What are the negavtive effects of the underground economy?

Question

what positvie effects do you think the economy would see if the legalized some underground activities-such as prostitution, drugs...also what do you think the government should do about the 40billion dollar a year loss in tax evasion?

Answer 1

Switch to a Progressive Fair Tax policy and you'd collect those missing dollars in no time..   A Drug Dealer doesn't complete a 1040, but a drug dealer does buy Food, Cars, etc...

Answer 2

they could be taxed and bring in more revenue.  enforcement costs would drop, number of incarcerated would drop, gangs would lose their source of revenue.  also they could be regulated, e.g., prostitutes could be required to have an std screening or drugs could be given in smaller doses.

as for tax evasion, simplify the tax code.  remove many of the obscure deductions, etc.

Answer 3

The illegal activities don't pay tax. Reducing tax income for the government. Underground activities are also not acconted for in the GDP of an economy, which may cause confusion, since Underground economy usually contribute as much as 2-3% of a nation's economy! Yes, if we legalized those things we'd have more tax money, but also think about the negative social impacts those things would do to us. Would you want your relatives and friends to gamble away their money or become immersed in drugs. Do a cost benefit analysis, legalizing those things will do more harm than not legalizing them.

Answer 4

They could never collect all the taxes because that is one of the reasons people engage in the underground economy is so they don't have to pay taxes. Even if legalized the government would not get all the taxes. Plenty of legal businesses do not declare all their income so what makes you think they would even if legalized? Plus the government pisses away most the tax money on wars and building prisons so who really wants to contribute to a government like that especially with $4 plus a gallon for gas. That's why people engage in illegal activities so they don't have to be a economic slave for the system.