As a state with a lot of competing interests, Rhode Island knows that solving a problem means you’ve got to work together. Today, our residents are facing a serious threat to their public services, and it’s something we can stop.
That threat is construction-industry tax fraud.
Each year, $2.6 billion is lost in federal and state income. That’s a loss of $80 each second, because an increasing number of construction employers are shortchanging their tax obligations and exploiting workers.
Contractors typically evade taxes through underhanded practices, such as hiring workers “off the books.” Studies show that this happens to approximately 1.2 million workers each year, exposing them to unsavory practices, including unsafe job sites and wage theft. Each year, 300,000 workers are misclassified as “1099s.” The worker is then obligated to pay taxes as an independent contractor, while they are really doing the same job as a full-time employee. According to the Division of Taxation, improper worker classification resulted in $6.2 million in unreported wages in Rhode Island in 2017. The result in both of these instances is that contractors intentionally skip paying their employee-related taxes and insurance requirements.
Unfortunately, cheating taxes and exploiting workers gives shady contractors a 30% advantage on labor costs. They use these “savings” to advertise a cheaper product. Businesses that do honest work simply cannot compete and lose out on jobs.
Local, state and federal governments depend on the money that contractors pocket when they skip paying payroll taxes. The cost of these illegal practices to Rhode Island has recently been estimated at $49.5 million in uncollected income tax, workers’ compensation premiums and federal taxes. These funds are essentially stolen from schools, veterans, infrastructure, Medicaid, Social Security and first responders. We have to stop this issue from progressing because, if we don’t, Rhode Island’s educational standards, safety and future will suffer.
Exploiting workers gives shady contractors a 30% advantage on labor costs.
It’s clear that our state already has a head start on fighting this behavior. Recently, Secretary of State Nellie M. Gorbea, R.I. Department of Labor and Training Director Scott R. Jensen, former state representative and current Providence mayoral adviser Aaron Regunberg, Treasurer Seth Magaziner and Providence City Council President Sabina Matos came together at a press conference to publicly discuss the magnitude of this issue and ways that the state is working to fight it. They were supported by more than 100 union carpenters.
We’ve hit the ground running and are fortunate that our state has programs such as the misclassification task force, but there is still work to be done. We can still contact our local representatives and tell them that public funds for development need to be spent wisely. Sen. Samuel W. Bell, D-Providence, put it best when he said, “We as Rhode Islanders spend a lot of money subsidizing these construction projects, and when public money is involved, every worker should get fair wages, fair benefits, a pension and should definitely not be misclassified.”
That means when contractors bid for government construction jobs or tax incentives, we must vet them for tax and worker-related infractions. We should protect funds for the IRS and U.S. Department of Labor, so they can catch these criminals in the act. We need to recover lost wages and taxes. We can all protest jobs that illegally conduct business and exploit workers.
Imagine the money we could give our kids, our police and our veterans if we got each and every resident to join in this fight.
For more information on the New England Council of Carpenters visit www.nercc.org. Visit the UBC National Stop Tax Fraud website to learn more about construction-industry tax fraud.
Ernie Belo is an organizer with Warwick-based New England Regional Council of Carpenters Local 330.
