Union: Construction tax fraud costs governments $450B annually

Several hundred carpenters’ union members and public officials rallied Monday in Downtown Pittsburgh to call for an end to construction industry fraud.

Union officials said unscrupulous contractors and labor brokers rob the public of federal and local tax revenue by paying workers cash “under the table,” misclassifying them as independent contractors and failing to pay such benefits as workman’s compensation and unemployment.

The fraud costs local governments across the United States an estimated $450 billion annually in lost tax revenue, officials said.

“When you talk about tax fraud, it’s about people that are cheating,” said Bill Waterkotte, eastern district vice president of the Keystone Mountain Lakes Regional Council of Carpenters. “They’re not paying taxes. They’re paying cash. Four hundred and fifty billion (dollars), in evading taxes. That could go to building our roads and bridges, our schools, our veterans, helping the people who need help, and they’re stealing it.”

The union estimates fraud costs Pennsylvania governments about $200 million each year, but offered no specifics for the Pittsburgh region.

Elected officials including Allegheny County Executive Rich Fitzgerald, Pittsburgh Mayor Bill Peduto, U.S. Rep. Mike Doyle, D-Forest Hills, and several state senators said they support stiffening workplace rules to help eliminate fraud.

Pittsburgh City Council late last year approved a resolution proposed by Councilman Corey O’Connor that created a task force to investigate the issue. O’Connor said the members plan to offer future legislative remedies to council and the mayor.

O’Connor of Swisshelm Park said the region has about 60,000 people employed in the construction industry.

“We are going to go after those bad workers, those people that take our tax money, that take your jobs because subcontractors and contractors are undercutting city bids. We have to stop that,” O’Connor said.

O’Connor said contractors who skirt taxes and pay workers less can submit lower bids because employment costs are lower than companies that follow the law.

Peduto noted that he issued an executive order last year requiring the city to enter into project labor agreements with contractors and subcontractors on any city project exceeding $500,000. He said the city requires contractors to pay all workers prevailing wages.

“In the city of Pittsburgh, we worked together with the building trades in order to create an historic labor agreement that in any of the major projects we undertake people will never be at the part of the negotiation to be paid less than what a union wage is,” the mayor said. “We need to make that same law into effect throughout the state and throughout this country.”