Every April, the United Brotherhood of Carpenters marks the week taxes are due as Tax Fraud Days of Action to spotlight tax fraud and wage theft in the construction industry. Tax fraud hurts construction workers, contractors, and all of us to the tune of $10 billion every year.
I’ve written about this problem before, but today I’d like to hand off to one of our signatory contractors, John Bodary of Woods Construction, Inc., to share his perspective on how Tax Fraud impacts upstanding Michigan businesses.
John Bodary writes:
The construction industry accomplishes so many incredible feats, setting a foundation for society and providing thousands of family-supporting careers. Our industry is made up of building owners and end users, architects, engineers, contractors and skilled tradespeople. Many follow the law, play by the rules, and work together to build the world around us.
Contractors, like Woods Construction, compete vigorously to win work. We choose to partner with the unionized skilled trades to take advantage of world-class training and an efficient, safe, reliable workforce that we can count on to get the job done and done right. We care about our customers and our employees, but there are some who don’t. Unfortunately, too many contractors today are willing to exploit their workers to gain the upper hand by cutting costs in what amounts to a race to the bottom.
Exploitative contractors who commit construction industry tax fraud fail to pay workers an area-standard wage, and worse, many misclassify their employees as 1099 independent contractors. That one move lets them skirt paying for workers’ compensation insurance, payroll taxes, and overtime. It’s a business model based on fraud and one that puts profit over workers while undercutting law-abiding contractors.
When we bid for a job, we have to invest our time, our people, and money to get it right. We have to understand the scope of the work we are being asked to do, plan for unforeseen obstacles, secure materials, and coordinate with different trades and subcontractors to maximize efficiency. It’s a real commitment before any work is won. Let me be clear, we have no problem competing when the playing field is fair. But it’s a real problem for us and any Michigan-based business like ours when our competitors cheat to win.
Engaging in tax fraud allows willing contractors to undercut legitimate businesses by 20-, 30-, or even 40%. It’s like playing in a football game and having to move the ball 20-yards down field for every first down, when your opponent only has to go five. At a certain point, playing becomes an exercise in futility, and the game itself suffers. The same is true in construction.
Contractors that perpetuate the tax fraud model weaken the integrity of our very industry. They make it incredibly difficult for law-abiding contractors to survive. They depress wages for workers, forcing them to rely on the public safety net to make ends meet. They fuel labor trafficking and replace Michigan workers with exploited undocumented immigrants. And, they foster a culture in our industry that prioritizes corner-cutting and hollow promises over quality, efficiency, and safety. These are the outcomes that cost us all as taxpayers.
A 2023 report by The Century Foundation found that nearly 2.1 million U.S. construction workers are misclassified or paid off the books. In Michigan, it’s reported that 16.7% of workers are misclassified, costing state taxpayers $243.3 million, and over $316 million in costs evaded by unscrupulous employers.
The impacts of tax fraud can be hard to see. They are obscured by layers of subcontractors and by fenced-in job sites, and they are buried across federal, state, and local budgets. Lost tax revenue and an increased reliance on social services attributable to tax fraud impact our schools, hospitals, public safety, and more. At the same time, tax fraud pushes good contractors and good workers out of our industry, union and non-union alike.
As we celebrate our 75th Anniversary of business at Woods Construction, we value our customers, our workers, and our community. As a retail and commercial construction company, we believe Detroit and Michigan are made stronger by high-quality construction projects that support local businesses and workers. As members of the Associated General Contractors of America – Michigan Chapter, we are committed to advancing a construction industry built on fairness, accountability, and opportunity for all. Because of that, we are proud to join our partners, the Northern Midwest Regional Council of Carpenters, in their fight against tax fraud.
Tom Lutz is secretary-treasurer of the Midwest Regional Council of Carpenters.
Labor Voices
Labor Voices columns are written on a rotating basis by United Auto Workers President Shawn Fain, Michigan Education Association President and CEO Chandra Madafferi, Northern Midwest Regional Council of Carpenters Executive Secretary-Treasurer Tom Lutz and selected Service Employees International Union members.
This article originally appeared on The Detroit News: Labor Voices: Tax fraud in Michigan construction costs millions
Reporting by Tom Lutz / The Detroit News
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