The "underground economy" hurts government and private businesses. It directly affects government’s ability to fund public services such as education, public safety, and human services. It also undercuts legitimate private businesses. It is imperative—especially in hard economic times—for state governments to take action by holding tax cheats accountable.
Employers who pay an employee under the table or misclassify an employee as an independent contractor, do not pay their allotted taxes and avoid other payroll obligations. This results in billions of dollars of lost revenue to state governments that would be used to provide essential public services.
The underground economy also puts law-abiding businesses at a disadvantage in the marketplace. Tax cheats gain an unfair advantage by not paying their share of taxes and fees. This can result in legitimate businesses shutting down.
Consumers are also affected by an underground economy. In many cases, consumer services such as home repairs and improvements are performed without proper licensing, bonding, insurance, safety, or quality—leaving little or no enforceable remedy for disputes.
In Oregon, the Department of Revenue has determined that unreported income amounts to an $18.3 billion underground economy. That represents 11.5% of Oregon’s total gross domestic product. The $1.25 billion in lost revenue to the state results in higher taxes for law-abiding citizens.
It is time for state government to be accountable to taxpayers and law-abiding businesses by enforcing our tax and employment laws.
In our haste to prevent employers from making under-the-table payments, we forget about the unintended consequences of such a crackdown on low-wage workers and the self-employed. Worldwide, 1.8 billion people are part of the "informal workforce," according to the Organization for Economic Cooperation & Development.
U.S. workers who may be paid under the table include our nation’s 7.4 million food and beverage workers, whose median wage is $7.14 per hour including tips, and maintenance workers, whose median annual income in 2006 was $19,930. In the U.S., 10.7% of full-time service workers were classified as the working poor, according to the Bureau of Labor Statistics. The reality for all of these people, and those they work hard to support, is that every penny counts.
Opportunity@Work recently released the Family Bottom Line, a study charting how much it takes without government assistance for families to get by, relative to where they live. The study found that a family with two adults and one preschooler in Omaha needed $33,191 a year. And we know from experience that many families fall well below this line (even as some point to Nebraska’s high employment in the face of this recession).
While we would never advocate tax evasion, we know a growing array of families that don’t make enough despite their hard work. Punishing low-income and low-wage Americans trying to support their families, by asking them to carve out even a percentage of $20,000, could send them over the edge into homelessness, a cycle of poverty, or worse.
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