Friday, November 21, 2008

The underground economy

I read with interest an article entitled, In Ethnic Enclaves, The U.S. Economy Thrives (Hat tip: Newsalert):

Dr. Alethea Hsu has a strange-seeming prescription for terrible times: She is opening a new shopping center on Saturday. In addition, more amazingly, the 114,000 square foot Irvine, Calif., retail complex, the third for the Taiwan native's Diamond Development Group, is just about fully leased.

How can this be in the midst of a consumer crack-up, with credit card defaults and big players like General Growth struggling for their existence? The answer is simple: Hsu's mostly Asian customers – Korean, Chinese, Taiwanese, Japanese – still have cash. "These are people who have savings and money to spend," she explains. "Asians in Orange County are mostly professionals and don't have the subprime business...."

The center, reconstructed from a failing old mainstream mall purchased in 2005, is now roughly 90% occupied. "We are doing so well that we are expanding the mercado," Legaspi says, referring to the thriving centers dominated by very small businesses run from attached stalls that are a popular feature of many Latino-themed centers. "It's all cash economy. They pay their bills with cash. The banks and credit card companies are not involved. It's true capitalism, and it works."

Latino shoppers, he suggests, also have been less impacted by the stock market collapse than other consumers. After all, relatively few, particularly immigrants, have large investments on Wall Street. In addition, even if they have lost their jobs, particularly in construction, Legaspi adds, they tend to pick up other employment, even at lower wages, often in the underground economy. "They get paid in cash, and they pay in cash" [my emphasis].

My initial thought about the article was that I like that the "ethnic enclaves" are said to be "true capitalism" that works but when I got to the part about Latino immigrants going into an all cash economy as a result of the "underground economy," I must say, I was a bit puzzled. Afterall, this would imply that they are paying no taxes--not even payroll taxes--and not filling out income tax forms like the rest of us. Isn't this illegal, hence the name "underground economy?" They play by one set of rules, the rest of us another?

Mike Huckabee, in our interview with him for PJTV discussed how the fair tax would be more fair since those in the underground economy would pay taxes on what they bought. This seems like a good idea to me. I wonder how big the underground economy is? I thought about this the other day after overhearing a conversation at the hair salon.

One of the customers having her hair done was talking about how flush in cash she was because of her new job. "I'm making a lot," she stated to the hair sylist, "it's all under the table, of course." "That's the best way," replied the sylist. Is this really fair to the other Americans who pay their fair share of taxes? I don't think so, do you?


Blogger Cham said...

It may not be fair to the taxpayers, but an all-cash under-the-table job is very fair to the employee. They get the benefits of paved roads, schools, medicaid-paid healthcare and trash collection without it costing them one cent. It depends on what your definition of "fair" is.

As the cost of government increases, expect also increases in all-cash economies.

1:37 PM, November 21, 2008  
Blogger Unknown said...

I can't begin to tell you how many places I know of in the area where I live that are "cash only" and thus avoid taxes, mostly, and these are not "foreigners" or minority types etc but your basic white Americans, citizens, who do in business what we all do in preparing taxes: look for ways to cheat, or skimp, or play the sustem--just like the super rich.

1:46 PM, November 21, 2008  
Anonymous Anonymous said...

It's theft to take the benefit of gov't services while failing to pay your share. I'm no fan of big gov't or taxes but we have responsibility to pay the legitimate costs of police fire services etc.

1:51 PM, November 21, 2008  
Blogger Helen said...


I hope that the Obama administration will start to crack down on the underground economy. There are billions in uncollected taxes and my guess is that those who deal with all-cash are a good part of the uncollected revenues. Switching to the fair tax would probably increase revenues but my guess is it won't happen because the IRS likes its power and bureaucrats need jobs.

1:52 PM, November 21, 2008  
Blogger flambeaux said...

I have known of a number of people who were "really making it" until the IRS caught up to them. Amazing how you have the wind at your back when you're not paying the same taxes as the rest of us.

I have always been suspicious of this argument in the immigration debate that illegals are paying taxes to support the community. Seems very doubtful to me. They probably pay some, but not at anything like the rate we do.

1:54 PM, November 21, 2008  
Blogger fboness said...

John Galt's economy in the hidden valley didn't pay taxes to the government either.

At what point do taxes for benefits become confiscation for the benefit of others?

1:58 PM, November 21, 2008  
Blogger HMT said...

If you're self employed it's easy to not pay taxes on revenue, the hard part is not getting caught at some point. I imagine Ms Hsu is paying taxes on the rents from her shopping center, that's too high profile. By the description of "stalls" I'd imagine most of her renters are single person operations, no payroll taxes there, just simple tax evasion (If they're not paying taxes; which is claimed nowhere in the article). For small fry probably not a big deal but start making real money (or spending it) and you're going to get nabbed.

When did "paying in cash" become an underground economy? We used to pay in cash 100% of the time and taxes still got collected. Just because it's not ubiquitously traceable it's "underground"? I call shenanigans.

It's just "the economy". It happens to be a part that is far removed (although not unaffected) from the wall street tremors.

1:58 PM, November 21, 2008  
Anonymous Anonymous said...

Good point fboness. I think it's a hard line to draw well and it depend on what you consider are the essential services of government. Right now there seems to be zero constraint.

2:04 PM, November 21, 2008  
Anonymous Anonymous said...

Sorry about the terrible grammar, I should stop and edit first!

2:05 PM, November 21, 2008  
Blogger Cham said...


The IRS doesn't see things as right or wrong, fair or unfair, black or white. The IRS is a collections agency. They make an assessment on whether they can collect or not. They will target those individuals that may pay taxes, but, through thorough review of their tax returns, have property, cash and assets that can be easily seized.

Those that are involved in under-the-table economies most likely won't own property, sign a lease on an apartment or have cash in a bank. They may not have American citizenship and will keep moving. Whatever they don't pay in taxes will almost never be collected.
As they say in the sales business, your easiest customers come from low hanging fruit. The IRS likes low hanging fruit.

George Bush has turned a blind eye to these underground economies as wells as those that are here illegally that perpetuate them.
I would say a crackdown is in order, but that would mean that if we go after people here illegally who is big Agro going to get to clean the chickens for $7 per hour? Who is going to clean the rooms of those 6 bedroom McMansions? Who is going to plant the pansies and pressure wash the sidewalk? It ain't gonna be lil princess, that's for sure.

2:14 PM, November 21, 2008  
Blogger HMT said...


"The IRS doesn't see things as right or wrong, fair or unfair, black or white. The IRS is a collections agency. They make an assessment on whether they can collect or not."

The IRS is out to make a profit. Someone who owes $500 in taxes and has $100 in assets and costs $200 to find is a losing game. So you won't see the IRS doing it. As much as it sucks that I pay my taxes and some people can get away with not paying, I'm glad they don't go after them. Our government already wastes enough money.

These grey economies aren't just immigrant communities. Take a walk through your local flea market (remember those?) or troll craigslist / eBay. How many of those merchants are paying taxes?

2:31 PM, November 21, 2008  
Blogger Helen said...


"I'm glad they don't go after them. Our government already wastes enough money."

I disagree, the IRS should go after people evenly. If the law is to pay tax and some are evading it, they should be treated the same--whether they make big sums of money or small. There are also no consequences for people who pay no tax, giving them an incentive to vote politicians into office who give them the most goodies. They have no incentive to do otherwise. Rewards given to those who break the law will increase that behavior.

2:47 PM, November 21, 2008  
Blogger I R A Darth Aggie said...

Is this really fair to the other Americans who pay their fair share of taxes? I don't think so, do you?

No, of course not. They're going to opt to draw social security and medicade/medicare benefits when the time comes.

That should be one of the selling points for the Fair Tax - not only is it fair, it gets revenue from the grey market that otherwise would remain untaxed and off the books.

And yes, the grey market has existed for quite a while, and exists beyond these enthic-based niche communities. Next time you have someone do work on your house that's an idendepent contractor or doesn't work for a big company what the cash discount will be for the job.

You might find some significant savings, as the job would *cough* fall of the books.

2:56 PM, November 21, 2008  
Blogger I R A Darth Aggie said...

Memphis Aggie: Sorry about the terrible grammar, I should stop and edit first!

Well, you are an Aggie, after all...speling and gramma shudn't be yer first concern.

But there might be too many Aggies in this here thread.

3:02 PM, November 21, 2008  
Blogger HMT said...


"I disagree, the IRS should go after people evenly".

We agree on that count Dr Helen but It's also a resource allocation issue. The IRS's job is to maximize tax revenue collection. It's impossible for them to validate every transaction and they can't process all those transactions that they suspect are invalid. So given that they can't address all the issues, they'll address those that promise the highest net revenue. That means some people get away. c.f. Police work and crime. Not all criminals are detected; of those that are, not all are apprehended.

It's "the way the world works". You can't enforce 100% fair play and truthfully you don't want to, that's an attempt at a dictatorship. The best we can hope for is that we create a society/culture where, on balance, if you "do the right thing" regularly you're generally rewarded.

Does this mean that "right doing" people won't get laid off? Or won' get hit by hurricane or wildfire? Or have a loved one shot in school? No, sadly it doesn't. What it means is that "on average" it won't. More importantly, if it does, that there will be a society/culture around them that can help out.

In a "handout" based culture that support doesn't exist. People are too busy looking for what they need/want to help someone else who's in trouble. Besides, they're getting their handout right?

3:31 PM, November 21, 2008  
Blogger TMink said...

"I wonder how big the underground economy is?"

I wonder too. What with the money spent illegally on drugs and illegal labor and prostitution and the like, it must be huge.

That is in the favor of a consumptive tax like the Fair tax, the purchases made with the illegal or under the table revenue are now brought into the tax system for the first time.


3:42 PM, November 21, 2008  
Blogger HMT said...


"That is in the favor of a consumptive tax like the Fair tax, the purchases made with the illegal or under the table revenue are now brought into the tax system for the first time."

Well there's the "underground" market and the "black" market. Money made through an organized illegal operation typically taxed. That's what money laundering is for. So you can take your large sums of cash and turn it into "legitimate" money that you can spend how you like.

I don't think Consumption Tax would end up corralling many underground transactions into taxed transactions. If I can get whatever I need in the underground economy then my cash would never move across a taxed transaction. Groceries, rent, used car, flea market DVD player and TV, over the air channels. Some transactions would have to go through formal methods: Cable TV, Gas, Utilities (directly or indirectly). I doubt many partaking of the underground economy would be looking to stay "off grid" purposefully, so there'd be plenty of flow from underground to formal but by no means all.

4:08 PM, November 21, 2008  
Blogger Francis W. Porretto said...

"Is this really fair to the other Americans who pay their fair share of taxes?"

Oh, please.

"Fair" has no meaning except as it applies to the unforced assent of an autonomous agent. When two persons freely agree on the terms of a deal, then, assuming neither has defrauded or deceived the other, the result is fair. But when one party to an arrangement asserts a unilateral power to set the terms and compel the other(s) to accept them on pain of punishment, "fair" is inapplicable.

The notion of a "fair share of taxes," a phrase I hope never again to hear in person as long as I live, is utterly ridiculous. Neither you nor I nor Dae Kwong Yuk (apprentice cuticle technician at Miss Kim's Nail Emporium and Massage Palace) was permitted even the fantasy of having assented to our tax burdens. We suffer them regardless of our opinions about their "fairness" -- in the usual case because, the technologies of space flight and terraforming being insufficiently far along, we have no acceptable alternatives.

Drop the "fair" nonsense when discussing State exactions levied under pain of fines and imprisonment.

4:10 PM, November 21, 2008  
Blogger GawainsGhost said...

Well, when I was 16, my mother asked me to come down to the office and help her put up some signs. As it was summer, and I didn't have anything better to do, I said, sure. So I went to the office at 8:30 the next day.

Unbeknownst to me at the time, one of the Realtors, Barbara, was being audited by the IRS. The day before the IRS had called her, told her of certain documents they required and said they would send an agent over to her house to pick them up. She said, "I'll bring them to your office." They said, "No, we'll send an agent to pick them up." She said, "If you send an agent to my house, I'll shoot him."

So on this fateful day, I drove over and parked in front of the office. Barbara pulled up and parked in back of me. Across the street, men in black--and I mean, men in black suits, with black ties, black shoes and black sunglasses--got out of a car and started walking right toward me.

Scared out of my mind, I thought, "Who's judge's daughter did I really piss off?" But they walked right past me, grabbed Barbara, threw her over the hood of her car, slapped handcuffs on her, then drug her across the street, shoved her in the back of their car and took her to jail. Arrested, felony, threatening an IRS agent over the phone.

My question is this. Why isn't this kind of enforcement being executed against those who avoid paying taxes altogether by dealing in the underground economy?

4:13 PM, November 21, 2008  
Blogger Unknown said...

Why do many folks think the underground economy is just for illegals, druggies, etc? In fact it is much more pervasive. I had gutters put on my house. The guy gave a very good price,much better than any I had looked at. Why? No taxes. Cash onlyl and by cash, he meant greenbacks, no checks etc. thus there is no record that he even has a business. I had to decide: do I not use him because he is cash only? If I choose not to, he will hardly starve. business was non-stop he told me. Do I use him and thus do what any self-interested person would do? I had him do the job because it was a best buy for me, his work was good, and he was among many people who run a non-business as his business.

4:15 PM, November 21, 2008  
Blogger Alex said...

So basically to the rest of us who pay taxes - we are suckers. Because those in the "underground economy" are benefiting form the roads, hospitals, fire and other taxpayer-provided services. That's what seems to be the gist of it. However, one thing I do admire about them is that they save money, buy cars for cash, buy houses for cash. No endless monthly payments b.s.

4:29 PM, November 21, 2008  
Blogger HMT said...


If there is a benefit of your taxes it's not to you as an individual and it was never supposed to be. Taxes, even the minimal tax level that libertarians would allow, are not meant to come back to each individual tax payer as direct benefit. The works they produce streamline society/economy as a whole.

The fact that there's a road for the plumber to easily get to your house (thus reducing his costs) provides an indirect benefit to you (potentially reduced cost) even if the plumber doesn't pay taxes on the money you pay him.

A tax system where direct and singular benefit is derived from tax collected money is broken. Think welfare (both individual and corporate).

4:41 PM, November 21, 2008  
Blogger Alex said...


The point is that the people mentioned in the article are getting away with paying 0% income taxes and getting the benefit of taxpayer-funded services. Either we applaud them and admit that we are suckers, or we say they are wrong and sick the IRS on them ASAP.

4:43 PM, November 21, 2008  
Blogger HMT said...


Where in the article does it mention that they're not paying income taxes? Cash based business doesn't mean un-accounted. The article specifically mentions "investors". The seems to indicate a sophisticated enough setup that not paying taxes would be difficult. I'm sure there is some tax evasion going on there, but is it more than goes on in more "structured" money exchanges?

As for suckers vs IRS attack dogs... The IRS is not a law enforcement agency. They identify tax revenue loss and attempt to recoup that loss. Through draconian means if necessary. "Sicking" the IRS on them would do no good, unless the IRS ultimately thought they'd increase overall revenue. The IRS has already been turned up to "attack dog" mode and has been for a long time.

5:21 PM, November 21, 2008  
Blogger lovemelikeareptile said...

Commits a type of informal fallacy known as equivocation, by using a term with multiple meanings as if it had only one meaning, then claiming that that one meaning eclipses all other meanings of that term and renders some statements meaningless.

The term "fair" is not limited to the results of a voluntary exchange between equals without fraud or deception. ( I note that this is a contradiction because the term "fraud" depends on the application of the concept " fair" in a way that Francis denies exists, so the argument is internally inconsistent).
Francine uses " fair" in a self-definitional way, in an economic sense, simply as any outcome of the stated voluntary exchage between equals ( " equals" also assumes an application of the term "fair" not countenanced by Francis)
But 'fair" as used by the person quoted referred to the use of "fair" as
the elimination of bias, prejudice etc. so as to achieve the " proper " balance between conflicting interests according to some standard of what is "just". Or it can mean an equitable outcome or treatment, meaning equal treatment.

Francis asserts that "fair" has only one meaning-- which is demonstrably false --and claims that there is no such thing as "fair taxation " or a "fair share of taxes" because taxation itself is inherently/by definition un"fair"( economic exchange sense of the term). Hence it is meaningless to speak of "fair taxation" or a "fair share of taxation ".

But the poster quoted was obviously using "fair" in the sense of 'equitable", "just", "without favoritism or bias".
hence , it is quite meanigful to speaking of paying one's "fair" share of taxes, as everyone thought it was before Francine's' misadventures in logic.

5:24 PM, November 21, 2008  
Blogger Trust said...

@Helen said... "I hope that the Obama administration will start to crack down on the underground economy."

Unlikely. The underground economy consists, IMO, of illegal immigrants. As we know, Obama won the hispanic vote 2-1 due largely to the (false) perception that proposed illegal immigration policies were anti-hispanic racism.

6:56 PM, November 21, 2008  
Blogger Unknown said...

Cham --

"I would say a crackdown is in order, but that would mean that if we go after people here illegally who is big Agro going to get to clean the chickens for $7 per hour? Who is going to clean the rooms of those 6 bedroom McMansions? Who is going to plant the pansies and pressure wash the sidewalk? It ain't gonna be lil princess, that's for sure."

Not the princesses, the working men and women of this country. I see them doing exactly those jobs all the time. The businesses hire illegals not for less (most get the same wages), but because they don't have to do the paperwork.

7:21 PM, November 21, 2008  
Blogger Jon Sandor said...

As we know, Obama won the hispanic vote 2-1 due largely to the (false) perception that proposed illegal immigration policies were anti-hispanic racism.

No. Hispanics have always voted Democratic. They do this because they are poor and the Democrats are the party which gives stuff to poor people.

Of course one reason they are poor is the US's open border policies which drives down their wages.

7:31 PM, November 21, 2008  
Blogger Jon Sandor said...

HMT said...

If you're self employed it's easy to not pay taxes on revenue, the hard part is not getting caught at some point.

The government goes to considerable pains NOT to catch illegals. For instance, the government knows of many people who are filing using a false SSN. It chooses not to go after them.

7:33 PM, November 21, 2008  
Blogger Jon Sandor said...

"Fair" has no meaning except as it applies to the unforced assent of an autonomous agent.

Ugh. I found this sort of libertarian claptrap to be absurd when I was younger, and it has not grown on me with age.

I read an interesting article once on the similarities between libertarianism and communism. One was that both sets of people are totally trapped up in their own little theoretical world, to the point that reality vanishes from their perception. Once you accept the rules that govern their "matrix", statements like the above make sense to you.

7:47 PM, November 21, 2008  
Blogger glenn said...

The underground economy has been around for a long time and at a certain point it becomes very difficult to do anything about it. The money, after all, passes through into the hands of others and generates business activity. One of my Italian friends estimated that 30-40% of the economy in Milan was off the books. And if taxes go up more of our economic activity will go "black". You and I may not like it but I really don't think you can hire enough IRS agents to do much about it.

8:50 PM, November 21, 2008  
Blogger Greg Hunt said...

If the Government is legitimately obeying it's obligations to represent all of the people, evenly, then all of the people should be supporting that system. I don't believe I have ever experienced, in the 36 years of my life, legitimate "fairness" coming from our Government. They are not even handed, nor are they interested in Justice. If our Government is interested in "spreading the wealth", by any definition of the term, then it is our duty as Americans to obfuscate and resist that attempt. Our money is, after all, our own, NOT the Government's. If we determine, on our own and individually, that the Government is no longer operating in our own best interests, then we are no longer obliged to support it. If it's goal is to rob me, it can do it without my support, and with my full resistance.

9:34 PM, November 21, 2008  
Blogger tomcal said...

I have to go with Cham on this one. The undergound economy has always been with us and as times get worse, it will expand. Just go to any small business broker and tell him you are interested in buying a liquor store, or even better a vending machine business. The best are vending machine games of skill, for instance where you have a chance of picking up a stuffed animal with a $100 bill rubber-banded to it with a mechanical claw in exchange for a dollar. It's not gambling, because as I said, it is a game of skill. But it pays off better to the owner (if you can even figure out who the real owner is) than a Las Vegas slot machine.

All such businesses exchange hands on the basis of non-taxable income, and always have.

P.S. I am really starting to suffer in this economy, and it is not fair, given the amount of taxes I have paid over the last 10 years.

10:43 PM, November 21, 2008  
Blogger glenn said...

Mind you, I don't approve of the people who "make black", I worked for a wage all my life and paid my full share of my taxes ...but....The higher taxes go the more underground activity you will have. Fact of life.

11:08 PM, November 21, 2008  
Blogger Acksiom said...

The degree and amount of the grey and underground and off-the-books private economy is irrelevant in comparison to the waste and kickbacks and pork-trough-feeding done by the State's agents.

Seriously, stop and think about it a minute -- are you really more concerned about private Citizens engaging in mutually agreed untaxed trade, even with non-Citizens, than you are concerned about how the State's agents are wasting our money on nonsense and undeserved luxuries and bribes and kickbacks, to say nothing of their funding of actively self-destructive programs such as VAWA or IMBRA?

I'm sorry but I honestly don't see how the grey economy is anywhere near as important an issue as State budget and expenditure reform. I don't know about the rest of you, but the State's financial abuse of the taxes I've paid outrages me FAR more than the idea of some off-the-books scumbag cheaters getting away with unreported income, goods, or services in comparison.

The natural dividing line of the sides here is between the Citizenry and the State. Ginning up resentment between parts of the Citizenry just plays into the State's hands.

Haven't you noticed how Our Beloved Ruling Class, with the willing assistance of the mass media, have been protecting themselves from real reform with that trick for generations now?

Come on, people. Not Helping! Eyes back on the prize, please!

11:50 PM, November 21, 2008  
Blogger pockosmum said...

The savings rate in Japan is phenomenal...we were just joking the other night that the Japanese government's stimulus plan ($120 per adult, $200 per child, $200 for each elderly person) will do nothing to stimulate the economy because it will all be slapped into the bank faster than you can blink :-) They pay 1/4 to 1/2 down in cash when they buy a house. I'm not surprised that they still have cash!

I think that's a different issue from under the table wages etc. The two issues seem to be lumped together in the article.

4:51 AM, November 22, 2008  
Anonymous Anonymous said...

I worked my way through a couple years of college roofing houses over the weekend - for cash. A few of us got together, canvassed older neighborhoods where many of the homes were in need of a new roofs.

We told it straight up. We were college kids in need of cash. The homeowner bought the nails, shingles and tar paper. They even rented the truck we used to haul the scrap to the junk yard. We converged on the home at the crack of dawn on a Saturday morning, driving the last nail before dark on Sunday afternoon. We got paid in cash, split the proceeds up in the front yard of the house we just re-roofed, and went back to hit the books. We saved the homeowner better than 50%. I see that happening everywhere now with roofing, lawn care, etc. Except they use even larger ethnic armies, and are in and out same day.

FICA, federal, and state ARE confiscatory taxes. How else does one explain money taken from your pay before you even get it?

5:56 AM, November 22, 2008  
Blogger DADvocate said...

Moving from the city to a rural area nearly 20 years ago, I found an huge underground economy amongst farmers. They buy and sell many goods for cash, pay workers in cash, perform services for other farmers for cash payment, plus barter and trade.

Probably none of the farm laborers receiving payment in cash declare it in their income taxes. And, some are middle class people making Christmas or vacation money on the side.

Plus, there's all the stuff previously discussed and more.

Farmer's get great tax deductions including vehicles, whether they really use them for farm work or not. Ever wonder why farmers drive these new, luxurious quad cab trucks? It's not an expense, it's a deduction. One farmer I know, whose income tax return I happen to see, drives a top of the line quad cab pickup that cost more than double his gross adjusted income.

Sure wish I could afford that! My adjusted gross income is more than twice the farmer's and I can't think about buying a vehicle that expensive.

9:56 AM, November 22, 2008  
Blogger David H Dennis said...

It is almost certainly not the case that underground economy members are using our roads and infrastructure for free, because those expenses are largely paid for by gas taxes. Since immigrants drive old, gas guzzling cars, they may even pay more than their share!

If they aren't paying social security or medicare taxes, they are not eligible for the services provided by same. So they may even be giving us a benefit by not becoming part of the giant shell game that is represented by those programs.

About half the nation is not obligated to pay income taxes, simply because they have insufficient income to qualify. It seems quite likely that if you take the people who rent the carts, subtract legitimate business expenses and put it all on a Schedule C, it's likely that they would have no income tax liability at all.

I would wager that most of us use every tool in the box to reduce our taxes legally. Are we likewise shirking our fair share by doing so? It depends on our view of government.

If we think of government as an out of control incompetent monolith that wastes at least 50% of what it gets, then we should do everything we can do to reduce our taxes, and secretly applaud the underground economy.

If we think of government as a collective responsibility, that mainly makes wise and good decisions, then we should deliberately maximize our tax payments and make sure the underground economy participants go to jail (thus costing taxpayers far more money than they had sacrificed by ignoring the behavior).

I would think most people reading here would agree philosophically with the first perspective, and certainly I'm sure most of us fill out our income tax forms based on it. So why are we talking here as though we share the second perspective?


10:20 AM, November 22, 2008  
Blogger TMink said...

Francis wrote: "Drop the "fair" nonsense when discussing State exactions levied under pain of fines and imprisonment."

Have you no sense of morals or community?


10:45 AM, November 22, 2008  
Blogger Unknown said...

I live near the area mentioned in the article. They are doing well because they are cheating on taxes. If you don't want to deal in cash, you don't work for or do business or sell a house to an immigrant. Simple as that.

California estimates that approximately $6 billion is lost because of the cash economy. But they don't do anything about it for the same reason Obama won't (and why it wasn't in the article): they will be accused of racism.

10:48 AM, November 22, 2008  
Blogger TMink said...

Ack wrote: "The degree and amount of the grey and underground and off-the-books private economy is irrelevant in comparison to the waste and kickbacks and pork-trough-feeding done by the State's agents."

Hard to disagree with that, so I will not. But it is only part of the problem, even if it is the larger part! A consumptive tax would reward savers and tax spenders, even the mid-level people in the illegal and underground economies. Reduce the waste and you can lower the consumptive tax considerably.


10:49 AM, November 22, 2008  
Blogger rdasher said...

The cash economy is interesting for sure. I recently sold a vehicle for cash. The buyer had a roll of $100 bills, and $50s and some $500's too. When he ran out of enough 'large' cash in one roll, he reached into another pocket and brought out another roll of cash.

Right after we completed the deal, we drove to the license bureau and they completed the title transfer, and paid sales tax and license tab fees.

I on the other hand seldom have more than $50 in my pocket. Except that day. :-)

10:57 AM, November 22, 2008  
Blogger M. Simon said...

Yep. Paying for the legitimate costs of government is a good thing.

Now what if you think a lot of the costs of government are illegitimate?

Roads? Covered by the gasoline tax. At least until electric cars and plug in hybrids proliferate. State and local governments? Sales taxes and property taxes cover that.

What do I like about the underground economy? It starves the beast. It is past time government started living below its means.

11:01 AM, November 22, 2008  
Blogger Jeff Faria said...

As usual, you make some good observations. Latinos, Asians, and Indians (people from India, that is) have a tight culturally-based economy. (African-Americans - 'blacks' - do not. That's a whole column, or maybe a book, in itself.)

Is it 'fair' to the 'rest of us' that they opt out this way? Hmm. Was the Boston Tea Party 'fair' to the rest of the colonists who were fine with the British laws and taxes that were imposed on them?

11:08 AM, November 22, 2008  
Blogger glenn said...

Really good points about the issues of public corruption. In my community wives and "significant others" of several well placed law enforcement and other gov't officials were responsibe for running a pyramid scheme that garnered them hundreds of thousands of dollars. The Sheriff and one of his pals (on permanent job related disability) ran a "consulting service" that shook down businesses seeking to locate here. Members of the school board had a local business contracted to do routine maintainance at local schools, The district was routinely charged 8 hours labor for changing a light bulb and members of the board got things like free central heat and AC installed. And a local bank official and a finance guy from the school district, established an account to hold federal grants allocated to the district. They put the money in 90 day CD and kept the interest. The state dep't of corrections routinely lies about placement of violent sex offenders here, either denying that they exist or refusing to say where they are by classifying them as "transient" So if my neighbor who's in the business offers me a discount for cash to fix my AC or change the fuel pump on my car, I'm sorry but I'm gonna give him the business

11:16 AM, November 22, 2008  
Blogger Unknown said...

With higher taxation it is natural for grey market and black market increases.

I used to be miffed at certain businesses who were taking money "under the table." For example, the teryaki place that would only ring-up my purchase when I used a credit card. Payments made in cash did not get entered into their cash-register. They tried not to be too obvious about it, but if you paid attention you could see what they were doing.

Nowadays, I am older and wiser, and I say more power to them.

12:21 PM, November 22, 2008  
Blogger Les Nessman said...

Conservatives/libertarians/capitalists want a small as necessary gov't and an inexpensive gov't as necessary. They think everyone should diligently pay the taxes to fund this.

Liberals/Socialists want a big gov't to pay for expansive social programs. They want the 'fat cat rich guys' to pay for it and will evade paying for it with their own money.

It's the Responsible vs the Irresponsible.

12:26 PM, November 22, 2008  
Blogger Jon Sandor said...

If we think of government as an out of control incompetent monolith that wastes at least 50% of what it gets, then we should do everything we can do to reduce our taxes, and secretly applaud the underground economy

Non sequitur. We should do everything we can to reduce government spending. But I don't see anybody doing that.

Next we should try to reduce taxes.

Lastly we should crack down on the underground economy. Doing that would will also enable the current taxpayers to pay less, as the current tax dodgers pay more.

Libertarians are economically illiterate.

1:19 PM, November 22, 2008  
Blogger Don Pettengill said...

Others talk of the "unfairness" of receiving government services - roads etc - while not paying for them, in taxes. But most government money is spent not on services, but on transfer payments - taking from A and giving the money to some politically favored B. And social security is *earned* - if you don't pay it, you don't get it. Finally, the bottom what, 40% or so? of taxpayers pay NO income tax at all. Is that "fair"?

We have gone long, long past the notion that taxes are paid by a willing populace to fund the government they desire. Now it's a game. Congress fiddles with the tax code to get the most they can, punish their enemies, and reward their friends. The taxees arrange their affairs to escape as much of it as possible.

I have hard PhD (Physics) and *I* can't understand the tax code. The IRS doesn't. Charles Rangel doesn't. No one does. I do know that marginal tax rates come close to and can exceed 100% under quite common circumstances (retired people working).

A "free people" should never tolerate these insanities. And they don't: where possible they escape them, in the underground economy. This is both understandable and inevitable.

1:38 PM, November 22, 2008  
Blogger Pixelkiller said...

Having lived in Doity Joisey for 35 years, I've learned a few things. This so called "fair Tax" is just another dumb idea! It's nothing more than a 23% sales tax! At that rate it becomes extremely profitable to steal. (lie and cheat are 2nd and 3rd). So, if it were to come to pass, a more correct name will be "The Tony Soprano Full Employment Tax". Dumb! Really dumb! Dumb dumb! Any politician worth his graft knows this.
The only really fair tax is Steve Forbes "Flat Tax". It's so low it isn't worth the trouble to cheat.

2:38 PM, November 22, 2008  
Blogger comatus said...

SanDor The Great has spoken.

And will you illiterate libertarians--who after all are just like communists!--kindly stop throwing his tea into the harbour.

3:36 PM, November 22, 2008  
Blogger Jon Sandor said...

That's about the level of intellectual and emotional sophistication I expect from people like you, "comatus". The mindless sneer suits you. Don't ever change.

You might search around and try to find what little manhood you possess and post under your other name though.

3:56 PM, November 22, 2008  
Blogger Greg Hunt said...

Mr. Sandor, I believe the message that Comatus successfully conveyed was that, much like the Royalists during the Revolutionary War, you are uninterested in resisting the Government's incursions upon your freedoms, as they do not inconvenience you personally, and you are happy with things as they are. As such, anyone who disagrees with you and attempts to disrupt the Government's stranglehold on our economy is himself exactly equal in evilness to that which he claims he is fighting.

Comatus summed up that idea in a much more eloquent phrase. Pity your intellectual and emotional sophistication is too undeveloped to understand it.

5:05 PM, November 22, 2008  
Blogger Duncan said...

The lowest quintile of households spends twice what they officially own.

Some of that is gifts, dissaving, and loans but a lot is unreported earnings.

Given what the government blows money on, I'm not sure it's wrong to decline to contribute.

5:36 PM, November 22, 2008  
Blogger Jami Hussein said...

Tax avoidance, refusing to declare all your income, refusing to declare 'gifts' as income.

If it's good enough for members of Congress . . . it's good enough for me. See Charlie Rangel, William Jefferson, Alcee Hastings, Chris Dodd, etc. etc. ad nauseum.

6:58 PM, November 22, 2008  
Blogger Jon Sandor said...

If that was what "Mr Comatus" was attempting to convey, in his own moronic fashion, then he was badly mistaken. I can guarantee you that I am far more interested in doing the things you mention than Mr "Comatus", or indeed than the average libertarian.

attempts to disrupt the Government's stranglehold on our economy

You are not "disrupting the governments stranglehold on our economy". You are strengthening it.

Are you a comatus sock-puppet? The content-free comments capped with pretentious ad hominems suggest you are.

7:15 PM, November 22, 2008  
Blogger Nom de Blog said...

As a legitimate business owner, I really can't blame anyone for going "under the table". Do you have any idea how much paperwork it is to hire an employee? You shouldn't have to hire an accountant to sell crafts at craft fairs, but it's getting to the point that you actually do.

I'd love to hire somebody to come in twice a week or so and help me with my business, but I won't. I'd lose more hours just getting them hired than I'd gain from their being here to help. So I just enslave my kids. :)

By the way, those of you who think nobody should be working "underground": when was the last time you had the teenage babysitter fill out an I-9 and W-4?

9:29 PM, November 22, 2008  
Blogger Difster said...

I read about the first 75% of comments so I'm sorry if this is already mentioned but MOST of our income tax just goes to pay for interest on the Federal debt, not roads, schools etc. Many states get by without income taxes yet they still build local roads, etc.

EVERYONE pays taxes if they consume. You pay taxes when you fill up with gas, buy groceries, pay bills, eat out, register your car, etc.

We all pay. Bravo to those that manage to NOT pay in to the monstrosity that perpetuates our fiat money system.

11:59 PM, November 22, 2008  
Blogger SC Mike said...

“Side jobs,” “cash ‘n’ carry,” “under the table,” and the like have existed even before the income tax appeared. On a hot summer weekend a few years ago my mother-in-law’s AC shut down. She had no service contract, called several numbers in the Yellow Pages until she got a response, but the answer from the tech whom the answering service had contacted was “call the shop Monday.” She called other numbers without success: it was a hot weekend and the resources available were on the job for customers with the service contracts.

Much hater that same Saturday the tech called back with an offer to come right over and fix whatever, but for cash. He ended up replacing the blower -- using, of course, his employer’s stock that he’d probably replace during the following week -- and she paid a price that may or may not have been reasonable in the real world, but she was happy because she was cool.

The tech used his employer’s capital for his own gain. This happens all the time. Folks who employ auto mechanics have to make sure (by instituting procedures and audits and making sure that each employee knows that there is oversight) that every car in every stall is on the books. Heating and AC shops have the same problem, as do electrical companies, plumbing outfits, accounting firms, and even law firms. That’s not to say that some managers might not “reward” some employees by letting them do some “side work” from time to time, even in large places, but generally it’s against policy and the law.

The new immigrants may generally operate within the law but get their startup financing from family networks that operate outside the law, in most cases because they can’t make the business case that traditional lenders find satisfactory. Their case may be this: my wife and I are going to open a lunch operation in the new office park by buying a bunch of coolers at Wal-Mart and then go to Wal-Mart and Sam’s Club and Costco each night to purchase lunch meat, bread, lettuce, condiments, etc., and work 20 hours per day for two years with my wife’s mother and save 87% of our profits because we will be living in my uncle’s house and … What banker would go for that? Relatives will if they believe that the applicant has the drive.

Much if not most of their business will be on the books and taxable because they will have to rent / lease the space they operate in and be under the jurisdiction of local health and business authorities who will keep an eye on them and every cent that flows through the operation.

Hey, this is Vespucciland! Folks thrive when they figure out the game, whether it’s working hard or not working at all.

12:44 AM, November 23, 2008  
Anonymous Anonymous said...

The barber I regularly went to for years (somewhere, some time ago) had a cash register and a cash box. He had a pad where he wrote down, in Roman Numerals, each hair cut. Although he accepted checks, he preferred cash payment for some reason. The proceeds from every other haircut hit the register. The other half, and all the tips, hit the cash box. To this very day, I can't understand why he had such a system.

9:49 AM, November 23, 2008  
Blogger javadoug said...

Dr. Helen wrote: ---
Is this really fair to the other Americans who pay their fair share of taxes? I don't think so, do you?
I do, I think it is fair.
Why? Because the progressive tax system is unfair, and in my opinion completely immoral.
Therefore anything like this underground system is fair.
In fact, it is more moral than our tax system.
When we get either a flat tax or fairtax, then I'll change my opinion.

10:10 AM, November 24, 2008  
Blogger javadoug said...

Watch the 1962 movie: "It's a Mad, Mad, Mad, Mad World" watch for the scene in the beginning where they discuss how they should divvy up the $350,000 that the dying man just told them about (money he stole 15 years before). Watch the part where Johnathan Winters is told by the others that he may not have to pay taxes on the money, and his reaction: "*Everybody* pays taxes!- Even businessmen, who rob and cheat and steal from people everyday, even *they* have to pay *taxes*! "
This typifies the Obama voters idea about taxes. I'd say that the rest of the group had the right idea.

This is my favorite movie of all time!

10:17 AM, November 24, 2008  
Blogger Unknown said...

I'm torn on this issue, but it is largely due to the degree by which there is tax evasion.

Some scenarios:

A woman works as a retail clerk making little more than minimum wage, although off-the-books. She shares an apartment with a roommate and the rest of her income goes to paying for transportation, food, some minor entertainment and to her paying for medical expenses--which largely amounts to paying for psychotherapy sessions.

She does not use Medicaid for the medical expenses paying cash.

If she were on-the-books she wouldn't qualify for Medicaid and she wouldn't be able to pay for her therapy sessions, which would only hurt her and would probably be a net loss (however marginal) for the economy.

This is a situation that actually happened.

Then there are those who will go out of their way to not pay taxes, but can afford to pay them. Think of Dennis Kozlowski.

Ideally, everyone should pay their taxes.

But, ideally, everyone should pay their credit cards or mortgages. When they don't, the rest pay the cost of it.

Yet, there is a difference, I think between someone who finds themselves genuinely overwhelmed in making their payments (perhaps they lost their job)but bought next to nothing in extravagances and someone who intended to defraud, purchasing extravagant items in pursuit of that fraudulent goal.

If the woman paid for subway fare on a credit card and the other person paid for $300 designer jeans, I think there is a difference.

But, maybe I am wrong.

I live in NYC. Many here ride over to New Jersey and buy stuff there. We are supposed to report these items on our state tax forms. We are also supposed to report the stuff we buy from places like Amazon. I doubt anyone does.

I doubt that for most people who buy stuff online.

So, is everyone a crook?

Or should we distinguish based upon the specific circumstances?

Another scenario:

Someone I know has been looking for a job for the past 6 months. This person bought a car for the purpose of commuting to work. Here in NYC, you can usually get everywhere by mass transit, but when you get into the far reaches of the city--eastern Queens and Brooklyn and Staten Island, you usually need a car. It just isn't Manhattan. The job for which he bought the car is gone but he now needs the car to get another job. If his unemployment runs out, he may be forced to default on the car loan or he may have to sell it. Either way he is hindering his job search. If he undertook an off-the-book job delivering pizzas, working for some kind of wage, perhaps, and tips as well, so that he can make the car payments and maybe ultimately get a better job, is this terribly wrong?

Or should he try to be as honest as possible, sell the car, and then put himself into a disadvantage with his job search?

What if he needs the pizza job to also pay for food, rent, etc.

So, I'm just torn over this issue.

I'd like to think it is the matter of the specific circumstances that matter.

It's interesting that a guy can sell drugs to someone and have the statute of limitations run out on that, while a person who didn't file a tax return for their off-the-books job working at a hardware store one summer 20 years ago could still be held liable for their crime.

Anyway, I'm just torn over this issue.

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