Tea Bagger Terrorism Strikes the Heartland

[grumbler]

Did you guys who are seriously calling this nut a teabagger actually read his manifesto?  He pretty much called himself a communist at the end of it and certainly denounced capitalism.  That's basically the opposite of what most teabaggers would say/do.

Look at the thread-starter and all your confusion wlil be lifted.

[ulmont]

Did you guys who are seriously calling this nut a teabagger actually read his manifesto?  He pretty much called himself a communist at the end of it and certainly denounced capitalism.  That's basically the opposite of what most teabaggers would say/do.

I read his manifesto.  At the end, he lists a communist creed followed by a "capitalist" creed.  I see a lot of anti-government hate, and not a lot of pro-communist side.  What are you looking at, again?

[Eddie Teach]

Tea baggers are more dangerous than communists, Muslims and global warming combined.

[Sheilbh]

Tea baggers are more dangerous than communists, Muslims and global warming combined.

Agreed.

[Fate]

Bush bailed out the auto companies?

Yeah. Bush gave them money so that they'd stay afloat just long enough until it became Obama's problem.

[Razgovory]

Did you guys who are seriously calling this nut a teabagger actually read his manifesto?  He pretty much called himself a communist at the end of it and certainly denounced capitalism.  That's basically the opposite of what most teabaggers would say/do.

He was angry with the current crony capitalism, but never says he was a communist.  The Teabag types don't often have much of a grasp of capitalism either. 

[MadImmortalMan]

How a Tax Law Helps Insure a Scarcity of Programmers
By DAVID CAY JOHNSTON
Published: April 27, 1998


The Senate holds hearings this week on complaints of taxpayer abuse by the Internal Revenue Service, but the agenda does not include the role of Congress itself in creating taxpayer woes, particularly for tens of thousands of computer programmers.

But just ask Midge Johnson, a would-be programming entrepreneur, about a long-standing tax law that is pointed specifically at software professionals and prevents many of them from setting up freelance businesses. Lately, the I.R.S. has been aggressively enforcing that law -- even as computer programmers are in such short supply that the Clinton Administration is pouring millions of dollars into Federal initiatives to train more of them.

It appears to be public policy in conflict with itself and it is making work life difficult for a category of citizens crucial to the digital economy.

''Why does Congress say that I can't go out and pursue the American dream and give my kids and grandkids things I couldn't have?'' asked Mrs. Johnson, who did not find out about the law until two years ago, after quitting her job with the consulting firm of Booz Allen & Hamilton in hopes of starting her own software programming business. ''And why,'' she asked, ''is the I.R.S. so busy enforcing this law that keeps me from being an independent contractor?''

Mrs. Johnson, of Lanham, Md., knows that programmers are in such short supply that they can earn up to several hundred dollars an hour writing code for hire, and many in Congress want to let tens of thousands of foreign programmers migrate to the United States. She calculated that if she were in business for herself she could double her income.

Everywhere Mrs. Johnson went in the suburbs of the nation's capital, she said, she was offered work fixing and customizing software -- but only if she would close her business and become an employee.

''They were afraid to do business with my company,'' Mrs. Johnson said. Two months ago, her bank account empty and creditors at the door, Mrs. Johnson gave up and took a job as a programmer, paying $69,000.

Mrs. Johnson and thousands of other computer programmers who want to work for themselves instead of being employees have run afoul of a 1986 law in which Congress decreed that most individual programmers cannot be entrepreneurs.

The law generally excludes programmers from statutes giving employers some flexibility to use independent contractors. Critics say that the I.R.S. has recently stepped up its enforcement of the law in a way that effectively kills start-up programming businesses if their only employee is the founder.

The law, which was introduced by Senator Daniel Patrick Moynihan, Democrat of New York, was estimated to raise $60 million over five years, a figure based on a belief by a staff member of the Congressional Joint Committee on Taxation that employees cheat less on their taxes than independent contractors do. That was enough money to pay for a tax break, approved with Mr. Moynihan's support, that was sought by I.B.M. for its overseas operations. Under the Gramm-Rudman deficit control act of the previous year, Congress was required to pay for any tax cuts with comparable revenue increases or spending cuts.

A year after the law regarding contractors was enacted, the Senator tried to repeal it, but his bill died. In 1994, Senator William V. Roth, Republican of Delaware, the sponsor of this week's hearings, wrote Mr. Moynihan saying the programmers should get relief. More than 60 other senators have written similar letters since 1994, but they have not voted to change the law.

Ginny Flynn, a spokeswoman for Mr. Roth, said that while the Senator believed that the law was unfair, he was not currently moving to change it because ''despite the fact the programmers are treated differently from other people, this opens a Pandora's box of other independent contractor issues.''

Programmers and their lawyers say that as a result of inaction by Congress, many corporations have revised their policies to explicitly forbid the hiring of programmers who are independent contractors.

In response, some people, like Mrs. Johnson, incorporated. They reasoned that if they were employees of their own corporations they would be treated by the I.R.S. the way that many doctors and others are and could expand their enterprises.

But internal I.R.S. documents show that in Alaska, California, Ohio, Minnesota, New York and New Jersey, I.R.S. auditors as recently as last year hunted for corporations created by computer programmers. They found scores of such companies and then disallowed them for tax purposes. The papers show that they were disallowed because they were less than a year old and had only one employee, the programmer who created the corporation.

Across the country, officials of high-technology temporary-help companies said the I.R.S. audit tactic had caused many corporations to refuse to hire programmers unless they become employees, like Mrs. Johnson, or were employees of such temporary-help agencies.

Mary E. Oppenheimer, an I.R.S. assistant chief counsel, said there was no national directive for auditors to hunt for incorporated programmers. However, she noted, Congress has directed the I.R.S. to look at the economic substance of tax matters, not just their legal form.

In an earlier interview, Tom Burger, the director of employment taxes for the I.R.S., said one of the agency's difficulties ''is that, and I need to pick my words carefully, Congress passes laws, often without asking us about them, and then tells us to enforce them.''

The immediate effect of these audits is to force individual programmers like Mrs. Johnson to abandon their dreams of getting rich off their high-technology skills. But the broader impact is that small businesses started by one entrepreneur do not have a chance to grow into mighty enterprises that can create jobs and generate more taxes. ''Who do you know who would hire someone who will bring with them trouble from the I.R.S.?'' asked Harvey J. Shulman, the Washington lawyer for the National Association of Computer Consultant Businesses, who made the audit documents available.

Mr. Shulman has challenged 52 such audits. ''I prevailed in 50 cases and partially in another, but at a cost to clients of $50,000 or more, and that is just ridiculous,'' he said.

The association's 400 members, who had more than $5 billion of revenues last year, are mostly high-technology temporary-help agencies that hire programmers as employees and send them to companies on short-term assignments. They want the same flexibility to use contractors and individuals who have incorporated as other businesses do.

Don McLaurin, president of the Computer Consulting Group in Columbia, S.C., which hires programmers as employees and farms them out to companies for short-term projects, said the law and its enforcement ''are having a devastating impact on the computer industry.''

He said his business and his clients would benefit if he could use some independent contractors and some incorporated programmers.

''This is Catch-22,'' he said. ''If you are not legitimate because you start out as a one-person corporation and you haven't been in business for a year, then how do you ever start your business? It is nonsensical.''

Ed Myers, president of a company in El Segundo, Calif., that provides programmers to corporations, said that when his company was audited he and Mr. Shulman were able to defend the status of all but 3 of 50 workers as independent contractors.

''The auditor then said I had to give him two more people and I said, 'what do you mean?' and he said he had to have five people he could reclassify as employees because that was what his boss demanded and that if I would give him two more names he would close the audit.

''My first reaction was 'hell no,' because they are not truly employees,'' Mr. Myers said. ''But my second reaction was that it makes no economic sense for me to fight this because it would cost another $50,000 or more, so I gave him two names.''

The two programmers, he said, no longer speak to him.

Mr. Shulman said the association ''is not asking for a special privilege in repealing this law; we are just asking that programmers and other technical-services workers be treated the same as every other worker in America instead of being singled out for discriminatory treatment.''

Donna Steele Flynn, a former member of the House Ways and Means Committee staff who is now a tax specialist with Ernst & Young, said, ''The only reason this hasn't gotten fixed is because the official Joint Tax Committee estimate in the past was that repeal of Section 1706 would cost a billion dollars in tax revenue over five years.

''There is a political will on both sides of the aisle, but in terms of importance and number of people, a billion dollars is a lot of money for a relatively small number of people.''

However, Ms. Flynn added, the official estimate seems wildly inflated. She noted that when legislation was considered last year that would allow employers broad discretion over whether to treat workers in any industry as employees or independent contractors, the tax revenue loss for the entire economy was estimated at the same $1 billion over five years.

The I.R.S. estimates that it collects 99.5 percent of taxes due from employees, but far less from those who work as independent contractors.

''Whether people cheat is a separate issue,'' Mr. Shulman said. He pointed to a Treasury Department study that found that programmers were more compliant taxpayers than other independent contractors.

''The I.R.S. wants people to be employees because it is easier to collect revenue, but the revenue they are collecting from employees is less than the revenue they would collect from independent contractors -- even if they cheat a little -- because they can make so much more,'' he said. ''Basically the I.R.S. is saying it would rather collect less revenue with less cheating than collect more revenue with more cheating. Does that make economic sense?''

http://www.nytimes.com/1998/04/27/business/how-a-tax-law-helps-insure-a-scarcity-of-programmers.html?pagewanted=all

[The Minsky Moment]

The article kind of papers over the issues involved.

If person X sets up a one-person corporation and then provides services on a contract basis directly to a client with no intermediation, there isn't going to be much of an issue.  But what was happening in the 80s is that the programmers and computer engineers who were ostensibly independent were getting much of their work through brokers.  It started to look a lot like these "brokers" were really businesses providing specialized temp labor for hire, and the putative "independent" programmers were de facto employees of these brokers.  Some of the companies that operated on the traditional employer-employee model were struggling because the programmers wanted to be independent and wouldn't take jobs as employees.  It is not clear whether this was because they wanted to have some subjective feeling of "independence" or because they thought it would it easier to play around with their tax liability.  In any case Congress decided that the latter was enough of a risk that they acted to close what looked to them like a loophole.

[Admiral Yi]

The part I didn't get when I read that article was the connection between independent contractor status and the ability to work for other clients/employers.

[sbr]

The part I didn't get when I read that article was the connection between independent contractor status and the ability to work for other clients/employers.

Because of the tax law no one would hire them as outside contractors so they had to hire on in-house for much, much less money.

[grumbler]

The part I didn't get when I read that article was the connection between independent contractor status and the ability to work for other clients/employers.

Not sure what you are questioning.  An employee of company X couldn't take on an equivelent job in corporation Y without Corp X's permission, in general (because of the fear of corporation Y taking advantage of the programming done for X).  For an independent employee, that wouldn't be an issue - Corp X wouldn't even know Corp Y's work existed.  I suppose one could negotiate part-time work at X that allowed for another part-time job at Y, but that would be more cumbersome than a simple X-hours-a-month contractor gig.

[grumbler]

Because of the tax law no one would hire them as outside contractors so they had to hire on in-house for much, much less money.

Of course, that's the other thing the story got wrong - independents get paid less overall than in-house help.  My brother has been both.  Contractor status looks great in terms of the dollars per hour, but once you factor in the fewer hours per month worked, the employer's share of federal taxes and fees, plus the cost of health care, the contractor is generally well behind where they were as employees.

[MadImmortalMan]

Of course, that's the other thing the story got wrong - independents get paid less overall than in-house help.

Now. Back then, that wasn't the case. Also, a number of jobs in IT never made that flip. A contractor working on JCL for mainframes still makes double what an employee does, for example.

[grumbler]

Now. Back then, that wasn't the case. Also, a number of jobs in IT never made that flip.

Well, I wouldn't know about the situation before the mid-1990s, because my brother wasn't in the business before then.

A contractor working on JCL for mainframes still makes double what an employee does, for example.

Don't believe it.  Any company that would be paying twice as much to have a contractor do the job as they would be paying to have an an employee to do it will have an employee doing it.  That's Business 101.

A contractor may be making twice as much per hour, but that isn't the same as making twice the compensation.  You bring in contractors when they have expertise that makes their higher hourly comp worth it, or when they are actually cheaper to hire than employees and you can avoid the IRS restrictions on contractors.

[Caliga]

MiM is right.  Sometimes there is only a need for a short term programming gig, and then there'd be no need for that person (or someone else with their skillset) for another three years.  You're not going to keep someone around for years in case there's an issue, and if there is an issue unexpectedly you bring a contractor back in to apply the bandaid.  This is more common with older skillsets like COBOL, and part of what's driving the very high contracting rate is the scarcity of the skills required.