No, “slavery” is not hyperbole.
Forcing someone to work on terms that they did not freely agree to is slavery. That seems obvious, a statement we all should be able to agree on.
I’ve tried very hard to avoid politics here, except for the very narrow area of MGTOW issues, and I’ve held back on a fair amount of political commentary on that. It’s not that I don’t hold strong opinions, I do, and on a range of issues, but now politics has subsumed everything, and I did not want this blog to be all about politics. It’s not like we lack for places to get into all that.
I am disappointed, though, that we seem to be entering into a period of wholesale changes-of-direction in government in general and the tax code in particular, and yet nobody is talking about one particular huge issue in the workplace, a blatant injustice that has been going on for decades but is barely discussed.
Anyone who has entered the high-tech workforce in the United States in the past 30 years or so has quickly become aware of a key fact in the industry: If you want to be a self-employed contractor, free to negotiate the terms of your work with government agencies or large corporations, forget it. You have to go through a middleman, a “recruiter”, no choice, and they get as much of a slice off the top as they can get away with, for doing basically nothing.
The reason goes back to the 1980’s, some very clever lobbyists and Daniel Patrick Moynehan having apparently never even heard of IRS Form 1099 (for reporting money paid to independent contractors), resulting in Section 1706 of the “Tax Reform Bill” of 1986.
This is a spectacular example of government over-reach.
Say you’re very good at what you do, so you decide to quit your job as a salaried computer consultant and go independent, become self-employed. You do what’s required in your area to start a business, you offer your services in the market, and a company named FooBarTec is interested. You draw up a contract that specifically names you (or your company name) as a contractor, FooBarTec as the client, specifies the terms, and everything goes fine for years.
Then for some reason, somewhere along the line, you come to the attention of the IRS. This part of the tax code, Section 1706, says that the IRS can decide to step in and unilaterally decide that no, you have not been a self-employed independent for the years you’ve been contracting with FooBarTec. They decree retroactively that your status as a contractor never existed. Like it or not, you are retroactively made an employee of FooBarTec, now retroactively forced to be your employer, are then responsible for all your back taxes, interest and penalties, and not having withheld employee taxes.
Your will, and the client’s, count for nothing. It doesn’t matter even a tiny bit that you don’t want to be their employee, you never wanted to be their employee, that you wanted to be responsible for your own damned taxes. It doesn’t matter even a tiny bit that FooBarTec didn’t and doesn’t want you as an employee, that you may not even be qualified for employment by their standards. The IRS decides to “reclassify” you as an employee, no discussion… and there is absolutely nothing you can do about it, because all of the work that they are “reclassifying” is in the past now, done. You can’t quit retroactively.
There is no safe harbor. The IRS has made it very clear that incorporation is no protection against reclassification (though amazing numbers of corporate lawyers never seem to get that message). There is simply no procedure you can go through or documents you can sign that say “I am a free and independent citizen, and I take full responsibility for paying my own taxes”. Not that any should even be needed in a free country. There is a list of 20 questions the IRS uses that, if you can answer all of them supposedly assure some immunity to this maneuver- but no one in the computer consulting fee qualifies under those questions, they include choosing where and when you do the work and with what tools. Computer software development in business and government simply does not work that way.
Bottom line, if you try to be an independent computer consultant in the United States, not only your status as an independent computer consultant but your history as an independent computer consultant can be destroyed at any moment, and your responsibility for paying your own taxes revoked retroactively and transferred to someone else against your will.
Because of this corporations and government agencies won’t touch you.
You can’t blame them. It’s as though you hired a company to clean your home or office only to find that the IRS has decided that by doing so you’ve assumed all their debts.
Of course, there is still a need for huge numbers of computer consultants, and corporations and government agencies do not want to offer what would be required to entice all these people to become salaried employees.
This is the real function of the “recruiting” companies, to act as cut-outs and/or fall guys if something goes wrong. They used to hire consultants as (tax form) 1099 contractors, or on corp-to-corp status (“C2C”), or as W2 temporary hourly employees, but these days most of them will only do the last of those, thus avoiding almost all of the risk themselves. So to get work you have to become a chattel of RentalHumans Inc., very often with no benefits, no retirement, but otherwise treated as an employee… well, generally quite a bit worse than any of the “real” employees that you’ll be working with. There’s a blatant, often humiliating and sometimes even cruel caste system in place in most workplaces. One contractor that got “reassigned” from the place we worked together to another government bureau told me that there, contractors were not even allowed to use the employee restrooms.
Sound familiar?
For this very limited function these recruiting companies make whatever they can get away with. Almost universally they claim to take only 15%, but in fact they argue the clients into paying as much as possible for the consultants, argue the consultants into taking as little as possible and pocket the difference, knowing that it’s unlikely that either will ever become aware of how much the other thinks is being paid for the consultant’s time. It’s not unusual for the difference to be 30% or even 40%, or more, resulting in a huge gap in expectations between the client and consultant as to the level of performance expected for what’s being paid.
These companies do not create value, they do not add value, they are a purely parasitical load on the market for specialized skills. If you have any doubt about that, just try, as one of their “resources”, to get them to intervene in any way when the client becomes unreasonable. Most, perhaps almost all of them simply do not do that, ever, even if it means losing the consultant and the associated income, and it’s not rare at all for it to come to that. It’s always easier and safer for them to find another “resource” than to disagree with the client, no matter how unreasonable they are. Their only function is to act as a cut-out to protect the client against this reclassification threat.
That much was the status for decades, but now it gets worse. Now not only are huge numbers of the consultants here on H1B work visas, but increasingly the recruiting field is dominated by foreign companies recruiting and soliciting clients entirely in the United States. That means that a large percentage of that money is going overseas, helping to fuel other economies, not ours. Nobody knows how much of the money spent on developing computer software in the United States is just vanishing from the United States.
The IRS seems to be delighted by all of this. In the late ’80s and the ’90s they openly stated in public that all independent, self-employed computer consultants in the United States would be put out of business within a few years. Much less work for them, of course. Who wants to deal with millions of small companies and individuals in the workplace if you can force them into a few thousand, or even a few hundred that are compelled to enforce your decisions for you?
But let’s put the practical negatives aside for a moment and just consider this law as a moral and ethical issue.
This is so obviously wrong-headed, so blatantly evil, that I’m continually astounded that anyone, even politicians, need to have it pointed out to them.
Let’s be absolutely clear here:
Forcing someone to work on terms that they did not freely agree to is slavery.
Therefore, retroactively forcing someone to have worked under terms that they did not agree to, by changing the terms under which the work was done after the fact without their consent, is also slavery.
What is the source of the government’s supposed authority to do this? If you have a contract with a company and work under that contract for years, that client company cannot change the terms of the contract retroactively, and you certainly can’t. This in effect nullifies any right of corporations and government agencies to deal with individuals, as well as any right of individual Americans to deal, individually, with corporations and government agencies. It’s hard to imagine a law that would be better designed to stifle innovation and kill the chances of small businesses ever getting started.
Is there some loophole in the law that allows a tax collection agency to change the past to suit their own purposes?
It is not even indentured servitude, which is also unconstitutional. For all the faults of that historic system, indentured servants at least agreed to the terms under which they worked. They agreed to enter into a contract that was binding for a certain period of time, surrendering their freedom to terminate the agreement before the end of the period. We as a society have legally decided that this is in effect just a temporary period of slavery, and that individuals cannot just sign away their inherent freedom.
This is worse. This is nullifying a worker’s’ ability to decide under what terms he or she will work after the fact, when the laws of the universe itself dictate that no change of their actions in response to the change in terms is even possible. Retroactively removing our freedom to decide is even more of a denial of that freedom than doing it before the fact. It is not only slavery, it is an insidious form of slavery.
That’s if the reclassification actually happens. That’s been comparatively rare, but that’s because no one takes the risk. The “chilling” effect of the legal threat not only largely keeps free Americans from contracting freely, it reduces the high-tech workforce to the status of serfs. You simply cannot work for yourself, it’s not allowed, no one will take the risk of dealing with you. You have to be an employee, and income paid by the client for your services, money that could have been yours, has to go to your ostensible employer, like it or not. The result is demoralization, lack of respect in the workplace (since you are chattel) and the proliferation of programmer sweatshops and low-income “tech ghettos” with poor working conditions.
Do you think this country is really interested in promoting Science, Technology, Engineering and Math (“STEM”) as an interest in young people in school? Do you think we’re really trying to encourage kids to learn to code? Don’t you think those kids have parents, aunts and uncles currently in that workforce that they know are being treated like dirt, like non-entities every day at work? The reason you can’t make these programs work for kids is that the kids aren’t stupid, they know that you’ve already made the careers you’re pushing on the next generation undesirable.
This has been going on for so long now that it’s just taken as immutable, unchangeable fact by the IRS, by the corporations and agencies employing contract programmers, and by the media. They chuckle and sneer at the idea that it could ever change. Much like slavery in the 18th and 19th Centuries.
If anyone honestly wants to make the workplace better, wants to make the market for specialized skills more efficient and work better, wants more small businesses to get started to fill needs, create innovation and generate prosperity and taxes, want to increase the freedom of people in the United States to make their own decisions and take responsibility for themselves, getting rid of Section 1706 of the tax code should be one of the very first things done. If we’re going to start with a new, simplified tax code there should not be even a discussion of whether to perpetuate this abomination, and there should really be a law passed making it clear that the government cannot, under any circumstances, simply and arbitrarily decide to re-assign a citizen’s debts (for taxes or anything else) to someone else. The very concept denies American citizens sovereignty over themselves.
– Robert the Wombat