Underground Economy

1 This year around the April 15th deadline, tax-paying Americans should have realized that they were paying more in taxes than they should have. More and more people are evading the International Revenue Service, employers and workers alike. Americans are reverting to the underground economy, where tax-evaders, illegal workers, prostitution, and drug rings are abundant. This type of hidden income made by these activities go unreported in the national income, and has become accepted as the status-quo all over the world. The Underground economy is difficult to control, but can be managed with well thought out tax plans, and more severe punishment. In the years leading up to 1965, the marginal tax rate was 17 percent. In just 15 years, the rate rose to 24 percent in 1980. Consistent tax hikes create a resentment for the system. To avoid these tax increases, many Americans chose to slide into the underground economy, where the tax rate is non-existent. There are many ways to become a part of the underground economy: the most common of all is underreporting taxes. During the 1960's and 1970's, the United States Government wiped out millions of jobs. Hans F. Sennholz states, " It forcibly raised the cost of labor through sizeable boosts in Social Security Levies, unemployment taxes, workman's compensation expenses, occupational safety and health act expenses, and many other production costs" (Sennholz, 10). These two extremes, rising unemployment and falling incomes, led to many people reverting to "off the books" employment. Economists disagree as to what is classified as the underground economy. Some
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say that it is compromised of everything not reported to the IRS, along with all other possible criminal activities that yield an income. Others have a different view of what compromises the underground economy. These economists say that it consists of only law-abiding citizens who seek shelter in the underground economy because the government