Standing up to tax fraud in the construction business

By Steve Joyce
Special to the Reporter

Today, one in five contractors in the construction industry commits tax fraud, resulting in $2.6 billion is lost in federal and state income. That’s why it’s more urgent than ever to combat construction industry tax fraud, an unjust and immoral affront to the people of Massachusetts.

Construction tax fraud often manifests itself through dishonest bookkeeping and worker exploitation. Approximately 1.2 million workers are paid ‘off the books’ in the US annually. Without employment records to hold them accountable, contractors have been known to minimize or steal wages at the completion of a job.

And when a contractor does bother to go through the with paperwork, they frequently misclassify workers as “independent contractors.” The workers do the same job as a fulltime employee, but shoulder tax obligations that the employer should be paying. Nearly 300,000 construction workers are misclassified in this manner each year.

These practices allow contractors to sidestep jobsite safety, skirt around workers compensation premiums, and skip out on payroll taxes and critical benefits like Social Security, overtime, unemployment, and retirement.

In Massachusetts, denied payments and overtime to workers and minimum wage violations cost employees $700 millionannually. In a 2018 fair labor report, the Massachusetts attorney general reported restitution and penalties of $9.6 million as a result of wage theft, worker misclassification, and exploitation of young workers. Construction alone resulted in 61 citations, and generated $1.5 million in restitution and penalties.

Honest employers pay the price of these schemes, too. When shady contractors illegally skip taxes and shortchange workers, the prices they offer look like a 30% savings on labor costs. Businesses that do their work by the book, follow the rules, and pay their fair share of taxes can’t bid competitively with artificially low prices in the marketplace. Cheap, cheating contractors are just like a bag of chips that costs a dollar less but is twice as full of air.

In Massachusetts, recent estimates show that $16.5 million is recovered annually in lost payroll taxes and unemployment insurance. Funds like these contribute to tax pools that eventually help pay for things like public services, meaning when taxes go unpaid, the public is cheated. Workers, business owners, and the people of our state lose out when funding for schools, roads, bridges, first responders, veterans, and Medicaid and Social Security are harmed.

It’s no secret that many Massachusetts schools are underfunded. The $80-a-second tax fraud steals from the state and federal governments can, and should, be going to things like closing the education gap, bringing back school programs, and helping our most valuable resource, our kids. These improvements could all be made without creating more debt.

Boston is ready to kick tax fraud to the curb. Together with their brothers and sisters across the country, Union members of the New England Regional Council of Carpenters recently staged protests across New England to highlight the magnitude of illegal construction employment practices. Together, they rallied for a unified front against this insidious activity. Now is the time for the rest of Boston, Massachusetts, and New England to join in.

This year, Massachusetts is already talking about ways to increase revenue for citizens of the commonwealth. Making sure that all contractors pay their taxes is one way we can make that happen. Individual cities across Massachusetts have required development that is publicly funded or given tax breaks to bar crooked contractors with records of employee misclassification, wage theft, income tax withholdings, and payroll tax fraud. We can better police this issue by encouraging our state representatives to fund the Division of Labor and IRS adequately.

At the end of the day, all efforts are needed to pressure developers and contractors to do honest work and play by the rules. We have to join together in this fight for our kids, our community, and our future.

Steve Joyce is the political director of NERCC and a member of Carpenters Local 327. For more information on the New England Council of Carpenters, visit nercc.org or stoptaxfraud.net.

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