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One doesn't have to look very far to see that economic forces over the past two years have been bearing down on consumers. Americans are shouldering the burden of sharp increases in health care, gas prices, tuition and real estate. What's more, published reports show wages are not keeping up with these increases, and debt levels are climbing. Yet, despite all of this, consumer spending is up. In fact, the Census Bureau reports that retail and food services sales jumped 7.7 percent from September 2003 to September 2004 and housing starts and new home sales continue to break records. So where is the money coming from?

In a June American Demographics article titled “A New Era of Cold Hard Cash,� Peter Francese stated that household income may not be as closely linked to taxable employment earnings as it used to be. Instead, the article suggested consumers are generating income from nontraditional sources and during tax season they are keeping quiet about the spoils.

The Bureau of Labor Statistics estimates that there are about 10 million workers in the U.S. who are self-employed as their primary job and another 1.5 million who are self-employed as a secondary job. Francese asserts that self-employment will likely increase, as skilled, older workers (Baby Boomers) approach retirement.

Side jobs aren't the only way people are generating more spending money. In the spirit of garage sales and flea markets, online auction sites have succeeded because of their ability to bring together a global community of buyers and sellers, enabling consumers to empty out their closets, basements and attics for cash. Last year, the total value of items sold on eBay, for example, reached $24 billion, soaring 60 percent from the $15 billion reported in 2002.

“I wonder how much of that got reported? I would suspect that more than a little of the income from selling household items on eBay goes unreported,� Francese said, in a recent interview with American Demographics, adding that the problem doesn't only exist on the Internet. “I live in a small town. Every weekend there are dozens of garage sales and I doubt any of that gets reported. Multiply that by the thousands of towns and cities across the country and it's got to be in the tens of billions of untaxed income.�

In October, American Demographics partnered with Encino, Calif-based e-Poll, in a survey to test just how honest Americans are with the government about their under-the-radar income. E-Poll asked 1,206 respondents if they had ever neglected to record or report a cash transaction. We assured participants that their identities would not be revealed, in order to elicit honest responses.

Since respondents had more of an incentive to lie to the government than to be honest with us for a random survey, we knew the percentage of those admitting to tax evasion would likely skew lower than the actual figure. Interestingly, 14.8 percent of those polled admitted to concealing income from the government. More than two-thirds, 69.4 percent, said “no� and 15.6 percent said they don't know.

Based on the survey results, men may not be as honest as women. Of 647 males, 18.3 percent of them confessed to concealing income from the government, 65.5 percent said they hadn't and 16 percent didn't know. Of 559 female respondents, 10.7 percent of them admitted to tax evasion, 74 percent said no and 15.2 percent don't know.

The greatest contrast was between low-income and high-income earners, with those at the low-income level concealing more from the government. For those who earn $25,000 or less, 22.3 percent said yes to evading taxes, 58.5 percent said no and 19 percent don't know. For those who earn more than $50,000, 12.3 percent admitted to tax evasion, 72.3 percent replied in the negative and 15.2 percent don't know. Of the respondents that earn between $25,000 and $49,000, 13.1 percent admitted to concealing income, 72.8 said no and 13.9 don't know.

While more low-income earners admitted to evading taxes than their high-income counterparts, Francese says, “even 12.3 percent [of $50,000-plus earners] is still very high.� He's not surprised that a larger percentage of low-income workers conceal income from the government, because he says these employees often work for cash. “If you're making $60,000 a year in the form of a salary, it's difficult not to report that. Companies send out a W-2 to the IRS, so where's the secret? At the lower-income level you have much more bartering going on.�

The problem, he maintains, is that congressional leaders are not sending the right message to the public. “What's driving this is the constant obsession about taxes by our national politicians. All they seem to be able to talk about is, ‘we want you to keep more of your money.’ So when they portray taxes as something you want to avoid, they shouldn't be terribly surprised when more people say ‘I'm not going to pay my taxes.’�

However, the long-term ramification of tax evasion can be crippling for the U.S. economy, he warns. “Now, the more prevalent attitude is that we don't have to pay for our civilized society; as opposed to an attitude that says we're in a time of war and in a deficit and everyone should help our country out. When large factions of the population think they can get something for nothing that's a bad trend,� Francese says, ruefully. “The last century was our century, but you may be witnessing the decline of us as an economic world power…. Just look at the Roman era.�

For more information and detailed results from the survey, send an e-mail to [email protected] or visit www.demographics.com

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