The Underground Economy - Much More Than You Ever Thought - Accounting Topic

Last year, our think tank was having a discussion about the underground economy. And when I speak about the underground economy I'm talking about all the transactions which occur in cash, and are not necessarily reported as income by the individuals, or small businesses that transact them. In the underground economy we could also consider other sinister activities such as Mafia, illegal drug sales, and the payments to illegal-alien labor.

Now then, today I don't wish to speak to the issues of illegal activity, but rather to legal transactions that take place, where later those individuals do not declare those events or transactions on their taxes. In other words the transactions in cash go completely unaccounted for. You see, in my professional opinion, after watching years and years of this go on, it seems to me some underground cash flow is not all that bad. Because that money circulates in the economy, rather than sitting in someone's bank account.

Yes, it's true that when people don't pay their taxes, it's unfair to everyone else. However if an individual does not involve themselves in a cash transaction, but rather that money sits in a bank, and does not get spent within the timeframe that the money circulated due to the underground economy then that money didn't transfer hands, and therefore didn't do anybody any good. The reality is that even the cash that is transferred in the underground economy, eventually gets re-accounted for when it is spent at a business which does account for the transaction.

Now then, this debate is highly charged, especially when the economy is tough, and various jurisdictions want their tax revenue. Still, so you can understand the argument and debate, there's a very good book that I'd like to recommend to you, and this is a book that I own personally. The name of the book is;

"Off the Books - The Rise of the Underground Economy" by Philip Mattera, St. Martin Press, New York, NY, (1985), 160 pages, ISBN: 0-312-58206-4.

Although this book was written in 1985, and even though most of the transactions now are not in cash rather electronic, many of the same rules apply. And most of the same arguments should also be considered. This book is extremely well footnoted and the author makes an incredible number of great points. Indeed I hope you will please consider this issue, and if the topic is brought up, you might also recommend this book. Think on it.