Underground Economy

How much do 'off-the-books' workers cheat on taxes?

Introduction

This year at tax time, law-abiding Americans understandably may wonder if they have been bearing more than their fair share of the tax load lately. Recent news reports suggest that millions of employers and workers are skirting the Internal Revenue Service, among them: nominees to high government office who hired illegal aliens as housekeepers and didn't pay their Social Security taxes; immigrants paid in cash at urban sweatshops; welfare cheats who collect public benefits while earning untaxed income; and wealthy, self-employed professionals who significantly underreport their cash earnings. The underground economy by its very nature eludes measurement, but IRS estimates put the 1992 loss in potential taxes -- the so-called tax gap -- at some $114 billion.

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