Tax Reform Should Have Hit the Sharing Economy

Posted: Dec 28, 2017 10:18 AM
Tax Reform Should Have Hit the Sharing Economy

With the passage of the Tax Cuts and Jobs Act, President Trump and the Republican Congress finally have a big legislative win: one with implications reaching deeply into the fabric of American government. Along with restructuring the tax code in a more ambitious fashion than any bill since Ronald Reagan’s famous tax reform bill, the Tax Cuts and Jobs Act also repealed Obamacare’s individual mandate, and takes a sledgehammer to the tax-and-spend model of governance favored by blue states. In fact, the bill is so aggressive in undermining the Leftist model of governance, that early drafts were criticized for being a devoted entirely to political revenge.

Clearly, that initial spirit was watered down in the intervening process. In one sense, that’s a good thing, since the weaponization of government to settle scores is inherently dangerous and corrosive to American institutions (just ask the Obama-era FBI about that one). However, the bill appears to have sacrificed the wrong parts of its toughness, as in the process it somehow dropped a provision that would have held one of the most embattled and dubious industries in America to account.

I refer to an obscure provision floated by Sen. John Thune (R-SD) as far back as July, which would have lowered the minimum income reporting threshold for people selling goods and services through websites from $20,000 to $1,000. And before you dismiss this as idle paperwork-mongering, you should know that Thune’s measure had very real, if unstated purpose: namely, to force companies that participate in the so-called “sharing economy” to actually get their users to cough up what they already owe.

You see, one of the big problems that comes with Sharing Giants is that they are only legally required to send out 1099 income forms to users who earn more than $20,000/year through their platforms. This means that, for the person who “shares” their car through Uber, or “shares” their apartment through Airbnb and only makes, say, $19,000 in supplementary income, that person might not only not pay taxes on that extra income, but might not even receive any documents letting them know they owe those taxes in the first place. Uber is comparatively good about this, as it sends out 1099-K and 1099-MISC forms to a much larger cross-section of users than they are legally required to. Airbnb, on the other hand, barely goes beyond the legal requirement at all, as it will only send out 1099 forms to people who either make $20,000/year (the legal requirement), or who participate in more than 200 transactions a year. Either way, quite a lot of unreported income can slip through the cracks.

Thune’s measure would have cracked down on these kinds of practices and possibly raised billions in revenue as a result – not an insignificant sum, given the concerns of some Republican legislators over revenue, and something that was already being floated when the bill was still being negotiated. Yet, mysteriously, Thune’s provision ended up scrapped from the final bill for no apparent reason, and with no culprit claiming credit, and the ability of the “sharers” to fleece taxpayers continues apace.

Which is why the original bill’s aggressive skepticism toward the tax dodging measures employed most by blue staters and liberal industries might well have been watered down too much. It has permitted actors with genuinely negligent practices to slide under the radar, when they should be held accountable. Thus, while the Republicans are to be commended for fixing the broken rules that held back American businesses with a good faith interest in their country, it is a bittersweet victory, given that they avoided making an example of companies that skirt the rule of law while cloaking themselves in the gauzy protection of donorism and cultural liberalism.