News & Analysis
CNN: The Problem's Not a Quadrillion Dollars in Sour Derivatives ... It's Italian Tax Evasion!
Tax evasion is a national pastime afflicting southern Europe ... "Wherever the olive tree grows, you won't find much tax being collected," the mayor of a small town in southern Spain told me a few years ago. He shrugged; such was life. He probably had no idea that some high-powered academics were about to come up with the same conclusion. When they analyzed Europe's "shadow economies" – defined as areas that fall beyond the reach of the taxman – those of Greece, Italy, Spain and Portugal were much larger (relatively) than those in northern Europe. That is partly because of the higher number of self-employed and family businesses, which tend to deal in cash and pay little tax. But to many economic commentators, tax evasion is also a national pastime in much of southern Europe, and a significant factor in the region's burgeoning financial crisis. – CNN
Dominant Social Theme: Look, we're the power elite, and we've printed about US$50 trillion around the world since the 2008 crisis began; we've now "backstopped" an additional US$75 trillion in bad Bank of America derivative bets via the Fed. But, listen, my friend ... the REAL PROBLEM is Italian tax evasion!
Free-Market Analysis: CNN is the Bill Clinton of liberal media; it continuously lies to every watcher it reaches, yet it continues onward without apparent difficulty, without even a brush with bankruptcy. Now CNN has decided one of the main reasons for the Euro-crisis is rampant tax evasion in Southern Europe.
This is presented to viewers without the context we've tried to present (above) and is doubtless intended to support a power elite meme having to do with profligate, cheating Europeans. Did you ever wonder why they got the name PIGS? Coincidence right?
No, we'd argue that this meme of profligacy – a sub-dominant social theme – has been building for decades and now the time has come to activate it. People blame the Southern Europeans for socialism and the welfare state but they forget who created such socio-economic dilemmas.
We don't, though. We recall quite well that it was the Anglosphere power elite itself that built the European welfare state. Socialism is a power elite construct, and one they spent a great deal of time implementing. It's designed to cause maximum damage to society by promoting government dependence and dysfunction.
But now it's time to pull the cleverly constructed plug. It's austerity time. And the more chaos that ensues, the easier it will be to move society to the next level – increased globalism with an increasingly accepted international currency.
Watch! It's not government that's going to be blamed for the EU crisis. It's BAD government. And how does bad government become good? Why, by becoming more efficient! This is why the elites are apparently floating the ideas of direct democracy and "government transparency." We've covered these at length.
The solution is not to get rid of government or even make it smaller. In fact, the solution might be to make government even bigger so that it can do the job it has to do more efficiently. That's what we're led to believe anyway. Here's some more from the article excerpted above:
According to a 2007 paper by Austrian economist Friedrich Schneider, the shadow economy in Italy accounted for 22.3% of gross domestic product (GDP), that of Spain 19.3%, Portugal 19.2% and Greece a staggering 25.1%. By comparison, the U.S. shadow economy was 7.2% of GDP.
A recent European Union report came up with similar figures. Silvio Berlusconi mused several years ago that high tax rates in Italy made evasion a "natural right" for many. And the evidence does suggest that wherever tax rates and social security contributions are high, the shadow economy is larger.
The U.S. ambassador in Rome noted in a 2009 diplomatic cable published by WikiLeaks that Italy was "addicted both to profligate social welfare spending and to tax evasion." And this year, Industry Minister Paolo Romani estimated "phantom" or undeclared income in Italy at a monstrous $320 billion.
The Italian state – whose debt has measured more than 100% of GDP every year since 1992 – is perennially poor, in a country of individual wealth that's well hidden from the authorities. Economy Minister Giulio Tremonti (photo, left) recently told a conference that fewer than 800 people in Italy – which is the world's seventh-richest country – had declared incomes of more than 1 million euros ($1.4 million) in 2010.
That means the salaried middle class end up paying more. Tremonti is aiming to more than double the amount recovered from tax evasion within the next two years. A recently unveiled series of television commercials attacks the "parassita della societa" – the parasites evading taxes, comparing them with malarial mosquitoes.
Where to start? The problem is not taxation, and certainly not effective taxation. The problem is money stuff itself, which is constantly debased by an unholy monetary system put in place by the great central banking families and their enablers and associates who are intent on building one-world government.
Metaphorically, they print tens and hundreds of trillions while instructing their controlled media to run stories about average people who are struggling desperately to keep their houses and provide their families with food. The problem isn't taxes or a lack therefore. The problem is a conspiracy to create world government – and a power elite that will lie and cheat and steal to do it.
It is the powers-that-be that created this mess with ruinous super money. And they continue to print trillions and trillions while pointing fingers elsewhere – anywhere else. Again, in the central banking era, taxes mean nothing. They are merely a way of confusing an already confused middle class and extracting as much wealth as possible to ensure that middle classes in aggregate continue to struggle.
Those who are desperate to keep their heads above water are not going to be very effective opponents of the new world order. They are not going to be in a position to confront the elites any time soon. Meanwhile, the same tiny group of individuals that wants to create world government is intent on demonizing the private sector (and regular hard-working people) in order to do so.
Conclusion: In Latin, politics means "tick" or "bloodsucker." Tremonti calls those who don't pay their fair share of taxes "parassita delllo societa." Perhaps he ought to look in a mirror.
Posted by Hoischen on 11/09/11 11:23 AM
It should not be forgotten that tax evasion is always! morally superior to paying taxes. With taxes paid a criminal organisation gets supported. And a person paying taxes, even if only at gunpoint, is therefore helping criminals to maintain their dirty business and is jointly responsible for every crime they commit.
Posted by Hoischen on 11/09/11 10:47 AM
It was a good idea to show that there's no real distinction between "government" and "bad government" as all government is inherently bad because it solely and always rests upon force and coercion.
Posted by Hoss on 11/09/11 08:17 AM
"CNN is the Bill Clinton of liberal media... "
I thought CNN was anti-smoking.
Posted by flrdailybell on 11/09/11 12:37 AM
Forget the stupid premise of CNN's reporting. The facts are wrong. The fact is that "shadow economy" correlates with the tax burden. The stereotype or myth is that the "north", e.g. Scandinavia, works well because they are honest and pay their taxes. In fact, the "shadow economy" was always estimated to be around 20% in Denmark and Sweden back in the late 1980s. Within small business tax avoidance is rampant and de rigeur in Scandinavia.
In Denmark they even had an ad campaign on commuter rail (and probably other media) a few years ago to try to "fight" the shadow economy. Typical guilt trip stuff showing a "greedy" handyman and saying that he is cheating society. A key difference between north and south is that the punishment for economic crimes in Scandinavia are extremely onerous (and I am not exaggerating) typically exceeding murder and rape. Therefore, you have to be more clever and less brazen about it, which probably leads to an under-estimation of the "shadow economy" in Scandinavia. In fact in the late 1980s I remember that some "experts" talked about that it could easily be more than 25% in Denmark.
Here is an IMF paper on the topic from 2002 by the same Schneider:
Click to view link
Note the following:
"In the 21 OECD countries surveyed the shadow economy has been growing for 30 years-doubling from less than 10 percent of GDP in most of these countries in 1970 to 20 percent or more of GDP by 2000 in Belgium, Denmark, Italy, Norway, Spain, and Sweden. Growth has also occurred in countries with smaller shadow economies; in the United States, for example, the shadow economy doubled from 4 percent of GDP in 1970 to 9 percent in 2000."
I didn't know that they had olive trees in Norway, CNN.
Switzerland is "only" 9%. In fact you can probably graph VAT % vs. % shadow economy and find a very close fit. The US and Switzerland have similar VAT (or sales tax) levels while the Eurozone is typically 20% with 25% in Scandinavia.
Posted by taxesbyanyothername on 11/08/11 11:13 PM
I was not implying that the poor or very poor could easily avoid a large portion of their taxes. As I said in the post the scale of tax avoidance by ordinary people does not at all compare with that practiced by corporations. I was mearly pointing out that it is quickly increasing in ways that have not been large scale in the recent past and that this is being done at all income levels. Much of the tax avoidnance at lower income levels is not even done with the idea of avoiding taxes, for instance gardening. Our perspective as taxpayers differs greatly from those in government, especially those with enormous deficits, which now includes almost all of them. Many will see avoiding taxes via barter as something to be stopped to increase revenue. Some types of barter may be outlawed others might be taxed. We have already seen individuals fined, jailed and in other ways stopped from giving away food, one of the most innocuous activities imaginable. I am sure that governments interfering with what was previously tax avoidance by converting it into tax evasion will cause backlash, especially in hard times, nevertheless they will. Even though that was not stated in the previous post, that was my point. I shall endeavor to be clearer in the future.
Posted by schrodingers_pussie on 11/08/11 09:30 PM
"Legal tax avoidance" is more often than not not available to the practitioners of the "shadow economy", since they are frequently on the bottom of the economic food chain. They have no high priced tax lawyers. They can't afford any. They're taxi drivers, fishermen, waiters, lace makers, cleaning ladies, gardeners, etc. that make much less than the people that sell tax avoidance advice. Yet these are the ones that get the brunt of the blame for not paying "their fair share".
The wealthy that can afford expensive tax advice are, of course, practicing "legal tax avoidance" which is well and good. The tax codes seem to be unfairly slanted towards that group. Maybe the legislators listen to them more intently?
Posted by taxesbyanyothername on 11/08/11 09:12 PM
Shadow economy seems like a hard thing to pin down since it is all hidden. Just taking a snapshot of it seems to be beyond the capabilities of the governments trying to tax it. Following such a phenomenon through time is certainly not possible. All of this deals with illegal tax evasion. Legal tax avoidence is growing by leaps and bounds. Just the increased gardening in the last few years adds up to alot but it does not even compare with large scale corporate bartering. Just a web search lists many companies selling software and classes on how to do it. Legislatures and regulators must be tempted to find ways to tax it. The ease of communication afforded by the internet will make barter much easier than it has been in the past. Since so many companies are facilitating large scale corporate barter others will probably try to do the same thing for small scale transactions, though they may not be able to compete with similar free services.
Posted by schrodingers_pussie on 11/08/11 08:00 PM
Most of the "shadow economy" Greeks don't make enough in their occupation to be able to eat and pay "their fair share" too. Few people seem to understand how little they really do make from their olive trees, their small fishing boats, their inexpensive souvenirs, and their small tabernas. The Greeks I've met in the small villages are very hard working, absolutely honest (except possibly at taxpaying, which doesn't count since taxes are a form of theft) and are not accumulating large fortunes. They drive old scooters and Piaggio trucks, not new BMWs. Their homes are clean and modest.
Posted by schrodingers_pussie on 11/08/11 07:42 PM
@Daily Bell: "A Quadrillion dollars of silver? Hm-mm not sure there's that much around ... "
Patience grasshopper -- all things come to she who waits. There were many quadrillion Zimbabwe dollars of silver around before the time came that no one would exchange their silver for Zimbucks anymore.
Excellent essay! The problem is so few understand that it's the trillions that are being stolen at the top rather than a few billion at the lower levels of society that is causing our economic malaise. I chalk that up to very effective PR from the Power Elites. I wish more people read this blog.
Posted by Angoose on 11/08/11 04:53 PM
Are derivatives legit? Do derivatives have something to do with JP Morgan short selling silver?
Reply from The Daily Bell
A Quadrillion dollars of silver? Hm-mm not sure there's that much around ...
Posted by MetaCynic on 11/08/11 01:55 PM
Just as black market activity kept the suffering of Europe's former Communist nations from being even worse than it was, tax evasion everywhere has made the current depression in the "free world" more bearable than it would otherwise be.
Posted by MetaCynic on 11/08/11 01:47 PM
So the productive person who evades taxes and manages to hold on to more of his earnings is a parasite, and the institution which produces nothing and feeds on the earnings of the productive class has been unfairly starved because it was denied access to some of the wealth of the productive class. What's next? Will burglars file a class action lawsuit against homeowners who have unpickable locks claiming unfair treatment of an occupation?
Posted by Abu Aardvark on 11/08/11 09:06 AM
CNN: "According to a 2007 paper by Austrian economist Friedrich Schneider, the shadow economy in Italy accounted for 22.3% of gross domestic product (GDP), that of Spain 19.3%, Portugal 19.2% and Greece a staggering 25.1%. By comparison, the U.S. shadow economy was 7.2% of GDP"
"Shadow economy", eh? Assuming that the numbers are fairly correct - isn't it funny, then, that REAL ECONOMIC ACTIVITY, that is to say without government meddling, is more than three times higher (as a percentage of "GDP") in Greece than in the US of A? "Staggering" indeed.