The underground economy

This is an older article and one critical assumption is out of date—the number of illegal immigrants in the country is now dropping rapidly—but it still points up the fragility of the American status quo: untaxed economic activity is nearly 10% of GDP, and will increase as citizens become less commiteed to the "honor system" of tax compliance.

"We have had an 85% taxpayer compliance rate," says Nina Olson, the IRS’s taxpayer advocate.  "I expect the number to decline," because the portion of employees subject to withholding is on the wane.  Such employees are 99% compliant with tax laws, she says, but in the 21st-century economy, "More and more people are being treated as independent contractors.  We are losing people from the withholding environment."


3 thoughts on “The underground economy

  1. Of the many people I know who have some type of a business, full-time or part-time, I know of only one that reports all of their income. Given the excess amount of money taken from independents & business owners and the level of legal complexity that the government imposes upon them, it is a huge temptation (and, in my opinion, a justified action) for businesses to cut corners in this manner when they can.

    If the government wants citizens to adhere to the honor system, then the government should first attempt to be worthy of honor.

  2. Technically, you are supposed to report money made, say at garage sales.
    that blanket chest your relative bought from you, etc. Of course, most people don’t. There is a kind of custom of the people, so to speak, that feels that goverment is in too much of our lives anyway, and some things are none of their business. It gives too much power to government to tell them everything. It has been noted by economic historians, that like vigilanteism being a good indicater of how the authorities are doing thier job maintaining order {less official law and order, you get more people taking the law into their own hands, etc} The more of an underground economy you get, is a good indicater of how much over bearing tax and regulation you get. people barter more, don’t report etc. And Americans are apparently better than most in the world about paying their taxes, from what I’ve heard. But a nation that started as essentially a tax revolt has limits too.

  3. Technically, you are supposed to report money made, say at garage sales.

    And, technically, you’re also supposed to report for sales tax purposes when you buy stuff off the internet; like when you, oh say… buy a book online. :)

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