Saturday, July 28, 2012

Benefits of the 1099 Economy, the Underground Economy and the Future of Freedom

According to Forbes, the 1099 economy is booming.

The Rise of The 1099 Economy: More Americans Are Becoming Their Own Bosses

One of the biggest obstacles facing government is its ability to collect taxes.  So long as folks are employed as employees, the government easily got its share of plunder right off the top via the federal withholding tax and the Social Security tax, along with other taxes including state taxes.  Enforcement of tax collections was never really much a problem for government so long as most folks were employees.  The government didn't need an army of tax collectors; employers functioned as the primary tax collectors for the government.

But with the economy tanking and necessity being the mother of invention, folks are now forced to discover new paradigms of survival.  Many companies are resorting to contract labor to avoid the legacy costs of health insurance and retirement plans.  They hire independent contractors and issue a 1099 instead of a W-2.  Folks who earn 1099 income are required to file tax returns, they are required to pay quarterly taxes and they are considered self-employed.  They are effectively small business owners who also avail themselves of legal tax deductions.

1099 income is a whole lot harder for governments to trace and enforcement becomes a huge problem for the government.  Precisely because 1099 tax revenues don't consistently and reliably flow to the government in a timely manner, the government is at a disadvantage because it no longer has employers functioning as efficient and immediate tax collectors.

The economic calamity has also spawned a massive distrust of the government.  Folks are simply fed with with paying taxes.  When government is perceived a corrupt to the core and no longer offers value to taxpayers, taxpayers will seek ways to just opt out of the system.  And thus, the underground economy is born.

The underground economy is even more difficult than the 1099 economy for the government to track.  In fact, underground economies are largely based on untraceable cash transactions and outright bartering among private individuals - anything to avoid the tax collectors reach.

In Greece, the government is perceived as so worthless and hopelessly corrupt that it's estimated that as much as 50% of Greek economic output is underground and beyond the tax collectors thieving hands.  The Greeks substantially opted out of paying taxes long ago and they have a very long history of just not paying taxes to support an insanely thieving government.  The Italians are also notorious for tax avoidance.

As the global economy continues to implode, governments will continue to panic as tax revenues plummet and folks simply disappear and are no longer under the government's surveillance and monetary radar.  Realistically, many more folks will strive to be minimally attached to the system.  Folks are figuring out that W-2 income and debit/credit card transactions are all traceable electronic transactions.  Even those who collect W-2 paychecks that are automatically deposited into bank accounts as required by their employers are resorting to immediately cleaning out the bank accounts and withdrawing their cash.  Such folks then proceed to pay their bills and living expenses with cash and/or money orders.

While electronic banking and the age of plastic has been very convenient, it's also how the government tracks you and your every purchase and financial transaction.  To deprive the government of its ability to snoop will really drive the government nuts and render it even more powerless.

Of course, powerless government is most assuredly the End Game of all liberty lovers.  You kill government by depriving it of tax revenues.  A thriving and growing underground economy is definitely something that every government goon fears most.  Making it happen is asserting our liberty and natural rights.

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