One of the downsides of being stuck in a hotel is having ones breakfast browsing depend overly on the dismal International Herald Tribune, the incestuous off-spring of the Washington Post and the New York Times.
There was an article in the IHT about the Italian state cracking down on tax evasion which cause the customary eye rolling when a free marketeer reads statements of of unquestioned absurdity such as:
If tax evasion is Italy’s national sport, as many people say, then the government of Prime Minister Romano Prodi has been working to change the rules of the game since taking office last year. Prodi says he believes that cracking down on tax cheaters is essential for an upswing in Italy’s lackluster economy. This month, he warned that his government could not lower taxes until “the indecent level of tax evasion” was reduced.
So taking more money away from people, essentially destroying some of their wealth, will make the economy better? And the government will not reduce the amount of personal wealth it destroys until people start cooperating more with having their wealth destroyed?
Yes, that all makes perfect sense.
I think having clear rules in which how much tax you must pay (preferably a very small amount) is better than an environment of criminality and corruption. Italy fails this test quite badly. Imposing the rule of law on Italy would be a good thing, not that I expect that this is Mr Prodi’s motive.
When the rule of law means you get excessively taxed and regulated, it is a good thing, not a bad thing, to see widespread lawbreaking. Generally people are smart enough to know when a law needs to be respected and when it should not. In reality an adequate Italian state could survive on vastly less than it currently consumes and so thinking it would be better if Italians simply trusted such a notoriously corrupt institution (i.e. the Italian state) to impose fair and equitable rules regarding other people’s money is quite simply asking too much.
There is a very fine line where respect for the rule of law goes from respecting a system that is beneficial overall to indicating a society that no longer allows people to think for themselves (i.e. a society that has actually stopped being a society and is just a series of politically derived statist rules by which people are required to act).
I do like Mr Prodi’s bizarre logic that he won’t cut taxes until people stop evading them. It appears to me that the Italian people have already “voted” themselves a tax-cut.
Got to agree with the guy: the system can’t support too many free riders. Freedom works best when everyone is honest.
I have long wondered why there has been no political tax revolt in Europe even where taxes are relatively high. Taxes in France seem high to me and presumably look that way to French tax refugees in Britain, too. Yet neither Sarkozy or Royal ran on a political platform of tax cuts. If Blair’s NuLab party favored tax cuts, I must have missed it, along with any proposals for lower tax rates by Merkel.
Yet, Reagan won his landslide victories on a platform of lower income tax rates, capitalizing on the local tax revolts which were happening in states like California. George W. Bush won election not only as President but previously as governor of Texas on campaigns for lower taxes. Clinton won re-election after raising income tax rates, although that was during a booming economy.
If Italian tax evasion represents a do-it-yourself tax cut and it is one of the easiest things in the world to replace an Italian government, why cannot the Italian voters elect a government on a tax cutting platform? Is it because European voters consider themselve so dependent on government for their welfare that they think lower taxes would threaten them more than benefit them?
The only good things in the IHT are some of the art reviews, the investment section on Saturdays, and the syndicated newswire columns from Bloomberg and a few others. Apart from that, the IHT reflects the default-code left-liberalism of the old Washington-London-Paris establishments.
But the ‘free riders’ are the state, not the hapless taxpayers. Do you seriously think there is that much of a direct relationship between the amount of benefit a taxpayer gets with the tax he pays? I think not. The Italians have their version of $1000 toilet seats too.
And ‘freedom’ is hardly what a predator like Romano Prodi is talking about.
A system in which both the tax rate and the rate of tax evasion are high promotes economic inefficiency in at least three ways — irrespective of the percentage of GDP that is taken by the State.
First, effort and ingenuity are devoted to evading taxes which could be devoted to more productive activities.
Second, the mix of production (of both goods and services) will be skewed to overemphasize those which are harder to monitor financially.
Third, the prevalence of deceit and secrecy reduce the transparency which is needed for good investment decisions.
It reminds me of a darkly humerous one-liner:
PdH> But the ‘free riders’ are the state, not the hapless taxpayers
I disagree. If everyone pays their taxes properly then the tax each pays is reduced and the government spends less of the money of those who pay taxes chasing those who don’t, resulting in further savings.
A system in which both the tax rate and the rate of tax evasion are high promotes economic inefficiency in at least three ways — irrespective of the percentage of GDP that is taken by the State.
First, effort and ingenuity are devoted to evading taxes which could be devoted to more productive activities.
Second, the mix of production (of both goods and services) will be skewed to overemphasize those which are harder to monitor financially.
Third, the prevalence of deceit and secrecy reduce the transparency which is needed for good investment decisions.
Which is why you need a low tax rate, because if people are willing to go off the grid then it means that the grid makes them worse off, and there’s no reasonable way to think that they will deliberately go where they’re worse off.
Also, isn’t it fair to say that given the same tax rate, more evasion is better for the economy, given that people find it more useful to evade than to work in areas where they can be taxed more? After all, a bush will grow more if it is able to direct its energies to growing where the gardener’s shears cannot reach.
Nasikabatrachus,
Though I agree with the sentiment: “better for the economy” is a canard. I think you mean better for the people.
On your points there are some counterarguments:
1. The effort of evasion is often less than the effort of compliance. Quite a lot of evasion arises directly from the horror of official forms and the absence of any way back from non-compliance without punishment. So whatever tax rates are, most tax encourage evasion. – Whch meand it actually very cheaply preserves resources from government waste.
2. You assume that there’s a proper allocation of production. There isn’t. It is just that goods and services with the deadweight of government regulation on them will be less profitable and in less ready, less adaptable supply. If people want to pay for them they’ll still be available. Any “mis-allocation” in such a system isn’t caused by the adaptation of the market to circumstances. It is the use of expropriated wealth by government spending other people’s money, which is a moral failure not a market one.
3. “Transparency” is another canard. It is a mantra of the regulator and the inquisitor, amounting to an absurd assertion that perfect information is possible, that information has no cost and ought to have no price, that nothing must be hidden from the inspector general. The doctrine of transparency serves to undermine investment, the soul of which is private information and control. A less taxed society would mean less demand for transparency.
“most tax encourage evasion” should be “most tax systems encourage evasion”
Cynic, may I provide an example of what you’re referring to? Banks are less and less willing to open small savings and checking accounts. They have raised their fees on low balance accounts or simply refuse to accept them at all. My stock brokerage will not open any mutual fund accounts with an initial purchase below $2,000. The largest stock brokerage in the country, Merrill Lynch, will no longer pay its brokers any commissions on new accounts below $50,000. The cost of meeting government regulations has grown so high that small accounts have become unprofitable to serve. This is why there are so many new check-cashing services and payday loan stores, which are exempt from banking regulations and which charge exorbitant fees to customers the banks can no longer profitably serve.
Quentin
That’s not what would happen!
High taxes would remain high, and the government would use the money for other projects. The excuse would probably be ‘Tax Harmonisation’, across Europe. Growth is a natural human urge. Just as businesses try to expand in markets, so governments try to expand through taxes and laws. Go, Italians! Keep on biting the hand that hopes to leash you!
Of course that’s the theory and if states were run like companies, that might also be true in reality. But states are never run like companies because they are not companies. In reality there is actually far from a 1 to 1 relationship between the amount of tax that’s appropriated and the outcomes produced by any state project… the NHS over the last 10 years or so is one of the most stark examples of how immense increases in money poured in produced hardly any of the stated improvement, or at least very little in proportion to the increase in tax money gobbled up. If you could see a direct correlation between tax and benefit, like you often can with investment and return, the case against tax evasion would at least have some merit at least on utilitarian grounds, but that’s not the case.
I think this is a case of “a pox on both their houses.”
As others have stated, tax evasion causes distortions in the economy and a loss of transparency and honesty. This is true regardless of how justified the tax revolt might or might not be.
However, Perry is also right in suggesting that widespread tax evasion is a sign that tax levels are too high, and that the notion that taxes should remain high until evasion declines is silly. It’s from the “all leave is canceled until morale improves” school of leadership.
The Regan-era “tax revolts” were generally peaceful and lawful. They were not a case of people refusing to pay taxes so much as people being willing to put tax reduction at the top of their priority list when voting.
The correct path, as usual, is the difficult path: change the system by peaceful and lawful means. I grant you that there are times when the situation is so intolerable and hope of change so remote that a more direct approach is warranted. But I don’t believe that’s currently the case in any European or North American country.
Quite so.
If someone really wants to reduce tax evasion they will make the tax system simple and the rates low.
Of course if someone wished to increase the power of government they will go in for “crack downs” instead – no supprise if the people arrested include some well known opponents of the parties in power.
As for the Internaional Herald Tribune angle. As well as general statism, you must know that the Democrats are working on increasing tax rates in the United States Perry (not just in 2010 – now).
This will not get the vast amounts of revenue that they claim it will. So they will need to blame something – “the rich are engaged in tax evasion we must have a crack down” sounds like the game they will play (indeed they are already playing it).
Sadly many rich people either actually believe in statism (not just George Soros, Peter Lewis and Marc Cuban – but, more moderately, such people as Bill Gates and Warren Buffet as well) and many others will go along with it (pay campaign contributions and so on) for fear that their companies will get hit (by “anti trust” or S.E.C. or other investigations) if they do not.
People like Senator Clinton are not the corrupt unprincipled people that they are often presented as. Corrupt in their methods certainly, but they do have principles – evil ones.
Their collectivism is of the weird “Star Trek: New Generation” kind, but it is still collectivism – very different from the limited Welfare Statism of L.B.J. and co.
There is great danger in systematic illegal tax evasion. It preselects against people who have detectable personal assets. It causes a system much like I face paying for health care. Because I have something to lose, I am charged a high enough rate to pay for all those who don’t pay. Cash medical customers are charged 2 1/2 times the rate charged to insurance customers for the same or lesser quality medical care. Hospitals do this in order to make the cash customers who actually DO pay cover the short fall for those that don’t. By doing this, when hospitals collect only 39% from cash customers, they still make the ~same from cash customers as a class, that they do from insurance customers. By doing this, they are making a broken system keep running.
By institutionalizing illegal tax avoidance, those working the hardest are small business people who have personal assets that can be taken if they rock the boat.
Tolerating systematic tax cheating provides a way to selectively remove certain small business people from the system while making sure that the people who thrive are either good little corporate soldiers blindly contributing their withholding tax invisibly on every pay receipt, or the recipients of redistribution. Or, of course, tax cheats who, for lavishing praise on their masters, are allowed to continue but with very limited potential futures.
I want every last clueless voter personally paying every last cent. Hell with withholding taxes (or whatever you call it in the UK), I want people to write a lump sum check at the end of the year.
GOVERNMENT MONEY!!! I want those tax paying idiots who have bought into the “it’s the government’s money” lie to look at the latest absurd thing that politicians are doing with ‘government’ money and see that new set of tires they need for the car. I want them to write a check to the government and know that it’s one more year they can’t put away any college money. When they see the polished marble in the latest government edifice, I want them to see the money they need to fix their leaking roof. When they see swarms of government employees doing anti-productive ‘work’ I want them to realize that summer vacation and a new car are just a small part of what they gave up to pay them.
We need some Naloxone for the opium of re-distribution. We need a good strong dose of unmistakable sensation. Voters need to feel the full pain of having that money taken. En masse.
Permitting tax cheats is just one more way for the system to get the leverage needed to keep potentially independent people’s mouths shut. We should never give any incentives to people to shut up and look the other way. I want those tax cheats to be screaming and throwing things. Instead, they are quietly underbidding those of us who have something to lose, while paying vocal homage to the !$#%^*& system.
It is those tax cheats who are keeping the totalitarian system alive. Just like any other totalitarian system in history, from USSR to Red China, etc., it is the black market that keeps things from falling totally apart. Take away all of the off-the-books work, from undocumented aliens to undocumented tips, from falsified corporate statements to barter exchange, and the whole top heavy system collapses. We will have riots in the streets. And in the ballot boxes.
Of course Midwesterner wicked libertarians (me for example) do not support hospitals being forced to treat people who can not or will not pay. If people wish to set up free hospitals (as many did) or free wards in non free hospitals (ditto), but that is (or should be) up to them.
To the leftist reply “if you were poor you would support compulsory free treatment” I reply that I am poor and I do not. If one day I can not afford inhalers (in theory I could fill in forms and claim benefits and other such now) then my breathing stops (it would hardly be before time). “Free” treatment paid for by making threats of violence is not a good thing.
It astonishes me that people say “I would never accept charity” (i.e. gifts), but are quite happy to take money and services financed by the threat of violence.
“I will never accept a gift from Mr A. or Miss B. – but if you smash them over the head and take their cash I will accept it” seems to be the attitude.
You appear to have bought the lie too, Paul.
The hospitals are not the ones being forced to provide free health care for people who don’t/can’t pay. I am. Along with (exclusively) the other people who are financially or medically unable to get insurance.
In the same way, most people have bought the lie that the government (like the hospitals) is picking up the tab for all of its programs. But it isn’t. Like the hospitals, it passes the cost on to the part of the population that is vulnerable to extortion.
The threat of violence in this case is I am forced to pick up the tab for other people’s ‘free’ care if I am to receive care for myself. The hospital merely transfers the threat you speak of onto a group without the political muscle to fight back.
We need to break the illusion that hospitals provide ‘free’ health care out of their own resources and we need to break the illusion that government provides ‘free’ programs out of its own resources. Neither is the case.
The cost of ‘free’ needs to be knowingly felt by the people who are passively supporting this system. As long as the majority of voters either are not the ones picking up the tab (‘free’ medical care), or don’t realize they are picking up the tab (government tax withholding), nothing will change. A little pain would help these voters to focus.
Once again, I think you and I share most fundamental values but are working from different data sets.
Quite so Midwesterner.
As stated many times, “free” treament is not “free”. People are either paying for it voluntarily – or they are being forced to pay for these activities (via taxation).
Human beings invent many ways to reduce the cost of health care, but then statism is used to defeat them. For example, some people created H.M.O.s as a way round the regulation and subsidy distorted insurance companies – but then lots of regulations were used on the H.M.O.s
“I do not want health care prices to keep going up and up” does not fit with “I want regulations to force……” but there we go.
Of course one could have high quality treatment for much less money – if the subsides (Medicare, Medicaid other “free” treatement) did not totally distort the system.