Wednesday, October 14, 2009

Cutting out the Government

I just want to point out a little situation developing in the American economy of some concern. The government is embarked on an ambitious spending campaign to bring the economy out of its slump. Presumably the money it is spending is guaranteed against tax revenues to be collected in the future.

American incomes are currently shrinking, making it likely that there will be smaller tax revenues in the future to cover the increased spending.

I've noticed something else going on. Many providers of necessary services are now doing a lot of their work off the books, in order to avoid paying taxes. Doctors, dentists, lawyers, plumbers, auto mechanics, and many other skilled providers of necessary service can easily generate hundreds or thousands of dollars in fees from a single customer on a routine basis, depending on how much they do. I have experienced that all of these people will gladly provide a substantial discount in payment, if it is made in cash, enabling them to simply pocket the money, without declaring it as income. Since they aren't declaring it, they are also willing to eliminate payment of sales tax or any other applicable tariff, which here in California is upwards of 10%. Income is increased and costs are decreased for everybody but the taxing entity.

The Government is going to have a big problem with this but I fail to see what they can do about it, especially when it is becoming a nearly universal practice. Where will the government get the money to pay for all the ambitious spending it is doing? I guess they will have to keep those printing presses running.

Who does work for you off the books?


Buck said...

The Italian economy has a noticeable percentage of black market activity; there's precedent for a modern nation to operate 'off the books.'

reddog said...

Italy was the country with the worst monetary meltdown after WWII. Everybody thinks hyperinflation is the end of the World. The countries that have had it in the past are doing fine now. We adapt to survive.

beebs said...

I always see if I can get a cash discount when I have plumbers, handymen, or electricians over.

I made a mistake wiring a switch for a light and told the electrician to come over any time. It took him two minutes to fix, and I got a 50% discount for cash.

Governments hate cash. It makes it harder to tax receipts.