Each year as April 15 approaches, I’m reminded of the phrase, “The only certainties in life are death and taxes.” In the construction industry, however, the latter isn’t always true.
The construction industry has the dubious distinction of being a leading contributor to lost tax revenue because workers are often illegally paid off the books or intentionally misclassified as independent contractors. Put those two together, and the IRS estimates they equate to more than $2.6 billion in lost federal tax dollars each year from the construction industry alone.
Make no mistake: This is intentional. Corrupt contractors pay workers off the books in order to dodge state, local and federal taxes so they can illegally lower their labor costs and underbid law-abiding competitors. If a contractor is already breaking the law to avoid paying their fair share of taxes, that should serve as a red flag that they may be operating outside the law in other aspects of their business, too.
Construction projects have predictable material costs. We can estimate closely how much materials for a certain build project will be. So when a bid comes in significantly lower, it means they’re cutting costs among their workforce. This hurts workers and their families.
In fact, according to a 2014 study in California, misclassified workers make only 64 cents for every dollar payroll employees earn. For workers paid off the books, it’s even worse. On average, they make little more than half of what payroll employees earn. Others aren’t even paid at all.
When contractors cheat the system and don’t pay taxes, it hurts us all: workers, honest business owners and everyday citizens. Misclassified workers are denied benefits like health insurance, unemployment, workers’ compensation protections and employer tax contributions.
By cheating on their taxes, some contractors rob us of funding for programs that could help veterans, rebuild our infrastructure, fund our schools and put more police on the streets.
Instead, tax-paying citizens are asked again and again to make up the difference with tax increases and bond issues—letting the cheaters off the hook. If the state was collecting the money it’s already owed, Missouri taxpayers wouldn’t have been asked to raise the gas tax in November 2018, and we could fix our failing bridges and crumbling roads.
What can you do to help? Utilize and promote honest contractors and their employees. We’re proud of our contractor partners who play by the rules and pay their fair share—ensuring their employees are classified properly and by paying the taxes that fund important government programs and investment.
Support fair competition in bidding and report violations to the Missouri Department of Labor. You can find the reporting form here: labor.mo.gov/offthebooks.
Visit StopTaxFraud.net or on social media @StopTaxFraud to learn more.
Al Bond is the Executive Secretary-Treasurer of the St. Louis-Kansas City Carpenters Regional Council, which represents more than 22,000 members in Missouri, Kansas and southern Illinois.