Faster, Please!

Taxes, Real Cash Money, and Corruption

We’re in Italy, where the new government — headed by the distinguished economist Mario Monti — has three big initiatives: make it easier to fire workers, raise taxes on everyone, and limit the amount of money that can be paid in cash.

The first one was demolished by trade union opposition, and to tell you the truth it wasn’t much of an initiative in the first place, since even “legal” firings would have required the employer to pay a chunky severance, running up to two years’ full salary.  I found myself wondering if I could get myself fired on that basis.  Anyway, it’s dead.  Some variation may resurface in a while, but for the moment, it’s dead.

Raising taxes (which goes hand in hand with cuts in some government spending), on the other hand, is seemingly very popular.  Maybe it’s a Catholic thing (we’ve sinned, and now we have to pay for it), but I rather suspect it’s a conditioned reflex from the old days.  In those happier times, nobody ever protested higher taxes, because they had no intention of paying them anyway.  So their attitude was “look at that!  Another tax to evade, another deal to make with the tax collectors.”  Back when I was reporting from Rome for The New Republic, I once calculated that the marginal tax rate was over 120%.  I went on to describe a few of the myriad stratagems the Italians had devised to beat the system (triple and quadruple sets of books, elaborate overcharges to cover currency export, and lots of cash moving around, just to take three examples).

The turning point in the retail world came with the arrival of computers and credit cards.  Once sales were entered in the computers (yours or Visa’s, it was all the same), the merchants were screwed, because there was no avoiding the taxes, especially the VAT.  You had to take a real risk, doing deals in cash and not ringing them up at all.  Sometimes you got caught (the tax men sometimes paid rewards for informers).

Ditto for the big businesses, who got nailed by bank reporting.  In the old days, there were banks (famously in Switzerland and the Channel Islands and the Caymans) that wouldn’t tell anyone, even a government official, what you were worth.  But that slowly changed, and now that the horribly truthful numbers are flushed out of the computers every evening, it’s hard to beat the system.

But there’s always a way, and the easiest way is to use real cash money instead of American Express.  That puts you outside the tax man’s little black box, and of course everybody knows it (because everybody who can manage it, does it).  So the Monti government is banning all cash transactions over a thousand euros.  Over in Spain, where “austerity” is also the word of the day, the government wants to cap cash transactions at 2500 euros (the official exchange rate is something a bit north of $1.30 per euro.  Yeah, it’s expensive over here).  Both Latin countries are acting on the assumption that their citizens are trying to cheat their governments.

That is, the governments assume that the people — virtually all the people — are corrupt.  Which brings us to the sermon of the day.

In the old days, whenever it rained, the people would say “Piove.  Governo ladro.”  It’s raining, the government’s a thief.  The folk wisdom had it right:  the government was trying to steal the people’s money, and so unpleasant things happened.  When the state’s greed becomes excessive, the people will always find ways to steal their money back.  And there’s always a way.  Down at our level, for example, you can buy a 2,000 euro item with cash by paying smaller amounts several times.  Otherwise you have to pay taxes, and the seller has to pay taxes, all of which are relentlessly rising, and if you don’t beat the system, you’re going under.

You’d think that a government would know that.  But they think they can catch the petty thieves by tracking cash withdrawals from the banks.  I saw a video online recently where reporters went around interviewing “normal” citizens, asking how much cash they needed per week, and the answers were quite low.  This sort of thing lays the groundwork for the scandal industry — very highly developed here — and you can imagine the headlines:  “movie starlet withdraws ten thousand euros in a single day!” — and so forth.

Sooner rather than later, a black economy will arise, just as it did when Italy’s labor costs went through the roof.  The labor costs were defeated when manufacturers ran two or three shifts per day.  They paid the extravagant social security, health care, and pension taxes for the first “official” shift, and the other(s) shift(s) was off-the-books.  Similar systems will be worked out for transactions over a thousand euros.

Don’t ask me for details.  I’m looking for consulting work…but trust me, the black economy is a sure bet.

The fascinating thing to me is that the anti-cash, everybody’s-stealing crowd doesn’t say much of anything about raising taxes in the middle of a recession, which I always thought was a violation of some basic economic principle.  You just don’t hear that.  When I ask about it, they usually shrug their shoulders.  Why?  Because they’re too busy figuring out how to beat the system.

If they read their own headlines, they’d see that there are lots of bigtime thieves on the other side.  In the health care system, for example.  Some of the best clinics in the country have been found to be making illegal payoffs to doctors, administrators, and government regulators.  Some of those clinics had turned into the special domains of trade unions, or political parties.  Kinda like some stories back home about our regulators living it up in Las Vegas at our expense.

I don’t see any happy ending to all this.  But it confirms one of my basic convictions:  when the state steals from the people, it turns the people into thieves.

Or the people revolt.  But that’s a rarity, and quite un-European.  Yes, they had the French Revolution.  But it failed.  And there were some aftershocks in the 19th century, most all of which failed too.  Ours is the only durable and successful revolution.  Another reason why our elections are so important.  If we can stop the mad stampede toward Tocqueville’s nightmare of American tyranny-by-small-steps, and roll back at least a good part of the recent expansion of state power, we may yet give the world a reminder about what works and what doesn’t.

If you care about freedom, that is.  Otherwise, just use the computers and the “social media” to watch everybody’s every step, and watch how fast “freedom” becomes a synonym for “what the state wants.”

(Thumbnail on PJM homepage assembled from multiple images.)