Sunday, August 16, 2015

Pay Your Damn Taxes

Yesterday I went to a farmer's market.  After buying tomatoes, peaches, Brussels sprouts and figs, I found a sun hat that I liked and asked the vendor whether I could pay for it with my credit card.

"If you pay cash, it'll cost $25," she said.  "But I'll have to charge you sales tax if you pay by credit card."

"Let's do this legally," I said.  

The sales tax in our California town is a ridiculous 9.5 percent.  I don't like paying it, but I'm not willing to collaborate in fraud to save money.

More and more these days, though, I feel like a sucker.


Here are some of the people and businesses that have asked me to be paid in cash for goods and services in recent years:

Golf pros
A religious tutor
An optometrist
Manicure shops
Car repair shops
A driveway coating service
Several house cleaners

I'm sure there are others that I'm forgetting; the phenomenon has become so common that I've lost track.

In our family, we have a deal.  We pay all our taxes, including the ones we don't like.  We expect people who do business with us to do the same thing.  And now we tell them so.


Nobody has any idea how big the underground economy is in this country.  Some researchers think it doubled, from $1 trillion to $2 trillion, between the beginning of the Great Recession and the end of the 2012 fiscal year.  

There are interesting data points that suggest that under-the-table activity has been increasing.  One is that the amount of cash (dollar bills and the like) in circulation grew by 50 percent between 2007 and 2012, much faster than inflation and counter to an assumed trend that credit cards were fast replacing cash in daily transactions. Another is that consumer spending has increased even in periods where official job growth has been nil or very low.  

If the underground economy held flat at $2 trillion from 2012 to 2014 (and my guess is that it actually grew), taxes collected would have increased by an estimated $400 billion to $500 billion.  The 2014 federal deficit, $485 billion, might have been a surplus instead.   

So we're talking real money here. 


People working in the underground economy include immigrants without papers, people who "can't afford" to pay their taxes and people on disability looking for income that won't disqualify them from receiving benefits.  And then there are the small contractors who quote one price for on-the-books work and a lower price if payment comes in a check made out to "cash."

You can understand why people would do this.  Taxes take a big bite out paychecks now.  If you are self-employed, 15.3 percent of what you make goes straight to Social Security and Medicare contributions.  In California, state income taxes kick in at 8 percent around $40,000 and 9.3 percent at $50,000.  Then there are federal taxes.  

Plus, if you keep your reported income at a low level, you become eligible for health insurance subsidies and earned income tax credits.  (Between 22 percent and 40 percent of EITC payments are estimated to be sent to people committing fraud, which over time is likely to weaken support for a program that intuitively seems like a pretty good idea.)

It also is probable that employers who pay workers in cash -- who cut corners -- may not be highly ethical.  If you get injured on the job, there will be no workers comp insurance to cover you until you can go back to work.  If the employer decides not to pay you his or her promised wage, you won't have legal recourse to collect the money you are owed.  


People tend to get defensive and rationalize unscrupulous behavior.  

In cases where they don't want to pay taxes or child support payments, they claim poverty. Times are hard when money is short, I know, but I reported every single dollar of my free-lance income during years when I was an underpaid ink-stained wretch.  My sympathy is limited.

I have even less patience for people who hire workers under the table.  Several years ago, one of the wealthiest women I know recommended a contractor to me.  When he insisted on being paid with checks made out to cash, I told him no and called her back to ask what she had been thinking.

"Well, I pay my housekeeper under the table," she said.  That seemed to be the extent of her reasoning.  I ended the call.

Later I wished I had pointed out that her family certainly had an accountant who could have drawn up the necessary tax forms.  It easily could have paid both sides of the housekeeper's payroll taxes to give the woman Social Security in her retirement.  Heck, this family could have provided the woman with health insurance and not missed the money.  

But no; cheating was easier.


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