Greece and America: the Taxman Wants More

by Doug French, Mises Economics Blog
Feb. 22, 2011

Agents from the Financial and Economic Crime Unit sat at the Three Little Pigs Cafe bar in Athens recently working a stakeout to find a suspected tax cheat–the Three Little Pigs owner. These Greek government gumshoes were soon asking to look at customers’ receipts to see if the night club was collecting value-added taxes.

“Armed with a new law devised to help Greece crack down on tax cheats, the agents shut the cafe for the next 48 hours because, they said, receipts were missing,” the New York Times reports. “Across the city, other restaurants and nightclubs were also being padlocked, their names showing up in the local newspapers, their front doors sealed for all to see.”

Greek authorities believe their government is losing $30 billion a year because taxpayers aren’t paying what they owe. "We have learned a lot," said Ilias Plaskovitis, the general secretary of the Finance Ministry. "We have had great success in identifying who owes taxes, but much less in collecting them."

Doctors magically just report enough income to remain under the higher-rate thresholds. "When tax authorities recently surveyed the returns of 150 doctors with offices in the trendy Athens neighborhood of Kolonaki, where Prada and Chanel stores can be found, more than half had claimed an income of less than $40,000. Thirty-four of them claimed less than $13,300, a figure that exempted them from paying any taxes at all."

The Greek government has determined from satellite photos that 10,000 wealthy Greeks own pools, which are taxed, but only 324 admit it. As you would imagine sales of green, grass-like pool covers are brisk.

A proposal to jail tax evaders for 20 years is being submitted to Parliament at the same time more citizens than ever before are turning in their neighbors for tax avoidance.

Meanwhile across the pond, President Obama has proposed a $3.7 trillion dollar budget, $100 billion less than last year. The President says he’s making the tough choices, trimming $1 trillion from federal government spending over the next decade.

While the president may be holding the line on spending for most federal agencies, the one agency people love to hate–the Internal Revenue Service–is getting more money and more troops if Mr. Obama has his way. The White House is requesting that the IRS be budgeted for 5,100 more agents and a 9.4 percent increase in its budget, to $13.28 billion. Reuters reports this would allow for a roughly 5 percent increase in agency manpower to just over 100,000.

In it’s budget summary, the White House explains that the additional $1.1 billion in extra money will help the IRS “improve service to taxpayers” and “make interactions with the IRS more smooth and effective.”

The words “service,” “smooth” and “effective” are what come to my mind on April 15th, how about you?

The budget increase will support "new investments" in IRS compliance efforts that the administration says will help bring down the deficit, and "The result will be a more nimble, responsive, data-driven IRS that is better able to manage the complex tax administration environment posed by a more global and interconnected economy," the budget report says.

In his wildest dreams George Orwell couldn’t have crafted such doublespeak.

The Treasury Department budget calls for a doubling of funds for IRS enforcement and the President wants to double the enforcement budget again within five years. Chasing down tax cheats will supposedly save taxpayers $1.3 trillion by the year 2014 according to the IRS. The U.S. government believes it’s losing over $300 billion a year from non-compliance, ten times what the Greek authorities think they’re missing.

With that kind of budget and manpower, IRS agents may soon be tailing the citizenry to determine if our way of life matches what’s on our 1040′s.