The way businesses are hurting from the impact of Trump Tariffs and the resulting tariff retaliations imposed by other nations, there is a likelihood that businesses will turn to the underground economy in order to survive.
However, transactions entered in the underground economy are deemed illegal. Underground trading circumvents compliance with reportorial requirements on which checking of taxes and duties are based. Moreover, actual shipment of goods will be done surreptitiously, which if discovered will be tantamount to smuggling. Still, it has been established that during the financial crisis that transpired from 2007 to 2009, underground trading became rampant, to which 8% to 10% became a significant part of US industries.
What Exactly is the Underground Economy
An SEO company in Cleveland defines an underground economy as a trading environment in which exchange of goods and services transpires off the radar and off the books. That way, the contracting parties do not have to report earnings or revenues, in order to make money coming in invisible to the IRS and its agencies. However it is considered as illegal not only because goods or services are untaxed.
When it comes to actual shipment, underground trading follows illicit methods similar to those used by professional smugglers and drug traffickers. Some of which include misdeclaration of goods, use of human mules, dropping of packages in some remote desert, and/or bribing inspectors, as well as conniving with local authorities.
What Do Economists Consider as Part of an Underground Economy
Economists though, exclude goods and services that are in itself illegal, when estimating commercial values of products and services traded off the books. After all, prohibited substances, as well as prostitution, are not part of a country’s gross domestic product. What they consider as trading or hiring in an underground economy, are those that are ordinarily taxed and regulated, if conducted under a regulated system.
Some business entities are able to work around a taxation system by transferring the legwork of operations to independent contractors. Economists consider them as players in an underground economy. They cite Uber and Lyft as examples, which run on a business system of sharing revenues without having to pay other taxes related to transport services. Airbnb also poses as a good example, since it generates revenues by simply arranging room or house rentals for customers by way of ecommerce. Its business model eliminates the need to comply with rental and lodging regulations and payment of taxes that traditionally come with such businesses.
Individuals moonlighting or taking on work-at-home jobs from online job sites are also part of the underground economy. On the other hand, online job sites do not have to maintain payrolls or comply with employment regulations, whilst earning commissions. All they need to do is to provide a web-based platform where an employer and a work-for hire-contractor meet and discuss employment terms.
Work and business transactions entered into via the underground economy, is not always beneficial or advantageous. Disputes over issues such as low wages, non-payment, substandard qualities and unfair practices are difficult to resolve. In such cases, the party who ends up with a bad end of the deal is unable to seek help from related government regulatory bodies.