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WEB-ONLY The 'New' Economy?


By D.A. BARBER | Alternet / Tucson Weekly  01/09/2003


s the economy tanks and unemployment jumps to 6 percent nationwide -
the highest since July 1994, the "underground economy" option is
looking pretty good to many Americans.

Forget the get-rich-quick "Work at Home" ads promising "$300-$1,000
per week. There is an entire realm of underground economy activities
alive and well keeping many individuals and families above water by
dealing in cash payments or services under-the-table and off the
books. Also called "shadow economy" and the "informal economy," it's
a segment many are consigned to at a time when trolling for a decent
paying job has become arduous.

According to a June 2002 International Labor Organization (ILO)
Conference Report: Decent work and the Informal Economy, "There are,
of course, criminal activities in the informal economy, such as drug
trafficking, people smuggling and money laundering. But the majority
in the informal economy, although they are not registered or
regulated, produce goods and services that are legal."

One of the attendees of the June ILO conference was Karin Uhlich, of
the Tucscon-based Southwest Center for Economic Integrity.

"One of the recommendations from the conference was that the ILO
really ought to ensure that specific information is gathered, and by
industry," says Uhlich. "So, I think there is an acknowledgement that
currently there is no private or governmental entity that is doing a
good job of tracking."

And that's the rub: While there are organizations tracking the
underground economy internationally, there is nothing but estimates
domestically.

This underground economy goes beyond the homeless collecting aluminum
cans or clogging day labor halls. It includes the working poor
getting cash for all forms of recycling: giving plasma, selling
homemade tamales outside shopping plazas, holding yard sales, doing
under-the-table work for friends and family, selling stuff at
pawnshops, CD, book and used clothing stores, and even getting tips
from restaurants and bars - to name a few.

The easiest money for healthy individuals who don't want the hassle
of the day labor halls is giving blood.

"We have every range," says Margaret Kolar, front office supervisor
at Aventis Bio-Sciences, Inc., an international plasma collection
company. "We've got computer programmers, engineers, college students
and moms and dads."

Honey Bee Recycling is a metal collection yard open seven days a week
that caters to mostly individuals.

Honey Bee owner Diane Harris says that in her 17 years, she has seen
every walk of life imaginable, from those living on the street to one
customer who drives a Rolls Royce.

"They're coming in on Wednesday or Thursday," says Harris. "One of
the most common comments you'll hear is 'This will get me gas money
until pay day, or diapers for the baby, or milk.'"

The underground economy isn't all about cash. There is also a minor
movement toward barter for services and trading in old stuff for
newer old stuff.

"In stretching their dollar, they're much more inclined to make use
of resale products: used cars, used homes, furniture and clothing,"
says Diane Kramm, CEO of the used clothing chain Twice as Nice.

"Yes, there has been a steady increase in that kind of activity,"
says Kramm. Tucson's five Twice as Nice stores see 50 people per day
per store selling or trading while another 130 people per day come to
buy.

All these examples result in quick, unreported cash or services to
those on the ragged edge. The National Center for Policy Analysis
points out: "Economists estimate that as many as 25 million Americans
earn a large part of their income from underground activities."

While economists have long estimated that the U.S. underground
economy equals about 10 percent of the gross domestic product (GDP),
there are reasons to believe the number may be larger. According to a
recent International Monetary Fund survey of 21 countries, the shadow
economy has been growing for 30 years - the fastest in the 1990s -
doubling from less than 10 percent of the GDP in 1970 to 20 percent
or more by 2000.

"IN THE UNITED STATES, FOR EXAMPLE, THE SHADOW ECONOMY DOUBLED FROM 4
PERCENT OF GDP IN 1970 TO 9 PERCENT IN 2000," ACCORDING TO IMF.

BUT THE INTERNAL REVENUE SERVICE IS TAKING A DIM VIEW. THE IRS
RECENTLY ESTIMATED THAT THE FEDERAL GOVERNMENT IS LOSING $195 BILLION
PER YEAR IN REVENUE DUE TO UNDERGROUND ACTIVITY - BOTH LEGAL AND
ILLEGAL. IN ADDITION, IT ESTIMATES THE UNDERGROUND ECONOMY IS
ANYWHERE FROM 3 TO 40 PERCENT OF THE ABOVE GROUND ECONOMY. AND THE
IRS IS CONTINUING ITS BATTLE WITH RESTAURANT OWNERS TO COLLECT TAXES
ON THE ESTIMATED $9 BILLION IN TIPS RESTAURANT EMPLOYEES RECEIVE
ANNUALLY BUT MAY NOT REPORT.

ENTER THE YARD SALE POLICE. IN A SEPTEMBER 2000 AUDIT REPORT, THE
TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION RECOMMENDED THAT
THE IRS TAKE STEPS TO IMPROVE THE IDENTIFICATION OF TAXPAYERS WHO DID
NOT REPORT THEIR OUTSIDE INCOME.

"BASED ON OUR STATISTICAL SAMPLES, WE ESTIMATE THAT APPROXIMATELY $71
MILLION IN SELF-EMPLOYMENT TAXES REMAIN UNASSESSED EACH YEAR FOR
TAXPAYERS EARNING SELF-EMPLOYMENT INCOME OF $2,000 OR MORE," SAID THE
REPORT, REFERRING TO STRICTLY LEGAL ACTIVITIES.

"BY WORKING THESE CASES IN CORRESPONDENCE EXAMINATION BEFORE REFUNDS
ARE ISSUED TO TAXPAYERS, THE IRS COULD IMMEDIATELY COLLECT SELF-
EMPLOYMENT TAXES OF $21 MILLION EACH YEAR. OVER 5 YEARS, THIS TOTALS
$105 MILLION."

In January 2001, the IRS responded and began identifying taxpayers
with potential unreported income as the returns are processed.
Interestingly, if one was to give blood twice a week for a year, he
or she would take in over $2,400 in cash - over the IRS $2,000 limit.

"You donate your plasma and we're compensating you for your time
spent here," says Kolar at Aventis Bio-Sciences. "We don't report it
to the IRS and you don't have to fill out a W2 or anything."

And the feds are following the money. According to the Treasury
Department, $100 bills have risen from less than 20 percent of
currency in 1967 to more than 63 percent today. The assumption is
that "law-abiding citizens" will not ordinarily increase their day-to-
day need for cash so any significant increase "must be used in the
underground economy."

Legal or not, what these activities have in common is their
contribution to the multi-billion dollar underground economy
prospering unofficially outside the realm of the struggling
conventional economy.

"To some extent there could be an argument that if there is no access
to formal, protected employment, that the underground economy does
grow," says Uhlich, who believes the wealth gap is partly responsible
for the increase in the underground economy.

The state of Arizona, for example, ranks 44th in the percentage of
residents who live below the poverty level ($18,000 per year for a
family of four). In Pima County the number rises to 14.7 percent and
Tucson chimes in at 18.4 percent. Not surprising, Tucson Community
Food Bank's distribution of food boxes is up 30 percent from a year
ago and Primavera Works has seen an increase in those on the ragged
edge seeking temp or part-time employment.

"We've gone from 25 to 30 to 35 to 40 people per day. Some are
shelter people and some are walk-ins, and our walk-in numbers have
increased," says David Powell, director of Primavera Works.

According to Powell, many are temp workers supplementing entitlement
income from monthly social security or veterans checks but who are
limited to the number of hours they can work as a requirement for
receiving benefits. Still, they'll work $5.75 per hour manual labor
for the extra income. "Unless they also have food stamps, they can't
make it," says Powell.

Qualifying for federal assistance takes several months and while the
state provides the barest of funds ($173 per month) through its
General Assistance Program, the money is running out. For the current
year, the Legislature cut the $5.5 million budget to $2.1 million
while enrollment in the program grew to more than twice as many as
was predicted.

"They just did not anticipate the growth in caseloads, so that's a
looming situation," says Uhlich. "So, how do we approach that dilemma
and how do we deal with the fact that there's so many people in the
underground economy and what do we do to help and protect those
folks?"

Uhlich hopes to answer these compelling questions when the Southwest
Center for Economic Integrity hosts a conference on "Workers in the
Informal Economy" with the United Nations Association and ILO in
Tucson, Arizona on Feb. 22.
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D.A. Barber is a regular contributor to the Tucson Weekly.


©Santa Fe New Mexican 2003