Aboveground economy
Over the last few weeks (and months) we've heard more and more about raising taxes on the "rich." We've also heard more about how the cutoff point for those increases ($250,000 in income) is likely to impact small business owners, most of whom are not incorporated, and who report their earnings on their personal income taxes.
So I got to thinking about how folks might try to get around paying these new taxes, and it occurred to me that for a small business, the IRS really only knows what your income is because you tell them! Think about it. When you own your business, you don't get a W2 from your employer - you don't have one. You are required to report how much you earn, and theoretically the IRS could do an audit and check your bank accounts to see how much went in.
But what if you avoided all that? I could envision an enterprising you business person opening something like a coffee shop, one which only accepts cash. Nothing wrong there - you have to pay for the credit card machine (an extra cost) and most people don't carry checks. Similarly, if he had employees, he pays them in cash - no payroll taxes, so they get to take home more. And if he doesn't deposit his earnings in the bank, there is no electronic trail to follow to show he even earned money!
Granted for some things, using cash would be a pain, like ordering his supplies. But in that case, banks sell cashier's checks, which also leave no trail pointing to our entrepreneur. This would certainly be more cumbersome than our customary electronic transactions, but for the life of me I can't find a major flaw in the theory.
I wonder if we will see something like this sort of illicit aboveground economy emerge as Congress continues to do what it does best - steal every last dime it can from the taxpayer.