Tax Cheating: Is Spain Any Worse Than The U.S.?

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Just a couple of minutes for blogging tonight, so I thought I’d note the most amusing and I will say naive post I’ve seen in some time. It comes from the Business Insider in which Vincent Fernando suggests that Spain has a big tax dodging issue and that it’s centered in the real estate market.

Here’s what he has to say:

For Spain, such tax shenanigans center around the property market where reportedly half of landlords evade taxes.

Bloomberg:

Owners are asking for payment in cash from tenants to avoid tax on 2.5 billion euros ($3.5 billion) of earnings annually, the Gestha union of tax inspectors estimates. An increase in rental properties nationwide hasn’t generated any more tax revenue.

The Spanish government, seeking to pull the country out of its deepest recession in 60 years, needs all the money it can get right now. The slump was triggered by a crash in the housing market and has left Spain with the highest budget deficit since at least 1980. Taxes go unpaid on income equal to about a quarter of gross domestic product, Gestha estimates.

Encinar, whose company lists 360,000 properties for rent and purchase, said Gestha’s estimate that 54 percent of landlords are ducking taxes “falls short of the true figure, which is set to grow further.”

So let’s see, as a back of the envelope calculation, $3.5 billion a year for the last ten years would mean $35 billion in government expenditures which required debt to finance versus using tax revenue. Given that a $35 billion dollar European bailout for Spain, today, would make headlines and likely remove market concerns regarding Spain’s financial situation, stories of lax tax enforcement show how Spain only has itself to blame here.

Now in Vincent’s defense, he is quoting from a Bloomberg article but he seems to buy into the thesis.

I don’t know if Spain is any worse than any other country in terms of tax dodging and I include the US in that group, I would suggest that Vincent needs to get out of the news room a little more.

Anyone who has looked at more than a couple of the tax returns of American taxpayers who happen to own rental property knows the games that go on. It’s a piece of cake to hide a lot of personal expenditures in the expense category of Schedule E. Any investor worth his salt writes off all of his landscaping and lawn care for his personal residence. Use your imagination, take a look as the Schedule and you can see it’s tailored made for abuse.

And those lousy Spaniards allow tenants to pay their rent in cash. I don’t know an investor worth his or her salt that wouldn’t welcome cash payments from all of their tenants. Try reconciling scheduled rent from signed leases with Schedule E reported rental income sometime. The only thing more amusing is the explanation you get from the investor as to why there is a difference. Oh, and don’t try and find all of those quarters that go into the laundry machines anywhere on the tax returns.

Every country developed or not has a tax dodging problem. It has to do with an ingrained aversion to forking over money earned from hard work to a government that either uses it to line its own pockets or distribute it to those that it believes will help keep them in power.

Just keep raising taxes in this country and you’ll see what tax evasion is all about. The Spaniards can’t hold a candle to American ingenuity.

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