Greek financial problems linked to Bush-style tax relief loopholes

Not to sensationalize, but that’s the conclusion I reach after doing some calculations to make sense of the sudden Greek financial crisis. The problems in Greece have been simultaneously blamed on a “socialist style” economy and on massive tax evasion. It can’t be both.

Danish socialism gets blamed by conservatives for strangling the capitalist incentive to work harder by taxing 63% of everything a person earns after $66,000. But if nobody really pays the tax, then socialism can’t be blamed for the economic crisis.

So what caused it?

Seems that massive tax evasion is the culprit, not socialist incompetence.

Evidence:

Only 324 people in Athens admitted to owning a pool last year. Satellite imaging revealed 16,974 pools. 98% of pool owners forgot to check the relevant box on their taxes.

http://www.greekrichlist.com/2010/05/greek-wealth-is-everywhere-but-tax-forms/

Only a “few thousand” of Greece’s 11 million people claimed to earn more than $132,000 last year. For comparison, New York City has roughly the same population and there are over 100,000 people claiming to earn more than $132,000 a year. If Greece and NYC were truly comparable demographically, 97% of Greece’s population is lying about their income.

America tax evasion:

Bush’s 2001 tax cut was a modest effort to flatten America’s progressive tax system. The highest tax rate is now 35%, down from 39.6% pre-Bush. But every year $300 billion goes unreported to the IRS by the super-rich, roughly ten times the amount of money that Greeks have failed to report to their government. (Source: http://www.perfectlylegalthebook.com/) Also – although 10X sounds like a lot, USA’s economy is a 41 times larger than Greece.

Bush and the conservatives’ real legacy will be fanning the anti-IRS attitudes that justify tax-evasion by the super-rich. The nut who slammed his own plane into the IRS building last year made more than $132,000. He owned an airplane!

I predict that massive tax-evasion by those with the means to hire tax-evasion specialists is going to be the real trigger for America’s future economic meltdown. The Bush tax cuts for the rich are inconsequential (35% vs 39.6%) compared to the discrepancy between nominal and real tax rates in this country. I’ve written before that Corporations have a statutory 35% top tax rate, but the real rate on average is around 17% – half as much. Likewise, rich individuals will continue to exploit loopholes that drain the government of revenue, making the whole economy less stable.

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