But It'll Be Cheaper if You Pay Cash
Believe it or not, the underground economy is bad for you, for your business...and for God
Sure. Faithfully observing every government rule and paying every tax doesn't always feel like the smart thing to do. After all, government rules don't always make a lot of sense, and just look at how they spend the tax dollars we do give them. All that's true. I mean, it's a government: were you really expecting perfection?
Nevertheless, there are some serious reasons why people should reconsider their participation in the underground economy. And the sooner they do, the safer they'll be.
First, though, just what is the underground economy? Here are a few common examples:
When a retail or service business asks you to pay them in cash and doesn't offer any kind of invoice or receipt, it means they're probably not planning to report this income to tax authorities. And it probably also means that they're not going to remit legally required sales taxes.
When a small business owner pays his workers with cash and doesn't ask for their social security numbers it means, in the US at least, that he's not planning to remit payroll, unemployment, and Medicare taxes.
When a renovation contractor promises to cut corners and save you money on building permits and inspections, it means he's willing to build without regard to safety codes; increasing the chance of a lethal collapse or fire months or years later.
For the most part, I'm going to ignore the strong halachic and moral issues involved with this behavior. If you're interested, that's all nicely presented in this online resource. But, from a purely practical perspective, what's the big deal with living our lives using cash-only as long as we can get away with it?
Because you almost certainly won't get away with it.
Risking it all on cash
Cash has its own problems. Carrying around thick wads of it exposes you to the risk of catastrophic loss or theft. But that's not a new problem. What is relatively new is how cash is so often used to avoid legal scrutiny.
Keep in mind that doing everything "off the books" means that there will be no books, no invoices, and no receipts. Is that so terrible? Shouldn't we be able to trust each other?
Did you know that 30% of large-scale construction projects end in dispute? We’re talking about relationships between trained project managers, subcontractors, and corporate clients in an industry where clarity and watertight contracts are active goals. Just imagine how things might work out between, say, a young handyman and a homeowner who's never done a renovation before.
With the best of intentions, things are going to go wrong. And not everyone has the best of intentions. Scams are everywhere, in every community (does the phrase "Ponzi scheme" ring a bell?).
If you've got invoices and a solid paper or digital trail to consult, you'll have a chance at defending yourself. But if everything's off the books, there won't be any paper. Forget about a refund if that new appliance dies after a couple of months. And workers can find themselves unable to access employment, health, and safety benefits when they most need them.
Here's something to think about. There are many business owners who would love to be honest and to faithfully comply with the rules. The problem is that dishonest competitors - whose shortcuts and tax avoidance allow them to charge much less - make that impossible.
One person’s poor choice has serious implications far beyond his own business. Each of us exists within a larger community.
Playing with insurance companies
There's nothing stopping you from telling your insurance agent that your car is only for personal use when it's actually used for making business deliveries. Similarly, you can keep your old residential home insurance even when you open a daycare business in the house and no one will say a word. Such dishonesty is another type of underground economic behavior.
The trouble only starts if you need to make a claim. Insurance companies, as a rule, aren't stupid. They'll ask you why, according to the police accident report, your van was carrying $10,000 worth of merchandise and parked next to a warehouse loading dock when it was hit. Or why two-year-old children of ten different families were in the house when the fire broke out (especially since local by-laws probably limit home daycares to five children).
You could try to lie about it and then figure out how to live with the guilt of having taken hundreds of thousands of dollars on false pretenses. But, more likely, your claim will be refused and you'll be stuck with a significant financial loss (and possible criminal liability).
Why bother paying for insurance policies in the first place if your dishonesty means you'll probably never be able to make a claim?
The secret everyone knows
Some will argue that going through life "off the books" is a victimless crime. “No one will even notice it's happening,” they'll say. Well, for one thing, in many ways all of us are victims of these crimes. But besides that, these days, more than any time in history, the biggest victim of the cash economy is the guy with the cash: you.
It's all about computers and automation. Using the tools of digital surveillance, governments and financial institutions have access to details of the lives of all their citizens at levels unimagined even a few years ago. This may be a good thing or a bad thing, but it's definitely a thing.
I'm not talking about the millions of surveillance cameras installed on every block of every modern city. Although those, too, can be co-opted into the effort. What I'm primarily referring to is what governments can do with digital transaction records.
Every credit card swipe at a gas station, visit to amazon.com, web search, and dentist appointment leaves a trail. Governments are getting better at integrating the data held by law enforcement agencies and tax and health departments at multiple levels with financial and other private sector institutions. There's so much data describing every single human being alive in any western country today, that it's pretty much impossible to hide criminal actions
Ok. But is there really someone reading through all this stuff waiting to catch you? Of course not. Nor does there have to be. Data analytics software is used to automate the search for anomalies and, when something big enough is found, to alert a human being. In many ways, governments know a lot more about us than you might think. In fact, as a rule, they know a lot more than even they're aware.
Not only can those automated processes spot illegal transactions, but they can also identify the unexpected absence of legal transactions. What I mean is the software can tell when someone is spending more money than his declared income would suggest is possible. These are called indirect verification of income tests.
Don't think this is happening? I once read about how the Israeli tax authorities went after families who rented chasuna halls and paid caterers using many thousands of shekalim that their tax returns claimed didn't exist. This is the kind of thing all governments are doing more and more. And they're getting better and better at it.
"Well OK," you might ask, "I've been doing x and y for years. If they can see me doing it, why haven't they come for me yet?" Mostly, I would suggest, that's because they don't have the resources to actually prosecute so many low-level crimes. Yet.
The hated and feared head of Joseph Stalin's NKVD, Lavrentiy Beria was reported to have boasted: "Show me the man and I’ll show you the crime." That is to say, if there's anyone the state wants silenced or imprisoned, I'll be able to come up with a legal justification. We live in an age where public prosecutors have been known to go after people for political or personal reasons. Do you really want to leave extra ammunition lying around that could, should you ever attract the wrong attention, be used against you?
In any case, over the years and to our great shame, there have been plenty of arrests and convictions within our communities - especially the most visibly "religious" of them - for just the kinds of crimes we're discussing. They all thought they were invisible, but they obviously weren't
The biggest victim, over and over again, has been God and His hopes for the greatness of His people. After all, if we really believed that He was the source of our parnassa, would we be to quick to subject Him to this kind of humiliation?
For many independent bussinessmen working and paying taxes of 50% doesn't make sense.