Akst: Tax evasion slippery path for Greece

Are we like the Greeks?

It's an important question, for despite another bailout last week, Greece is doomed to years of economic suffering and still won't be able to repay its mountainous debt.

The answer, unfortunately, is that we Americans are indeed like the Greeks -- and the Italians, and other southern Europeans -- but not in the ways commonly assumed.

The differences, admittedly, are glaring. Our markets are freer, our labor laws saner, our customs more business-friendly. We have better colleges and universities, and more babies. Most of all, we have the almighty dollar, which enables us to print money as needed. We are not, thank God, stuck with the euro.

But there's one big thing we do have in common with Greece, Italy and Spain: a reluctance to pay enough taxes. In Greece, illegal tax avoidance is so extensive that, by itself, it accounts for a great deal of the country's debt problem.

How much tax evasion goes on in any country is difficult to say; the underground economy is, by its nature, underground. But by analyzing a society's use of cash, the proportion of people employed and other factors, economists can estimate.

For Greece, a reasonable estimate of untaxed activity is 25 percent of gross domestic product, one of the highest levels among advanced countries. Apply even a modest tax rate -- say, 20 percent -- and it's clear that evasion is costing the Greek government the equivalent of 5 percent of GDP. (Note that, before the debt crisis, Greek tax collection trailed the rest of the European Union by the same 5 percent of GDP. So an estimate of that much evasion is plausible.)

This is huge. Annual deficits are added to a nation's debt, so in just 20 years, this much tax evasion translates into a debt burden equal to the country's entire annual output.

The picture is similar for Italy, where rampant evasion has exceeded Italian budget deficits for most of the past 15 years. Eliminate Italian tax cheating, in other words, and its fiscal problems vanish.

Tax evasion is much less widespread in the United States, where our habit of voluntary compliance makes the Internal Revenue Service the envy of tax collectors the world over.

Yet we, too, are engaged in large-scale tax avoidance. We just do it through the political system, and so the only laws we violate are those of fiscal prudence. Just how much political tax avoidance are we doing? Well, federal revenue as a proportion of GDP last year reached its lowest level since 1943. The highest tax rate on earned income is way lower than it used to be. Capital gains are taxed more lightly. And corporations pay proportionately less. It's as if the entire country voted itself a decade-long tax holiday.

This would have been fine, if we had cut spending commensurately. But we didn't, and we never will; at best, we might retard the rate at which government spending grows. There is no anti-spending party; indeed, Republican administrations in recent decades have produced the most red ink, as David Stockman, Ronald Reagan's former budget director, has noted with bitterness.

Let there be no illusions. Although we're different from the Greeks, we also have accumulated debts by our failure to pay enough taxes. And we, too, will have to pay the piper. That will mean higher taxes in future.

That's not end of the world. By the standards of comparable countries, we're lightly taxed. Besides, taxes aren't evil, any more than government is, and telling people otherwise isn't just wrong, it's dangerous. By undermining the voters' faith in government -- and their willingness to pay for it -- Republican presidential candidates risk making us more like Greece, not less.