As the deadline for filing yearly income taxes is rapidly approaching, businesses especially hard pressed to make a profit in a depressed economy struggle with their tax compliance. Reporting legitimate deductions and costs is the easy part. When you are losing money, disclosing a diminished income stream based upon lower margins, is not a difficult decision. Nevertheless, small enterprises burdened with government regulation costs and tax obligations, often are unable to conduct business and retain a net return. Self-proprietorships frequently are so scared that many look to the cash underground economy to hide income earnings.
This shadow commerce, practiced throughout the world, is the real economy. Actually, in the United States, tax compliance is quite high by comparison. With the acceptance of instruments of credit, the banking system has become more of a tax reporting service than a financier of a healthy economy. The taxman would have you believe that voluntary transactions in cash constitute a black market in illegal dealing. Casting the aspersion of seedy activities upon the motivation to subsist is a common practice of governmental revenue agents.
Building upon this attitude, a deceptive title to a USA report, $2 trillion underground economy aids recovery, would have you think constructive criticism returned to the mainstream press. Sorry to disappoint, you can always count on the Gannett media to be a government mouthpiece.
Shadow economies are usually associated with illegal activity, such as drug dealing. But anecdotal evidence indicates that off-the-books work in today’s job market includes personal and domestic workers, such as housekeepers and nannies.
People are running out of patience when it comes to finding a job and losing income,” Gonzalez said. “So it’s not that surprising to have workers take jobs that are in the shadow economy. But it’s a sign of how bad things are and how we have to get the real economy moving again.
Yep, blame the poor starving worker for accepting payment under the table by a greedy company owner who wants to beat down labor. What such ridiculous viewpoints lack is that the REAL ECONOMY is based upon main street enterprises for actual job creation. When state requirements become so burdensome that fundamental survival of a business becomes impossible by the tax demands, mere existence as a commercial entity becomes untenable for the entire economic structure.
Little is left of the free enterprise system. When a society imposes tax obligations and government regulations on garage sales upon property that the state has already collected their sales tax, the message is clear. You really own only a partial share of your items in partnership with the government.
Several issues are involved with the “business” of holding a garage sale:
- Income taxes on the profits from the sale,
- Sales taxes on the cost of the items sold, and
- Local permits and licenses
Trivia you say, as rightly you should. However, the entire basis of acceptable claims upon the wealth of individuals must be re-examined. Now we all know that the courts have ruled that a government can virtually tax any transaction. Yet, by this tortured logic, the natural rights of an individual are violated by such an unrestricted decree.
Terry Miller and Anthony B. Kim write in Defining Economic Freedom.
Economic freedom is the condition in which individuals can act with maximum autonomy and minimum obstruction in the pursuit of their economic livelihood and greater prosperity. Any discussion of economic freedom has at its heart reflection on the critical relationship between individuals and the government.
As Friedrich Hayek once observed, “To be controlled in our economic pursuits means to be controlled in everything.” (From – The Road to Serfdom)
By any reasonable standard, the real economy must be based upon voluntary transactions. Government extortion practitioners design the imposed partnership split, which is reported as the Gross Domestic Product economy. Tax collection is the habitual occupation of government. When tax penalties, onerously inflicted upon individuals for merely conducting business escalate, the natural result is that the engine of commerce slows.
John Locke “defends private property not for the sake of the rich and against the poor, but “against possible unconstrained encroachment by the state”. Thus, Locke’s views on property play a role in his argument for limited political authority.” Since the natural law underpins the relationship of the individual with government, it becomes imperative that taxation reflects the inherent ownership rights of the property holder.
Therefore, when a purchase made in the marketplace with a tax assessed upon the cost paid, it is not proper that the state should compel any additional claim on the value of the same item if it is sold to another party in the future.
The underground economy distinctly accepts this standard. However, government is not satisfied unless each future transfer reaps additional taxes. Just ask a buyer of a used car. How many times does a sale tax need to be extracted after the initial payment?
Adopting the elimination of sales taxes for a consumption tax on a county and state level needs to become the correct approach. IRS bean counters would cry for a national VAT tax, like that in place in the EU, but that punitive burden would only benefit the growth in the Federal Government.
As for taxing labor by designating toil as income, is even more preposterous. The progressive cultists want a taxing code that penalizes industrial initiative, while entrapping and rewarding a social welfare culture.
Corporatist businesses use every trick and loophole to evade paying taxes. Yet this segment of the economy, characterized as legitimate business, processes withholding tax for their employees. For every company that manages the income tax theft racket, there are scores of underground business activities that enhance productive growth in a stagnant economy.
Greece, Italy, Portugal, Spain, Germany and France know well that the shadow economy is the real economy under socialism. As America descends deeper into the same abyss, more people will respond with creative and bold methods of doing tangible business.
James Hall is a reformed, former political operative. This pundit’s formal instruction in History, Philosophy and Political Science served as training for activism, on the staff of several politicians and in many campaigns. A believer in authentic Public Service, independent business interests were pursued in the private sector. Speculation in markets, and international business investments, allowed for extensive travel and a world view for commerce. Hall is the publisher of BREAKING ALL THE RULES. Contact [email protected]