October 1, 2021
The verdict is in: President Biden is on the verge of breaking a pledge that was central to his 2020 campaign. In direct contradiction of his word, the president recently endorsed a proposal working its way through Congress that would raise taxes on Americans making under $400,000a year.
If enacted, Oregon Senator Ron Wyden’s Unemployment Insurance Modernization Act, which President Biden has voiced support for, will hike taxes on small businesses across America. Tucked into the bill is a worker reclassification provision that will radically reorient the way states collect taxes to pay for unemployment insurance.
Under the plan, states would be required to adopt a strict worker classification mandate known as the ABC Test to determine whether a worker should be classified as an employee or an independent contractor. While proponents argue that the test provides businesses with ample latitude to use the services of independent contractors, history shows that such a mandate will dash economic opportunity and leave millions of self-employed Americans without work.
When California experimented with its own ABC Test, beginning in 2019, businesses that could not afford the cost of converting their independent contractors to employees were forced to sever the relationships entirely. This destroyed countless otherwise healthy working arrangements between established businesses and self-employed Californians. The ABC Test was so catastrophic for California that state lawmakers were forced to issue more than 50 emergency exemptions to repair the economic damage inflicted on its workforce.
If the ABC Test becomes federal law, this story will play out across the country without any emergency exemptions. Additionally, the consideration of the ABC test comes on the heels of one of the greatest economic disruptions in recent memory—the coronavirus pandemic, which just so happens to be flaring up again.
Recentanalysis released by Americans for Tax Reform (ATR) found that the ABC Test would increase federal unemployment taxes by 5.4% per employee on small businesses in states that reject the ABC Test. This would clearly violate President Biden’s pledge not to raise taxes on millions of small business owners making less than $400,000 per year.
By forcing millions of independent contractors and freelancers onto small businesses’ payrolls, the policy would compel companies to either increase layoffs or raise prices. In both cases, all Americans—not merely employers—would suffer the consequences. Whether its prospective employees unable to find gainful work, or consumers facing an escalating cost of living, the ABC Test would stifle our nation’s economic recovery.
Lawmakers must reject the imposition of a nationwide ABC Test and the tax hikes that it would precipitate. With inflation creeping up, the last thing our country needs is another broken promise from the Biden Administration that will increase taxes on small business owners and raise prices for consumers. The ripple effect from such a policy would be felt in every corner of our economy.
