President Obama’s Bad Economic Policies are Pushing the Economy Underground

Posted by PITHOCRATES - April 28th, 2013

Week in Review

Proponents of cuts in tax rates and less costly regulatory policies say it will encourage rich people to keep their money in the country.  Investing in plant and equipment.  Instead of investing it overseas.  Giving business the capital they need.  And the profits investors seek.  And history has proven this theory.  Proving that tax and regulatory policies drive the decision making process.  For investors.  Employers.  And workers (see $2 Trillion Underground Economy May Be Recovery’s Savior by Mark Koba posted 4/24/2013 on CNBC).

The shadow economy is a system composed of those who can’t find a full-time or regular job. Workers turn to anything that pays them under the table, with no income reported and no taxes paid — especially with an uneven job picture.

“I think the underground economy is quite big in the U.S.,” said Alexandre Padilla, associate professor of economics at Metropolitan State University of Denver. “Whether it’s using undocumented workers or those here legally, it’s pretty large.”

“You normally see underground economies in places like Brazil or in southern Europe,” said Laura Gonzalez, professor of personal finance at Fordham University. “But with the job situation and the uncertainty in the economy, it’s not all that surprising to have it growing here in the United States.”

Estimates are that underground activity last year totaled as much as $2 trillion, according to a study by Edgar Feige, an economist at the University of Wisconsin-Madison.

That’s double the amount in 2009, according to a study by Friedrich Schneider, a professor at Johannes Kepler University in Linz, Austria. The study said the shadow economy amounts to nearly 8 percent of U.S. gross domestic product.

Some workers in the construction industry prefer doing side-work rather than going into business themselves.  Because they don’t want to deal with all the taxes and regulatory costs.  So they do work through word of mouth.  At discount prices.  Because they aren’t paying union wages, health care, payroll taxes, insurances, etc.  They get their buddies to work for them under the table at discount wages.  Which they don’t mind.  Because they keep every cent they earn.  Paying no payroll taxes.  Or income taxes.  Money under the table is pure profit.  Gross pay that remains gross pay.  Allowing them a lot of purchasing power at a reduced wage.

Working under the table means people earn little compared to other jobs.  But because it’s tax-free and regulatory-cost-free employer and employee can both earn less and still have enough purchasing power to make it worth their time.  And during bad economic times everyone is trying to get by on less.  Which they can do if they cut out the taxman.

“The jobs are in service industries from small food establishments to landscaping.” said David Fiorenza, an economy professor at Villanova University. “Even the arts and culture industry is not immune to working off the books in areas of music and entertainment.”

It also includes firms that hire hourly or day construction labor, information technology specialists and Web designers. Many who have a job that doesn’t pay enough take another one that pays under the table…

A report from ADP Research Institute states that many employers, especially in low-wage businesses such as retail and food service, plan to reduce workers’ hours to less than 30 a week to avoid having to offer health benefits through Obamacare (or pay a fine).

“This type of regulation could put more people out of work and into an underground economy,” McHenry said…

“Those working and not paying the taxes puts the burden on those who pay the tax,” added Fiorenza. “Taxes could be lower if the government where able to capture the underground economy instead of raising taxes on those currently paying the various income and payroll taxes…”

“People are running out of patience when it comes to finding a job and losing income,” Gonzalez said. “So it’s not that surprising to have workers take jobs that are in the shadow economy. But it’s a sign of how bad things are and how we have to get the real economy moving again.”

It was the high taxes and regulatory costs that pushed these people into the underground economy.  If the Obama administration would cut taxes and reduce costly regulations—especially Obamacare—people would move back into the regular economy.  For the regular economy will have pay and benefit packages that workers can’t get working under the table.  And if they can get that working a normal 40-hour week they’re not going to want to spend their nights and weekends doing side work.  For life is too short.  And all work and no play isn’t good for our wellbeing.

People don’t like paying high taxes.  They don’t like having to work a second job under the table because of the tax bite out of their primary paycheck.  Or because that’s the only work they can find because of bad economic policy.  That makes hiring people bad business because of the costs.  This is why we have an underground economy.  Because of the redistributive policies of the Obama administration.  That President Obama is using to change America into a European-style social democracy.

Europe is rife with shadow economies.  As employers and employees try to escape confiscatory tax rates.  And brutal workplace rules.  That have pushed the economy underground in many areas.  So it is no surprise that when we adopt European policies that we should get European results.  The whole point of the European Union and the Eurozone was to replicate the American economy.  A large free-trade zone that fostered great economic activity.   Making the United States the number one economic power in the world.  And here we are.  Adopting the worst Europe has to offer.  The same policies that have plunged the Eurozone into a sovereign debt crisis.

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