Oei & Ring: Tax Law's Workplace Shift

Shu-Yi Oei & Diane M. Ring (Boston College), Tax Law's Workplace Shift:

In December 2017, Congress passed major tax reform, including new § 199A of the Internal Revenue Code. This new provision grants independent contractors and other passthrough taxpayers—but not employees or corporations—a potential deduction equal to 20% of their qualified business income. This deduction will affect tens of millions of taxpayers and may be a significant boon to those eligible. Critics argue that the deduction may cause a large-scale workplace shift in favor of independent contractor jobs, as workers seek to take the new deduction. Such a shift could cause workers who leave traditional employment to lose important employee protections and benefits, leaving them more vulnerable.

This Article investigates the factors that determine whether such a workplace shift is likely to occur and, if it does, how it should be normatively evaluated. We argue that while § 199A creates a tilt towards independent contractor classification for some workers, statutory guardrails and other limiting factors may constrain the provision’s effects. We also argue, drawing on empirical data on contemporary workplace trends, that even if § 199A were to prompt a workplace shift, our evaluation of the shift must depend on the types of workers and work at issue. While a shift towards independent contractor classification may increase the precarity of some workers, empirical data suggests that for others, a shift may be less troubling, or troubling for different reasons. Our Article lays a framework for analyzing the full range of the new deduction’s impacts and maps a course for further study of tax reform’s impacts on the future of work.