Newspaper article The Tuscaloosa News

Taxpayers and Workers Gouged by Labor-Law Dodge

Newspaper article The Tuscaloosa News

Taxpayers and Workers Gouged by Labor-Law Dodge

Article excerpt

WASHINGTON | The largest government infusion of cash into the U.S. economy in generations _ the 2009 stimulus _ was riddled with a massive labor scheme that harmed workers and cheated unsuspecting American taxpayers.

At the time, government regulators watched as money slipped out the door and into the hands of companies that rob state and federal treasuries of billions of dollars each year on stimulus projects and other construction jobs across the country, a yearlong McClatchy investigation found.

A review of public records in 28 states uncovered widespread cheating by construction companies that listed workers as contractors instead of employees in order to beat competitors and cut costs. The federal government, while cracking down on the practice in private industry, let it happen in stimulus projects in the rush to pump money into the economy at a time of crisis.

Companies across the country avoided state and federal taxes and undercut law-abiding competitors. They exploited workers desperate for jobs, depriving them of unemployment benefits and often workers' compensation insurance.

Exactly how much tax revenue was forfeited on stimulus projects isn't clear. This is: The government enabled businesses bent on breaking the rules. Regulators squandered the chance to right a rogue industry by forcing companies' hands on government jobs.

The scheme persists in federal contracting, while government officials acknowledge the mistreatment of hourly wage workers and steep losses to the U.S. treasury.

The result? In Florida, a McClatchy analysis shows nearly $400 million a year in squandered tax revenue from construction firms and their workers. In North Carolina, nearly $500 million a year. And in Texas, a staggering $1.2 billion.

The problem known as misclassification is so well-understood in the U.S. economy that government has vowed to fix it for years. Federal investigators have hammered private companies doing private work, collecting millions in back wages from restaurateurs, nail salon owners and maid services.

But when American tax dollars are at stake, as with President Barack Obama's economic stimulus package, few in government even talked about the problem, let alone prevented it.

McClatchy's analysis of payroll records for government-backed housing projects shows the federal government losing billions in tax revenue each year from the construction industry alone _ and at a time when states and the nation can ill afford it. As a result, the culprits win, the U.S. treasury goes wanting and workers are left toiling without a safety net.

To understand the national scope and impact of the scheme, McClatchy spent a year reviewing payroll records for federal housing projects in 28 states obtained under the Freedom of Information Act and state public records laws. …

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