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Posted on 04/02/2012 4:01:06 PM PDT by DeaconBenjamin
There are two major trends taking place that are shaping up as a recipe for disaster. On the one hand, we have massively indebted governments around the world desperate for tax revenues and, on the other, steadily growing multi-trillion underground economies whose main goal is to avoid paying them.
According to a recent study, the amount of uncollected tax revenues in the U.S. is estimated around a whopping 500 billion dollars per year1—enough money to bailout most of Europe.
At 8 percent of GDP, the underground or shadow economy in the U.S. is much smaller percentage-wise than other nations like Greece (25 percent), Italy (27 percent), or Thailand (70 percent)2, yet, given our overall size, America's untaxed economy is larger than “the official output of all but the upper crust of nations across the globe…bigger than the GDP of Turkey or Austria.”3
Question is: How long will the government allow this to last?
When times are good and the economy vibrant, there is less incentive to crack down on tax-evasion; but now, unemployment is at all-time highs, income and property taxes have fallen dramatically, and the government is supporting an increasingly large and record number of people through a wide range of benefits.
Desperate times call for desperate measures
In an interview with Jim Puplava titled “Never Underestimate the Desperation of a Broke(n) Government”, world renowned economist, Martin Armstrong, cites numerous examples of how the U.S. is following a well set historical pattern where, inevitably, the “government is going to be much more aggressive to tax people, chase them down, and put them in prison.”
Just recently, noted author and blogger, Charles Hugh Smith, cited how California—a case-study for high taxes, regulation, and smothering bureaucracy—automatically seized funds out of a previous resident’s bank account for not filing taxes in the year 2006—five years after he had long moved out of state. In response to this incident, Smith writes, “What is entirely believable is that the state of California, desperate for revenue, is churning out dubious income tax claims stretching back years and collecting the money without due process.”4
If true, and these types of aggressive acts are to become more common, it should be fairly obvious that they won't achieve the desired results. As taxes are raised, regulations and filing requirement made more stringent, more and more people will merely leave the system. Eventually, the government will have to think of a different way to collect.
We could change current tax laws and make it less burdensome but, when given a choice between simple or none, most people would rather choose none; and since many realize that by doing everything in cash their transactions are virtually untraceable, the risk of getting caught is quite tiny compared to the benefits of keeping much more of their income.
The only option left is to remove the very thing that fuels the underground economy in the first place.
Cash becomes illegal
Consider Italy Intensifies Its All-Out War on Tax Evaders
In addition to banning cash transactions, [Italy] has included an ad campaign comparing tax evaders to parasites. There have been headline-grabbing raids on stores, hotels and restaurants in affluent Italian cities. For good measure, tax officials have also been stopping luxury cars and asking drivers to show their licenses, then using the information to pull their most recent tax returns.
Recently, best-selling financial author and well-known investor, Doug Casey, offered his perspective on this issue by pointing out that “governments hate cash for lots of reasons…it costs a couple of cents to print a piece of paper currency, and they have to be replaced quite often. As the US has destroyed the value of the dollar, they’ve had to take the copper out of pennies, and soon they’ll take the nickel out of nickels. Furthermore, with modern technology, counterfeiters—including unfriendly foreign governments—can turn out US currency that’s almost indistinguishable from the real thing. And the stuff takes up a lot of space if it’s enough to be of value. So sure, governments would like to get rid of tangible currency. They’d like to see all money kept in banks.”5
Italy or Sweden?
Aside from how governments personally feel about cash, some societies are choosing to abandon it voluntarily. As recently reported by the Associated Press, cash only represents 3% of Sweden's entire economy—a trend that isn't being enforced through law but rather embraced by a strongly technological and innovation-loving people.6 No "headline-grabbing raids", automatic seizure of bank funds, or stopping luxury car owners to check their most recent tax returns. Then again, Sweden is also known for having the highest tax rates in the world.
Although the total amount of money changing hands in America's shadow economy is quite massive, again, with respective to our total economy it is fairly small—about 8 percent of GDP. Given the sheer convenience and accessibility of electronic payment options almost everywhere you go, the transition towards a cashless society is certainly "in the cards."
However, given the diversity of America's population, our strong desire for privacy and longstanding hatred towards taxes, there will always be a strong demand for some form of cash or non-traceable currencies—something I doubt the U.S. government won't try to supervise or restrict.
Resistance is futile. You will be assimilated
Given the trends taking place, a hot or cold war against non-traceable decentralized forms of currency is almost inevitable. Like Italy, the U.S. could hit such transactions head on and declare them illegal—although not without a massive uproar. On the other hand, the government could take a more indirect and technological approach that forces compliance overtime.
Specifically, we should expect to see some form of the following if the U.S. made a goal of collecting the estimated $500 billion in potential tax revenues:
Make cash transactions illegal
Merge all your information into one account and flag for any discrepancies between income and expenditures
Make it impossible to receive any form of government-provided or government-regulated assistance (Social Security, Medicare, health insurance, bank loans, credit, etc.) unless all taxes are current and accounted for.
Obviously, if cash transactions were made illegal it would be very hard for anyone operating outside the system to freely exchange goods and services within the wider economy. However, it’s very easy to transfer cash balances onto a stored value card and then use that instead. Also, people could start using gold, silver, Bitcoins, or any other form of decentralized payment methods within various sub-networks.
For the second option—merging all your information into a database—this would further help in cutting down uncollected revenues but would also require voluntary participation by most non-regulated providers of goods and services. You would also expect to see a large number of costly and intrusive audits for those operating businesses on a cash-basis.
The last option—slowly making it impossible to receive aid, loans, insurance—would effectively strangle the shadow economy into submission and mitigate the chances of a revolution by declaring war on decentralized methods of payment. Incidentally, I believe a very eye-opening glimpse of what's truly in the works was revealed when the Social Security Administration released a report highlighting the Big Brother right-to-access approach in conjunction with various other government agencies.
Consider SSA seen going 90 percent electronic
The Social Security Administration has little choice but to move toward a goal of processing 90 percent of all transactions electronically in the coming decades, according to a new report adopted by an SSA advisory panel...
The “Re-imagining Social Security” report was published recently on the panel’s website after being adopted by the group at a meeting in May.
In practical terms, the full picture of SSA's electronic processing would mean that hospitals would create an electronic medical record for each birth and communicate data about those births to SSA, which would set up a password-protected electronic account for each child.
Thereafter, as adults, people could log into their personal SSA account to verify information for jobs, name changes, widowhood, disability and retirement. Furthermore, SSA would communicate electronically with Medicare and with private doctors and hospitals to obtain patients' medical information if needed for a disability or benefits claim.
The proposed birth-to-death electronic system described in the report does not exist. The envisioned medical data-sharing network is based on the Health and Human Services Department’s Nationwide Health Information Network, and the job-verification system is based on the Homeland Security Department’s E-Verify, neither of which is widely used [currently]. More spending would be needed to create the necessary systems and networks, the report states...
To serve the small percentage of people with complex transactions or those who are unable or prefer not to use newer technologies, SSA should look into creating joint service centers with other federal agencies, such as the Internal Revenue Service, the report states. (emphasis added)
There you have it: the merging of all your information (and money?) into one easily accessible electronic file. Want to get Social Security or other benefits? Apply for a loan? Get health insurance? You’re going to have to be part of the system. Otherwise, except to hear from the IRS!
References
[1] America's Underground Economy: Measuring the Size, Growth, and Determinants of Income Tax Evasion in the U.S.
[2] Hiding in the Shadows: The Growth of the Underground Economy
[3] America’s ‘shadow economy’ is bigger than you think – and growing
[4] Welcome to the Predatory State of California—Even If You Don't Live There
[5] Doug Casey on Cashless Societies
[6] In Sweden, Cash Is King No More
Prepper/SHTF ping....
The shadow market is the free market.
Kill the shadow market and you’ve killed the free market.
And you’ve created a world in which, to be free, you must be an outlaw.
>> “America’s untaxed economy is larger than “the official output of all but the upper crust of nations across the globe” <<
.
If it looks like Bullshit, smells like bullshit, and sounds like bullshit......
A cautionary article, worthy of a read (not as long as it looks). I am reminded of the “Big Brother” devices insurance companies want to put on your vehicle.
But this one grabbed me from a different direction:
>>Make it impossible to receive any form of government-provided or government-regulated assistance (Social Security, Medicare, health insurance, bank loans, credit, etc.) unless all taxes are current and accounted for.<<
Two words on that one: HELL YES.
The government has to confiscate wealth at some point. It is already doing so through the Federal Reserve and maney printing. But even that won’t be enough.
It is pretty clear that we have been in a civil war over debt slavery to the welfare state for a couple decades. It doesn’t even matter who is in power now, because to get the budget near balance, Congress would have to cut at least a $Trillion per year from the budget, causing massive layoffs and a huge drop in GDP. That isn’t to say this must not be done, because welfare state spending is a false GDP, but just that the cuts won’t be done for fear of riots. So the only way back from the abyss (austerity and a return to market signals) guarantees conflist (see Greece and Spain).
The federal Reserve now papers over 40% in tax revenue shortfalls and has created a biflationary depression of deflating wages and home prices along with the inflation of food, fuel and commodities. http://www.futurnamics.com/biflation.php Of course this situation is intolerable long term, no matter how much Monopoly money Helicopter Ben distributes, just as bread and circuses did nothing for the Romans.
We my be legally obligated to pay taxes to support the welfare state, but our children are not morally obligated to be the slaves of their spendthrift elders. Hence revolt is inevitable. Obama and progressives have been running a subliminal civil war to overthrow the Constitution and preserve their model of Eurosocialism. They use proxy armies of unionion brownshirts, OWS anarchists, illegal aliens, and race baiters like the flies surrounding the Trayvon Martin debacle. But in the end, this civil war is unlike CWI because the territory to be held has shifted to the Internet which is not so easily taken (see FreeRepublic, ZeroHedge for freedom). This isn’t your great-great-grandaddy’s civil war, but it is still over debt slavery to the welfare state. http://www.futurnamics.com/civilwar.php
The only silver lining is that we go to something like Bitcoins, a cyber currency. But in the interim, it is time to Go Galt. http://www.futurnamics.com/goinggalt.php
CRAP!!!
I meant HELL YES on government BENEFITS — any and all forms of welfare. The rest, HELL NO!
I am going to get toasted from people who stop at my first post.
*sigh*
Anyone can read the warning in Revelation about the Mark at the end of chapter 13. But notice that the sanction is economic- those without the Mark will become economic outlaws and forbidden to participate in the normal economy.
Such people will not be able to hold legal jobs or even own a home because they will be unable to pay taxes, insurance and utilities. Even today, parents in a home without running water or electricity face State seizure of children for having a “unsafe” household.
A cashless society implies real-time debit card use. This means the State would be able to monitor all card use in real time. Thus a person might find they are suddenly denied access to their “money” because they became a person who was no longer authorized to use their card.
And we have God’s promise this is some time in the future. Happily it is a system that cannot last long.
America was built on essentially a universal underground economy. It was all shielded from the government. How far we have come in losing basic understanding.
I’m surprised at the number of acquaintances who went ‘Galt’ (closed their businesses) and have actually increased their net worth. The innovative American Spirit cannot be kept down, just used in other ways.
Personnally, we’ve gone ‘Slow Roll’.
Hmmmmm, Let's see (for it is the number of a man.)...
6+6+6 = 18, 1+8 = 9
How many numbers in YOUR SSN?
” It was all shielded from the government. “
Undergrounders still pay plenty in taxes - sales taxes (and underground businesses, not being properly licensed, don’t get exemption from sales taxes on their purchases of materials and inventory for resale) and property taxes (don’t think renters pay property taxes??), and all of the other exise and ‘sin’taxes that our ‘betters’ are so eager to impose...
BTW, try to go get a bank account, credit card, or job without your number...
bump
If American cash disappears, shift to Pesos or Canadian dollars or silver coins.
0-care, the EPA and the other countless bureaucracies will accelerate the underground economy. Physicians are dropping out of Medicare and insurance and setting up hybrid and cash practices. Contractors that want avert EPA scrutiny use cash to reduce the paper trail. And we all know that the underemployed do small cash jobs to keep their reportable income down.
Obviously, hyperinflation would reduce all savings including cash and bring back metals, barter or some new global digital currency. You do have a choice between your right hand or forehead.
And what's the cost of trying to collect it....3 times that? Starve the beast. It's the only way we are going to kill it.
And what's the cost of trying to collect it....3 times that? Starve the beast. It's the only way we are going to kill it.
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