Wednesday 31 August 2011

Why the US cannot be compared to Greece - it's the tax system stupid!

"US Residents are taxed on worldwide income and allowed a credit for foreign taxes."

We all know why Greece is in trouble, due to its kleptocracy and tax avoidance, which, we all know by now, is a national sport.

The problem with Greece are of fiscal nature, given 30 billion euros escape the fiscal net on a yearly basis which represents a staggering 12% of GDP.

As I posted previously in "Markets - Liquidity? The IV Greek Credit Therapy":

"One thing Greece must address is tax cheats who represents 30 billion euros, or 12 per cent of GDP, every year. Another American solution to European woes would be, for Greece, to tax its citizens on their worldwide income, similar to the US. It would be a very efficient way to stabilise its ailing banking system and deposit outflows given one third of its funds withdrawn have gone abroad for fear of a crackdown on tax evasion. By imposing Greek citizen on their worlwide income like US citizens, and with the help of Luxembourg authorities, Cyprus, Switzerland and the United Kingdom, the outflow could be stemmed and vital tax receipts could rapidly help close the gap on the very acute budget deficit, but that's another story..."

The U.S. federal and most state income tax systems tax the worldwide income of resident so comparing the US to Greece, regardless of the currency issuer and non currency issuer debate, is stupid.

It doesn't mean the US doesn't need to address its current fiscal trajectory, that's another matter altogether. But, comparing these two countries, one being the United States with an efficient tax system run by the I.R.S. and Greece, where its tax collection system is in shamble, is proper nonsense.

Efficient system you say?
Here are few facts relating to the IRS:
"From the 1950s through the 1970s, the IRS began using cutting-edge technology such as microfilm to keep and organize records."
After microfilm, the 1960s onward saw massive computerization efforts.
In 1995, the IRS began to use the public Internet for electronic filing. Since the introduction of e-filing, self-paced online tax services have flourished, augmenting and sometimes replacing tax accountants to prepare returns.
In 2003, the IRS struck a deal with tax software vendors:
The IRS would not develop online filing software. In return, software vendors would provide free e-filing to most Americans.
In 2009, 70% of filers qualified for free electronic filing of federal returns.
In 2010, more than 66% (98 million) of tax returns are expected to be filed electronically."

Try to find a similar system in Greece...

So yes, if Greece was the US, in relation to its current worldwide tax system and more efficient collection process, it would not need countless bailout plans and we could all sleep better at night, at least in Europe...

No comments:

Post a Comment

View My Stats