We Can’t Afford to Ignore Construction Industry Tax Fraud

By KEVIN MCLAUGHLIN

The construction industry is currently facing a crisis that undermines the integrity of the entire profession: the use of tax fraud and worker exploitation to turn a profit for shady contracting companies.

Led by the United Brotherhood of Carpenters, “Tax Fraud Days of Action” (this month) highlights the staggering reality that billions of dollars are siphoned away from public coffers every year due to the intentional misclassification of employees and off-the-books cash payments.

This isn’t just a paperwork error. It’s a business model and calculated theft from a vulnerable workforce. When corrupt contractors pay workers under the table or falsely label them as “independent contractors” they evade critical obligations.

Funding Public Services: U.S. taxpayers lose billions of dollars annually in state and federal income taxes, Social Security and Medicare contributions. This is money that should be building schools, supporting first responders and funding government programs.

Safety Net Erosion: Because these bad actors don’t pay into unemployment insurance or workers’ compensation, injured or laid-off workers are left without a safety net. This scheme results in many construction families (especially immigrant labor) relying on public assistance, costing taxpayers even more money.

A Race to the Bottom: For law-abiding contractors, the situation is unsustainable. Ethical companies that provide fair wages, health benefits and safe working conditions are being undercut by “cheats” who shave up to 30 percent off their labor costs by breaking the law. This creates a “race to the bottom” where following the rules can mean losing out on potential bids. Stopping this fraud is a matter of survival for all good contractors.

A recent University of Missouri-Kansas City study found that construction tax cheats in Missouri cost state and local governments $150 million in income tax revenue and $100 million in state workers compensation and unemployment insurance every year.

To combat systemic wage theft, the Carpenters Union is calling for the Missouri Legislature to pass House Bill 2366, which aims to tighten oversight and increase the penalties for “misclassifying” workers or hiding employment records.

The legislation establishes more rigorous reporting requirements and grants the state increased authority to investigate job sites where cash-only operations are suspected. It’s a push for greater transparency, ensuring that every worker on a Missouri job site is accounted for, insured and paid a fair wage that contributes back to the state’s economy.

Under the proposed legislation, general contractors can be held liable if worker exploitation is discovered on their job sites, even if those workers were hired by a subcontractor. They can also be forced to pay hefty fines.

The consequences of systemic fraud extend far beyond the immediate financial theft; they threaten the very future of the skilled trades. When wage theft and misclassification become the industry standard, the incentive for young talent to enter the construction field evaporates. Why would a new generation pursue a grueling career that offers no job security, no retirement contributions and no protection against workplace injury?

Furthermore, this “shadow economy” erodes the quality of our infrastructure. Contractors who cut corners on their legal and social obligations are far more likely to also cut corners on material quality and safety standards.

Our union’s Tax Fraud Days of Action serve as a wake-up call. Without legislative reform and rigorous enforcement, the industry risks a total collapse of professional standards. Supporting honest labor isn’t just an act of social justice; it is a necessary investment in our industry’s future. By holding bad actors accountable, we ensure that the “bottom line” never comes at the cost of human dignity or public trust.

Kevin McLaughlin is executive secretary-treasurer of the Mid-America Carpenters Regional Council.