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The New Tax Man From Ancient Rome

First Posted: 10/22/10 12:49 PM ET Updated: 05/25/11 07:05 PM ET

Sheila Rice, who sold her Maryland home to avoid foreclosure, was surprised to learn JPMorgan Chase was her property tax collector. But the bank can't claim to be the first private company to play the role of tax man: It's taken part in a more than 2,000-year-old tradition that, from its very start, has been tainted by abuse.

As the Huffington Post Investigative Fund reported this week, big banks and hedge funds in the U.S. have been quietly collecting taxes on hundreds of thousands of homes. The process, called "tax farming," is simple: A company goes to a local government and reimburses it for taxes that citizens aren't paying. In return, the company gets to act like an old-fashioned tax thug -- the kind rabbis condemn in the Bible -- charging up to 18 percent interest and thousands of dollars in legal fees, simply because it can. As the District of Columbia attorney general told the HuffPost Investigative Fund, there's "no oversight at all."

Like many great American traditions, the tax farming game was perfected by the ancient Romans. Provincial governors, and later Rome itself, sold tax-collection rights to private companies called publicani. As in modern America, this was a speculative bet -- a company paid a local government's tax debt, and then tried its own hand at recouping the loss. The Roman version was plainly brutal. In ours, the brutality is subtle. But in the estimation of one expert in ancient finance, it's just as bad: In our own way, we're sliding toward the conditions of ancient Rome, where private tax collectors employed soldiers to wring excessive amounts of cash from debtors.

"I fear that we're soon going to be where the Romans once were," New York University classics professor Michael Peachin said in an interview with HuffPost. "We're liable to rue the day -- not we, probably, but somebody will someday."

Peachin was being facetious, but his exaggeration seems actually like understatement. In certain important ways, it's not a question of "someday" -- some of our hedge funds and banks, which strong-arm debtors like Rice with threats of foreclosure, are already there.

Modern American tax farms, like their Roman counterparts, lack government oversight. But the Romans, at least, had an excuse. The republic, and later the empire, was huge, and ancient technologies made transportation and communication difficult. As Edgar Kiser, of the University of Washington, and Danielle Kane, then of the University of Pennsylvania, say in a 2007 paper, that hugeness motivated Roman governments to turn to privatized tax collection in the first place. With tax farms, the government knew it would get paid. It didn't care -- it couldn't afford to care -- how the publicani came up with the money.

"They want their taxes, and they want people not to make trouble. And that's it," Peachin said, referring to Roman local governments. "Otherwise, they just don't do much of anything."

The major losers here, of course, were the taxpayers. Not only were they overtaxed, but publicani were free to be creative with enforcement. Violence was common. Peachin believes the publicani could even borrow troops from local governments. In the end, a focus on short-term profit undercut long-term strength. "Overtaxation only decreased tax revenue to the state in the long term through its negative effects on the tax base," Kiser and Kane write.

Modern U.S. tax farms don't use violence, but they do have the power to take their debtors' homes -- even for what starts as just a few hundred dollars in unpaid bills.

And whereas ancient publicani physically couldn't communicate with regulatory powers, today's tax farms intentionally hide information. Banks and hedge funds, according to the HuffPost Investigative Fund, create dozens of companies that they use as fronts, obscuring their true identities. Today's regulators aren't located an empire away. They just haven't been regulating.

In both ancient and modern times, the guilt gets spread around. Publicani took investments, and investors shared in the profits, much like at JPMorgan or Bank of America today. The key difference was that Roman publicani accepted investments from senators who were ostensibly their regulators. Since this was in fact illegal, senators made sure their shares were unregistered. As Ernst Badian, Harvard history professor emeritus, puts it in a 1972 book, "The traditional division of functions between government and public contracting was dead."

There have been no allegations of this type of conflict of interest in modern-day tax farms.

But the U.S. government today, as the Roman government did back then, enjoys what is often called a "revolving door" relationship with the financial sector. This passage from Kiser and Kane about senators and publicani sounds familiar:

"Revolving doors exist when actors move back and forth between roles as principals and roles as agents. This causes an increasing likelihood of collusion between principals and agents, leading to poor monitoring."

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