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Comment by bb2018 | Hacker News Reader

bb2018

Adjacent to this, has anyone ever seen statistics/estimates on income percentiles of illegal/underreported income? I've always wondered about this as a huge portion of jobs is based off tips or cash transactions (servers, contractors, maids, landscapers) and I can't imagine all these people report 100% of their income.

What percent of of the US population would you estimate doesn't report at least 10 thousand dollars a year?

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There is no doubt that many people who are paid in cash under report their income. At least in the case of servers, however, the IRS has a pretty good idea how much you are getting in tips. If you don't report enough, you will be audited and you will get a bill. I'm acquainted with someone who tried this and he was still paying off his tax bill a couple of decades later.

In other countries the underground economy is estimated from 15% to 25%.

The standard deduction removes this as a concern for most Americans.

I'm a really naive when it comes to tax law and a lot of economics statistics - but I'm having trouble seeing this.

If I am a waiter who made 35,000 in reported income and 10,000 in unreported income I made 45,000. I can take the standard deduction on 35,000 and in all statistics used by think tanks/reporters/politicians I will weight in the category of those who made ~35,000. Am I missing something?

No, your parent poster is completely wrong. You'll pay more in taxes reporting 45k with the standard deduction than if you report 35k with the standard deduction. The only scenario in which the standard deduction "fixes" this issue is if it reduces your taxable income to the point where you do not owe income tax regardless of if you report that extra income or not.

I don’t understand, can you elaborate? Hiding some of your income reduces your tax paid regardless of whether you take the standard deduction.

Well, unless you actually earn an amount that is less than the standard deduction, in which case you gain nothing by hiding those earnings, or if you actually earn only slightly more than the standard deduction, then you only gain slightly. That said, I think the person you're replying to is mostly wrong since most American do more than the standard deduction several times over.

The standard deduction doesn't help for social security and Medicare tax.

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