WSJ Historically Speaking: Tax Evasion’s Bite, From the Ancient World to Modern Days
Despite nearly a half-dozen elections in as many years, the Greeks are still no closer to solving their debt crisis. The newly re-elected government under Alexis Tsipras must fix a country that has over 25% unemployment, an economy that has shrunk by about 30% since 2008 and a national debt that amounts to almost 200% of gross domestic product.
One issue stands out: tax evasion. Nearly a quarter of the country’s GDP is off the books. State revenue for 2015 is already $4.5 billion below target. This is nothing new for the Greeks, who have been dodging taxes for centuries, nonpayment having been a sign of patriotism during Ottoman rule (1453-1821).
Tax evasion has been around since ancient Mesopotamia, when the Sumerians were cheerfully working the black market. A 19th-century B.C. Sumerian cuneiform tablet warns that a trader named Pushuken has been imprisoned for receiving smuggled goods. “The guards are strong,” continues the writer of the tablet, “please don’t smuggle anything else.”
The Romans were the most efficient tax collectors of all. Unfortunately Emperor Nero (ruling from A.D. 54 to 68) abandoned the high growth, low-tax policies of his predecessors. In their place he created a downward spiral of inflationary measures coupled with excessive taxation. By the third century, widespread tax evasion forced economically stressed Rome to practice expropriation. Although third- and fourth-century emperors such as Diocletian, Constantine and Julian tried to restore fiscal order with price controls and a more-progressive tax code, they couldn’t solve the problem of high costs and shrinking revenues.
By the time Rome collapsed in 476, great landowners outside the city had already turned against its authority and stopped paying taxes.
Six hundred years later, during the Heian period (794-1185), Japan’s aristocracy acted in a similar manner and with similar consequences. The luxurious lifestyles of Heian nobles depended on tax receipts from the countryside, but the great families’ estates, the bulk of the land apart from temple property, were tax-exempt. By the mid-12th century the imperial court was bankrupt and dependent on warrior clans to maintain order. Civil war ensued, leading to centuries of military dictatorship.
By contrast, China’s Qing Dynasty (1644-1912) waged a harsh war against the tax-dodging gentry. By the late 1660s they were too beaten and cowed to risk not paying their taxes. State revenues rebounded.
Greece’s new government doesn’t have quite the same latitude as the Qing emperors when it comes to tax collection. However, under the scrutiny of the European Union, not to mention Google Earth, the Greeks can no longer hide their illicit swimming pools and Porsches from the tax inspector—which just might begin to reverse their tradition of evasion.