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posted by LaminatorX on Saturday June 07 2014, @04:14AM   Printer-friendly
from the Sudden-Outbreak-of-Honesty dept.

BBC reported the UK's Office for National Statistics considered for the first time the contribution of the hidden-economy to the GDP:

For the first time official statisticians are measuring the value to the UK economy of sex work and drug dealing and they have discovered these unsavoury hidden-economy trades make roughly the same contribution as farming and only slightly less than book and newspaper publishers added together.
Illegal drugs and prostitution boosted the economy by £9.7bn equal to 0.7% of gross domestic product in 2009, according to the ONS's first official estimate.
A breakdown of the data shows sex work generated £5.3bn for the economy that year, with another £4.4bn lift from a combination of cannabis, heroin, powder cocaine, crack cocaine, ecstasy and amphetamines.

Joe Grice, chief economic adviser at the ONS, said: "As economies develop and evolve, so do the statistics we use to measure them. These improvements are going on across the world and we are working with our partners in Europe and the wider world on the same agenda.
"Here in the UK these reforms will help ONS to continue delivering the best possible economic statistics to inform key decisions in government and business."

Alan Clarke, a UK economist at Scotiabank, said that although the government would not feel the benefit of illegal work in terms of income tax take, there would be a spending boost.
"A drug dealer or prostitute won't necessarily pay tax on that £10bn, but the government will get tax receipts when they spend their income on a pimped up car or bling phone."

Keeping with the theme, I can "estimatedly project" two things from the above:

  1. if GDP is to include hidden-economy and beyond-damnd-liers have free reign to estimate it as they see fit, don't be surprised when the estimated rate of inflation and consequently your mortgage rate will vary in no relation with the as-reflected-by-your-payslip-economy
  2. if hidden-economy is officially recognized but still not taxed, where's the incentive for others to run their business in the open?

SN mates, what do you make of it?

Related Stories

Five Startling Numbers Reveal the Militarization of U.S. Drug Policy 64 comments

A report at Alternet gives some context to the amount spent by the U.S. on its drug policy.

  • 1,100 - The number of Americans that die each year due to violent crime caused by the drug war
  • $51 billion - The amount that the U.S. government spends each year on the war on drugs
  • 61 percent - The percentage of individuals targeted by drug-related SWAT raids who are people of color
  • 82 percent - The number of Americans who believe that the government is losing the War on Drugs
  • 18 months - The age of Bounkham "Bou Bou" Phonesavanh, a recent American casualty of the drug war

The article goes into further details on the number, including:

On May 28, a team of police officers raided the Phonesavanh's home, with the mistaken belief that the residents were involved with drugs. As they entered, they tossed a flashbang grenade that landed directly in the crib of baby Bou Bou, which exploded within point-blank range - critically injuring him.

In a harrowing article, his mother, Alecia, described seeing "a singed crib" and "a pool of blood", and later being informed by medics: "There's still a hole in his chest that exposes his ribs". Alecia said that the sole silver lining to this story is that it may "make us angry enough that we stop accepting brutal SWAT raids as a normal way to fight the war on drugs".

Fortunately, Bou Bou has been making a gradual recovery, but his family is relying on donations to support their living and medical costs.

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  • (Score: 2) by Bob9113 on Saturday June 07 2014, @04:22AM

    by Bob9113 (1967) on Saturday June 07 2014, @04:22AM (#52521)

    After 9/11, to get the economy moving again, the official administration line was something along the lines of, "There's a war on, go shopping!" I would love to hear that updated to, "There's a war on, go get some hookers and blow!"

    • (Score: 2) by Tork on Saturday June 07 2014, @04:54AM

      by Tork (3914) on Saturday June 07 2014, @04:54AM (#52526)
      After 9/11? The hookers and blackjack plan dates back to 1999!
      --
      🏳️‍🌈 Proud Ally 🏳️‍🌈
    • (Score: 2) by davester666 on Saturday June 07 2014, @08:36AM

      by davester666 (155) on Saturday June 07 2014, @08:36AM (#52556)

      That's the real reason for all those late night meetings that politicians keep having. They are busy stimulating the economy as hard and as fast as they can.

  • (Score: 3, Interesting) by frojack on Saturday June 07 2014, @05:13AM

    by frojack (1554) on Saturday June 07 2014, @05:13AM (#52530) Journal

    A tax on spending is easier to collect, and brings in the same money with less loop holes.

    The hookers and dealers are never going to pay income taxes, but they really can't spend their money with a spending tax. It pretty much polices itself.

    There are a lot of such proposals, but none is as well thought out as the Fair Tax [fairtax.org] as they have removed the regressive nature of flat taxes via a Prebate.

    I have no illusions of something like this being adopted in the US, because it would sideline an entire industry of tax accountants and tax lawyers, and tax lobbyists, who are the only ones that benefit from our current tax scheme.

    --
    No, you are mistaken. I've always had this sig.
    • (Score: 4, Interesting) by bradley13 on Saturday June 07 2014, @07:17AM

      by bradley13 (3053) on Saturday June 07 2014, @07:17AM (#52547) Homepage Journal

      That's not really true. Given that these are exactly the people looking to stay off the books, you can bet that lots of their purchases don't include VAT (or sales tax, in the US).

      Assuming you are going to collect tax presumes (a) that they are buying from ordinary businesses, as opposed to Joe with the garage full of stolen electronics; and (b) that the transactions aren't cash-under-the-table or direct barter.

      It makes some sense to try to estimate the size of the shadow economy. However, including it in official stats is a bit dicey, and likely a one-off attempt to be able to claim year-over-year economic growth.

      For the US, at least, there is the website ShadowStats [shadowstats.com] that attempts to see through government changes in statistics. For example, the US government has changed the way unemployment is calculated, in order to eliminate the long-term unemployed. It's rather shocking to see the real figures.

      --
      Everyone is somebody else's weirdo.
      • (Score: 1, Insightful) by Anonymous Coward on Saturday June 07 2014, @07:33AM

        by Anonymous Coward on Saturday June 07 2014, @07:33AM (#52550)

        > Assuming you are going to collect tax presumes (a) that they are buying from ordinary businesses, as opposed to Joe
        > with the garage full of stolen electronics; and (b) that the transactions aren't cash-under-the-table or direct barter.

        I'm rehabbing a house right now and I pay all my contractors in cash and buy all my materials and appliances with cash. I do it because I am sick and tired of having every transaction tracked, they are happy to take the cash because it means they won't get caught if they don't declare it on their taxes. Win-win for both of us. That kind of thing would get amped 100x if sales tax were kicked up to 30%.

        • (Score: 2) by frojack on Saturday June 07 2014, @04:01PM

          by frojack (1554) on Saturday June 07 2014, @04:01PM (#52650) Journal

          You need to go read the FAQ on that.
          It might surprise you to find you are not the first person to have thought about that.

          Basically, its just not true. If you want to barter for used lumber, and salvaged bricks, go ahead, but in this world you have to buy stuff, and it doesn't matter if you use cash or credit cards. The lumber yard isn't going to risk getting seized for taxes just to give you an off the books deal.

          Taxes are already that high in many EU countries with Vat tacked on at each step in the production chain.

          Its still cheaper at the end of the day. No income tax, no other sales taxes.

          --
          No, you are mistaken. I've always had this sig.
          • (Score: 0) by Anonymous Coward on Saturday June 07 2014, @06:19PM

            by Anonymous Coward on Saturday June 07 2014, @06:19PM (#52681)

            If that's the gist of the FAQ, I don't need to read it because it's only half the story. Sure, large well established businesses don't want to take that risk. But little guys will. For example, just because I can't register my car without paying property taxes on it doesn't stop my auto mechanic from giving me a significant discount for cash. There already is a big under-the-table economy and increasing the incentive to deal under the table sure ain't going to reduce it. In fact, dropping the requirement for income tax reporting will remove one of the biggest ways that tax cheats get caught because there won't be as many official records of money flow any more.

            When the argument is that a sales tax is easy to collect, it is wishful thinking to ignore how the tax itself will change behavior.

            • (Score: 1) by frojack on Saturday June 07 2014, @06:55PM

              by frojack (1554) on Saturday June 07 2014, @06:55PM (#52703) Journal

              What possible incentive is there for the Mechanic to accept ALL the risk to give you a discount for cash, when cash doesn't get taxed, doesn't have to be reported on income taxes, etc.

              Cash, credit, check, its all the same to him. It isn't tracked. His state authorities might look at his books, but that is only to make sure he is turning in all the tax he collected.

              So he skips charging you tax, pockets the money. Then what? He has to eat. He has rent to pay. He will SPEND his money. And that is where it gets taxed.

              To say you don't have to read the FAQ and then turn right around and suggest something so ignorant as paying in cash to be untrackable is just beyond the pale. Read the Faq: http://www.fairtax.org/site/PageServer?pagename=FAQs [fairtax.org]

              --
              No, you are mistaken. I've always had this sig.
          • (Score: 2) by hankwang on Saturday June 07 2014, @06:44PM

            by hankwang (100) on Saturday June 07 2014, @06:44PM (#52698) Homepage

            "Taxes are already that high in many EU countries with Vat tacked on at each step in the production chain."

            Are you sure you know how VAT works? Effectively it is a tax of 21% (or whatever the local rate is) paid by the consumer at the end of the chain. For the businesses inside the chain, it is just some bookkeeping of incoming and outgoing VAT, but it doesn't add to their production costs.

            • (Score: 2) by frojack on Saturday June 07 2014, @06:58PM

              by frojack (1554) on Saturday June 07 2014, @06:58PM (#52708) Journal

              While VATs are also consumption taxes, and better than income taxes, the FairTax is not a VAT. A VAT works very differently. It taxes every stage of production. It is much more complex and is typically hidden from the retail consumer. Second, in industrialized countries that have a VAT, it coexists with high-rate income tax, payroll, and many other taxes that, in some instances, have led to marginal tax rates as high as 70 percent. Third, all other industrialized countries, except Australia and Japan, have a much larger tax burden than the U.S., which requires higher rates and makes tax administration much more difficult. Lastly, a VAT is a lobbyist’s dream, allowing them to install their loopholes unbeknownst to the purchaser.

              --
              No, you are mistaken. I've always had this sig.
              • (Score: 2) by Reziac on Sunday June 08 2014, @02:50AM

                by Reziac (2489) on Sunday June 08 2014, @02:50AM (#52838) Homepage

                Some years ago when this topic came up, someone mentioned the VAT rates in Denmark, and how much it comes to. The upshot was that a car which sells for $15,000 in the U.S. sells for $42,000 in Denmark, the difference being the many layers of VAT.

                --
                And there is no Alkibiades to come back and save us from ourselves.
                • (Score: 2) by hankwang on Sunday June 08 2014, @10:55AM

                  by hankwang (100) on Sunday June 08 2014, @10:55AM (#52912) Homepage

                  the VAT rates in Denmark, and how much it comes to. The upshot was that a car which sells for $15,000 in the U.S. sells for $42,000 in Denmark, the difference being the many layers of VAT.

                  You have been misinformed. VAT in Danmark is 25% of the consumer price, and this percentage is not stacked up (i.e., the layers will always add up to 25% of the consumer price). The one who told you this was probably confusing VAT ("Moms" in Danmark) with the vehicle registration tax, which is 105% to 180% [www.skat.dk]. Other European countries have different VRT systems, although the Danish VRT seems to be the highest. For example, Netherlands used to charge 45%, but moved to a VRT based on CO2 emissions per kilometer, e.g., zero VRT below 3.8 L/100 km gasoline usage, and 16 kEUR for a car that does 8 L/100 km (that's 5 mpg-US).

                  • (Score: 2) by Reziac on Sunday June 08 2014, @02:43PM

                    by Reziac (2489) on Sunday June 08 2014, @02:43PM (#52950) Homepage

                    Does the VAT only apply to products made in-country? If so, to what degree has this causes manufacturing to move elsewhere?

                    --
                    And there is no Alkibiades to come back and save us from ourselves.
                    • (Score: 2) by hankwang on Saturday June 14 2014, @07:45PM

                      by hankwang (100) on Saturday June 14 2014, @07:45PM (#55382) Homepage

                      Does the VAT only apply to products made in-country? If so, to what degree has this causes manufacturing to move elsewhere?

                      (Late response, hadn't noticed this question) Business-to-business sales that cross borders are not subjected to VAT, although the seller (recipient of the money) has to keep track of the sales and the VAT registration number of the buyer and file this data with their local tax authorities. I assume that this is in order to discourage fraud.

                      With business-to-consumer sales within the EU, the consumer pays VAT according to the rates in the country of the seller.

                      With out-of-EU sales into the EU above some threshold, the consumer should pay VAT inside their own country. In Netherlands, usually the shipping company (UPS/DHL/etc.) handles the financial details upon delivery.

                      I don't see how corporations could save on VAT expenses by moving manufacturing to elsewhere. As I said before, VAT is not an expense for corporations, just a book-keeping effort. VAT is paid by consumers on goods purchased in the EU. In theory, companies could offer slightly lower VAT-inclusive prices to consumers by shipping and selling from a low-VAT country like Luxembourg, which has 15% VAT compared to 19--25% for most of the EU. But I've never seen a web shop that does this; probably the international shipping costs make it not worth the trouble.

              • (Score: 2) by hankwang on Sunday June 08 2014, @10:30AM

                by hankwang (100) on Sunday June 08 2014, @10:30AM (#52909) Homepage

                A VAT works very differently. It taxes every stage of production. It is much more complex and is typically hidden from the retail consumer.

                It is not complex at all. A business entitity charges VAT to its customers (business or consumer) and pays VAT to their suppliers. The difference goes to the state tax collection agency; if the difference is negative, the business receives the difference. Only the consumer at the end of the chain, who does not sell any goods or services, is a net payer of VAT; for all the entities inside the chain, VAT payments and receipts cancel out. For interstate business-to-business transactions, no VAT is charged at all.

                Disclosure: I file VAT statements every quarter.

        • (Score: 2) by opinionated_science on Saturday June 07 2014, @04:13PM

          by opinionated_science (4031) on Saturday June 07 2014, @04:13PM (#52653)

          no it will not. Unless you are buying lumber direct from the forest that grows it, someone will have to pay tax on it , somewhere.

          Ultimately, the cash you pay the contractors will go on *their* living expenses and needs, so a retail tax will catch them too.

          The problem is always that administrations exist to sustain themselves primarily, and the needs of the people secondarily.

          Europeans have VAT on everything as well as income taxes. The US tax code is complex, but some Europeans have a tax code going back 1000 years, so the New World is the right place to be having this discussion!!!

    • (Score: 1) by Horse With Stripes on Saturday June 07 2014, @01:05PM

      by Horse With Stripes (577) on Saturday June 07 2014, @01:05PM (#52606)

      A tax on spending is easier to collect, and brings in the same money with less loop holes.
      The hookers and dealers are never going to pay income taxes, but they really can't spend their money with a spending tax. It pretty much polices itself.

      I don't know about you, but I don't pay sales tax to hookers or dealers. ;-)

  • (Score: 0) by Anonymous Coward on Saturday June 07 2014, @06:00AM

    by Anonymous Coward on Saturday June 07 2014, @06:00AM (#52537)

    Government Dopeheads Prostitution

  • (Score: 2) by aristarchus on Saturday June 07 2014, @06:19AM

    by aristarchus (2645) on Saturday June 07 2014, @06:19AM (#52538) Journal

    The war on whatever (was it terrorism, or communism, or anarchism , or just against the rich fucks?) is in direct contradiction to the war on, what was it? Justice? Democracy? Equality? Fraternite? Basic human f'ing rights? Excuse me, I have lost track of what I was commenting on, but somehow I don't think it will make a difference.

  • (Score: 3, Informative) by soylentsandor on Saturday June 07 2014, @06:33AM

    by soylentsandor (309) on Saturday June 07 2014, @06:33AM (#52539)

    if GDP is to include hidden-economy and beyond-damnd-liers have free reign to estimate it as they see fit, don't be surprised when the estimated rate of inflation and consequently your mortgage rate will vary in no relation with the as-reflected-by-your-payslip-economy

    If you aim to measure and analyze an economy, it's not a great idea to turn a blind eye toward a sizable sector of it simply because it doesn't have government blessing.
    That said, this of course could very well be used to paint a prettier overall picture of the state of the economy. There is bound to be government pressure to do so. Let's hope they don't overdo it.

    if hidden-economy is officially recognized but still not taxed, where's the incentive for others to run their business in the open?

    Business is about making a profit. Where or whether your chosen sector ends up in the ranking of some statistics bureau shouldn't matter to anyone. The tax men will keep making an effort to convince businesses to pay their taxes as they always have, so I really can't see this make any difference in that regard.

    • (Score: 2) by tomtomtom on Monday June 09 2014, @12:36PM

      by tomtomtom (340) on Monday June 09 2014, @12:36PM (#53200)

      Indeed - the reason they are doing this is because these sectors are (more) legitimate in other countries (particularly other countries in the EU like the Netherlands or Portugal) and it makes comparisons between economies unfair if certain economic activity is inconsistently included in the measurement of one economy and not in another.

  • (Score: 0) by Anonymous Coward on Saturday June 07 2014, @06:46AM

    by Anonymous Coward on Saturday June 07 2014, @06:46AM (#52541)

    Maybe the prostitute will spend some money giving to charity of the local church. Maybe the sex worker will send some money in the supermarket buying groceries.
    Maybe the escort will spend some money on designer furniture.

  • (Score: 4, Informative) by gallondr00nk on Saturday June 07 2014, @07:56AM

    by gallondr00nk (392) on Saturday June 07 2014, @07:56AM (#52552)

    if hidden-economy is officially recognized but still not taxed, where's the incentive for others to run their business in the open?

    I would imagine the same as before - not running the risk of getting caught by the authorities.

    When this was first announced a week or two ago, there was a lot of sanctimonious nonsense about recognising illegal activities as legitimate. This has been done to harmonise GDP reporting between various European nations, and isn't just something the UK decided to do to massage the figures (though like all nations, we do that frequently).

    Surely any attempt to make GDP figures more inclusive and accurate should be welcomed?

    It also exposes the lunacy of having such an enormous sphere of activity not being taxed because of some contrived and archaic moral argument about prostitution and drugs. Get it legal and taxed already.

  • (Score: 1) by legont on Saturday June 07 2014, @10:10AM

    by legont (4179) on Saturday June 07 2014, @10:10AM (#52568)

    The real issue is money emission. Since the establishing of fiat money system, there should be enough money issued for all the activities. That is the theory. In practice they need an excuse to print some more (which may or may not be good - that's a totally separate topic)

    --
    "Wealth is the relentless enemy of understanding" - John Kenneth Galbraith.