Tax-Free G.N.P.

A cobweb of rules creates a subterranean economy

Winter is i-cumen in. Johnny clears the snow from Mrs. O'Leary's driveway and makes five bucks. Does the IRS hear about it? Of course not. But Johnny's income--unreported and untaxed --is part of what Economics Professor Peter M. Gutmann of New York's Bernard Baruch College calls the "subterranean economy" of the U.S., with a G.N.P. that he calculates at $195 billion for 1977.

In a recent issue of the Financial Analysts Journal, Gutmann argues that there is in the U.S. nearly $400 in cash per capita floating around outside banks. With checks and credit cards, who needs all that green? His answer: "This currency lubricates a vast amount of nonreported work and employment," and the amount is as large as the legal G.N.P. of the U.S. in the middle of World War II.

Gutmann believes that no more than one-quarter of the underground G.N.P. is attributable to organized crime. The rest, he writes, is largely traceable to such cash-oriented businesses as restaurants, garages and small retail shops, to youths doing part-time chores for pin money, and to the employment of illegal aliens and retired people who also collect Social Security checks. Ultimately, Gutmann feels, the subterranean economy, like black markets around the world, was created by the nation's cobweb of employment restrictions and tax rules. Coupled with a new-morality spirit of what he calls "selective obedience to the law," they encourage Americans to cheat the System when they can get away with it. Unless the Government faces up to the figures and to the need for sweeping tax reform, warns Gutmann, "an ever larger part of the total economy will go underground."

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