Paul L. Caron
Dean




Tuesday, January 15, 2019

Ring: Section 199A’s Workplace Shift

Diane Ring (Boston College), Section 199A’s Workplace Shift:

As we mark the one year anniversary of tax reform, the aftermath continues to dominate tax policy analysis. New § 199A, which my co-author, Shu-Yi Oei, and I initially explored here and here and here, continues to attract significant attention, both in terms of the provision’s likely substantive effects, and the legislative, regulatory, and political issues it raises.

One of the most compelling, yet underanalyzed, questions is how § 199A could impact labor and dramatically reshape work, the workforce, and the workplace. In a new paper posted on SSRN on December 3, titled “Tax Law’s Workplace Shift,“ Shu-Yi and I tackle these issues in detail. In brief, the paper explores the factors that will determine whether § 199A is likely to cause a workplace shift from employee to independent contractor arrangements, and, if it does, how such a shift should be normatively evaluated. Ultimately, we show how our evaluation of these § 199A workplace effects must depend on the types of workers and work at issue. While a § 199A-induced shift towards independent contractor classification may make some workers more precarious, empirical data suggests that for others, such a shift may have different (and perhaps differently troubling) effects. 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.

The question of the new passthrough deduction’s effects on work is likely to remain significant, and will continue to be investigated by tax scholars. (See, e.g., a new December 19th Center on Budget and Policy Priorities essay by Brendan Duke, “Pass-Through Deduction in 2017 Tax Law Could Weaken Wages and Workplace Standards”). ...

Looking ahead to the coming year in the U.S., the two important questions will be: (1) does new § 199A create real shifts in the workplace that pose serious policy concerns? and (2) does § 199A create false shifts in the workplace through unwarranted “re-labeling” of workers?  The first problem demands a careful re-examination of the incentives that the new law has introduced into the workplace. The second problem demands careful attention at the enforcement level. Stay tuned!

https://taxprof.typepad.com/taxprof_blog/2019/01/ring-.html

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Comments

Jared Bernstein has a column in today's (1/16) Washington Post making the case for the need to increase federal revenues. Before listing numerous ways (e.g., higher marginal rates, equal taxes on capital gains and ordinary income, a financial transactions tax) he had this to say about Section 199a:

"An important rule of tax policy is that when one type of income is favored over another, every rich person with a tax lawyer suddenly discovers that the favored income is the very type they have piles of. A good place to start here is to close the pass-through loophole opened by President Trump’s tax cuts, where high-end filers can get a fat deduction by classifying their earnings as pass-through income."

Posted by: Gerald Scorse | Jan 16, 2019 7:38:28 AM

In the last sentence of the comment I submitted, I may have used "of all" both at the beginning and the end. If so, please delete the second use. Thanks much.

Posted by: Gerald Scorse | Jan 15, 2019 6:23:56 AM

"One of the most compelling, yet underanalyzed, questions is how § 199A could impact labor and dramatically reshape work, the workforce, and the workplace."

Important, yes. But for myself, both as a taxpayer and a believer in tax fairness, far more important is 199A's hugely likely trifecta: a big hit to federal revenues, a rise in tax inequity, and a corresponding rise in income inequality.

Of all the provisions of the 2017 tax cut, 199A could turn out to be the worst of all.

Posted by: Gerald Scorse | Jan 15, 2019 5:46:07 AM