Thread: Loophole lets contractors have it both ways

Loophole lets contractors have it both ways
By RICK CASEY
Copyright 2008 Houston Chronicle

There are two kinds of illegal immigrants here in Houston and across America.

Those who pay less than their fair share of taxes and those who pay more.

We have names for both types.

The ones who pay more than their fair share are called employees.

The ones who pay less than their fair share: independent contractors.

Ever since 1986, when the Immigration Reform and Control Act penalized employers for knowingly hiring illegal immigrants, most workers who fall into that category have bought fake Social Security cards in order to apply for work.


Phantom billions
Many work for food processing plants, janitorial services, restaurants and other low-paying industries.

Their employers, like mine, deduct money from their paychecks for Social Security and Medicare.

Week after week, these workers pay these taxes, yet few of them are likely to ever receive Social Security or Medicare benefits.

In 2002, the Social Security Administration received about $56 billion in payments with numbers for accounts that don't exist, according to the New York Times. Officials said the vast majority of that is from illegal workers.

It accounted for about $1.50 of every $100 of Social Security revenues that year, and it was expected to grow.


Legal scam by employers
It would be great if all illegal immigrants were employees. According to the New York Times article, officials figure if we removed the contributions of illegal immigrants, Social Security's "long-term funding hole over 75 years would be 10 percent deeper."

That's a healthy contribution to our senior citizens and it would be more if all workers paid.

But many illegal immigrants are "independent contractors." Most of them don't pay Social Security or Medicare taxes. Or income taxes, for that matter.

Is that because they are less moral than employees? No. It's because their employers hire them as "independent contractors," not as employees.

The practice is rampant among home builders.

The company, whether large or small, hires subcontractors to do the foundation, framing, plumbing, electrical wiring, roofing, painting, etc.

The subcontractors then hire the laborers as sub-subcontractors. The notion that they are independent contractors, rather than employees, is an arguably legal fiction that benefits the workers a little and the employers a lot.

It also gives the company a couple of layers of protection from that law passed in 1986.

The workers often get paid in cash. Few file income tax returns, not only because they don't want to pay taxes but because they don't want to draw attention to themselves.

Most are transient and will never be found by the IRS for prosecution over unpaid taxes.

Because the workers are contract labor, the owners of the construction companies don't have to pay their half of Social Security taxes.

Nor must they pay unemployment taxes or buy workers' compensation.

What if a worker is hurt? That, in this rugged sector of free-enterprise, is what county hospitals are for. That independent contractor should have bought himself health insurance.

City Council this week passed a modest ordinance attempting to cut down on the inappropriate classification of workers by companies that do work for the city.

I suspect the effort will be more symbolic than real. For one thing, the city has limited resources to police the rule.

For another, people in the construction industry tell me the problem is most widespread among home builders, not among companies who build anything larger than houses or strip malls.

It would be far better for Congress, in addition to trying to pass immigration reform that makes sense, to close loopholes that allow employers to wink, nod and treat low-skilled laborers as if they were entrepreneurs so as to avoid paying taxes and other costs.

But don't hold your breath. According to the Center for Responsive Politics, the National Association of Home Builders has the seventh largest political action committee in Washington, and that doesn't count what individual home builders give.

So if you can get a mortgage, enjoy the pittance that will be passed on to you from the underground economy.

Meanwhile, we're all more than making up for it in what the employers and their illegal "independent contractors" are allowed to escape.
http://www.chron.com/disp/story.mpl/met ... 09408.html

Our revenue system is a fr----in joke. Now, it is estimated that $350 billion is uncollected every year. BTW, these "low-paid independent contractors"will find out, if they are allowed to stay in this country much longer, that they soon will be able to charge much more, when they go completely on their own. Very few of them will ever get busted. It's the way that it has always been.

I've been reporting suspect job sites to our state's builder's board---the Construction Contractors Board. These people actually do get out there fast and levy big fines. They can fine for: working without a license, not providing workers comp, and not paying taxes. Try it in your state.

GOVERNMENT IS NOT WORKING FOR SOME OF US