Being anti-corporation doesn’t make you pro-worker, and laudable goals followed by misguided policies and postures is a recipe for disaster.
By now, it is clear that the American Rescue Plan Act’s $1.9 trillion stimulus was, as Larry Summers (former chief economic adviser to President Barack Obama) said, “the least responsible macroeconomic policy we’ve had in the last 40 years.” It should come as no surprise, then, that the country is experiencing the highest inflation in the same time frame.
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Likewise, the Biden administration should be promoting flexible work arrangements, not actively undermining them, as it is doing now.
The research company Qualtrics published a study showing that 64% of working people have struggled to make ends meet in Biden’s economy, and many have looked to a second job for help. The report also showed that working parents are doing the worst across studied categories, with 47% having sought out a second job and 64% taking on overtime or extra shifts. This reporting comes off the heels of an August 2022 Brookings Institution analysis showing that due to inflation, it now costs families $26,011 more to raise a child to 17 years old.
With the legislative ineptitude of the last 22 months causing inflation to skyrocket and making working families suffer, one might think the administration would show empathy for people negatively affected by its vision and return to an era of thoughtful policymaking. However, that is not the case.
Instead, the Department of Labor is seeking to use rulemaking authority to target independent contractors (also known as gig workers). The newly introduced rule called the “Employee or Independent Contractor Classification Under the Fair Labor Standards Act” would rescind a January 2021 rule that provided companies (such as ridesharing applications) with a relaxed framework to employ independent contractors without being forced to provide them the benefits of full-time employees under the Fair Labor Standards Act.
The new rule, modeled after California’s contentious Assembly Bill 5, extends employee classification status to gig workers. This will institute a six-pronged test to companies to prove that individuals are contractors and not employees. As in California, its effects will be widespread.
Covered gig workers include not only rideshare drivers but also trade workers such as electricians and plumbers, educators such as tutors and music teachers, support systems such as caregivers and therapists, and many more. Independent contracts can use their own means, such as a vehicle or instrument, to provide a service to consumers, while the platforming companies merely connect the two in an efficient fashion.
Many people feel the need to find a second job for additional income. The Biden administration is adding insult to injury by attacking their ability to work as independent contractors. Furthermore, the administration’s rationale for the new Labor Department rule is flawed for the same reason as California’s AB 5 — most independent contractors are not full-time employees. A study by Uber in 2020 found that only 9% of its drivers in California drove for 40 hours per week.
However, there is potential for a more nefarious reasoning for the administration trying to force more Americans onto payrolls: more tax revenue. Currently, independent contractors pay a 15.3 percent self-employment tax on top of their standard federal income tax, but they have access to deductions on their taxes to account for expenses accrued through their work, such as mileage or home office deductions. Also, contractors can write off the “employer” portion of the tax — 7.65 points of it — on their income taxes. Under the proposed rule, however, the new “employees” of service providers would be forced into filing a W2 form, eliminating their ability to deduct significant expenses from their overall income. This could lead to their being placed in a higher bracket, regardless of whether they are filing single or jointly.
For 2022, that is a 10 point jump in your tax rate if you earn over $41,775. For reference, the median earnings for a rideshare driver in New York City is $45,102.
It’s very difficult to understand how the administration sees implementing this rule as a net positive. It not only hurts people using flexible means to earn more income but also stifles companies that provide the service. Ultimately, these negatives are passed to consumers through higher prices, less innovation, and, overall, a lower quality of service.
Before proceeding with a measure that had already failed at the state level long before it was proposed, the administration should consider how its policies have put people in a position where they feel the need to supplement their income to afford basic goods and make it easier for them to live comfortably.
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Michael Mohr Ramirez is the manager of government affairs at Taxpayers Protection Alliance.
