Tax Bill Means Less Employment, More Contract Work

More work is being done outside the employment relationship. Uber is a good illustration: Drivers are independent contractors, not employees.

Between 2005 and 2010—last figures I have— independent contractors rose from 30.6% of the workforce to 40.4% in 2010.

Compared to similarly-situated full-time workers, contract workers earned 27.5% less per week.

The new tax bill accelerates that trend. Here’s how.

Today, a worker pays the same percentage on income, whether it is taxed as wages or salary earned through employment or earned by independent contracting.

The new bill lowers the tax rate for contract workers with a maximum rate of 21%. For employees, the highest marginal rate will remain around 39%.

Let’s think about stable jobs that pay well: HR professionals, dentists, office managers, and plumbers. Some portion of their income is taxed above the 21% marginal rate—that’s why I am using these jobs to illustrate the change.

The tax code will incentivize them to prefer a short-term “gig” relationship—and even if they don’t want to migrate to contractor status, their employer might try to convert their job to a gig (short-term and/or repeating term job).

That’s because the GOP has related legislation in the wings, called the New Gig Act. It will provide employers with tax incentives to shift employment-based jobs to “gig” jobs.

Why would any employer want to make that change? They would shift all the Social Security and Medicare tax burden to the individual (that’s a huge break); nullify the ACA employer health care mandate, avoid worker’s compensation, and other employment laws.

In other words, the tax bill that will formally pass today marks a milestone: We will have fewer employment-based jobs, and more contract-based work.

The GOP will sell this as a modern-day update from antiquated labor and employment laws, i.e., in the old economy. But for workers who shift from jobs to gigs, it will be a lifetime of work-based insecurity and fewer safety nets. They won’t work paycheck to paycheck—but gig to gig.