How Not To Be Greece (Or Italy)

When Newt Gingrich and Mitt Romney aren’t attacking each other for “vulture capitalism” and “bitter envy,” they often deliver sonorous warnings that the Obama administration is driving us toward national insolvency – that we will soon face the same fate as Greece or Italy. These exaggerated predictions of deficit doom are intended to frighten the gullible, with the ultimate aim of achieving drastic cuts of Medicare, Medicaid and Social Security (and possibly the privatization of those programs for profit). But what the Republican candidates never mention a fundamental cause of the fiscal crises in Greece and Italy when proffering false comparisons with the United States: the impressive levels of tax evasion and underground economic activity in those crippled economies.

If anybody is pushing the United States toward the edge of fiscal disaster, it may just be the Republicans in Congress who insist on slashing the Internal Revenue Service operating budget. According to the agency’s internal watchdog, tax evasion — rampant among the one percent, by the way, both here and in Europe — costs the Treasury around $400 billion a year, more than one-sixth of the $2.3 trillion collected. Rather than hire more auditors to ensure that the wealthy pay their share, Congress actually cut the IRS budget in 2011 — and brought us a bit closer to the impecunious state that Romney, Gingrich and all those debt-conscious Republicans supposedly despise.

In Italy, the annual cost of tax evasion is conservatively estimated at $150 billion, or almost eight percent of that country’s gross domestic product. In other words, more than enough to begin solving Italian fiscal problems without the harshest austerity. In Greece, the tax evaders steal away with an estimated $30 billion a year, or about 10 percent of Greek GDP — not enough to balance their budgets yet but certainly enough to soften the economic damage of cutbacks. In the financial markets, everyone knows that better tax enforcement, usually a dreaded notion among traders, is mandatory so that southern Europe can borrow and recover.

Although Americans are taught from an early age to hate taxes and disdain the IRS, our rate of tax evasion has nevertheless been much lower than the rest of the developed world. Still, in an era when legislators are considering drastic reductions in essential programs, the rising level of taxes owed seems like an obvious target for better enforcement. But studies here and abroad show that tax evaders are far more common in the uppermost brackets than at the lower end, where levies are mostly deducted from paychecks — which makes evasion an important element in the growing global income inequality. Perhaps that’s why the likes of Gingrich and Romney, those faithful servants of the one percent, will never mention it.