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Final Spasm: Greco-Teutonic Tax Wrestling
Wolf Richter www.testosteronepit.com
In Germany, the top personal income tax rate of 45% kicks in at €250,000 ($330,000). The next step down, 42%, kicks in at only €54,000 ($71,000). It’s squarely aimed at the middle class. People who belong to a religious organization pay an additional 8% or 9% in "church tax," which the Ministry of Finance redistributes. Other taxes are piled on top. And when the hapless German taxpayer spends money, the value added tax of 19% comes due. Not surprisingly, tax fraud is a national sport. Yet, the German budget is nearly balanced.
In Greece, three-quarters of the independent professionals, such as doctors, lawyers, and engineers, declare taxable income below the existential minimum, according to a leaked paper by the EU Commission. Tax fraud amounts to about €20 billion per year (8.5% of GDP), and unpaid taxes amount to €63 billion (27% of GDP). Only a series of bailouts keep the country afloat: first €110 billion, now €130 billion, plus the debt swap of €107 billion. In total €347 billion—150% of GDP! And Germany is by far the largest contributor. For this mindboggling debacle, read.... Greece, “The Bottomless Barrel,” As Germans Say.
Both countries are also linked by some troubling polls. In Greece, 79% of the respondents said that Germany had a negative impact on Europe, 76% said that Germany was "rather hostile" toward Greece, and a third associated Germany with the words, Hitler, Nazism, or the Third Reich. A poll taken in Germany at the same time showed that 62% of Germans opposed the second bailout package, up from 53% in September, and two-thirds thought insolvency would be unavoidable.
So, in a bitter confluence of ironies, Germany will send 160 employees of its Ministry of Finance to Athens to help the government establish a more effective revenue collection system. Which is going to endear them even more to the Greeks. But as one of the conditions for the bailout billions, Greece must reform tax collections, and the Greek government made an effort to appear serious: with much media hoopla, it rounded up 100 tax evaders. But immediately, the effort smacked into reality: the court system.
The paper Kathimerini laid out the astounding problems. If you get wrapped up in a misdemeanor case, you would pay a portion of the amount owed before you can get an administrative court to hear your case, but it's waived upon appeal. Then you proceed to a first instance court—where a monumental backlog delays the hearing by three to four years. Once the court makes its decision, you can appeal it. Three years delay. Then the appeals court ruling can be appealed to the Council of State. Two years delay. Total time elapsed: a decade. In a misdemeanor case.
You can get up to three years in prison if amounts owed exceed €150,000. But you don’t need to go to prison if you don't want to. You can instead pay some money and be done with it.
If it’s a criminal offense, a prosecutor takes the case to a criminal appeals court. If the court is not in session at that moment, you’re freed after paying a portion of the tax debt. A court date is set for 6-10 months down the road. If your lawyer can't make it—and why should he or she be able to make it?—the date is moved out a year. The law doesn’t allow two such suspensions, but they occur. Eventually, there may be a trial, and you may get five or more years in jail. But if you have no criminal record, the sentence is suspended. Just pay court costs. If you’re condemned to pay a fine, it’s usually quite small. And it “is passed on for collection to the tax authority, where it is paid, if it is paid, in installments,” said law expert Takis Kousais.
Most defendants settle with the tax authority and pay the first installment to get out from jail. So, not exactly a deterrent. How 160 German tax experts would reform this system, if they can’t even get their own tax-fraud issues under control, remains a mystery. But reforming the system is one of the many conditions attached to the actual bailout payments, and these conditions are the crux.
Luxembourg’s Finance Minister Luc Frieden said it out loud: "If the Greek people or the Greek political elite do not apply all of these conditions, they exclude themselves from the Eurozone." Then he added crucial words: "The impact on other countries now will be less important than a year ago." And that has been the strategy all along. Read.... Firewalls In Place, Markets ready: Greece Can Go To Heck.
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Sounds like dealings with a 4 year old child.
Govt/Parent: Pay your taxes/Do what I tell you.
Tax Payer/Child: I don't wanna!
you would rather follow the rules while the rule-makers are fikking you up the arse?
These are all themes just recently published by you on your hamepage under the section: The Teutonic Dilemma
No doubt you know a lot about Germany but why in heaven are you so negative.
My comments to these headlines:
1) There is no dictate. Its only reality kicking in. Germany is the powerhouse of Europe and without it flourishing things would be much worse in Europe. Or do you think Greece would be a paradise without the existence of Germany. Its a corrupt mess ever since it was part of the Ottoman Empire. Maybe now the German influence can help Greece to improve things to the better. Give the Germans a try since it only can become better.
2) Yes , the official unemployment numbers in Germany are not as good as they look at first sight. But this situation is not new at all. Since more then 20 years a huge number of unemployed persons are hidden in the statistics. But this portion of the unemployed workforce did not grow in the last five years. In the opposite it was shrinking as a matter of fact. Plus the "official" numbers without the hidden part became also signifanctly smaller by appx. 1 million persons. This can be clearly seeen by the total numbers of person under employment which was never higher than nowadays. The proof of this fact is also that the social security systems in Germany do not have financial problems at the moment because there are much lesser persons to be supported on one side and on the other there are many more people paying into the social secutity system.
Therefore it is very obvious that Germans unemployment is really at an historical low thus signalling that the economy is booming at present.
3) What you call a housing bubble Mr. Richter is simply not existing. Reality is, that more and more people in Germany realized that it is now high time to transfer their paper wealth into "concrete gold" how it is called in Germany. People do get mortgages at very favorable conditions such as a 20 year loan with a fixed rate of 3.2% plus 1% downpayment. So they throw in their savings plus an affordable credit (no teaser rates like in the UK or US) and build a house to live in or to rent it. This fires up the economy of course and it can not go on for ever. But this is clear to most people around.
What you see in Germany is simply that the population spends their savings to invest. But this started already in 2009 in the midst of the crisis. People were buying high quality kitchens, cars, whatever they expected to need in the future anyhow. Repaired their houses simply out of the fear that a real crisis is coming which is putting their savings at risk. Its the typical "run to hard assets" which started in Germany early since the population has a lot of experience, knowing that they can very easy loose all their lifes savings in case of a real upshaking crisis. And this is funny. This behaviour is exactly firing the present boom in Germany, providing employment and new jobs.
For sure you see also in this development only something negative. But the opposite is true. The Germans in alert mode do spend now as long the prices are still low and credit is cheap. But its not consumption its investment. And since Germany is not an island and imports also a lot from other European countries, Russia and China it is in fact next to China at present one of the economic power houses of the world. Unforrtunately this does not help the UK and the US because these countries do offer not many competitive products for the German market.
what a strange form of tax!
http://expose2.wordpress.com
Plus 5 for the title alone!
Great stuff!
...and its SPRINGTIME
for taxes and Ger-ma-ney....
So where are they going to find more than 150K in any one's individual account in Greece anymore?
Nice rehash of information to invite for more consumption of articles.
US citizen nature is eternal.
China citizen nature is interminable.
Hey, if someone had actually prosecuted fraud cases as they came along, the moral hazard would have been kept in check. Too late now.