Even for the most ardent liberal, it’s hard to imagine anyone supporting California’s Assembly Bill 5 (AB5). Otherwise known as the gig workers’ law, AB5 essentially reclassifies many, if not most independent contractors as employees. However, such a draconian move would cripple livelihoods throughout the Golden State. So, why does California hate the gig economy so much?
Officially, one of the answers is that the state legislators aim to stop employers from using current labor laws to misclassify independent contractors. After all, a company can enjoy several tax-related benefits from having contractors instead of employees. According to the Associated Press’ Joyce M. Rosenberg:
When employers classify workers as independent contractors, they avoid taxes including the 6.2% of salary and wages companies must pay for Social Security and the 1.45% they must pay for Medicare. Employers must also pay for workers’ compensation and unemployment and disability insurance.
Naturally, the loss of tax revenue incentivizes leftists toward funneling the gig economy to work under their framework. With an army of standard “W2” employees, Democrats can maximize tax revenues from both ends of the table.
But as is typical with liberal logic, they miss (or ignore) the other component: most independent contractors willingly participate in the gig economy. Laws designed to prevent such access don’t teach a lesson to wayward corporations; instead, they cripple a robust professional network that has existed long before the term “gig economy” materialized.
The Irony of Gig Economy Suppression
Republicans often accuse Democrats of creating problems to find the solution. This is honestly the case with California’s stance on the gig economy. No one asked Sacramento to get involved, but involvement it imposed.
From a cynical perspective, I can understand why liberals want to reclassify independent contractors as employees. Those who prefer economic systems that match socialist ideologies hate individual success: it’s the unity of the whole that matters. Plus, as I mentioned, the government not only taxes employees, but taxes them robustly.
On the other hand, independent contractors have favorable tax treatment. Largely, they’re treated as separate corporate entities, allowing them the same tax deductions. Ultimately, that doesn’t sit well with tax hungry liberals.
But here’s the irony: converting contractors to employees will only limit tax revenue. That’s because when you forcibly extract tax revenues from free people, they react through a framework of limitations: they curb spending, thereby creating a deflationary dynamic.
What truly grows an economy are tax incentives. Several, perhaps most independent contractors purchase more goods and services because of these incentives. But once they’re employees, that source of money velocity dies, hurting the underlying government.
That’s the fate of California, which has never been high on logic and rationality.