.

This week, we introduced legislation to close the loophole. The Independent Contractor Proper Classification Act of 2007 will allow the government to collect the taxes employers owe and will restore basic rights for workers. The legislation will also address the need for more enforcement of federal tax and employment laws to identify those employers in major industries that wrongly classify their workers.

It will be interesting to see what happens to public staffing company stock prices if this piece of legislation goes through in the name of "closing the tax loophole." 

Comments

[Scott Delap]

How is this a loop hole? The contractor is not classified as an employee of the company using their services but they simply can't be an employee of no company. Therefore either that staffing firm or the contractor (as their own business) pays the taxes. It is just a shifting of responsibility and money.

[Colin Kingsbury]

It would make a lot more sense for the government to take into account the fact that the economy is moving beyond the age of textile mills and steam trains, because that's what most of today's programs are based on. Reducing income volatility for people has some social value, but making hiring more expensive only means companies will do less of it.