Tax Cheats

June 28, 2007 by Tom Armstrong.

The WSJ today ran an article about tax evasion in Italy. Apparently tax dodgers are common there. If you read the article here, you’ll see why.

Italy collects tax revenue estimated to be 41.1% of its GDP. For comparison, the U.S. rate is 25.5%, Japan’s is 26.4% and Canada’s is 33.5%.

The government, the article claims, was once lenient on tax dodgers, but the state now is “waging war on tax evasion.” Why wage a war? The writers say tax evasion is a “national epidemic that has weakened the country’s ability to balance its budget, fund new investment and create a stable business climate.” Unpaid taxes are estimated to be equal to 27% of Italy’s gross domestic product.

Here’s a novel idea. Instead of waging a “war” on its own people, depriving them of their earnings and freedom, how about lowering taxes. All the Italian government is considering, it appears, is using the state’s power of coercion to collect more tax revenue. Using a carrot stick approach–tax cuts–would likely yield more tax revenue in the future.

One person in the piece is quoted, saying, “In America, if you cheat on your taxes your neighbors won’t talk to you. In Italy, they’ll ask you how you did it.” Italians would feel the same as Americans, I’m sure, if tax rates were perceived as reasonable.

For further evidence on why tax cuts in Italy may actually result in additional government revenue, read this.

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