The underground economy

Discussion in 'Economy' started by alan1, Jun 5, 2009.

  1. alan1
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    alan1 USMB Mod Staff Member Supporting Member

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    I’m just kind of curious if the underground (or hidden) economy is suffering from the recession?
    For example, I’ve got a neighbor that mows my yard. He’s semi-retired, and I pay him in cash. He also mows other yards in the neighborhood. I know he doesn’t declare that income on his taxes.
    Another example, my daughter has a fulltime job but she also does photography. Some portraits, a wedding now and then, some boudoir stuff for women that want to give something special to their husbands. She doesn’t declare that stuff on her taxes.

    It’s a hidden bit of economic activity that is occurring.

    So far, my neighbor is still getting paid by me, so far my daughter is still doing her photography on the side, neither of them has taken a pay cut or “unemployment” status from their jobs hidden from the economy. But this is just a limited example that I have some knowledge about and I don’t know that it is representative of the underground economy at large.

    Then, we have the illegal drug business. Are those guys losing sales or making less money? I don’t want to dig too deep into that, but I am curious about it.

    What about people that are officially unemployed? How many of them are now doing things like mowing somebody’s yard, fixing the neighbors computer, cleaning houses, or some other random jobs (paid in cash and under the table) while they still collect an unemployment check?

    I suspect the underground economy (undeclared income) is probably growing right now. Little things like the guy that used to build tract homes is now doing side jobs under the table for his neighbors, you know, building a deck or re-tiling a floor. I could give a lot of other examples, but I’m sure you can think of your own.

    Anybody have any information, ideas, or thoughts about how the underground economy is doing right now?
     
  2. random3434
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    random3434 Senior Member

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    Teachers that tutor (outside of school)

    Baby sitters

    Garage Sales


    Alll not taxed, thus "underground" economy.
     
  3. alan1
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    alan1 USMB Mod Staff Member Supporting Member

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    Millions of examples, but is the underground economy struggling in your opinion?
     
  4. random3434
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    random3434 Senior Member

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    Well, personally, I would think it would be. If you're cutting back, you're going to cut back with the lawn mower guys, and do it yourself. Tutor your own kids, not go out as much, so you don't have to pay a sitter. I guess the only booming thing would be garage sales, people make $$ selling their stuff, others save $$ buying your junk!
     
  5. RodISHI
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    RodISHI Gold Member

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    I asked an IRS official once about reporting art income where I spent actually most of if not more than I made on art supplies.... she it was a hobby. When I started doing over five grand a year in artwork I reported it along with other income.
     
  6. alan1
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    alan1 USMB Mod Staff Member Supporting Member

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    That might be to legalistic. Coming from an IRS agent, they typically allow a "small business" to declare operating losses for 2 consecutive years, then it's called a hobby and no longer a tax deduction. In your case, selling art. In other cases it could be something like raising parakeets and selling them to a pet store, after 2 years of losses, not a business anymore, but a hobby. On the flip side, if you make money at it, then it is considered a business.
     
  7. RodISHI
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    RodISHI Gold Member

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    I thought it was more that I actually owned and operated a fairly large business and the art was a side project I'd been doing for over ten years two weeks of every year. It was an audit... I'm sure if she thought it was worth tapping me for she could have.
     
  8. alan1
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    alan1 USMB Mod Staff Member Supporting Member

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    OK, a bit of different situation than I thought.
    So, you weren't allowed to deduct the art expenses when it wasn't profitable.
     
  9. RodISHI
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    RodISHI Gold Member

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    I imagine where your daughter has a regular job and does photography on the side now and then it would be the same. She still has expenses to her hobby. Unless of course she takes it as a business deduction with no profits listed over the years.
     
  10. STAND4LIBERTY
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    STAND4LIBERTY Independent Libertarian

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    I would agree with this assessment, however I suspect the most important question would be is it slowing down as much, more, or less than the "above ground" economy? since the answer to that question would reveal much more about the comparison between unimpeded, voluntary transactions between participants versus impeded, often involuntary transactions.
     

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