Monday, August 14, 2006

tax evasion and new taxes: italy, israel, and the u.s.

Italian tax receipts have soared unexpectedly in recent months, either a happy coincidence (as some suggest) or the result of a new, get-tough attitude toward tax evasion on the part of the recently elected left-center Government (as the Government predictably claims). Since the actual reforms enacted by the Government were rather tame, relating primarily to limits on cash transactions and more assertive policing of the business-personal boundary, the issue would appear to be less one of specific legislation than a change in psychology. In particular the Government's promise to avoid further tax amnesties--which frequently permitted taxpayers to escape by paying only a small percentage of their accumulated tax liabilities--is arguably having an effect. Left-leaning deputies have called for a suspension of proposed spending cuts in light of the new-found revenues; moderates have been predictably more skeptical.

Taxes are also in the news in Israel, where the Labor Defense Secretary, Amir Peretz, floated the idea of a regional tax to compensate for costs of the hopefully concluded war with Hezbollah. Pursuant to the nascent proposal, taxes would be raised in the south and center (read Jerusalem and Tel Aviv) but not in the north, with funds used to defray the cost of the war including (presumably) the cost of reconstruction for communities damaged in rocket attacks. Since people with resources largely fled the north, or at least the border communities, early in the fighting, the issue is as much class-based as regional in nature, which will create an interesting political situation, since the figure most likely to benefit from the Government's perceived weakness (Bibi Netanyahu) also has the country's worst record on vertical equity issues. (The overall situation at war's end, or cease-fire's beginning, is discussed in a subsequent post.)

Here in the U.S., biggest news has been the Senate's rejection of so-called "trifecta" legislation, which would have substantially reduced the estate tax in return for an increase in the national minimum wage (further tax goodies formed the third part of the trifecta). Whether an inspired trade-off or a cynical election-year ploy, the proposal was apparently too clever by half, and estate tax reform is for the moment as dead as, well, the people who complain about paying it. Trying to perceive a pattern in such maneuverings is difficult and perhaps futile. But there is a sense in all three countries that the automatic appeal of tax cuts has spent itself, and that consumers (i.e., legislators and voters) are exercising an ever-increasing degree of scrutiny over the costs and benefits of specific tax reduction proposals.


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