ANALYSIS: A Conservative Tax Reform Idea That Needs a Gig in Current Bill

Donald Trump swept to power in 2016 on a manifesto based on judicial and immigration reform, withdrawal from the Paris climate deal, and, above all else, tax cuts. Fulfilling his promises to transform the tax code, President Trump ratified the Tax Cuts and Jobs Act (TCJA) on December 22, 2017. The $1.5 trillion overhaul affects people in different ways depending on a range of personal factors, including income level, deductions and filing status. Under the first tax reform since 1986, some people have seen their tax bill go up while others have seen it drop. 

Although the media coverage has focused on the manner in which the reform seems to favor banks, corporations and the wealthy, not much attention has been paid to how the reform neglected to provide clarification on the tax obligations of the growing number of people who work in the gig economy. According to Statista, around 57.3 million people work in the U.S. gig economy today, with as many of these working for or offering services through on-demand platforms such as Uber or Airbnb. 

As the numbers of people earning income through the on-demand industry only set to grow in the coming years, it is important that the tax code is up-to-date with current trends in the labor market. However, the new bill does not seem to contain clearly stated obligations for the millions of workers in the gig economy.

As a means of clearing the confusion, Sen. John Thune (R-SD) and Rep. Tom Rice (R-SC) have proposed a bill called the New Gig Act which could provide a way forward. The bill would repeal legislation brought in under the Obama administration that forced on-demand companies to classify their workers as ‘employees’ rather than ‘contractors’. Second, proposes to simplify the tax code so that it is aligned with the modern economy. Under the new tax code, independent contractors are to be issued W-2s rather than 1099s, leaving gig economy workers to file their own tax returns on a quarterly basis, a process which unduly complex and costly for gig economy platforms.

The New Gig Act is predicted to bring in billions of extra tax revenue by making it much simpler for on-demand workers to comply with their tax obligations. The bill would clear up the confusion surrounding whether a third-party platform should be treated as an employer when transactions are realized through its app.

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