A Democratic plan to wipe out independent contractors

A Democratic plan to wipe out independent contractors
© Greg Nash

As Washington turns its attention to a massive $3.5 trillion reconciliation bill, every household across America should be on high alert because some Democrats want to take away the right to work.

Senate Finance Chairman Ron WydenRonald (Ron) Lee WydenBest shot at narrowing racial homeownership gap at risk, progressives say Democrats' reconciliation bill breaks Biden's middle class tax pledge Missouri education department calls journalist 'hacker' for flagging security flaws on state website MORE (D-Ore.) is championing a bill to radically overhaul America’s unemployment system. The legislation would model our federal system on a California law that is so unpopular and so poorly written that emergency action was required to avoid severely disrupting the state’s economy.

The Wyden Plan would federalize California’s failed economic experiment. Under his Plan, a restrictive federal worker classification test (the ABC Test) is used to determine unemployment eligibility. And if states refuse to use the federal test, unemployment taxes for businesses in those states become punitive, rising to 5.4 percent per employee. The goal of this plan is ultimately to force independent contractors in all 50 states to become employees for federal unemployment tax purposes.

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Wyden views his bill as a “top priority,” yet thus far it has avoided public scrutiny. By failing to hold any hearings on the issue, the bill’s supporters have not had to answer basic questions, such as why they are reducing opportunities for working families, raising their taxes and interfering with an individual’s right to choose how they earn a living. 

Today, millions of American workers operate as independent contractors instead of employees. This allows them to operate their own small businesses with the freedom and flexibility to serve their clients as they choose. The Wyden Plan directly threatens this choice.

If the plan becomes law, countless businesses would be forced to pay new taxes to continue to use independent contractors. These higher taxes would needlessly disrupt economic activity and violate Democrats’ pledge not to raise taxes on small businesses.

California Democrats certainly know better. Their state adopted the restrictive ABC Test in 2019 to convert millions of independent contractors into employees. Unfortunately, the results of the California law have been a disaster. Instead of businesses treating independent contractors as employees after the law was enacted, tens of thousands of contractors lost work.

To repair the economic damage done by this ill-conceived policy, California’s lawmakers issued more than 50 emergency exemptions to the law. You would think any law requiring that many exemptions would be viewed as a policy failure that should not be repeated. But you would be wrong. In Washington, it appears imposing that kind of fiasco is a good idea.

The Wyden Plan doubles down on California’s flawed policy. But if the plan yields the same results across the country as it did in California, it will cause nationwide economic damage.

To avoid this, the Wyden Plan must embrace one simple fact: Independent workers in all corners of our economy are satisfied with their choice to be independent. They do not want higher taxes, less choice or more economic uncertainty. 

The Bureau of Labor Statistics has found that 79 percent of independent contractors prefer their current arrangement to being an employee. A similar survey of insurance and financial professionals by NAIFA found that 95 percent of these workers who operate as independent contractors want to remain so. 

Given these overwhelming preferences, Washington would be wise not to ignore the will of these workers. Washington’s policies should improve life for America’s working families and the small businesses, who are the backbone of our local communities, not take their jobs away or tax them out of existence.

Christopher A. Iacovella is the chief executive officer of the American Securities Association.