Saturday, February 28, 2015

The Hazards of Policy Divorced from Sociology

Back in the early 1960s there was an incident at the firm where I worked that became legendary. Bob, a WWII veteran with a steel plate in his head was in Chicago on business for a few days.  In winter, he had to wear a hat, and the wind blew his hat into the street and down a storm drain.  He found a suitable replacement for $5 and continued on with his business.  When he returned, he put the $5 on his expense report, since being away from home precluded using another hat he already owned, and thus, in his view, was a medical expense directly related to his being on the road for the company.  His boss rejected the expense report with a prolonged rant.  So Bob went back to his desk, filled out another report, raising the total for his meals (for which no receipts were required if below given thresholds) by a total of $5.  He attached to the report a note, "While on business, my medically required hat was blown away, and I could not find it. My total legitimate expenses on my first report were $xxx.xx, including the hat.  Here is a second expense report for $xxx.xx, but without the hat.  You find the hat!"  The supervisor signed the original report, and it went through unchallenged.

We have previously discussed the Greek crisis.  One of the aspects of "corruption" in Greek society that arises is tax evasion.  The new government has made it a goal to attack tax evasion by the wealthier Greeks.  Critics of Greek society point out that many, many small businesses regularly and routine choose to do business "off the books", and thus don't issue receipts, avoiding VAT and income tax.  I can only speak for Paros, where I live, but in 10 years, I would say that the vast majority of our purchases, both large and small, have resulted in our receiving a cash register receipt.

Now, as an academically trained "political economist" whose specialty was labor market theory, it has interested me to see the blanket condemnation of self employed Greeks doing some business off the books.  Let's begin with some sociological factors.  For a variety of cultural reasons, 36% of the Greek workforce is self employed/family employed.  That's five times the rate in the US and 3 times the rate in Germany.  Businesses and real estate are handed down through the generations.  There is a strong personal bond between the people and their land and business.  Many would rather toil on their own for a meager wage than for a meager wage from WalMart.  I cannot begin to describe the mixed emotions in my Sicilian family when first my brother-in-law, and then I did not show an interest in joining and hopefully take over elements of our family's successful businesses.  It was almost as if we said we would not produce offspring to perpetuate the family name.  Americans really do not aspire to carry on the family business, unless it is extremely profitable.

Now, American right wing hype is that "small business is the engine of America", but the type of small business they refer to still does not result in a relatively large number of "self/family employed" people in the work force.  In fact, self/family employed represents just under 7% of the work force.  The vast majority of Americans work for somebody else, and can engage in very few personally enriching tax avoidance tricks in the conduct of business transactions.  They have to find other ways to evade taxes, often by off the books sidelines that do not show up in the labor force statistics, like eBay or unreported side jobs.

Now, why do employers like WalMart, McDonalds and most others ring up each and every sale?  Because they are honorable?  Hell no. It is because sales are rung up by employees and scrupulous ringing up is done to prevent employee theft.  Robbing the till has to be a very tempting thing for someone who can hardly put food on their table, etc.  If the register doesn't balance at the end of a shift, it ain't pretty.  It's a simple and easy to enforce compliance system when the owner of the cash register is not necessarily the operator of it.  While employee theft cannot be stamped out, it is included in the cost of goods sold, raising retail prices, which could reduce demand if prices rose enough to suppress demand.  Thus, the less than altruistice reason for keeping employees as honest as possible.  There is a limit on how much cost you can pass on to your customer.  Americans operating the cash register are basically honest because corporate interest, not social values, make it difficult to be otherwise.  I would also mention that such firms use other techniques to avoid paying taxes, and they do a fine job of it.

Of course, the US has other venues that allow and/or encourage  the WalMart, McD and other low wage earners to afford food, clothing and shelter.  It's called Food Stamps, Housing Assistance and Medicaid.  It's has been estimated that WalMart employees alone receive some $6 billion per year from those programs.  So, these retail giants may not be hiding sales and employment to evade taxes, but their poverty wage employees can "afford" to work for them at taxpayer expense.  You find the hat!

Now, look at typical IRS audit rates.  The emphasis is on higher revenue brackets.  Why, because that makes economic sense.  The amount of revenue involved addresses higher potential tax liability in absolute terms.  Keep in mind that only 7% of the workforce is self/family employed, so it doesn't take a lot of IRS resources to audit 2% percent of these folks.  It's a simple cost/benefit tradeoff.  Consider the magnitude and cost of trying to audit a workforce 5 times that size in proportion to the total.

Now back to Greece.  36% of the workforce is self/family employed.  In a shrinking economy where there are no Food Stamps, etc to help in bad times, the temptation to under report income is very powerful.  Unlike the WalMart or McDonalds employee in the US, shit wages in Greece are not supplemented by tax funded benefits.  Thus, Manolis the plumber, when having trouble putting food on the table, might put an extra 15 Euro in his pocket by not issuing a receipt for a 100 Euro job.  The WalMart worker is called "compensating for being exploited" for his tax funded benefits, and Manolis is "corrupt".  Yet WalMart wages are costing the US taxpayer billions in welfare costs, where the taxes evaded by all the Manolis' and Dimitri's unreported income might just pale in comparison.  You find the hat!

And, of course, economists are totally comfortable with the WalMart Model, as it all shows as part of GDP, while the Manolis Model doesn't.  Heaven forbid poverty should make GDP figures inaccurate.

How prevalent is under reporting in the US?  I have no idea, but I do have first hand knowledge of one case.  Years back, a doctor friend let his wife open a small botique in a local strip mall.  She was fashion savvy, but not business savvy, but as long as she broke even, he saw it as an good outlet for her.  Business was tight, and she couldn't afford enough part time sales people.  Several of the other merchants in the mall showed her how to hire high school students off the books, and how to cover those expenses by not ringing up an amount of sales that offset the employees' pay.  Just took a little time and effort to keep track of the expense and income on a separate ledger.  Just keep one kid on the books for appearances sake.  They all did it.  The avoidance in sales tax, social security, unemployment and workers' comp taxes was considerable enough to allow her to have three instead of two part time employees, and still earn enough profit not to set off any alarms - until she was telling her accountant about their wonderful two week trip to Hawaii, and he saw full revenues during those two weeks from a store that claimed only 10 hours/week of employee payroll expense.  He said that the knowledge of her vacation and what that implied precluded him from doing her store's taxes.   She simply changed accountants.  When her husband finally learned what she was doing, he shut her down and held his breath for the statute of limitations to pass.

I have no idea what level of tax revenue is lost via unreported sales in Greece.  But, before getting my panties in a twist about it, I consider the difference between Greece and the US in terms of the cost of taxation to subsidize low wages with welfare and the cost of tax evasion to supplement low wages, and I honestly have to say, "You find the hat!"

I'm not comparing what might be morally nor legally right or wrong.  I'm simply suggesting that life ain't as simple as some would wish it to be.  It may be true that what is good for the goose is good for the gander, but before you deliver that good, you better be sure that what you are calling a gander isn't a swan or a penguin or a cow.


  1. Indeed. All societies have slippage points between what is said and what is done.
    In fact, people often can't even see them, until they move to a different culture.

    Take for example traffic tickets.

    In English speaking countries, police often have discretion to charge someone fore speeding (or whatever).
    If you are only going a little bit too fast, they don't have to give you a ticket. However, once you have the ticket,
    a lot of discretion goes away and the legal machinery takes over.

    I am told that in some Spanish speaking countries it works differently.
    The law is the law. So, if you are speeding you must get a ticket.
    But after you get the ticket, then discretion can be applied (because it doesn't necessarily make sense to prosecute someone who was only going a little too fast).

    Both systems have 'slippage' between the law as written and the law as applied.
    And depending on what system you are used to, you don't even see your systems
    slippage, whereas the other system clearly fosters corruption.

  2. I have no idea what goes on in Greece or the rest of Europe. But tax evasion in the States that I have seen is rampant in small businesses. One way that I saw the most of is buying things for the home and writing them off as business expenses. Or writing off personal travel as a biz expense. I've seen this done by both self-employed "consultants" and small corporations with say 50 employees or less.

    I am sure mega-businesses in the States are much worse. And of course those businesses have the wherewithal to hire a ton of former IRS accountants and lawyers or former State tax workers in order to shape and mold their tax cheating and tax evasion efforts into a realm more friendly sounding like tax avoidance.

  3. mike-

    It's a rare general contractor that doesn't charge materials and sometimes labor used to improve/repair his own residence to the costs of a house or houses under construction. The was a fellow down the road from us in WA who openly explained to the home owners association that an extension to his home that he wanted to do could take up to 2 years years, considerably longer than the bylaws allowed for having such work going on, because he needed to spread the expense over a certain number of houses that he would be building for tax purposes.

  4. I like anyone to point out to me when has any business or individual...regardless of national origin hasn't cooked the books, or even done off the book "accounting."

    And during my stint as a broke-ass, making 5.00/hour wage-slave got on board with dumpster diving back in the day when dumpsters were purposely left open in the hopes that someone would do the company a favor and dump the damn thing. I was able to fund my normal diet of mac-and-cheese and Top Ramen with the occasional dozen eggs, and the infrequent "need-to-sell-by-date" reduced prices for chicken, beef, or pork. But what I didn't do was report my ~$5-to-$10/week take off the metals I liberated from the dumpsters. Why? I don't know...this was over thirty years very poor. I remember being hungry a lot...and when your desperate...well...yeah.

    But me thinks, though, that as we, and by "we" I mean every-last-one-of-us-on-this-god-forsaken-piece-of-rock-out-here-in-the-middle-of-nowhere-on-the-f'ing-fringe-of-the-galaxy got more sophisticated (read: Greedy) with how we handled money.

    So, I'm going to give the benefit of the doubt and say there are a lot of Greeks who, like me way back when are dirt-fucking-poor, don't have a whole lot of money, don't bring in much, either, and when an opportunity to make a few drachma's comes along as cash on the, no I don't expect them to report that as "earned-income."

    And then there is going to be the corner-store business owner who makes a few bones on the side...but in respect to the community, the fact that he provides 1) goods, 2) services, and most importantly 3) Hires that slackard providing a community service to everyone.

    Now, of course, there is going to be some filthy rich people who are going to adopt the same attitude, rationalize that the few hundred-million they made through whatever deals they make is just a way for them to "just get by." is my take...someone, somewhere, somehow, for whatever reason went full retard on their "And a bit for myself!" finances, and though this individual or company has been lost in the mythical mix of mystical accounting legends begging the question of who the fuck is responsible for all this...the reactions to said decision is what everyone is left with today, and of course we wouldn't be human if we didn't overreact to things done in the past.


  5. sheer- so is what you are saying, "You find the hat"? No way in hell would I disagree with you. It's simply a matter of how one "culture" approaches hiding the hat versus another. But they are all hiding hats. The existence of different methods does not indicate right versus wrong, but simply differences.

  6. A common damnation of Greece is that we don't have a "national land registry", and it is taking forever to develop the one mandated by the bailout. For the longest time, that complaint confused me, as we hired a lawyer to do a title search to ensure that the previous owner of our little plot of land (about .15 acre) had a clear title to sell it. Further, we have a copy of the plat of the land as registered in the equivalent of the local county office. So I am thinking, there is not a "national land registry" in the US, and the plat of every piece of land I have ever owned in the US was recorded in the county offices.

    So finally, I asked a close friend who had served as deputy mayor of the island. Well, after a bit, I realized that a "national land registry" is the same thing as the property tax assessors' rolls of assessed property values in the US. Well, for better or for worse, while records of all land ownership, dutifully surveyed, is recorded in the county offices, Greece has never taxed land, per se. So, strike one - no land registry. DUH. One was never needed before the bailout. Strike two - Greece hasn't been able to take all the county records, determine a legitimate assessed value for every single deeded plot of land in the country, in order to levy a tax on that land fast enough to satisfy her critics. From wikipedia: Greece is a peninsular country, possessing an archipelago of about 3,000 islands. It has a total area of 131,940 km2 (50,940 sq mi), of which land area is 130,800 km2 and internal waters (lakes and rivers) account for 1,140 km2. I have no earthly idea of how many individual parcels those 50,940 square miles are broken into, but I would bet it's a staggering number.

    Now, we live at the base of a small mountain. My neighbor owns a few acres on the side of that mountain. Very little horizontal surface. There are probably at least hundred similar plats, if not more, on our 86 sq mi island. He takes a tractor up a dirt road, slightly better than a goat trail, a couple of km to that land, where he has some olive trees and grape vines that he farms for himself and his family. The land only changes hands within families by inheritance or gifting to offspring. Wanna suggest a market value for this?

    My friend inherited a 3,000 sq meter (3/4 acre) island, about 200 meters off shore of Paros, that has been in her family since the 1800s. While water and electricity could be run to it at significant cost, 1/4 of the island has been surveyed for archeological artifacts, and bingo, they are there. Thus, 1/4 is undevelopable, and the odds are that the remaining 3/4 could have artifacts as well. OK, say the country is in a crisis and the hell with the 2,000+ year old stuff, you still would need to address getting to and from, no less is the geology amenable to a septic system, which is a long shot, as it's mostly rock. How do you assess the "market value" of that?

    And while the previous government screwed a lot of pooches, I have absolutely no idea how they could even begin to legitimately assess all the parcels of urban, village, rural, island, mountainside, exhausted marble quarries, etc in 20 years, no less the three or four they have had so far. Especially with a mandate to reduce civil service rolls by 30%.

    To be continued

  7. Continued:

    Why wasn't land taxed in the past? Because most land was family owned and was not viewed as wealth, but a homestead that would remain in a family for generations. Some of the kids move away to seek their future, some don't and some return in retirement to the family digs. The family will build a small house (cash) for the kids who stay on the family land. (My Big Fat Greek Wedding Style) The land and houses are not seen as an asset that one sells to turn a profit, but a treasure one preserves. Doesn't matter if it makes sense or not, it's the reality on the ground, and has been that way for the 5,000+ years people have lived here.

    So, what was done was the house tax I mentioned in another thread. Every structure that is, or has been connected to the electric grid has the sq meters registered with the public power company, as they, for reasons that escape me, inspect a building to verify that the building does not vary from the size approved on the building permit. Then you can get electricity. Municipalities could levy very minor infrastructure taxes based on this measured area, and it would be included on your electric bill. Mine runs about 9 Euro/month. So, in order to get tax revenue quickly, a house tax was instituted based on the sq meters of your house times a wild ass guess of what the value per sq meter in your region happens to be. For my house, that was originally (2010) about 42 Euro/month, on top of the 9. It was adjusted down last year, based upon plunging property values (after all it was alleged to be a property value based tax) brought to the "Troika's attention by riots in front of the Parliament building, to about 35 Euro/month for our small house.

    So, in a blink of an eye, the culture was told to turn land and homes into personal wealth, price that wealth and tax it based on that value. That's simply ignorance of history, culture, and logistics. If a corporate CEO placed such a task on his subordinates, the board of directors would most likely fire him on the spot.

    BTW, the house tax was retroactive one year and payable in five installments per "tax year", so the first calendar year we actually paid two year's of tax levy in 10 installments, with a two month break between the two year's payments. This was a brilliant idea of the authors of the bailout to "jump start revenues". And don't forget the pension and salary cuts, etc mentioned previously that might just, possibly, maybe affect one's ability to pay that double tax burden.. And many of the Austerians actually blamed the demonstrations, riots and election of Syriza on Greeks being unstable, selfish, etc.

  8. Portugal is still very much family business based as well. We have been seeing a sea change though over the last 15 years as the Malls/chain shops takeover from the traditional downtown shops. I remember when it was usual to be asked "if you wished a receipt" or not. Not requiring one meant of course a cheaper price since no VAT. This was common, especially for services, including medical services. The government responded with stiffer penalties for those caught and a very high level of VAT . . . but the black economy remains substantial I think, although people no longer brag openly about not paying their taxes . . .

  9. Footnote to the final paragraph above.

    As mentioned before, only about 26% of Greek primary residential units are mortgaged, and 75+% of Greeks live in owned residences, either houses or apartments. I ask my Yank friends, how many of you live in neighborhoods where almost 6 out of 10 of your neighbors have no mortgage? Can you even conceptualize such? Or that a Greek mortgage contract cannot normally extend beyond age 70?

    Thus, the vast majority of Greek primary residences were not subject to loss or foreclosure in hard times. One's home, family home or "family complex" was a safe refuge, good times or bad. In bad times, you could turn down the heat, use less electricity. If you had a bit of land around your home, you could do some, or increase existing, subsistence farming, as many of my neighbors have done since their incomes have been slashed. A totally non-taxpayer funded social welfare program operated by family and neighbors, for which there is no public sector equivalent. In the primary needs of food, clothing and shelter, one could always count on having shelter. That’s called a “culture”.

    However, with the bailout, a culturally foreign practice was imposed, which, in one stroke of the pen, extinguishing the refuge provided by a fully paid for home. A comprehensive social welfare safety net, funded, effectively in perpetuity, by the home owners themselves, had just been demolished, to adopt a “real property tax", in line with Austerian practice, as one of the solutions to the revenue problem. Also in line with Austerian practice, the inability to pay the house tax results in a tax lien on that home, and now the minders of Greece want the government to begin the seizure of real estate with tax arrears. Won’t even begin to speculate about how the government could benefit from suddenly owning tens of thousands of foreclosed residences. One could say that the threat of seizure will increase compliance, but the money has to there in the first place. So, what I will ask is what is going to be done with the evicted occupants? There has never been a cultural need for rent assistance, food stamps, or the like in Greece.

    One could say that the evicted residents can just rent, like in the US, but how does a family that could not afford the added burden of 500 - 700 Euro/yr in house tax come up with rent money of at least five times that burden, no less something to offset the lost benefit of their "gardens"? It's not like they would be replacing a suffocating mortgage payment with a lower rent expense. The increase in relative cost of housing would be astronomical. And how does a government that has been forced to cut spending, to include social welfare, afford to assist these folks?

    In short, a fundamentally flawed knowledge of the culture on the part of finance, monetary policy and economics geniuses designed a perfect path to humanitarian catastrophe. Is it any wonder that even the previous Vichy style government, much to the displeasure of the Austerians, took no steps to enforce residential tax lien foreclosures, and the current government clearly stated that such taxes arrears are to be handled in a program of long term payment plans and even forgiveness for the lowest income brackets? Thus, a program to absorb the lost wrong headed revenue rather than pay out quadruple in social assistance.

    When numbers crunchers proudly embark on numbers driven programs, without one iota of sociological knowledge, without one shred of understanding for the human condition, without the vaguest idea that there are some cultural practices that are not readily quantified, well, the above is just one area where they come out looking like the town idiot, even though they refuse to accept that reality.

    Does that, perhaps in part, explain demonstrations, riots, Syriza? Or shed more light on Pluto’s question about suffering and human catastrophe.

  10. Interesting! The rules and laws that apply to said countries are indeed diverse, but to what extent really? Also, I'm going to have to agree with Ael. Each society has a different way of dealing with those types of issues. Some systems could be forgiving and understanding, while some could be ever so accusing. The least the system could do is to help the minimum wage earners breeze through, by giving benefits that come side by side with their jobs, such food stamps, housing assistance and Medicaid. Anyway, thanks for sharing that stimulating article! I enjoyed reading it! All the best to you! :)

    Betty Rose @ Phenix Investigations

  11. Betty Rose- Yes, indeed, each culture has its own way to deal with specific issues. I would be the last to suggest we change that. HOWEVER:

    A friend of mine is a small business owner. I regularly stop by his office for coffee and a chat. He is one of the most intellectually nimble people I have ever met, which leads to some amazingly funny as well as thought provoking conversations. He's in a 60:40 partnership with another fellow. Here's how he perceived US property tax a few years ago, before the "house tax" was imposed here:

    Joe and I invested in this business. I invested 60% and he invested 40%. We share the profit or loss at a 60:40 ratio, as that's the ratio of investment we made. If we turn a profit, I pay 60% of the tax on that profit and he pays 40%. If we suffer a loss, the same ratio applies. If we sell the busines, we split the proceeds 60:40.

    Now, you buy a house in the US, and it is mortgaged. In terms of net worth, your real "wealth" is the market value of the house, less the balance due on the loan. The bank carries the balance you owe them as part of their "wealth". That's not only common sense, but standard accounting practice. All "wealth" has to show up somewhere on the balance sheets. However, the government taxes your mortgaged house as if the assessed value is only your "wealth", not the wealth of partners, which is really the case. So you own 25% of the value of the house, but bear 100% of the tax liability. I just can't see how that is rational.

    And all we can say is, “That’s how we do it.”

    No matter how huge the mortgage, we Yanks say we "own" our home. On only one occasion did I ever hear of the bank as my "partner" in real estate. Was when the loan officer, a truly delightful guy, said that the pile of paperwork required for a new construction loan was just their due diligence in being our "partner" in a joint investment. "Even though our mutual plan is for you to buy us out over time, right now we both work together to make sure our joint investment is sound." Have you ever been told that by a loan officer? Hell no, they call it "your house", even though they will effectively own most of it, and will repossess it if you fail to meet your "buy out contract". But, Americans are acculturated to that. It's how we do business.

    Yes, a lender's role is limited in several ways. The borrower has nearly unfettered freedom in the use of the house, but a "real property tax" is not based on user utility, but value, or "wealth". A $100,000 assessed value piece of undeveloped real estate is taxed the same as a $100,000 total assessed value piece of real estate with a house on it. But then, only the borrower realizes the capital gain when the property is sold, if there is one. If there is a loss, however, that is solely the borrower’s problem, unless there is a general catastrophe, such as the recent mortgage crisis, where “short sales” were common. But at any given point in time, the "wealth" inherent in the real estate for taxation purposes is a fixed value and takes none of the foregoing into account.

    Let’s assume a culture that taxes real estate based on the proportional level of actual owned value by the "owner" and the co-owner lender, and they come to the rescue of the US in a crisis. "Wow", say the reps of that culture, "your placement of property tax burden is irrational. Effective immediately, real estate property tax burdens will be apportioned upon the borrower and the lender based upon each's actual % ownership of the property on the date the taxes are levied." What kind of shock would that send through the US system?

    I am comfortable as can be with different cultures having different approaches to the same issue. However, thinking that a workable solution in one culture can be instantly be imposed on another is a recipe for disaster.

    1. Joe's partner is incompetent.
      Every economist could tell him that capital is but one factor of production, labour is the other one (excluding technology for now).

      A split of profit according to equity shares makes sense only if the labour owners' labour has been rewarded prior to calculating said profit.

      "I just can't see how that is rational."

      Simple: A tax regime has to be applicable and enforceable. The bank legally separated itself from the real estate enough to not be an owner. They get taxed once they foreclose.It's easy to do, even if the tax regime developers attempted to counter it with additional legislation details.

    2. Sven-

      The example my friend gave has nothing to do with economics and everything to do with law and business practice.

      Joe and my friend agreed to a 60-40 split based on initial investment, not on who works longer or harder. Labor is a non-issue. Ownership is. Each also brough a different skill set to the business which cannot be quantified. Their objective was to use each man's available resources and skill to start a business and run it successfully, which they have been doing, to their satisfaction, and the admiration of others in the business community, for 20 years. Their initial investment of about 25,000 Euro has resulted in a business with over 1 million in fixed assets, and sufficient revenue to employ 6 other people at a reasonable wage and provide a reasonable standard of living for the two investor/operators. Where is the incompetence? Have you a similar entrepreneurial success to claim.

      In the life span of a mortgage, the tax burden on the "wealth" far exceeds the tax burden on the interest the bank earns during the life of the mortgage contract, yet the bank has the advantage of carrying its proportional share of the "wealth" on its books as an untaxed asset. The bank is indeed an owner, just with restricted utility. The borrower, should the market value fall, shoulders all the burden between the outstanding principal and market value. Should the bank foreclose, under typical US law, the borrower will receive nothing from the subsequent sale of the property, no matter how much principal he might have paid.

      If the bank forecloses, they only are taxed on the capital gains, if any, between the outstanding balance and a subsequent sale price, if their total capital gains outweigh losses. If the borrower defaults, the bank has no liability for property taxes until such time as they cannot sell the house at auction, and have to take court approved full ownership of the property. All back taxes remain the liability of the borrower.

      That's what my friend was commenting on, after doing a fair amount of reading on US ad valorum property tax and mortgages. I have yet to hear him speak authoritatively on a subject he hasn't invested a fair amount of time researching. Perhaps that's why his business is so much more successful that his competitors?

  12. Here is an interesting link from BBC regarding taxation in Mali. Choose your rate 30% or 3%. Some pay with cash, but some pay with a Ram or with a few cases of soda pop.

  13. (Original comment deleted and edited to clarify a point)


    Been decades since grad school, but one of our profs was investigating human motive for tax compliance. He hypothesized a sort of cost/benefit analysis on the part of the taxpayer, based on personal cost (time, record keeping and maintenance, time involved in a potential audit, etc), versus monetary costs. For example, back then, a fair portion of the population probably "over complied" (paid somewhat more tax than necessary) to enjoy the very low personal cost of a Short Form, and/or use standard deduction. Fill out the form, attach the W-2s and mail that sucker in. Odds of an audit would be about zero. When the increased tax of the former exceeds personal costs saved, then go to all the time and personal cost of a "Long Form", Itemized Deductions, etc and reduce the tax bill. And, the next step when personal cost of the preceding approach gets too high, turn it all over to an accountant, who does the paperwork, maintains the files, etc and who will also represent you at audit, saving you that personal cost.

    It's the relationship between sociology and public policy. Are some cultures more "corrupt" than others? Well, that depends on whether you measure "corruption" based on pure numbers, without adding sociological sense to those numbers. One "economic measure of corruption" is the estimated size of the "Black Economy". Even sounds evil. The greater the proportion of a nation's GDP that is "Black", the more corrupt the nation is. Makes nice, easy, numerical sense.

    HOWEVER, take the time to read this paper. At least based on the US and UK, the self employed have a greater propensity for under reporting income than other earners. Won't go to any great length as to why, other than to suggest that they tend to be in the lower half of income totals, and thus more likely to perceive the need to under report to meet living expense. Also, the nature of their business operation lends itself to such, as record keeping is a significant “personal cost” of compliance. If under reporting by the self employed is effectively a constant across nations, then the size of the "Black Economy" is also going to vary based upon the percent of the workforce that is self employed. Nations with high rates of self employment are going to appear more corrupt than those with low rates of self employment, even though the human propensity to under report self employment incomes is a constant.

    Thus, without looking beyond numbers, it is easy to make very sub-optimal policy decisions. Should we put an end to self employment so that the Black Economy will be virtually non-existent? How does the state ensure more accurate recordkeeping by the self employed without a massive enforcement cost? That's why many universities categorize their economics programs as "Social Science" and choose not to create a "School of Economics and Finance".

    To paraphrase one of my Political Economy Profs:

    Science has found fly turds in ground black pepper. The accountant says, "Someone needs to count the number of fly turds in a given amount of pepper". The financial accountant says, "We need to determine the cost of turd tainted pepper versus the cost of picking the turds out." The economist says, "We need to determine the ratio of turd to pepper and it's affect on market value." The sociologist says, "Would someone please close the screens on the windows at the pepper mill."

  14. A boat docked in a tiny Greek village. An American tourist complimented the Greek fisherman who was resting in his boat on the quality of his fish and asked how long it took him to catch them.

    “Not very long,” answered the Fisherman.

    “Then, why didn’t you stay out longer and catch more?” asked the American.

    The Fisherman explained that his small catch was sufficient to meet his needs and those of his family.

    The American asked, “But what do you do with the rest of your time?”

    “I sleep late, fish a little, play with my children, and take a siesta with my wife. In the evenings I go into the village to see my friends, dance a little, drink a bit, and sing a few songs. I have a full life.” Said the Fisherman

    The American interrupted, “I am a businessman and have an MBA from Harvard and I can help you. You should start by fishing longer every day. You can then sell the extra fish you catch and with the revenue, you can buy a bigger boat.

    “What do I do then” asked the Fisherman?

    “With the extra money the larger boat will bring, you can buy a second one and a third one and so on until you have an entire fleet of trawlers. Instead of selling your fish to a middleman, you can negotiate directly with the processing plants and maybe even open your own plant” answered the Businessman.

    “What do I do then” asked the Fisherman?

    “You can then leave this little village and move to Athens, London or even New York City! From there you can direct your huge enterprise.”

    “How long would that take?” asked the Fisherman.

    “Twenty, perhaps twenty-five years,” replied the Businessman.

    “And then what happens then?” asked the Fisherman

    “That’s when it gets really interesting,” answered the Businessman, laughing. “When your business gets really big, you can start selling stocks and make millions!”

    “Millions? Really? And after that?” asked the Fisherman

    “After that you’ll be able to retire, live in a tiny village near the coast, sleep late, play with your grandchildren, catch a few fish, take a siesta with your wife, and spend your evenings singing, dancing, playing and drinking with your friends…”

    “Which is exactly what I do already” replied the Fisherman

  15. Great story Al. That is an age old theme.

    There is another written by B. Traven (the author of 'Treasure of the Sierra Madre' of John Huston & Bogart fame) back 80 odd years ago. Titled 'Assembly Line' it tells of a poor Indio in southern Oaxaca who when not tending his corn, squash and beans weaves small baskets for sale in local markets for a few centavos. The baskets are beautifully woven, each one different from the others with various birds, butterflies, flowers, animals or people. An American tourist, also a businessman, tries to convince him to increase his production and sell exclusively to him so that he can market them in New York and make big bucks for both of them. The Indian's response is poetic. A must read. Originally published in German in 1928 as 'Der Grossindustrielle'.

  16. It's lunacy, mike, pure lunacy. The previous government was pretty much a lap dog to the lenders, but even they ignored some of the more bizarre "reforms" being demanded. Take the program to make the pharmacy business "more competative". In Greece, pharmaceuticals are price fixed at the wholsale and retail level, and both are the lowest in the EU. And everyone is making a living. In fact, wholesale prices are so low, there has been numerous attempts to illegally export to other EU countries. Won't bore you with details, but Greece has an elegantly simple system that tracked every box of meds from factory to sale at the register. But the Troika saw pharmacies as a "closed" and thus non competative profession. Why "closed"? Because every pharmacy must be owned by a pharmacist, and a pharmacist can only own one pharmacy. If we had "chain" ownership and "megastores, there would be more competition. Now, the country already has the lowest prices in the EU, there are pharmacies convenient to just about everyone, the pharmacies employ pharmacy techs, creating local jobs, and no one is getting overly rich. Pharmacies even help each other out in case of an item going out of stock. In short, it works well, costs less and fills a public need beautifully. It ain't broke, but the troika wanted to "fix it", because there wasn't "competition" by their definition. In fact, the prices are so low that a rookie TRICARE claims clerk held up processing a claim of ours for an antibiotic, thinking the receipt had a decimal point error!

    So when the Troika published a list of necessary "structural reforms", and people saw the pharmacy recommendation, they were gobsmacked. If there is one thing Greeks know is a good deal, it's pharmacies. And some folks ask why the population doesn't trust the Troika? Besides the damage the bailout has done, there could have been more if the former government hadn't resisted the tiny bit it did.

  17. Just back from Italy, the land of Brussels blessed creative accounting. The Govt had to cut spending and increase taxes to please Brussels and Frankfort. One area of reduced spending was to slash the money going to cities. However, the day before the slash, the federal government authorized municipalities to charge a tourism fee on a variety of services, most notably, hotel rooms. Ranges from 50 cents to 7 Euro per person, per night, based on size of the municipality and the star rating of the hotel. Now, keep in mind, this is a municipal fee, and thus is not on the federal books. To keep it kosher as a municipal fee, it must be invoiced separately and paid upon check out. It cannot be in the room rate, as that would subject it to VAT. AND, because it is a municipal fee, Italians can be exempted from paying it, which would be illegal under EU regulations were it a federal tax, as all EU citizens must be taxed the same by the various federal governments. The hotel owners hate it, because it requires double invoicing and infuriates guests. And, in Rome, for example, where hotels are generally rated with far more stars than they merit, the 6 Euro per night, per person for a 4 star that would be 2 stars elsewhere is truly annoying.

    Popular tourist destinations, such as Siena, that don't have enough hotel rooms within city limits to bring in the geld they need, simply charge staggering fees for legal parking, and staggering fines for parking violations. Tour buses are charged 130 Euro to use the municipal lots while their passengers stroll the city. But it's not federal money, so the cities can do as they please with it, while the federal govt keeps Brussels and Frankfort happy via creative accounting.

    But, Italy got huge pats on the back for slashing municipalities' cost to the federal budget. You find the hat.

  18. Al -

    What is going on with the port of Piraeus, is Red China buying in?

  19. mike-

    From what I have read, some sort of cooperative venture is being negotiated. The current government claims the previous government was being far too generous in their offer, but, since any detailed info is in Greek, it's difficult for me to sort it out. There is a lot of hostility towards privatization, as the recession and austerity have cramped any possible Greek investors, and led the previous government to accept "fire sale prices" in order to get quick cash under Troika pressure. Thus, many people see their nation's infrastructure being sold off to "foreign countries" at bargain prices.

    The people (and thus the media) are more interested in the negotiations with the lenders, who insist that there be more civil service layoffs, wage cuts, pension cuts and VAT hikes. I guess that the drop in unemployment to about 27% has the lenders feeling there is room for more people to lose their jobs without disrupting the economy.

    I tried to find the actual jobs lost data versus "unemployment", as there are jobs that have gone away that were held by immigrant workers on work permits, and they wouldn't tally as unemployed once their work permit expired, if at all. The renewal rate for non-EU citizen work permits in the Cyclades has gone down at least 50%, based on a friend at the visa office, and she said she can count initial issuances on her thumb. Whether they have gone home, or are just working off the books to save the roughly 200 Euro per year in renewal costs is hard to determine.