Tax Law Was Cited in Software Engineer’s Suicide Note
By DAVID CAY JOHNSTON
Published: February 18, 2010
In his suicide note, the computer software engineer who flew a small plane into a building with Internal Revenue Service offices in Texas on Thursday cited a 1986 tax law as a major motivation for his action.
The law, known as Section 1706 of the 1986 Tax Reform Act, made it extremely difficult for information technology professionals to work as self-employed individuals, forcing most to become company employees.
Many software engineers and other such professionals say that the law denies them the opportunity to become wealthy entrepreneurs and that it makes it harder to increase and refine their skills, eventually diminishing their income.
Harvey J. Shulman, a Washington lawyer who represented companies that supported the desires of software engineers to be independent contractors, estimated that the law currently affects at least 100,000 such people.
“This law has ruined many people’s lives, hurt the technology industry, and discouraged the creation of small, independent businesses critical to a thriving domestic economy,” Mr. Shulman said in an interview Thursday. “That the law still exists — even after its original sponsors called for its repeal and unbiased studies proved it unfairly targeted a tax-compliant industry — shows just how dysfunctional and unresponsive Democratic and Republican Congresses and our political system have been, even on relatively simple issues.”
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.
One year later, convinced that the law was not bringing in the expected revenue, Senator Moynihan proposed that it be repealed, but his bill died. Over the next eight years or so, Congress held at least six hearings on the law. In 1996, the staff of the Joint Committee on Taxation, which prepares official tax revenue estimates for Congress, calculated that repeal of the law would cause an insignificant revenue loss. Mr. Shulman testified at the time that it would actually increase revenues as engineers, job brokers and others built successful businesses.
Seventy senators, ranging from Edward M. Kennedy, Democrat of Massachusetts, to Jesse Helms, Republican of North Carolina, then signed a letter calling for repeal.
In 1998 Senator William V. Roth Jr., the Delaware Republican who was chairman of the Senate Finance Committee, said through an aide that he believed the law should be repealed, but that he would not take any action because it would “open a Pandora’s box of other independent contractor issues.”
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