MaY 9, 2022
Over the past year, President Biden and Senate Democrats have endorsed a proposal that would radically transform American work and break a key campaign pledge to not raise taxes on Americans making less than $400,000 a year.
This proposal—called the ABC Test—will hike taxes on small businesses across America and change the way independent contractors and entrepreneurs contribute to their communities. Through the ABC Test, the federal government would require states to adopt a strict worker classification mandate. This test determines whether a worker can be classified as an employee or an independent contractor.
While supporters of the bill claim the test provides businesses with sufficient leeway to utilize independent contractors, history tells a different story. In few states that have already adopted this mandate, the ABC Test dashed economic opportunity and left 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 nearly 50 emergency exemptions to repair the economic damage inflicted on its workforce.
If the ABC Test becomes federal law, small businesses and entrepreneurs across the country face economic ruin without any emergency exemptions. With decades-high inflation ripping through our economy, implementing the ABC Test and its associated tax hikes would further devastate Main Street.
Recently,Americans for Tax Reform (ATR) released a new study examining the potential effects of a federal ABC Test. They found that 7.7 million independent contractors would be forced to reclassify as employees. In addition to losing the flexibility of the contractor status, these workers would pay more in taxes to the federal government—with 7.5 million of the workers earning less than $400,00 a year. This analysis shows that implementing a federal ABC Test clearly results in another broken promise from the Biden administration.
Additionally, forcing millions of independent contractors and entrepreneurs onto small businesses’ payrolls, would compel companies to lay off workers or increase prices.Either option results in disaster for the American economy—especially with sky-high inflation and the fragile recovery from COVID-19.
Lawmakers must reject any proposal of afederal ABC Test and the tax hikes it would create. 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 rippling effects from this kind of disastrous policies would be felt in every corner of the nation.
