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Letter to President George W. Bush


Location: Boston, MA

Letter to President George W. Bush


Senator John Kerry today sent a letter to President Bush asking him to form a federal task force to examine the underground economy and how it affects our nation's businesses.

Last month Kerry held a hearing in Massachusetts to examine the impact of employers who fail to follow lawful hiring practices and hear what steps the state has taken to address the underground economy. When employees are paid off the books or misclassified as a "contract employee," companies are able to avoid paying certain employment taxes and benefits. These actions put firms that play by the rules at a competitive disadvantage and result in tens of millions of dollars in unpaid income taxes and worker benefits in Massachusetts.

Recent studies estimate between 126,000 and 248,000 misclassified workers currently in Massachusetts, with approximately 13% of the state's employers misclassifying some of their workers. A 2004 Harvard study found that the rate of the misclassification of workers increased from 8.2% during the late 1990s to 13.4% in 2001-2003.

"We've got to restore fairness to our economy. Because of unscrupulous employers, thousands of Massachusetts workers are being exploited and are denied the benefits and protections they lawfully deserve. When some businesses break the rules, law abiding businesses and workers suffer. A task force to dig into the issue and come up with a game plan for action to put an end to the underground economy is one step towards ensuring that every worker receives the fair pay, Social Security, unemployment benefits, and fundamental protections they're rightfully entitled to," said Senator Kerry.

The text of the letter is as follows:

May 15, 2008

President George W. Bush
The White House
1600 Pennsylvania Avenue, NW
Washington, DC 20500

Dear Mr. President:

I write to you today concerning an issue that is causing great harm to legitimate businesses and workers across the country. By some estimates, America's underground economy has reached $1 trillion annually, and contributes to over $100 billion in lost revenue a year. At the heart of this issue is the fact that many companies are choosing to sidestep lawful hiring practices to gain a competitive edge—a practice that that has gone unpunished for decades.

Too many workers are being misclassified as independent contractors − an arrangement in which the employer is not responsible for withholding of income or paying employment taxes. This misclassification of employees leads to severe challenges for workers, employers, and insurers as well as for policy enforcement. Misclassified workers lose access to unemployment insurance and to worker compensation benefits. In many situations, the worker does not realize that they are not an employee.

For employers, the practice of misclassification creates an uneven playing field where employers who classify workers appropriately have higher costs and are often underbid by employers who engage in misclassification and non-documentation of workers.

Employers that incorrectly classify their employees as independent contractors also do not have to provide them with worker protections that are considered a fundamental right in this country. For more than a century, workers have fought hard for protections that are now often taken for granted. Employers should not be permitted to take away these protections simply by incorrect documentation.

As Chairman of the Senate Committee on Small Business and Entrepreneurship, I held a field hearing in Chelsea, Massachusetts to examine this issue and consider what steps might be taken at the Federal level to address it. It is clear that Massachusetts and other states around the country have made considerable progress by stepping up enforcement of state law, but action by the federal government is needed to compliment these efforts.

I therefore request that an interagency task force be created, consisting of representatives from the Department of Labor, the Department of Justice, and the Department of the Treasury, to further examine what federal action may be taken to put an end to the cash economy. This task force should consider what changes to current enforcement methods may be necessary to more effectively deter this behavior, as well as policy proposals for addressing current law governing the classification and documentation of employees. The task force should work with states that have been identified as successful models in this regard, and should work to ensure that federal procurement agencies are doing everything within their power to eliminate from consideration companies that are manipulating lawful hiring practices in order to gain a financial edge over legitimate procurement competitors.

The underground economy is a stain on America's legitimate workforce, victimizing hard working, law abiding business owners and workers as well as the American tax payer. I appreciate your attention to this critical issue.


John F. Kerry

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