Looking at the 1099 Issue Through the Lens of the Minimum Wage Fight
The battle over raising the minimum wage to $15 is raging in cities and states across the nation. Advocates for workers argue that it’s impossible to make ends meet at anything less, while businesses argue that raising the minimum wage will cause them to lay off people and hire fewer workers. While I happen to agree that a much higher minimum wage is necessary, it seems like most people on both sides of the debate are missing a critical component: government. The loser doesn’t have to be workers or businesses.
Right now, taxes are levied to both conduct basic government operations (sanitation, roads, etc…) and to transfer wealth and resources from those who have more to those who have less (food stamps, Medicaid, etc…). But for every dollar the owner of a pizzeria or hardware store pays in taxes intended to help someone else less fortunate (like their employees), before a penny reaches the person who needs help, that dollar has to go through a tax preparation bureaucracy (accountants), a tax collection bureaucracy (the IRS), a legislative body (Congress or a local or state legislature) to allocate dollars, and an administrative agency to then distribute the dollar in the form of a program – before it ever reaches an actual human being.
By the time that happens, a lot of the dollar is gone, used to fund all of the different bureaucracies involved in getting that dollar of taxes from point A to point B. But if workers are now being paid substantially more, they need less direct help from government. If small and medium businesses received a dollar-for-dollar tax credit for paying increased wages, they would remain revenue neutral, the employee would receive more money in each paycheck, and the only one who loses are the bureaucracies listed above.
In the debate over what to do with 1099 workers, a similar approach could help provide the solution to whether to treat workers in the sharing economy as employees or not. In some situations, it makes sense that when certain criteria are met, an independent contractor may have some of the characteristics of an employee. And in those cases, ensuring those workers have certain benefits and protections makes sense. But like the minimum wage idea above, those protections don’t have to automatically come at the cost of the business providing these workers with opportunities and flexibility. If workers comp should be provided, does it have to come in the form of buying an expensive policy from an inefficient, large insurer, with costs then added to fund government agencies to audit and investigate companies and workers, and then a host of other costs just to administrate the fund? The goal is to help ensure that workers injured on the job have a way to pay their bills – not to keep insurance companies in business. Why do profits and high premiums have to be part of the cost a company incurs just to ensure that workers have certain protections? Some states let large companies directly provide workers comp benefits to workers, but mid-size and smaller companies don’t have that flexibility. Liberalizing the rules to allow more companies to cut out the insurance middlemen can provide workers with protections at a lower cost for the companies.
We know we want tech companies to continue to innovate, grow and create opportunities for people to make money. We know that, in some cases, it makes sense to require companies to provide certain types of benefits and protections. But rather than making it a zero sum transaction for either the worker or the company, why not cut out as many third party costs and mandates as possible so neither loses?
The choice shouldn’t be between helping workers at the expense of businesses or helping businesses at the expense of workers. It should be whether or not we want to allow government (and government selected winners like accountants and insurers) to keep imposing costs on businesses and workers – just so they don’t have to do things differently or better. To me, that’s not much of a choice at all.