Updating America’s Tax Code Can Help Gig Economy Workers: New at Reason

When Congress last passed broad tax reform legislation, in 1986, no one had ever heard of the “sharing economy.” There were no Uber drivers, nobody was renting bedrooms via Airbnb, and no one was selling kitchy art on Etsy.

The American economy looks very different in the year 2017, as Congress (maybe) embarks on the first major tax reform effort in more than 30 years.

The rise of the so-called “gig economy” over the past decade has caused a shift in how many Americans work and earn income. While most workers are still paid hourly or on a salary, there are more than 2.5 million Americans earning income each month by renting rooms, giving rides, running errands, and selling goods via online, on-demand platforms, according to data collected by JPMorgan Chase. Harvard University researchers found a 66 percent increase in on-call workers, independent contractors, and freelancers—from 14.2 million in 2005 to 23.6 million in 2015.

But the federal tax code remains hopelessly outdated—1986 was closer to the the Eisenhower administration, the first one, than to today.

If Congress pursues tax reform this year, writes Eric Boehm, it will have to consider the implications for workers in the gig economy:

The current federal tax code puts those workers at a disadvantage in several ways. Ambiguity in the tax code has led to different interpretations about IRS reporting standards for workers earning money through gig economy platforms. Even though the current tax code contains loopholes that exempt potentially tens of thousands of dollars of income from some part-time independent contractors, navigating it can be complicated and costly for workers who use Uber or Etsy to earn a relatively small amount of extra income. Taken together, these problems can leave sharing economy workers with huge tax bills, potentially forcing them to seek expensive professional tax help, while simultaneously hampering the federal government’s ability to collect tax revenue.

As talk of tax reform heats up in Congress, lawmakers have an opportunity to update the tax code to account for the growth of independent contractors and peer-to-peer employment, a trend that is unlikely to reverse in the coming decades. If lawmakers make small expansions to existing protections for low-dollar work of this type, it could save the majority of gig economy workers from costly tax issues, while making the tax code fairer and likely increasing revenue collections.

“Everyone is losing under the current rules,” says Caroline Bruckner, managing director of the Kogod Tax Policy Center at American University.. “Both on-demand economy players and the IRS deserve greater efficiency and less hassle. We can do better.”

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