Last Friday, Diane and I posted a new paper called “Is New Code Section 199A Really Going to Turn Us All into Independent Contractors?” on SSRN. This was something that started as a blog post but then grew too long and so became a short paper. We plan to develop the ideas in it more robustly in future work.
On Saturday, I made one of those goofy academic tweet threads summarizing the paper, and then it occurred to me that I really liked my goofy tweet thread! Therefore, I’ve taken the liberty of posting the tweets here for the marginal reader who is just interested enough in the topic to read the tweets but possibly not interested enough to read the actual paper.
Diane and I look forward to continuing conversation on this.
By: Diane Ring
Shu-Yi and I started a blog post on new Section 199A that morphed into a seven-page essay that ultimately found its proper home on SSRN. Here is the abstract:
Is New Code Section 199A Really Going to Turn Us All Into Independent Contractors?
There has been a lot of interest lately in new IRC Section 199A, the new qualified business income (QBI) deduction that grants passthroughs, including qualifying workers who are independent contractors (and not employees), a deduction equal to 20% of a specially calculated base amount of income. One of the important themes that has arisen is its effect on work and labor markets, and the notion that the new deduction creates an incentive for businesses to shift to independent contractor classification. A question that has been percolating in the press, blogs, and on social media is whether new Section 199A is going to create a big shift in the workplace and cause many workers to be reclassified as independent contractors.
Is this really going to happen? How large an effect will tax have on labor markets and arrangements? We think that predicting and assessing the impact of this new provision is a rather nuanced and complicated question. There is an intersection of incentives, disincentives and risks in play among various actors and across different legal fields, not just tax. Here, we provide an initial roadmap for approaching this analysis. We do so drawing on academic work we have done over the past few years on worker classification in tax and other legal fields.
By: Diane Ring
Sometimes we do get what we are seeking. In some of my recent work on the sharing economy I have advocated for more discussion and analysis across legal boundaries, so that the rules we develop have outcomes that more closely match our goals and don’t bring unexpected—and undesired—surprises. The two-day conference on “Sharing Economy: Markets & Human Rights” that I have been attending at the College of Law and Business in Ramat Gan, Israel has provided just such an opportunity. The papers presented cover a wide range of legal fields and issues from taxation to discrimination, and will ultimately be published together in the Law & Ethics of Human Rights Journal. Although we are all benefiting from the discussion of our drafts and will continue to revise our work, some interesting themes have emerged already . . .
Continue reading “What’s Up with the Sharing Economy? (Report from the 13th International Human Rights Researchers Workshop)”
Professor Cary Martin Shelby (DePaul) is presenting “Closing the Hedge Fund Loophole: The SEC as the Primary Regulator of Systemic Risk” at BC Law School’s Regulation and Markets Workshop today. The abstract:
The 2008 financial crisis sparked a flurry of regulatory activity and enforcement in an attempt to reign in activity by banks, but other institutions have also been identified as potentially threatening to the stability of the financial markets. In particular, several empirical studies have revealed that systemic risk can be created and transmitted by hedge funds. In response to the risk created by hedge funds, Congress granted the Financial Stability Oversight Council (“FSOC”) authority under the Dodd-Frank Act of 2010 to designate hedge funds as Systemically Important Financial Institutions (“SIFIs”). Such a designation would automatically result in stringent capital constraints and limitations on liquidity risk on these non-bank institutions. Yet in over six years since FSOC has been granted this authority, it has failed to identify even one hedge fund as a SIFI. In the face of massive resistance and deregulatory initiatives introduced under the Trump administration, it is highly unlikely to do so in the near future. The inability of FSOC to regulate systemically harmful funds is particularly troubling because several post-financial crisis studies have revealed that systemic risk can still be created and transmitted by hedge funds. Given FSOC’s inability to close this hedge fund loophole, this Article argues that Congress should explore appointing the SEC as the primary regulator of hedge funds because: (1) hedge funds can still pose a systemic threat to the economy; (2) the transparency framework inherent in the federal securities laws can supply a more effective means for mitigating systemic risk than the prudential framework currently mandated for SIFIs; and (3) appointing the SEC in this regard would reduce the fragmentation of the current regulatory structure which has been extended and complicated by the creation of FSOC. Although the federal securities laws are typically used to promote investor protection, this Article posits that enhancing transparency to hedge fund counterparties and investors can decrease systemic risk by empowering such market participants to better protect themselves against risk. Enhancing protection in this manner could in-turn weed out systemically harmful funds from the marketplace, without imposing the severe capital constraints that would be mandated under FSOC’s model.
If you’re an academic in the Boston area and would like to join us, please send me an email.
By: Diane Ring
Shu-Yi Oei and I have been tracking the recent tax reform developments as well as a couple of proposed tax bills that deal with worker classification, information reporting, and tax withholding. Based on a description prepared by the Joint Committee on Taxation, it looks like the Senate Tax Bill is going to include a new safe harbor provision guaranteeing worker classification as an independent contractor and will make changes to independent contractor withholding and information reporting. We posted our analysis of this proposal and its potentially serious implications on TaxProf Blog: The Senate Bill and the Battles Over Worker Classification.
Our main points:
1. Not just tax: This worker classification safe harbor is not just about tax, it will likely have impacts on employment/labor law outcomes and protections as well.
2. Not just gig workers: Based on the Joint Committee description, the proposal is not limited to gig economy workers —anyone who meets the safe harbor requirements (which are pretty easy to satisfy in many cases) can be classified as an independent contractor. This may have the effect of encouraging employers to push workers into work relationships that come within the safe harbor. Or, in certain cases, it may facilitate the strategic movement of higher-income workers into independent contractor status — see point 4 below.
Continue reading “The Senate Tax Bill’s “Clarification” of Independent Contractor Status: Tax and Employment Law Tradeoffs”
By: Diane Ring
Yesterday I blogged about Day 1 of the international sharing economy conference, titled “Reshaping: Work in the Platform Economy.” Today the Conference resumed in Amsterdam and included a fascinating roundtable with representatives from some of the platform firms alongside some sharing economy workers. Each offered their experience/perspective on the sector, posed questions to each other, and took questions from the audience.
Not surprisingly, just as there are a range of business models and niches in the sector, there are also a variety of reasons why workers participate in and do platform work. What workers seek from the platforms (beyond good pay) may differ from worker to worker. For example, a sharing economy worker may desire contact with other workers, a sense of community, predictability, or worker dignity. Building on the Day 1 discussions, several themes emerged by the close of the Conference:
Continue reading “International Sharing Economy Conference: Day 2 Takeaways”
By: Diane Ring
Today the “Reshaping: Work in the Platform Economy” Conference got underway in Amsterdam. In contrast to many academic conferences, the explicit goal here is to bring together a truly wide array of actors in the sharing economy (policy makers, academics, actual gig workers, platform businesses, research institutes, and media) in a mixed format setting that includes academic presentations, panel presentations by gig workers, small group active round tables, and research-poster sessions. The international dimension, with participants and presenters from a variety of jurisdictions, contributes to the breadth of discussion.
I thought I would offer a few of my takeaways from day one: Continue reading “International Sharing Economy Conference: Day 1 Takeaways”
By: Leandra Lederman
Susan Morse and Stephen Shay have blogged today on Procedurally Taxing about the Ninth’s Circuit oral argument tomorrow in Altera Corp. v. Commissioner, as has Dan Shaviro on his blog, Start Making Sense. Altera is the transfer pricing and administrative law case involving the Treasury’s cost-sharing agreement regulation. The Tax Court invalidated the regulation under the Administrative Procedure Act, as arbitrary and capricious. That is because the Tax Court accepted the taxpayer’s argument that it need not share stock-based compensation costs under a qualified cost-sharing agreement because arm’s length parties would not do so. The Tax Court found that Treasury had inadequately addressed evidence in the notice-and-comment process that parties not under common control did not share stock-based compensation costs, although Treasury explained in the Preamble to the regulation that cost-sharing agreements between uncontrolled parties are not sufficiently comparable to those in controlled-party transactions.
Altera raises an important administrative law question about what is required of Treasury for its regulations to be valid. Susie and Steve spearheaded an amicus brief in the Ninth Circuit in favor of the Commissioner, in which I joined, along with Dick Harvey, Ruth Mason, and Bret Wells. An amicus brief prepared by another group of professors also supports the Commissioner. There are also amicus briefs by business groups on the other side. See Susie and Steve’s blog post for more detail. And for prior coverage on the Surly Subgroup, see this post on our amicus brief, explaining why the Ninth Circuit should reverse the Tax Court’s decision invalidating the regulation.
By: Philip Hackney
The Treasury Inspector General for Tax Administration (TIGTA) just issued a new report four years and five months after rebuking the IRS for using “inappropriate” criteria to select applications for tax exempt status for scrutiny. In the first report, TIGTA rebuked the IRS for pulling the applications of conservative leaning organizations for greater scrutiny.
This time it considers the fact that the IRS over a period of 10 years used liberal leaning names such as ACORN, Emerge, and Progressive as criteria for pulling applications for greater scrutiny. This resulted in the IRS applying greater scrutiny to these organizations. Some might say the IRS targeted these organizations. Those organizations appear to have faced long wait times as well, and sometimes some questions of limited merit.
I write this piece to make two points: (1) had this information been in the initial report, I don’t think we would have had the “scandal” that shook the IRS and the political world of the time; and (2) the TIGTA report built its primary claim on a garbled faux legal postulate. The original report did terrible damage to the IRS and individuals by failing on both of these fronts. Continue reading “IRS ‘Targeted’ Liberal Organizations and After All These Years TIGTA is Still Wrong”
Shu Yi Oei
UPDATE 9/19/17: I blogged more about Omarova & Hockett’s National Investment Authority suggestion over on Taxprof Blog. You can read the post here.
Today, Boston College Law School welcomes Professor Saule Omarova (Cornell) as the first presenter in our inaugural Regulation and Markets Workshop Series. The paper (with Robert Hockett, also of Cornell) is entitled “Private Wealth and Public Goods: A Case for a National Investment Authority.” It’s available on SSRN.
Here’s the abstract:
The American Presidential election of 2016 was won under the rhetorical banner of returning America to its past productive glory. Any such undertaking presents an extraordinary challenge, demanding a correspondingly extraordinary institutional response. This Article proposes precisely such a response. It designs and advocates a new public instrumentality – a National Investment Authority (“NIA”) – charged with the critical task of devising and implementing a comprehensive long-term development strategy for the United States.
Patterned in part after the New Deal-era Reconstruction Finance Corporation, in part after modern sovereign wealth funds, and in part after private equity and venture capital firms, the NIA is an inherently hybrid, public-private entity that combines the unique strengths of public instrumentalities – their vast scale, lengthy investment horizons, and explicit backing by the public’s full faith and credit – with the micro-informational advantages of private market actors. By creatively adapting familiar tools of financial and legal engineering, the NIA overcomes obstacles that ordinarily impede or discourage private investment in critically necessary and even transformative public infrastructure goods. By channeling presently speculative private capital back into the real-economy, moreover, the NIA plays an important role in enhancing the resilience and stability of the U.S. and global financial systems.
The Article makes original contributions not only to contemporary policy debates over how to revive America’s productive prowess and bring its financial system back into the service of the real economy, but also to current theoretical understandings of “public goods” and how to provide them. It offers a more complete and coherent account of such goods as solutions to collective action problems that pervade decentralized markets, hence as goods that can be supplied only through exercises of collective agency. The NIA proposal advanced in the Article operationalizes this theoretical insight by elaborating a specific institutional form that such collective agency can take.
The paper is really interesting and I have many swirling thoughts. I’ll say more after the workshop.