This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Today's Economic Mystery

NEW YORK ( TheStreet) -- Today's economy is a mystery to investors.

We're told unemployment is almost 8% and that growth is anemic. It's so bad the Fed keeps interest rates at zero and monetary stimulus flooding in.

Yet despite the sequester taking billions out of the economy, and despite the payroll tax hike taking out billions more, the stock market keeps rising, as do home prices and consumer confidence.

I had thought last month that the impact of austerity and of economic growth would cancel one another out, leaving us with an economic nothingburger. But what if I'm wrong because I don't have all the data? What if we're all wrong?

According to Edgar Feige, a professor emeritus at the University of Wisconsin, we are all wrong. He estimates that $2 trillion of our economic activity is now "underground," in what he calls the "gray economy," costing the government $500 billion in taxes each year. The official size of the economy is $15.7 trillion. According to Feige, it's closer to $18 trillion.


At Feige has proposed what he calls "The Automated Payment Transaction Tax" to capture this activity, and he says that if 0.35% of all electronic transactions went to the government, all other taxes could be eliminated.

According to The Transaction Tax, which advocates for Feige's proposal, this would mean that each time you pulled $100 out of an ATM, 35 cents would go to the government. It would make Visa (V - Get Report) and MasterCard (MC) into our tax collectors. But you would have no more income tax, no more corporate taxes, no more sales taxes or property taxes. And no more forms to fill out.


Such a system might help companies repatriate some of the trillions of dollars in assets now thought to reside in tax havens like the Cayman Islands -- all without the necessity of an invasion, which I fantasized about last year.

The point is, tax avoidance doesn't just hurt the tax man. It hurts investors and policymakers, denying us the data we need to know what's going on in the real economy. Bernard Baumohl of the Economic Outlook Group told James Surowiecki of The New Yorker recently that retail sales are currently where they should be with unemployment at 5%-6%, not 7%-8%. The difference is the gray economy.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
V $64.72 0.31%
MC $29.62 0.54%
AAPL $127.60 2.28%
FB $83.09 2.87%
GOOG $535.38 2.16%

Markets

DOW 18,034.93 +208.63 1.17%
S&P 500 2,100.40 +19.22 0.92%
NASDAQ 4,994.6020 +62.7870 1.27%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs