When I read the words “Black Market” I immediately assume the author is referring to some sort of shady/illegal dealings. I think of the drug and weapons trade, as well as the money laundering that goes hand-in-hand with those two industries. Just the term itself sounds nefarious in some capacity (interestingly, “White Market” sounds bright, clean, and trustworthy – how has no cashed in on this yet?); however, while the black market certainly does contain these highly publicized areas of income, the majority of the “underground economy” as it sometimes known is actually common services that people simply perform for cash and then keep the tax man out of everyone’s pocket.
The Greeks Aren’t The Only Ones Playing the Tax Game
For a lot of small business owners (especially those in the construction, trades, and services industries) there is a lot of tax to be paid and collected at every level of a project or business deal. Any time the government can be kept out of the loop on some of the smaller scale projects, both parties gain a much better deal. At the same time, it could be argued that they are getting this deal at the expense of the average tax payer since they are cheating the system of tax revenue. I was surprised to see that the Statistics Canada estimate for our underground economy is $36 billion a year, and the USA’s was roughly our proportionate equal at close to $1 trillion according to the Wall Street Journal. Imagine if the USA could collect even half of that every year? Their debt paydown could be accelerated in a hurry! Of course this would be offset by the expansion of high-paying IRS jobs, so it might actually hurt the economy in the long run (not to mention the thorny issue of drug legalization).
My Dad – The Criminal Genius
I never realized that my family was breaking the law my entire life. My dad is the king of black market, legal activities (an important distinction to make I think). He was constantly trading his services and products (mostly firewood and machine-related activities) for those of others. Any time we needed electrical, plumbing, or specialized construction help (anything he couldn’t handle on his own) it would be traded. It never seemed like he was following in Al Capone’s footsteps at the time, but when you stop to think about it, he was actually avoiding taxes to a large extent.
A Profitable Method of Exchange
I’m a huge believer in this sort of strategy to save money. I think it’s an example of a practice that is much more realistic than becoming a millionaire by never ordering a coffee or eating out. Sadly, it’s an advantage that is definitely slanted towards trade people. There are very few people that need a high teacher to write an essay for them, or show them how to use powerpoint. I do have a couple of services that I’ve managed to leverage for something I needed in return. The first is my limited ability to do stuff online. Between JB and I we can create a serviceable website (nothing too fancy, but it gets the job done) and a lot of small business are very intimidated by trying to create their own little spot on the world wide web. For a couple hours work I’ve gotten a couple favours and a little side income that I can keep “off the books.” The only other card I can play in the black market game is a strong back. I’m a pretty big guy, so when a piano or a dresser needs to be moved, I’m your man. Just as long as it doesn’t require a lot of spatial intelligence or trades-related knowledge.
Stupid Tradespeople… Getting “Real Life Skills” and All
Few people realize the long-term savings available to a talented tradesperson if they market themselves in this regard. For example, everyone needs a plumber, electrician, or mechanic from time to time. Often, these people get pulled away off of company time to do small jobs for friends that don’t want to spring for the high per-hour wage that tradespeople can often command. If you offer cash for their time, tradespeople can often make a decent after-tax (since there is none) return, without charging a lot of money. If they can trade a couple hours of their time, for $300 worth of a mechanic’s labour, that’s a pretty substantial profit! I reckon that my dad probably saves $2000-$3000 a year, just by constantly trading services and getting below-market rates on odd jobs. Your ability to maximize your black market potential is definitely connected to your network of like-minded friends. This is another advantage tradespeople have – they tend to know each other and work together often. My hope is that after I have worked a few more years as a teacher, I’ll make a good enough impression on at least a few crazy students, and once they have their jobs in the trades (making more than their old teacher) they will come back and help me out in gratitude… A teacher can dream right?
Cash businesses are perfect for the underground economy. There is no paper trail to speak of and there is less of actual reporting of income. Bartering takes it to another level. I did some work for an outdoor advertising ccompany where they barter for company cars and other things. It is a very interesting concept.
The government must really hate bartering hey? Absolutely no way of enforcing any rules.
If we didn’t want to risk getting caught by the government, I bet many of us would have cash jobs. It is nice to not have to pay those taxes somedays. I just try to remind myself that those taxes allow me other luxuries like roads and health care.
Ya, taxes are definitely a necessary aspect of life. I just think we have come to depend on them a little too much. “Ask not what your country can do for you…” has turned into, “Where the hell is my handout!”
What I have been told in the UK is that people are not only taking part in ‘cash’ economy but they also exchange services. For example, a hairdresser will cut the hair of an electrician and in return he will maintain the electrict (when needed). Have not seen an estimate of the value of this but it seems substantial – and growing.
Hmm… In some holistic way this seems healthy. Like maybe we are more personable when trading services like this and would take a little more pride in our jobs if we knew the people on the other end? On the other hand, that just means raised taxes on the rest of us, and I’m definitely not a fan of that!
I’m sure there is a lot more cash trade going on than we can imagine. My only question is if you are not paying taxes are you still entitled to use public services and infrastructure?
Well… I’m pretty certain investment bankers make as much use of our streets and infrastructure as anyone else, and last time I checked they actually got tax money back (on top of 7.7 TRILLION in nearly interest-free lending, which was reported today) so I don’t feel that bad. I’m not even one of these “occupy” people, I just empathize with people who don’t want to continue giving money to a terribly inept management group (our government).
Definitely, something to think about. I love the idea of barter. In fact, I’d like to barter more, with neighbors.
Unfortunately here in the US you still have to report bartering to the IRS for tax purposes. I wrote an article on the My Dollar Plan about it here: http://www.mydollarplan.com/how-to-barter-for-what-you-need/
Oh you’re definitely supposed to report it in Canada as well, but there is absolutely no way to police or even track most of this stuff. I wouldn’t let that worry me at all.
I like to think that by giving tomatoes and peppers with friends and neighbors, I’m trading produce for future goodwill. And *that* can’t be taxed.
Like they say, “priceless” right?
The greatness of under the table pay. I’ve had a few of those cash only jobs in the past, working in bars. When the business is cash only or mostly cash, it’s a lot easier to get away with. Much of the outgoing expenses were paid as cash also. Under the table is big in the small, small business world.
I think cash is big everywhere. There are so many ways to launder money that cash businesses have it made if they don’t mind a little white collar “creative accounting.”
I never realized that we can barter services like your dad did… I know people bartered for food/services back in the old days but never thought we could still use it to our advantage.
I think people who go on to “professional” jobs that you need a post-secondary degree for are much less aware of this market. I figure at some point I’ll just hire my dad on a part-time basis as a retirement job for him. He can be like my “common-sense” money saver. I’m sure it would a new-win for me.
I think that trading services is a great way to get what you need. Personally I can’t see anything wrong with this type of transaction, where money doesn’t change hands. It sure would be difficult to tax, how could you effectively do that if people declared it anyway?
Well its a little immoral in terms of you are “paying” for a service or good in some capacity and “cheating” the government out of its user fees and consumer taxes. One could argue that you shouldn’t shirk from your share of the tax burden (one could argue that, that one would probably soon be beaten up, but they could argue it).
Your post is exactly why I never understood the argument that if the US went to a national sales tax system we would solve a lot of the tax avoidance issues. There would still be cash deals and bartering.
Does Canada have a national sales tax?
We have a substantial national sales tax that has recently been reduced from 7% from 5% (It’s known as the government sales tax or GST). I’m not a huge fan, but on balance, I like consumer taxes better than income taxes.