Black Market Flourishes

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Black market smokesWhile governments around the world are increasing taxes on things like cigarettes and alcohol to make up for budget shortfalls, the black market economy is growing by leaps and bounds. The worse the economy gets, the more governments try to compensate, which causes even less money to land in government coffers.

Black Market Deals

Increasing taxation on smokers is not going to cause them to stop smoking. It just pushes them to other sources for their fix. Just as prohibition did not stop people from drinking, or Bush's "War on Drugs" stopped people.

In North America, there are plenty of legal loopholes available if you want to avoid paying taxes on your vices. For eample, there are usually exemptions for First Nations, which means people only have to travel to a reservation to buy their duty free supplies.

If you live near a border, then you can visit the duty free at the border, although the prices seem pretty jacked up to me. Someone is gouging there for sure.

Many retailers offering no tax for cash under the table deals. The funniest one was the tax preparer who was offering that deal. I would not want to risk an audit by having them touch my tax return though!

Offering cash-only no-tax deals is quite common for small businesses. They suffer under the heavy burden of taxation, and it becomes a survival mechanism. Also, as their competitors are offering no-tax deals, they have to do the same to compete for the business. Most buyers know to ask for it, and expect it.

Example of Barter in Black Market Economy

And of course these days there are online options galore. Most craigslist and ebay transactions are tax free. For a private sale, the owner says something like "no tax since the tax was already paid when I bought it." It is true the government won't refund tax on your purchases that you later sell, but they still want more tax when you sell it online.

One I like is that of barter. There are lots of formalized barter exchanges, with virtual dollars and such, but they make it too easy for the government to come down on you and demand their cut. So most good bartering has to be done privately. No paperwork or money to track down. For example, I have one of those popular urban chicken coops and with it a surplus of eggs, you have a DVD that I wanted, and we work out a deal. Or maybe I have a spare room and offer lodging for you in exchange for services. If you had to get a job and pay rent we would both lose.

So the more governments try to grab at our wallets, the more they will push away the income they seek.