International Credit Crisis Averts Higher Tax Rates
After two years of scaring investors on both sides of the Atlantic, the Greek debt crisis is close to being resolved.
The country was set to default after living beyond its means since before it adopted the Euro as its currency. After it adopted the Euro, the country’s spending soared and private wages nearly doubled.
That might have felt good back then, but the coming austerity measures and increased alcohol, tobacco and fuel taxes are going to hurt the Greek people later. A national default would have felt worse.
American investors and their counterparts in Europe all breathed a sigh of relief after Greek officials and private lenders reached a bond swap deal. Holders of 85 percent of $177 billion worth of Greek bonds approved the measure that set the stage for a second round of bailouts.
Had a deal not been reached, private capital would have fled the country and its citizens would have likely made a run on the banks. That would have left the country bone dry in terms of credit and bring lending to a standstill.
With more than $7 billion of Greek debt held by the U.S. government and private U.S. banks, a default would have sent the stock market diving and investors jittery.
But what was feared the most were the repercussions. Other high-debt countries like Spain, Italy and Ireland were expected to follow Greece’s lead like a set of dominos, and that would have led Wall Street deep into bear territory.
Now that a deal has been reached to completely deal with Greece’s $485 billion in debt, the effects of an international credit crisis extending into the U.S. are less likely. The vacuum of billions in the U.S. economy that could have been filled by increased government spending fueled by higher taxes isn’t expected.
The situation in Greece can be a lesson for those in the states. Avoiding your financial liabilities for too long can come back to haunt you the same way avoiding your taxes can come back in the form of an IRS wage garnishment or bank levy.
But like negotiators that helped resolve the Greek debt crisis, a tax attorney can help you obtain a resolution option with the IRS that works in your favor. With the money you could save by avoiding IRS interest, fees and penalties, you may be able to take a trip to the Greek Isles.
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