This Day On The Street
Continue to site right-arrow
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
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

The Shadow Recovery

Stocks in this article: AAPL GOOG

NEW YORK ( TheStreet) -- After becoming an LLC recently, I began paying myself a salary.

I took a $2,000/month draw. Not much, but enough to pay the mortgage and some utility bills. Then I visited EFTPS.Gov, which offers a convenient way for employers (like myself) to pay taxes regularly on employees (like myself).

Turns out the federal tax on that draw comes to $959. Add an expected tax rate of 25% to both employer and employee contributions to Social Security, 15.4%, plus both sides' contributions to Medicare, another 4.3%. Then there are going to be state income taxes, and a city "business tax" for me to pay later. Don't get me started on sales and property taxes.

In some ways I don't mind. Government provides necessary services -- soldiers and their equipment aren't cheap. Social Security has kept my mom going for a quarter-century now, and Medicare has saved her life more than once.

But when I see Apple (AAPL) and Google (GOOG) going to such great lengths to avoid taxes, when I see Warren Buffett paying less in tax than his secretary does, or Mitt Romney stashing his cash in the Caymans, it's discouraging.

So we have a shadow recovery.

A recent University of Wisconsin study indicated up to 19% of the U.S. economy is not being reported to the IRS, creating what it calls a $500 billion "tax gap."

The study, by Richard Cebula and Edward Feige, shows the shadow economy rising during recessions, falling during recoveries, until the last few years. Since 2009 it has flattened out, rather than going down.

There are lots of reasons. Some employers just hate government. They fear health cost mandates. They see the big boys avoiding taxes and figure they should do the same.

It's not just that the tax man is getting shortchanged. It also means economic models showing an anemic recovery may be wrong. Despite unemployment of near 8%, consumer spending remains strong, more in line with what it would be if unemployment were just 5.5%. Measures taken to improve employment may, in fact, no longer be necessary.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
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!


DOW 17,959.44 +154.64 0.87%
S&P 500 2,078.54 +7.89 0.38%
NASDAQ 4,781.4240 +16.0440 0.34%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs