Joe Stack wasn't wrong about the tax code

Even the sponsor of the 1986 amendment that punished thousands of software programmers realized it was a mistake

Published February 19, 2010 4:32PM (EST)

That 1986 change in the tax code that Joe Stack, the suicidal pilot who crashed his plane into an IRS building on Thursday, cited as a primal grievance in his online manifesto? According to David Cay Johnston, writing in the New York Times, Stack's beef was legit: the law "made it extremely difficult for information technology professionals to work as self-employed individuals, forcing most to become company employees."

And the original reason for the law, well, one can understand why some people would find it  a little crazy-making.

The law was sponsored by Senator Daniel Patrick Moynihan, Democrat of New York, as a favor to I.B.M., which wanted a $60 million tax break on its overseas business.

Under budget rules in effect at the time, any tax breaks had to be paid for with new revenues. By requiring software engineers to be employees, a Congressional report estimated, income and payroll taxes would rise by $60 million a year because employees had few opportunities to cheat on their taxes.

Within a year, however, Moynihan changed his mind, and unsuccessfully sought for the law's repeal.

The Times inexplicably does not link back to Johnston's  much longer article exposing the law in 1998. In that piece, Johnston extensively documented  the devastating effect the law had on software programmers who wanted to set up their own shop.

As for the accusation, cited yesterday in my post, that the law was originally designed to crack down on illegal tax shelters? Harvey Shulman, a Washington lawyer who Johnston describes as specializing in representing "companies that supported the desires of software engineers to be independent contractors," sent an e-mail to Salon contesting the rationale.

To the contrary, there was no such evidence (and there are Department of Treasury documents, obtained in 1987-88 under FOIA, which show the true genesis of this law); indeed a Congressionally-mandated study of Section 1706 resulted in an unbiased government report of about 100 pages (1988) which, along with other studies, found that tax compliance by these self-employed workers was actually higher than most other types of workers -- and that the enactment of Section 1706 probably did not generate any additional tax revenue and may, in fact, have led to revenue losses (due to the favorable tax treatment accorded many employee benefits which was not accorded to self-employed workers).

It doesn't need belaboring that 99 percent of the software engineers negatively affected by Moynihan's amendment to the tax code did not end up as tax protesting kamikaze pilots. But the final kicker to Johnston's update of the story nevertheless provokes a chill.

On Wednesday, the day before Andrew Joseph Stack III left his suicide note and crashed the plane into the building in Austin, the Obama administration proposed a widespread crackdown on all types of independent contractors in an effort to raise $7 billion in tax revenue over 10 years.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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How The World Works Joe Stack Taxes