This Day On The Street
Continue to site
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

The Shadow Recovery

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 - Get Report) and Google (GOOG - Get Report) 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

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
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.74 0.00%
GOOG $693.01 0.00%
FB $117.58 0.00%
TSLA $240.76 0.00%
YHOO $36.60 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs