With Labor Day having just come and gone, a few moments’ of thought about
labor in New York might bring to mind the workers struggles of the early 20th
century, the powerful unions of the city’s history or a transit strike.
But if we think about what labor in New York means today, we will recognize a
new engine is driving this city’s economy: the independent workforce.
A January 2007
from the City Comptroller Williams Thompson’s office suggests that
self-employment has been driving job growth in New York City for the past 10
years. Over 30 percent of the American workforce is classified as independent,
non-traditional or freelance workers. In New York City, there are approximately
1 million freelancers. These are the graphic designers, cab drivers, creative
artists and nannies who pay taxes, vote and keep the city’s economy running.
Such findings are a wake-up call for policymakers and government officials, who
can no longer afford to overlook the challenges faced by New Yorkers who do not
work for a “traditional” employer. It is time that we develop ways
to provide these productive, income-generating taxpayers with access to the things
other workers take for granted: health insurance, retirement accounts, equitable
taxation and workplace protections.
Health and Retirement
In a recent survey of 3,000 independent workers by the
Freelancers Union (of which I am executive director) 39 percent of respondents
said they lacked health insurance coverage at some time during the last year.
Of those workers, 80 percent avoided seeking medical care when they were uninsured.
When they did need care, many sought it in emergency rooms -- hardly a good solution,
for the worker or the health-care system. This gaping inadequacy in the health
insurance system has ramifications not only for uninsured individuals—the
cost is being borne by the entire taxpaying population.
Even though independent workers often earn a good living, many do not save for
retirement because they cannot take advantage of the simple, streamlined systems
for funding their retirement accounts that traditional employees have. In addition,
independent workers without an employer do not have access to many of the government’s
social insurance programs and protections. The employer relationship lies at
the core of a range of worker protection laws, including occupational health
and safety regulations and anti-discrimination protections. This leaves independent
The Freelancers Union survey showed that 92 percent of respondents are registered
to vote and 40 percent have donated money to political campaigns. Despite their
growing numbers – and their potential political clout -- policymakers and
politicians have largely ignored this important constituency.
A Tax on the Self-Employed
The discrimination against independent workers is particularly apparent in tax
laws. For tax purposes the self-employed are variously considered individuals,
businesses, employers and employees. Like all other workers, they must ante up
for federal, state and city personal income taxes. They have multiple other tax
burdens and penalties as well.
On a national level, freelancers cannot participate in programs such as the flexible
spending accounts for health and child-care expenses that reduce the tax bills
of conventional workers. The self-employed must pay a federal self-employment
tax that amounts to a
penalty on freelancers. It requires those who are self-employed to
provide both the employee and the employer portion of the Social Security tax.
In addition, in New York City, many workers are hit with the
Business Tax or UBT. Under this tax, the self-employed are the
proverbial dolphins caught in the tuna net. The UBT was created in 1966 to collect
tax revenue from businesses that had been structured specifically to sidestep
corporate taxes. Unfortunately, once implemented, the tax unintentionally captured
an additional segment of the workforce: the self-employed or independent worker.
The revenues from the unincorporated business tax go toward such programs as
unemployment insurance, workers compensation or other state Department of Labor
programs. Since the state does not consider freelancers employers, they are not
eligible for these programs. And so, in paying the UBT, the self-employed are
subject to a tax for which they receive little or no benefit.
In June, the City Council voted to allow taxpayers, including the self-employed,
to take a $5,000 credit on their personal income tax for their Unincorporated
Business Tax payments. This change represents a significant step toward addressing
a major inequity in our tax system for independent workers. It is time for a
more comprehensive solution, though. It is time to entirely exempt independent
workers from the UBT, which drains millions of dollars a year from self-employed
In a city where the middle class is struggling more than ever, we should re-focus
the Unincorporated Business Tax on its original target: high-income partnerships
and other businesses that are not subject to corporate taxes. Independent workers
deserve a tax code that considers their unique characteristics and contributions,
not a policy that is imprecise and onerous.
For much of the 20th century, the labor movement fought and won protections for
working people and helped to safeguard them against destabilizing events such
as illness, disability and temporary unemployment. These were their bedrock victories.
Yet an increasing number of workers – workers who play a vital role in
the city’s economy -- do not have access to those benefits. It is time
for policymakers to correct this.Sara Horowitz is executive director of the Freelancers
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