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Diane Francis

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Americans and Greeks Are Tax Deadbeats

Posted: 06/19/11 03:54 PM ET

Nobody likes taxes, but the historical opposition to them in two nations could be ruinous for everyone.

In Greece, the Ottomans made taxes and subjugation synonymous. Turks required Greeks to let Ottoman tax collectors slap their faces and grab their hair if they did not bow. They imposed the "tribute of children" requiring one in five male children to serve in the Sultan's army. After liberation in 1821, Greece was governed by a string of illegitimate monarchs and dictatorships until it formed a Republic which is unwilling or unable to collect taxes.

The result is rioting and rigamortis. Fresh private-sector pockets must be found to loot. The Europeans are on the hook for the eurozone's poorly devised architecture which allowed Greece to cook its books and get too deeply in debt.

But the United States is similar. The same anachronistic, taxation-as-subjugation mentality exists among many and may lead to default on its debts in August.

After all, America is the country that threw the tea in the harbor and launched a bloody war of liberation over taxation. Seemingly heroic, the dirty little historical secret is that after the War of Independence the new country, and its 13 state governments, were unable to get anyone to pay taxes so they began swiping land from Indians and selling it to new arrivals. Then when they weren't collecting payment for much of those lands, they had to steal some more, go to war or buy it. Until the last century, the US was anarchical, violent and unjust. Communities had to band together to provide police, road, education and other services of any kind.

Anachronism
So it's symbolic that the anti-tax Tea Party Movement in the US, with its Revolutionary garb, three-cornered hats and muskets, aims to move the country forward by going back in time. Their electoral success and influence is wreaking havoc in Congress and impeding the needed compromise to control the deficit through spending cuts and tax hikes. This is not posturing but anarchy. Republican Tim Pawlenty states that public spending should total 18% of GDP, which would barely cover the Pentagon, Homeland Security, prisons and debt repayments, and all entitlements should be unconstitutional.

On August 2 at 4 PM, the federal government must sign off on a deficit reduction plan in order to exceed debt ceilings or default. "There are 3 possibilities: a serious down payment solution in return for deferring issues; a last minute compromise to postpone the deadline or no deal which is unchartered territory," said Jonathan Spector at the Conference of Montreal last week.

That's when the end of the economic world as we know it happens unless there is a deal. It is, without hyperbole, being dubbed the "Lehman" moment or the day the financial system worldwide seized up. "Nobody knows what would happen, but why in the world would you want to try to find out?" said David Walker, former US comptroller general now heading the fiscal watchdog group Comeback America Initiative told a newspaper. "At least we experimented with nuclear bombs before we dropped one."

By the way, the Americans are loopy about taxation: If Americans paid the same taxes on incomes, gasoline, alcohol and cigarettes as Canadians pay they would have zero deficit problem.

American and Greek spoiled brats
Essentially, the two are frighteningly similar. The Greeks, with their tear gas and Molotov cocktails, refuse to give up entitlements or pay for them through taxation and are simply a violent version of the havoc that the US Congress is wreaking. But the US anti-taxers do "violence" against people by allowing those making $250,000 a year or more to pay less tax, through Bush loopholes, than does a single parent mother in Baltimore or a soldier in Afghanistan.

Without a doubt, the president and Congress will pull something out of the bag (this deficit deadline has been lifted 49 times in 20 years) and Germany's Angela Merkel will make rich banks and bondholders take a haircut.

But the damage is already done. The United States sputters in large measure because its politicians have lousy credit ratings which impedes job creation and activity and helps explain the lack of investment, credit or the inability to finance the building of infrastructure through private-public partnerships. American governments are lousy bets because they don't or cannot collect enough taxes to pay their bills.

The ability to reduce spending and tax its citizenry -- providing they are informed and benefit from the measures -- represents a competitive disadvantage for a nation. It is the mark of a country that cannot keep its fiscal house in order, does not care about repaying its debts and may be heading for collapse.

Originally published at the Financial Post