Greece’s story includes tax compliance

World Bank data to the end of 2013 shows Greece has only 29 per cent of its GDP as tax receipts; the EU average is 37 per cent. – Breitbart

Navagio beach, Zakynthos, Greece

There are three major factors in Greece’s success in the future:

  1. Government expenses (primarily employee compensation and pensions)
  2. Youth unemployment (which is at about 55%)
  3. Tax Compliance

The first two are discussed a lot because of the dramatic human toll newspapers can interest readers in. Decreasing government pay could look like the government is gouging its employees when they could be raising taxes on wealthier people who can afford to pay, but Greece is also notorious for high pay and early retirement, some as early at 50 years old, which makes employees look like they are milking the system. Youth unemployment is a particularly difficult topic of people because many older Greeks do not make much money but then they must also support their grown children (18 to 24 year old) who cannot get career jobs and are employed part time for part of the year. There is a generational battle here. Older people can command higher wages with their knowledge and experience, but younger people are cheaper.

Tax collection has its human aspects as well. In this day and age, there is really no tax collector. It is all done through administratively by filing papers or filing online. The human aspect of the tax collection story is on the issue of tax evasion. In greece, such a small percentage of people actually pay taxes when they owe taxes that the tax rate really doesn’t matter. If tax rates were raised in order to close the deficit (government funding gap), then more people will evade taxes. If taxes were lowered, the government would just reduce revenues because people had evades taxes for so long that they would not want to reveal how they have been making a living to begin with. Tax avoidance isn’t much of an issue since Greek tax structure is simpler than in the United States. When so few people pay taxes, making it more difficult to figure out how much one is supposed to pay only increases the likelihood of evasion. (Tax avoidance is the act of avoiding taxes in ways the law allows, like a deduction. Tax evasion is to not pay taxes in part or in whole.)

It is hard to blame Greeks for not paying taxes. First, non-government employees get very little for the Euros paid. It isn’t like Greek infrastructure is among the best in the world. It isn’t like Greece is a leader in an industry. Greece’s biggest attraction is tourism. Just look at the picture of the beach. Beautiful sand, clean blue water, happy people sunbathing; it’s the type of place people imagine when they imagine paradise.

But even if Greece paid its taxes, it has a long way from being financially healthy. Let me bring the financial aspect of this discussion down to ground level. Each of Greece’s 11 million people owe about $23,000 and they earn about $22,000 per year. That actually isn’t too bad except each Greek owns only about $18,545. Compare that to the United States. Each American owes about $55,000 and earns about $53,000. Per cent, it is almost exactly the same as Greece. But each American owns about $257,232. These are all averages, of course, and it does not address distribution. The point is that on average a Greek person can’t give up all of his wealth to pay of the debt and start outright, while an American could pay off the debt with about 80% of their wealth intact.

Greece now has a little bit of a surplus, meaning they are making a little more than they are paying to live. If this continues, with some adjustments in the way it collects taxes, it could work its way toward financial solvancy. But at this point, it looks like it is just too difficult people for Greeks to do, at least not while the sun continues to shine on their beaches.

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About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


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One time stimulus bill

President George W Bush had a wonderful idea to stimulate the economy: one time tax break to repatriot offshore corporate profits.

Okay, so we know that this didn’t work. This didn’t work because repatrioting, bring back, corporate profits with a lowered tax incentive didn’t come with the restrictions necessary to funnel the funds toward productivity. What do I mean by this?

Simply put, buying things does not always lead to productivity. What is bought is very important. If I bought undeveloped land and decided to build a house, that increases productivity (not the rate but just overall), it distributes the wealth that was brought into the country and lowers unemployment.

However, the companies that had loads of profits sitting outside of the country didn’t do that. They didn’t invest in making their factories more productive. They didn’t give employees a raise. They didn’t hire new workers for the demand that was being created. Let’s remember what types of companies had lots of profits sitting outside of the country: large corporations. They decided to buy their competition, the smaller firms that were creating products and providing services that could force them to lower prices to compete for customers and increase wages to compete for workers. The result was less competition for customers and employees.

So, repatrioting offshore profits can work as long as we don’t give the tax break to buying non-productive assets, like equities or debt or commodities or, essentially, any financial instrument. Repatrioting the profits is supposed to replace financial instruments for financing activities, not bolster them.

Today, corporations are, again, sitting on mountains of cash from profits offshore, ready to be repatrioted but are not because it would cost them dearly in taxes. Plus, deflation is still a risk. Unemployment hovers above 5% and people are making 10% less than they did 15 years ago. People should be making 10% more, though.

So, I would like to propose bringing back the one time repatrioting of corporate profits. But this time, do not allow companies to buy other companies, or anything in the capital markets. Force companies to spend on meeting more of the market’s needs. After all, in good times and bad, a healthy economy is one that meets the needs of the people as a whole, not the few people who can afford to own lots of shares of corporations.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. 



KYD Mean Know Your Data

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Data Migration from Data Migration Resources

Knowing your data is very important and I find that many bankers think they know data. I’m not exactly sure what they are envisioning, but if they are envisioning pivot tables and vlookups, then they know about as much as a freshman MIS student after week of classes. (MIS means management information systems.) All systems can be configured to generate data.

This subject is just too big to even do an overview, which would take a semester worth of  classroom work. The best thing for any organization is to make sure to hire a team of technical experts in both computer sciences and statistics to manage and analyze data to get a good understanding about what the data is saying. For now, I will just briefly mention the two sides of KYD – data management and data analysis. Knowing one does not make one remotely close to knowing the other.

Data Management is the work of software and hardware professionals who keep data like inventory. They are often under-appreciated. For the data layman, data management looks like a bunch of overpaid people who move around bits of information from one server to the next. Data Analysts, however, know how crucial these people are. In order to do data analysis, understanding of all of the issues to maintain data analyzable is incredible difficult, especially as the organization gets larger. Size of data sets present technical problems that most people do not encounter, but data analysts do. Software often cannot handle computing data set size beyond a certain point. Data managers are the people who solve these issues, making it technically possible for data analysts to do their work. Also, data managers can keep data safe from corruption or breaches in security or controls.

Data analysts have received lots of attention over the past decade. Almost all consuming facing internet now is feeding data centers so that analysis about potential customers can be mined. But newspaper reporters are often poor interpreters of data. So, reading their work might lead one to have false sense of confidence about this topic. The only place I can think of right now that a data layman can go for news and data analysis is Nate Silver‘s Five Thirty Eight, the blog that first used to do data analysis of baseball stats and then turned to using the same type of analysis to predict presidential campaign results for every county in the United States. In 2012, he correctly predicted the presidential election results for each state and 31 of the 33 senate elections as well. This type of work cannot be done through mere argument. One cannot convince someone else of the correctness of a prediction. One must simply wait for the results. And then one must analyze whether the predictions were correct due to luck or predicted causes.

Opinion

In order for banks to be able to better protect their businesses from cybercrime and enhance business opportunities, they will need to hire data managers and data scientists in every area of the bank. Currently, most of these people are in operations. But this simply isn’t going to be enough. A large portion of the world, even a large portion of Americans, are not in the traditional banking system and now they are being provided options without having to join the banking system. This is good for an economy up to a certain point. And then it will hinder economic growth. Why? Because banking is the industry that finds excess money and invest into areas of the economy that needs money. Providing transaction services might facilitate transactions that could not be done before but as long as those funds never enter the banking system, governments will be required to borrow more money to fund their private sector growth, rather than private sector figuring it out for itself.