More on Black Economy

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When I was living in a failed socialist economy– where there were no jobs, no hope and no cash–I was impressed by what appeared to be relatively successful socialist economies of western Europe. I must admit that they were rather impressive especially when viewed at long distance  through the lenses of a controlled and restricted press which can only report news favorable to, or deemed permissible by our government.

Yes, there actually was press censorship and movie censorship but no radio censorship only because the government already owned the single radio station in the whole country of 50 million. Western socialist democracies had everything that we lacked but a part of the story which we were not told was the extremely high taxation in  those countries. In my native country we did not have a formal taxation system since the government-owned most of everything and had a policy of periodic demonetization–declaring currency valueless– whenever they had a whim. I later on realized that they showed us all the glitter but none of the guts of the systems there.

After I had immigrated to America I later on had opportunities to visit western Europe quite frequently; the main reason was  because I married a European woman. That was when I saw the real belly of the western socialist beast.

At this juncture I must sidetrack somewhat and admit to some ignorance on my part.

I did not earn a lot of money during those days, actually only somewhat more than the official poverty  level and was therefore not taxed very much. I was only aware after Reagan became president that the highest marginal tax rate was over 70% in the USA and almost everyone above poverty level paid some tax. But in western Europe somebody earning what I was at that time– forty years ago– was paying almost half or sometimes more of what they earned.

I began to know that those rates have to be paid because they were living on those benefits supplied by the welfare state. They did not work as hard or as productively as the Americans were and they were getting 4-6 weeks of vacation at double the pay during vacation time. Yes, that is not a mistake, they were being paid their salary plus an equivalent amount because they were on vacation called ‘vacation pay.’

Later on they shortened the work week to about 35 hours, that was when I began to ask how they could afford such luxuries. But I know the answer now, they couldn’t afford it; look at them now where several countries are on the brink of bankruptcy or default on their loans. Loans, what loans you might ask–loans to supplement their high taxes so that they can pay for the benefits. As you might have guessed, their high taxes were not enough, they had to borrow to meet those needs.

They have to raise their tax rates and especially on the rich. Hi America, does that sound familiar with recent calls by the president to do the same over here. In the United Kingdom the coalition government raised taxes last year for those earning more than £150,000 to 50% rate. Do you know what the results are? You would expect it to increase revenues if there are no behavioral changes. But of course, there  are changes in human behavior; the same reasons why Marxist socialism failed–basic human nature.

Coalition (UK has a coalition government currently) projections expected the move to raise over £1 billion per annum in additional revenues. But according to The Telegraph, “[Results showed] a drop of £509 million compared with January 2011. Most other taxes produced higher revenues over the same period. Senior sources said that the first official figures indicated that there had been “maneuvering” by well-off Britons to avoid the new higher rate. The figures will add to pressure on the Coalition to drop the levy amid fears it is forcing entrepreneurs to relocate abroad.”  Out of 23,595 online respondents, a full 93.8 percent said the 50% surtax should be repealed.

But these results have been known to be the case in several other scenarios  in New York City and in Maryland and I have written about it in a previous post.

A black economy is thriving in those countries–not the kind we see in Marxist counties where shortage of goods is a daily fact of life–but rather a shortage of services.

People are not willing to work anymore because it pushes them into a higher rate of taxation. Some years ago a cousin of my wife was offered a promotion and a pay raise because he was a good worker, but instead of rejoicing in his success he lamented about it and he negotiated more time off rather than take the raise. The company which coveted his good work was deprived of even more hours of his precious service. This example further affirms the saying which goes: “Tax it and you’ll get less, subsidize and you’ll get more of whatever it is.” Clearly indolence is being nurtured and bred within that socialist society.

In that same country one cannot find a decent worker who will work for you as a handyman, unless one pays him ‘under the table’ because he does not wish to declare his earnings. This is the black economy in services I am discussing. In Greece, one does not have to pay income tax under earnings of less than €12,000: Lo and behold a great majority of Greeks earn less than that amount and you’d be surprised that more than two-thirds of Greek doctors earn less than €12,000 a year, at least that is what their tax returns show.

By speaking only about income taxes I am only scratching the surface. In those western socialist countries they also have a tax called the value added tax. The rate differs from country to country and for different classes of commodities but the basics are still the same. There is a tax on all goods and services which are levied on every stage as the goods move from one stage of refinement to another–more about that at another time.

Newsweek magazine published the following headline on the cover of its February 16 issue: “We Are All Socialists Now” but if we continue on the path to socialism I think that we will all find ourselves gripped in the throes of an ever blackening economy. Let us pray that we will find some enlightened reasoning to prevail so that we may be delivered from descending further into the abyss of an ever-growing government, dependency and declining work ethic.

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