William C. Sproule
Following President Biden’s Bipartisan Infrastructure Law, approximately $12.3 billion in funding has been earmarked for over 250 identified projects in New Jersey. Since the law passed, over $8 billion has been announced for transportation purposes, which includes investment in roads, bridges, public transit, ports, airports, clean water and water infrastructure. But as these projects are starting to be implemented across the state, we risk major issues that should matter to every New Jersey citizen — including worker misclassification and, ultimately, tax fraud — which cost residents millions of dollars in the long run.
The Bipartisan Infrastructure Law and Inflation Reduction Act have already allowed New Jersey to break ground on historic projects, including two offshore wind projects and the Gateway Program. Investments in infrastructure like these are good for our entire economy and spark additional investments in the private sector, like restaurants, housing and development, which bring permanent jobs to our communities. But there are deeper issues that may outweigh these benefits if not addressed.
This potential for generational economic improvement makes it even more urgent to address the longstanding crisis of tax fraud in the construction industry. Too often, many construction employers take the low road to win bids, especially for projects that are not protected by prevailing wage laws.
These employers cheat their workers through wage theft, paying them “off the books” or misclassifying them as independent contractors instead of employees. As a result, employers avoid paying state, local and federal taxes. Economists estimate that up to 2.1 million construction workers in the U.S. are misclassified as independent contractors or paid off the books every year.
And the consequences continue to have ripple effects beyond the workers whose wages are stolen. A report by the University of California Berkeley Labor Center revealed that 39% of construction worker families nationwide are forced to enroll in one or more safety net programs to make ends meet, which comes to an estimated cost of $28 billion per year. This burden falls on residents and legitimate taxpaying businesses.
In New Jersey, $26.3 million are lost in state tax, which The Century Foundation estimates costs taxpayers $329.3 million in unemployment insurance, Social Security, Medicare, federal and state income tax. When workers are misclassified or are paid off the books, employers are defunding and defrauding government programs, including workers’ compensation, Social Security and Medicare, along with funding investments like New Jersey’s crumbling roads and overdue public school renovations.
Our New Jersey construction working families are 27% more likely than all working families to participate in one or more means-tested safety net programs; 8% more likely to be enrolled in Adult Medicaid; 44% more likely to be enrolled in Children’s Medicaid; 37% more likely to be enrolled in earned income tax credit; and 29% more likely to be enrolled in Supplemental Nutrition Assistance Program.
As taxpayers, we shouldn’t be supporting businesses that cheat their workers and dodge their taxes — not only because it’s morally and ethically wrong, but because it costs the public very real dollars. It’s essential New Jersey residents tackle this problem by raising awareness, protecting tax-paying contractors and their employees (like those that align with the Davis-Bacon labor standards and construction unions that enforce safe and lawful working conditions), encouraging victims of tax fraud and worker misclassification to speak to investigators, and voting for representatives that want to protect their working families.
Workers and law-abiding employers will see some relief from the misclassification crisis thanks to a final rule enacted in March 2024 by the U.S. Department of Labor. The Fair Labor Standards Act addresses how to determine whether a worker is properly classified as an employee or an independent contractor under the law.
But the stakes are high, and tax and workers’ compensation premium fraud continues to be prevalent, even with the Fair Labor Standards Act. It has become so alarming in the construction industry that the U.S. Department of the Treasury’s Financial Crimes Enforcement Network notified banks, check cashing stores and other financial institutions that they must report the suspicious transactions of construction contractors.
The Eastern Atlantic States Regional Council of Carpenters has been actively involved in advocating for the enforcement of misclassification laws, which is crucial in protecting workers' rights and ensuring fair labor and business practices. Its commitment not only supports the workforce but also upholds the integrity of the industry by promoting lawful and ethical employment standards. Without unionization, proper government intervention and community advocacy, construction tax fraud and worker exploitation will continue.
With tax season upon us, it's crucial to recognize that employers evading their tax responsibilities are unfairly burdening honest taxpayers. The integrity of our tax system relies on everyone fulfilling their obligations. It's a matter of fairness and equity — it's time for all to contribute their due share.
William C. Sproule is executive secretary-treasurer of the Eastern Atlantic States Regional Council of Carpenters.
