If Italy Can Do It ...

by Luis Granados

Last month’s headlines certainly looked exciting: “Italian church to be stripped of tax exemption,” “Catholic church to lose historic property tax exemption in Italy.” Wow! If such a heavily Catholic country like Italy can start making God experts pay property taxes like everyone else, then why can’t even less-Catholic countries – like this one – do the same thing?

Unfortunately, it turns out that the headline writers were doing their job: sensationalizing a story to make suckers like me take the time to read it, misleading without being technically inaccurate. The Italian church is not losing its entire tax exemption, just part of it – a part that largely doesn’t exist here, or in most other jurisdictions. Still, progress is progress, and it’s worth understanding exactly what is going on in Italy.

A church, operating as a church, was and will remain exempt from all Italian property taxes, even though it benefits from all the police, fire, transportation, environmental protection, dispute resolution, and other services that property taxes pay for. So will a convent, a monastery, a seminary, or any other location owned by a church. Everyone else, religious or otherwise, pays a little more so that the church can avoid paying its proportionate share.

In Italy, this bad situation is even worse, because since the days of Mussolini the Catholic Church has had far more money than it knows what to do with. So it has used some of that money to buy up vast chunks of Italian real estate, and use it for strictly commercial purposes. By one estimate, the church owns some 50,000 buildings in Italy, more than half of them of a commercial nature. Fifteen percent of Italy’s tourist lodgings are church owned.

That’s what the current controversy is about. If the church owns a hotel, for example, it pays no property tax. Meanwhile, the hotel across the street, owned by ordinary Italians trying to make a living, pays property tax not only for itself, but a little more to cover what the church isn’t paying.

To be fair, that’s an overstatement. Italian law provides that a 100% commercial-use property would be subject to property tax even if owned by a church. The issue involved mixed-use property, with some religious elements and some commercial elements, which under Italian law is entirely exempt from property tax.

So if you take that 100% commercial-use hotel and stick a little chapel in the corner, then voila! It’s now mixed-use, and entirely tax exempt. It doesn’t take much imagination to guess what you’ll find in most church-owned property in Italy.

Competing business owners have complained about this for a long time, and when no one in the Italian government paid attention they took their case to Europe. The EU has been putting the squeeze on Italy for a while now, and the current prime minister – a no-nonsense economist trying to pull the government back from the brink of a bankruptcy that would surely trigger a world depression – is probably grateful that he can use EU pressure as his excuse for ending this tax scam. By some estimates, curtailing the mixed-use exemption will net the Italian government as much as two billion euros a year.

There is a sweet irony in the fact that church tax exemptions are being scaled back in Italy, because Italy is the original home of the whole sordid idea. It was the Roman Emperor Constantine, back in the fourth century, who dreamed it up:

Since it appears from many circumstances that, when religion is despised, in which is preserved the chief reverence for the most holy celestial power, great dangers are brought upon public affairs; but that when legally adopted and observed, it affords the most signal prosperity to the Roman name and remarkable felicity to all affairs of men, through the divine beneficence – it has seemed good to me, … that those men who give their services with due sanctity and with constant observance to this law, to the worship of divine religion, should receive recompense for their labors. Wherefore it is my will that those within the province entrusted to thee, in the Catholic Church, over which Caecilianus presides, who give their services to this holy religion, and who are commonly called clergymen, be entirely exempted from all public duties, that they may not by any error or sacrilegious negligence be drawn away from the service due the Deity, but may devote themselves without any hindrance to their own law. For it seems that when they show greatest reverence to the Deity, the largest benefits accrue to the State.

By Constantine’s own logic, it’s time for the tax exemption to go. Its purpose was to attract “signal prosperity” and “divine beneficence” to the state, as sort of a bribe to God. Manifestly, this isn’t working anymore, as evidenced by the fact that the Italian state is broke. Why pay for “signal prosperity” you’re not getting?

Here in the United States, for the most part, a commercial enterprise owned by a church will not be tax exempt, even if the church tries a “mixed-use” ploy like it’s been able to get away with in Italy. Still, what’s interesting about the Italian situation is that the argument used to achieve the desired result was essentially one of fair competition, brought by the EU antitrust division – the same folks who slapped a billion-euro fine on Microsoft in 2007 – rather than an explicitly anti-religious argument.

The same equal protection argument can be used for lots of other subsidies the church receives. For example, the Vatican does not pay the value-added tax (VAT) on its purchases, like every other business does. It pays a corporate income tax rate exactly half that of other businesses. It gets the benefit of 650 million euros per year in the form of state-paid “religious education” teachers, that other businesses do not get. It even gets every drop of water it uses supplied by the Italian taxpayers, absolutely free. No wonder little 108-acre Vatican City sports over 100 fountains!

The wonder is not that Italy is broke; the wonder is that it’s stayed solvent as long as it has.

Then there’s the otto per mille, or “eight per thousand,” the odd arrangement in which Italian taxpayers can choose to direct 0.8% of their tax payments either to a church of their choice, or to the government. In recent years, only 34% of Italians have requested that their money go to the Catholic Church – yet it rakes in 87% of the funds collected. Why? Because if you don’t specify a destination, then your 0.8% is allotted in the same proportion as dictated by those who do. The large majority of Italian taxpayers view this the same way I might. They don’t want to specify any religion because they don’t believe in any religion. They sure don’t want their money going to the crooks in the government, so they just leave it blank. The church then laughs all the way to the bank. The bishops devote only about 20% of this money to charity, and 35% of it to their own salaries. If there were truly a level playing field, taxpayers would be able to direct this money to any charity, not just to any religion.

The normal justification for all these subsidies is that religion provides mental comfort to its customers. Well, so do psychologists, with more measurable rates of success. If the object of the regulators is to assure even-handed competition, then why should the government favor one mental comfort-providing business over another? Why shouldn’t psychologists get the same subsidies and tax breaks the church gets? Not that psychologists are the only mental comfort providers. For some of us, bartenders provide mental comfort as well. So do musicians, especially of the quieter cool jazz and classical variety. If providing mental comfort qualifies one for subsidies, why not the same subsidies for bartenders and guitarists?

Thinking like Benjamin Franklin

By Gary Berg-Cross

There are many reasons to celebrate Ben Franklin – the “First American.”  We celebrate him as a complex man, with many and varied insights available in his voluminous writings. He provided wise counsel in difficult and confusing times.  Without the benefits we have now of the science of decision making he steered a wise course based on self developed ideas.

Known for promoting common sense early on his is Almanacs, Ben went on to some uncommon wisdom. He seemed to understand a core of irrationality in people even in an Enlightened age. He glimmered cognitive biases and how to slow down thinking to improve its quality. He steered around obstacles when even intelligent people like John Adams had blind spots and yielded to  confirmatory bias which lead to dead end arguments. He understood information overload & how human intellect can be overwhelmed by details and conflicting ideas.

He made thousands of wise decisions. How did he functionally bring his insights together to make a balanced decision?  He did it used a formal method called a Balance Sheet that allowed him to carefully compare alternatives with many factors considered that affect the decision. His was a cognitive arithmetic that summed up things in a realistic, hence balanced way. By way of history, Ben described the process  as advice to an English scientist friend on how to make an important personal choice:

“My way is to divide half a sheet of paper by a line into two columns; writing over the one Pro and over the other Con. Then during three or four days’ consideration, I put down under the different heads short hints of the different motives, that at different time occur to me, for or against the measure. When I have thus got them altogether in one view, I endeavor to estimate their respective weights; and where I find two, one on each side, that seem equal, I strike them both out. If I judge some two reasons con equal to some three reasons pro, I strike out five; and thus proceeding, I find where the balance lies; and if after a day or two of further consideration, nothing new that is of importance occurs on either side, I come to a determination accordingly.” –Benjamin Franklin

Source: How to Make a Decision Like Ben Franklin

Franklin clearly understood the need to think deliberately He noted that one difficulty in making an important choice is because “all Reasons pro and con are not present to the mind at the same time”

It might be worth noting (crassly) that in modern society your are more likely to run into Franklin’s Balance Sheet in a course on sales technique than in a History of Civics.  The “Balance Sheet” has been used by salesman for decades to guide prospect towards the a buying decision that the sales person prefers. 

This is the type of situation people face now in things like long election campaigns where we are sold a candidate. We find it difficult to accumulate reasons to support one candidate or another. 
I’ll leave it to the reader to try this for their choices they face. Over a period of time fill in your own column as thoughts occurred to you so that in Ben’s words:

“when each reason is thus considered separately and comparatively, and the whole lies before me, I think I judge better and less likely to make a rash step…”

Images

Ben: http://tvtropes.org/pmwiki/pmwiki.php/Creator/BenjaminFranklin?from=Main.BenjaminFranklin

Half a Truth: http://www.theburningplatform.com/?tag=ben-franklin

Short memory: From Facebook sites

If Winners Take all Do Losers Lose Mostly All?

By Gary Berg-Cross

It’s a pretty widely observed that culturally America has become more of a winner take all society than it was 60 years ago. The Winner-Take-All Society, was co-authored by Robert H. Frank &  Philip Cook discussed the contemporary trend towards inequality a dozen years ago. It was named a Notable Book of the Year by The New York Times, and was included in Business Week's list of the ten best books for 1995.The summarized points are not familiar:


"small differences in performance give rise to enormous differences in reward. Long familiar in sports and entertainment, this payoff pattern has increasingly permeated law, finance, fashion, publishing, and other fields. The result: in addition to the growing gap between rich and poor, we see important professions like teaching and engineering in aching need of more talent. This relentless emphasis on coming out on top—the best-selling book, the blockbuster film, the Super Bowl winner—has molded our discourse in ways that many find deeply troubling."

Frank, among others, has written more on this as the inequality problem has grown along with shallow ideologies that glorify self interest and competition without morals. It is at least partially based on false dichotomys of meritorious winners and inept losers.  The idea is if you are not one, preferably the winner, you are the other.  As I noted in The “Binary Thinking Habit” some complex questions such as “should we cut Medicare” are forced into an either-or frame.  Are you for a balance budget or not? It’s a simple up or down question with an embedded dichotomization of positions. Such forced choice questions fill the air in political debates. They are a bit like the binary view of the world as organized into male/female, matter/spirit, reason/intuition, god/no god and winners/losers. We have a 2 party political system and it forces people into more polar positions than they might take in an open discussion. This perhaps feeds on a Manichean tendency we have to set many things up as exclusive and naturally opposed choices.  We like winners and sometimes wealth is used as a proxy concept to establish merit of a winner.

But looking at the world in terms of binary of dichotomous categories simplifies things too much and causes problems. Is a successful thief a winner?  Are his victims just losers? It’s Ok to steal victory from the jaws of defeat in sports, but apply this to other realms seems wrong. It reduces things to a way of keeping score as in sports.  But society is more than I vs. thou. There are too many bad things such as inequality that damages all of society that can follow from this type of simplification.The downsides are more than hurt feelings after your team loses a ball game.

In 2007 Robert H. Frank pointed out some of the problems of a winner/loser dichotomy in Falling Behind: How Rising Inequality Harms the Middle. In 2011 he followed up with an insightful The Darwin Economy: Liberty, Competition, and the Common Good.

 

As Darwin knew, when individual and group interests diverge, competition not only fails to promote the common good, it also actively undermines it.

The modern marketplace is rife with individual-versus-group conflicts like the one that spawned outsized antlers in bull elk. If you’re one of several qualified applicants seeking an investment banking job, for example, it’s in your interest to look good during your interview. But looking good is a

relative concept. If other applicants wear $600 suits, you’ll make a more favorable impression if you wear one costing $1,200.

Trading up is wasteful for the group, however, because the applicants are no more likely to get the positions if they all spend more on suits. But from each individual’s perspective, that’s no reason to regret buying the pricier suit.

What has been the consequence of winner take all ideology? Economist Paul Krugman notes that winner take all leads to "extreme concentration of income  income inequality” which in turn puts "the whole nature of our society" at risk and "is incompatible with real democracy." That a topic of interest to a democratic economy.
As J. Bradford DeLong noted in America - land of inequality it has produced people who have really lost something. The easy promise of a more leveled and middle class society has given way to real loses by the middle class. He attributes rising inequality to 4 major factors over the past 35 years and no surprise one of them is a transformation to a winner-take-all society.

• the others are waning progressivity of our tax system,
• decline in our willingness to invest in education and
• economic shift to industrial sectors that subtract value)

On this winner take all idea DeLong observes:

The information revolution now allows the most-skilled and luckiest to leverage their skills and luck across immense customer bases. In earlier centuries, Charles Dickens and Enrico Caruso were superstars but not super-wealthy. Today Stephen King and Placido Domingo and Oprah Winfrey are super-wealthy indeed. We saw this a century ago whenever luck and economies of scale in production and a continent-wide market all came together: Andrew Carnegie and John D. Rockefeller became super-rich. But our Bill Gates is, and Sam Walton was, super-richer.

The trend is clear we are less a “win-win society” and more “I win and the rest of you lose” society.  Although on the political side sometimes the reality of loss is papered over in PR and obfuscation. Perhaps a topic for another time.  

Images

Middle Class and Lions: http://keepthemiddleclassalive.com/whoscrewedthemiddleclass/ 

Darwin as Economist: The Darwin Economy: Liberty, Competition, and the Common Good.

 Tax the Rich: America - land of inequality