Beacon Hill Institute Reports on “Protecting the Right to Organize” (PRO) Act: More Taxes

EXECUTIVE SUMMARY OF REPORT

The “ABC” test represents a major effort by President Biden to reclassify independent contractors as employees. In a related matter, the president promised in his campaign to raise taxes only on those making more than $400,000. BHI found that 56% of the independent contractors most likely to be reclassified would pay more tax as employees, which we estimate to be about 7.7 million taxpayers. We
estimate that 96%, or 7.5 million, of those reclassified taxpayers who would pay more tax, make less than $400,000.

After explaining how employees and independent contractors are differentially taxed, we use IRS data from a recent Treasury study to compute taxes using a carefully defined population of independent contractors, comprising four groups that are most likely to be reclassified under the new tests. We exclude independent contractors with employees, who sell a product, and who have business deductions greater than $16,409. We then compare that to a calculation of the tax paid as employees.

The most important tax variables are the amount of business deductions that independent contractors would lose as employees, the increase in the Social Security and Medicare Health Tax, and the Qualified Business Income Deduction that they would lose as employees.

Clearly, millions of independent contractors will pay more tax if forced to become employees, and almost 100% of them make less than $400,000, thus breaching President Biden’s pledge.