Berlin's 540-Year-Old Debt

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Apparently really old debts, . . . extremely old debts, . . . ridiculously old pre-Shakespearean debts can be “laughed off” and do not need to be paid.  Our clients would be thrilled if the IRS treated their tax debt this way.

In 1562 the city of Berlin borrowed 400 gilders from a little village called Mittenwalde and never repaid the debt.  Here we are 540 years later and the debt has grown into the trillions when accounting for interest and inflation.

Officials from Berlin recently met with officials from Mittenwalde and presented them with a symbolic 1539 gilder.  I think this was Berlin’s way of saying, “We’re never going to pay you.”  Maybe if they hadn’t lost the loan documentation the debt would have been repaid in a timely manner.  Also, checking in with Berlin only every 50 years doesn’t exactly adhere to the squeeky-wheel-gets-the-grease theory.



Can Greece Improve its Tax Morale?

One of the reasons Greece has had such a difficult time raising revenue is because tax evasion is sort of their national pastime.

In Greece the “tax gap” (the difference between what should be paid by taxpayers and what actually gets paid) is about 1/3 of total tax revenue. About 28% of all business in Greece is conducted outside of the tax system (“under the table”). And the cost of tracking down so many tax cheats is astronomical. All other factors being equal, Greece spends 4 times what the US spends on tax collection efforts.

One author believes that this culture of tax evasion is the result of poor enforcement practices and low “tax morale.” See The New Yorker article “Dodger Mania” by James Surowiecki.


  • tax collectors in Greece frequently accept bribes
  • tax laws have too many loopholes and are not applied fairly
  • even when tax cheats are caught, justice comes very slowly in backlogged tax courts

Tax Morale

  • the people of Greece doubt their government will spend the tax revenues judiciously
  • since the rich and prominent members of society avoid paying taxes, the burden falls on those who can afford it least
  • citizens in any country tend to pay if they see others paying, but if they see others cheating then the tendency is to cheat (paying taxes seems to be a social animal)

It’s easy to see how these problems are related. Low tax morale leads to difficulties with enforcement, and enforcement problems lead to poor tax morale. The morale issues will probably work themselves out over time as long as Greece really cracks down on enforcement. Maybe they should start putting away famous tax evaders like the IRS has done here; that would send a strong message.

Obama’s Deficit Reduction Plan

How does President Obama propose to reduce the deficit by just over $2 trillion in 10 years?  In a nutshell:

Tax the Rich

  • repeal of the Bush-era tax rates for couples making more than $250,000
  • place limits on deductions for wealthy filers
  • end certain corporate loopholes and subsidies for oil and gas companies
  • combined $1.5 trillion in new taxes

Cuts to Benefit Programs

  • $248 billion cut from Medicare
  • $72 billion cut from Medicaid & other health programs
  • $430 billion in savings from lower interest payment on the national debt
  • $1 trillion in savings from drawing down military forces from Iraq and Afghanistan

See details here.

Greece on the Verge of Bankruptcy

In a conference call earlier today, Greek finance minister, Evangelos Venizelos, spoke with the “troika” — the Commission, the European Central Bank and the International Monetary Fund — with the hopes of convincing them that Greece will be able to pay its debts and should continue to receive financial assistance. The phone call didn’t go as well as Greece had hoped it would. But then again, the door has not completely closed for them either.  A follow-up call is scheduled for tomorrow.

It is still unclear whether or not the country is going to get another installment from its current assistance package. Without it, Greece is expected to go bankrupt by mid October. Stocks took quite a hit around the world today as a result of this news.

Greece Increases Already Burdensome Property Tax

The new property tax announced by the finance ministry of Greece over the weekend was like a knife in the chest of struggling homeowners.  Now, with tax relief nowhere in sight, the government is doing a little knife twisting.

Just a few days after the tax was announced at the rate of 10 euros per square meter, the government further increased the tax rate to 16 euros. And the nifty thing about having the tax paid through the property owner’s power bill is, if the tax is not paid, then the lights get switched off.  Full story here.

New Greek Property Tax to be Collected by Power Company

Just a quick update on Greece’s financial crisis as it is related to taxes this time.  On Sunday the government of Greece approved a new property tax aimed at quickly raising 2 billion euros to help plug some serious budget holes.  So the tax collectors got right to work on this, right?  Nope.  In fact, tax offices around the country were shut down today as workers protested pay cuts.  However, even if tax collectors never go back to work, property owners should not expect any automatic tax relief because the new tax is to be collected through electricity bills.

It’s an open question whether or not the tax will actually be collected amid union protests and the country’s rampant tax evasion.  The government needs to get over its credibility issues by cracking down on prominent individuals and businesses that believe they are above the law and immune to taxation.  Lasting solutions for this country’s economic troubles probably involve reducing the public sector and moving towards privatization, whereas the new property tax appears to be just a band-aid.  Worst of all, experts believe that the new property tax will only worsen the country’s recession.

Dodgers Bankruptcy

The Los Angeles Dodgers filed for Chapter 11 Bankruptcy protection today.  MLB Commissioner recently rejected a $3 billion deal with Fox that may have helped pull the club out of its $630 million in debt. The Commissioner did not approve the deal, saying it was self-serving for the Dodger’s owner and not in the best interest of the Dodgers or its fans. Some of the unsecured creditors are actually former players, including Manny Ramirez whom they owe nearly $21 million. According to Forbes, the Dodgers franchise is MLB’s third most valuable franchise, worth an estimated $800 million.

Even though the team insists that the bankruptcy will in no way affect the salaries and benefits of their players, it is hard to imagine that this won’t get in their heads and in some way affect their play. It certainly can’t help as they find themselves struggling with a winning percentage of .443 and 9.5 games behind the leading team in the NL West. By the way, who is that leading team?