Monday, February 21, 2011

Off-the-books Benefit Fraud

Back in December 2010 I wrote about "Off-the-books America", the growth of unregulated work and the curious disinterest of liberal America in doing anything about it. What is going on here, I wondered. "How can our liberal ruling class, that lives to regulate everything that moves, allow this to happen?"

I went on to describe a recent experience with an off-the-books fencing contractor, and did a bit of math to figure out why a small-time contractor might want to skip out on all the bother and expense of paying his taxes:

Suppose you are about to start on the bottom rung of the construction business, as a one-man residential fencing contractor. If you hire American laborers, they might want to work as formal employees. Let's just figure out what that would cost in Washington State, at the minimum wage of, say, $7.00 per hour. There's the FICA tax of 7.65%. There's the unemployment tax that, for a construction firm, is probably at the limit of 6 percent. Then there is workers compensation. That's presently at $1.30 per hour for Landscape Construction and Renovation, or 18.6 percent of the hourly wage! All told, we are paying the government 32.2% in payroll taxes! You think that a seat-of-the-pants start-up contractor is going to pay all that (let alone plow through the bureaucratic forms)? No, he's going to hire illegal workers, because they want to get paid in cash. Bank account? Forget it: he'll cash checks at The Money Tree.

Last week I got an email from a reader who told me that I didn't really know what I was talking about. He said that the real problem is all the citizens working off the books and the citizen-owned businesses that refuse to pay employees on the books. The worst two segments are the automotive industry, dealers and repair shops, and construction/landscaping industry, he wrote.

He wrote about his own experience trying to get an on-the-books job in the automotive industry.

In the automotive world, at least in the Southeast it is pretty hard to find a job as a tech on cars or motorcycles on the books unless you work for a branded dealership such as Ford or whoever, and in the buy-here pay-here car lots it is almost all cash paid to salesmen, car lot boys, retailers, repairs, body shops! Many of the independent repair shops pay either 100% cash no 1099 or nothing; some will pay partial on the books and off the books. I bet it is a good 60-70% of the independent shops that do this in central and east coast Florida. I have covered a 80 miles radius looking for a auto tech job on the books. It is hard to find any automotive tech job on the books there! Even places like Aamco end up paying some off the book pay.

Frankly, I felt there was something missing here because, as a student of economics, I don't believe that employers can force off-the-books employment on the entire low-income workforce. Something else must be in play.

I soon found out what that was. Over the weekend I talked to a friend, and he reminded me of his brother's bankruptcy. His construction business had failed, but in the bankruptcy process the state gets involved in unpaid taxes. He had employed a couple of off-the-books employees and the government wanted its taxes before it would accord him the privilege of relief on his debts.

Well, whaddya know! One of the off-the-books employees was claiming unemployment as he worked of the books, and another was claiming disability as he worked off the books.

So now we know what is really at the center of the off-the-books phenomenon: benefit fraud.

I know what you are thinking. Surely it can't be that hard to check up on employers to keep track of benefit fraud, or at least prosecute some employer every couple of months on the principle of shooting one person to scare a million? Exactly. How hard could it be?

So we are led to the most obvious reason why the government isn't chasing down off-the-books employment and benefit fraud. Our liberal ruling class of politicians, MSM journalists, and progressive activists condone the benefit fraud. After all, if you are a Democratic elected politician the whole point of elective politics is to rain down benefits and social gains on your supporters. Who cares if it's done through on-the-books benefits like Social Security and Medicare or double dipping by off-the-books workers claiming unemployment or disability?

When I first started my CCUWD project, the fight against the welfare state and its cruelty, its corruption, its injustice, its waste, and its delusion, I admit that I was playing with words. But the fact is that it's all true: it's worse than you think.

So we are left with the honest truth. The liberal welfare state is an abomination, and it shall not stand.

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