Posted May 6, 12:46 PM
By Tim Craw
I’m proud to work in Springfield. The people here are tough, hardworking, and innovative. It’s no surprise that the city is known as ‘The City of Firsts.’
Now, Springfield has the chance to be the first city to stop the epidemic tax fraud taking place in the construction industry. Criminal contractors are cheating the public, honest businesses, and local workers by neglecting to pay their fair share of employment and payroll taxes. It costs the American people $80 every second, and up to $2.6 billion a year in lost federal and state income.
Tax fraud is often committed through underhanded bookkeeping and worker exploitation. Frequently, developers and contractors will use labor brokers to do the dirty work of hiring employees off the record. Approximately 1.2 million workers are paid ‘off the books’ each year in the U.S., allowing contractors to avoid rules around safe jobs sites, deny benefits and workers compensation, skip out on payroll taxes, and even withhold or minimize workers’ payments. Other times a contractor might use ‘on the books’ methods, but cheat by requiring the worker to carry tax and other employment obligations. Nearly 300,000 construction workers are misclassified as ‘independent contractors,’ even though they work a full-time employee’s job.
In Massachusetts, illegal practices like these, particularly wage theft, denied overtime, and minimum wage violations, result in $700 million in losses to employees annually. The Massachusetts Attorney General reported in a 2018 fair labor report that wage theft, worker misclassification, and exploitation of young workers resulted in restitution and penalties of $9.6 million.
The contractors who skip taxes and shortchange workers can gain up to a 30% savings on labor costs, putting honest employers at a disadvantage. They do business the right way but aren’t able to issue as competitive bids, and are cheated of potential work.
The public is also affected by this problem, because when taxes go unpaid, tax pools receive less funding. Public services such as schools, roads, bridges, first responders, and Medicaid and Social Security suffer. The Massachusetts Joint Enforcement Task Force on the Underground Economy and Employee Misclassification reported that in 2014 alone, $16.5 million was recovered in lost payroll taxes and unemployment insurance. The money being pocketed through tax fraud schemes should be helping keep our state safe or close the gap in funding for our schools. These improvements could all be made without creating more debt.
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Tim Craw is a Council Representative with the New England Council of Carpenters and a member of Local 336.