Underground economy

Michelle Malkin writes about the effect that illegal immigration is having on the underground economy:

According to Robert Justich, a senior managing director at Bear Stearns Asset Management in New York, current estimates of the illegal alien population (most news articles cite the old 8 to 13 million figure) are too low. He puts the figure at 18 million to 20 million.

The article's author, Jim McTague, notes some devastating consequences of the failure to enforce our immigration laws--and he does so with a bluntness that is unusual for the usually open-borders-friendly business press:

[T]he underground economy is undermining the effectiveness of the Internal Revenue Service, which is highly dependent on employees' withholding taxes. If the IRS could collect all the taxes it says that it is owed from the underground economy in a given year, then the current budget deficit would disappear overnight. And if the IRS could collect these taxes every year, then the nation would have surpluses as far as the eye can see.

The IRS has estimated that its tax gap -- the estimated amount of taxes owed minus the amount collected -- is around $311 billion in any given year. The agency will produce a new estimate in 2005, and it could be as high as $400 billion, says former IRS Commissioner Donald Alexander.

McTague addresses pollyannas who note that our underground economy is smaller than other high-tax European countries:

To be sure, the U.S. underground economy, as a percentage of GDP, is smaller than those of some other countries. In a 2000 paper in a publication of the Independent Institute, a nonprofit research organization, Schneider found that Greece, as of 1998, had the largest underground economy, at 29% of its GDP, followed by Italy at 27.8% and Spain at 23.4%. Countries with high tax burdens and high social security costs lead the list.

But the sheer growth of the underground economy in the U.S. is cause for concern. If Justich's estimate of illegal immigrant workers is correct, the underground economy may now be growing at a markedly faster rate than the legitimate economy.