The Cash Economy

[Number Six]

Perhaps some expert on income taxes and the cash economy can illuminate me. Sellers of used merchandise I can understand if the item is not big money. But when contractors, vendors and store fronts routinely insist on cash and will not take any alternative it's fishy business. A local pet store was driven out of business for understating its gross--a local accountant had a customer, a local painting company that was contacted for the same violation--"You claimed 100K in gross sales, but we saw 300K go through your bank account: you've only been in the country a short time so we'll go easy on you..."

I wonder how European countries and Canada deal with the cash economy.

[Demosthenes]

I wonder how European countries and Canada deal with the cash economy.

They don't. Tax cheating is a national sport in places like France and Italy.

The extent that they go to avoid reportable transactions is pretty funny. For example, when I purchase a piece of art from eBay France (http://www.ebay.fr), I fully expect that the vendor will accept cash only (in Euros) as payment. This means that I have to mail enough euros by mail to the vendor to cover both the item and the shipping. That raises two issues for me - 1) do I trust the vendor not to pocket the money and 2) if I'm going to do a lot of online shopping from places like France, I'd better keep a lot of euros on hand.

[Number Six]

Thanks for that anecdote, Demo.

Here's another paradigm problem: Small businesses have been perplexed on employee expense and tax compliance. A lot of them have dealt with the issue by claiming that workers are "self-employed" therefore responsible for their own insurance, social security, etc. Only workers don't fit the legal category--they don't make their own work hours and provide their own tools, etc. I knew several born and bred locally, nailed by the government.

Accountants see small service businesses, struggling to compete paying workers cash--so it's up to the worker to declare what he/she wants to. No real incentive for the worker to balk, no record likely for legal enforcement. Illegals or marginally legal workers have been successful in suing businesses for non-payment of cash wages, it usually takes a class-action suit, though.

[Demosthenes]

Small businesses have been perplexed on employee expense and tax compliance. A lot of them have dealt with the issue by claiming that workers are "self-employed" therefore responsible for their own insurance, social security, etc. Only workers don't fit the legal category--they don't make their own work hours and provide their own tools, etc. I knew several born and bred locally, nailed by the government.

Big businesses play the same game. Do a Google search for Fedex Home and independent contractor.

CPA says small service businesses are largely paying workers cash--so it's up to the worker to declare what he wants to.

Of course, the employer can't deduct the employee's wages unless the employer reports those wages to the IRS.

[LaVidaRoja]

The rub comes home when the employee is laid off and tries to collect unemployment. That's when it is discovered that the employer has no employees, no withholding, no FICA or FUTA paid in. The State (who handles the unemployment compensation) may do an investigation. The employer goes BK or otherwise ceases to do business under that name; and continues the same pattern with new "non-"employees

[absdes96]

Perhaps I am just as much a culprit in some scams as much as I am an advocate of honesty and integrity in business?

Being that my spouse is a naturalized citizen from Latin America, she is well-connnected with the Latin American community where we live. We give people the chance to make money all the time....babysitting, assistance with projects on the house, etc. It is expected that we pay cash (and we do pay generously) when we need a babysitter or if I hire someone to help me to do dry-walling for my home.

I honestly think that many good (and priavte) business activities between citizens would be hampered if we went to a purely electronic currency system - garage sales, second-hand consignment shops, paying a young boy $15.00 to mow my lawn so that he can raise money for boy scouts, etc. Not to mention the many roadside and store front "cash only" restaurants in cities like Chicago where one can get some GOOD FOOD.

[Number Six]

The issue is reasonableness, extent of non-compliance, $$$ involved, and so forth.

Front page article in local paper yesterday, Stamford Advocate, "Day Laborers Sue Subcontractor Over Wages". 250K lawsuit. Called reporter to inquire. Were workers legal, were they paying taxes? Lawyer was ambiguous on issue. Disgruntled worker reluctantly sued when he was injured and in a bad way. Agreement was $13 dollars an hour; $10 wage would be paid because of "check-cashing fee". Whistleblowing is bad for one's mojo and work karma, they are reluctant to squeal.

The law allows workers to be tried out for a while, but after a good match contracts become implicit.

Dante: "Necessita il c'induce, e non diletto."