I’ve put forth lots of arguments against tax increases, mostly focusing on why higher tax rates will depress growth and encourage more government spending.
Today, let’s look at a practical, real-world example.
I wrote a column for The Hill looking at why Greece is a fiscal and economic train wreck. I have lots of interesting background and history in the article, including the fact that Greece got into the mess by overspending and also explaining that politicians like Merkel only got involved because they wanted to bail out their domestic banks that foolishly lent lots of money to the Greek government.
But the most newsworthy part of my column was to expose the fact that “austerity” hasn’t worked in Greece because the private sector has been suffocated by giant tax hikes.
…the troika…imposed the wrong kind of fiscal reforms. …what mostly happened is that Greek politicians dramatically increased the nation’s already punitive tax burden. The Organization for Economic Cooperation and Development’s fiscal database tells a very ugly story. …on the eve of the crisis, the tax burden in Greece totaled 38.9 percent of GDP. This year, taxes are projected to reach 52.0 percent of economic output. Every major tax in Greece has been dramatically increased, including personal income taxes, corporate income taxes, value-added taxes, and property taxes. It’s been a taxpalooza… What’s happened on the spending side of the fiscal ledger? Have there been “savage” and “draconian” budget cuts? …there have been some cuts, but the burden of government spending is still a heavy weight on the Greek economy. Outlays totaled 54.1 percent of GDP in 2009 and now government is consuming 52.2 percent of economic output.
For what it’s worth, the spending numbers would look better if the economy was stronger. In other words, Greece’s performance wouldn’t be so dismal if GDP was growing rather than shrinking.
And that’s why tax increases are so misguided. They give politicians an excuse to avoid much-needed spending cuts while also hindering growth, investment and job creation.
Let’s close by reviewing Greece’s performance according to Economic Freedom of the World. The overall score for Greece has dropped slightly since 2009, but the real story is that the nation’s fiscal score has dramatically worsened, falling from 5.61 to 4.66 on a 0-10 scale. In other words, during a period of time in which Greece was supposed to sober up and become more fiscally responsible, the politicians engaged in an orgy of tax hikes and Greece went from a failing grade for fiscal policy to a miserably failing grade.
Here’s a the relevant graph from the EFW website. As you can see, the score has been dropping for a decade, not just since 2009.
This is remarkable result. Greek politicians should have been pushing the nation’s fiscal score to at least 7 out of 10, if not 8 out of 10. Instead, the score has gone in the wrong direction because of tax increases.
Though I don’t expect Hillary and Bernie to learn the right lesson.
P.S. For more information, here’s my five-picture explanation of the Greek mess.
P.P.S. And if you want to know why I’m so dour about Greece’s future, how can you expect good policy from a nation that subsidizes pedophiles and requires stool samples to set up online companies?
P.P.P.S. Let’s close by recycling my collection of Greek-related humor.
This cartoon is quite good, but this this one is my favorite. And the final cartoon in this post also has a Greek theme.
We also have a couple of videos. The first one features a video about…well, I’m not sure, but we’ll call it a European romantic comedy and the second one features a Greek comic pontificating about Germany.
Last but not least, here are some very un-PC maps of how various peoples – including the Greeks – view different European nations.
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[…] So why did those nations accumulate more debt, even though they had an up-close look at Greece’s fiscal collapse? […]
[…] So why did those nations accumulate more debt, even though they had an up-close look at Greece’s fiscal collapse? […]
[…] the country got in trouble because of too much government, and politicians responded by actually making fiscal policy worse (aided and abetted by the fiscal pyromaniacs at the […]
[…] the country got in trouble because of too much government, and politicians responded by actually making fiscal policy worse (aided and abetted by the fiscal pyromaniacs at the […]
[…] more debt) every year. I also explained that there are also anti-deficit rules in nations such as Greece, France, and Italy, yet those countries are not exactly paragons of fiscal […]
[…] is that tax increases always make a bad fiscal situation worse. Greece has proved that over and over and over […]
[…] on what we’ve seen from Greece, that won’t end […]
[…] on what we’ve seen from Greece, that won’t end […]
[…] lost on Bernie Sanders, who has a long list of policies that would turn America into a version of Greece, France, […]
[…] other words, the U.S. is on track to become just like Greece, France, […]
[…] in the 1990s and has even enjoyed some modest improvement in recent years. That’s definitely not the case in Greece. In other words, I certainly don’t mind if Swedish policy is the short-run goal for […]
[…] nation’s politicians gladly accepted bad advice and used bailout money as an excuse to impose higher taxes, followed by higher taxes, and then decided to push taxes even […]
[…] has increased the most in Greece. Needless to say, that has not been a recipe for economic or fiscal […]
[…] That’s the good news. The bad news is that politicians have a “public choice” incentive to instead raise taxes. That game doesn’t end well. […]
[…] That’s the good news. The bad news is that politicians have a “public choice” incentive to instead raise taxes. That game doesn’t end well. […]
[…] último que harías, sin embargo, es elegir un país estancado como Grecia. O una nación miserablemente empobrecida como […]
[…] consider the case of Greece. I’ve written many times about the debilitating impact of high tax rates and wasteful spending in that nation. It has the least economic freedom of all nations in […]
[…] consider the case of Greece. I’ve written many times about the debilitating impact of high tax rates and wasteful spending in that nation. It has the least economic freedom of all nations in Western […]
[…] the European Commission took control of that nation’s fiscal policy almost 10 years ago. The results have not been […]
[…] last thing you would do, however, is pick a stagnant country such as Greece. Or a miserably impoverished nation such as […]
[…] matters. Venezuela is a total mess because of total statism, Greece is in trouble because of lots of statism, France is anemic because of run-of-the-mill statism, and Denmark does okay because it’s only […]
[…] matters. Venezuela is a total mess because of total statism, Greece is in trouble because of lots of statism, France is anemic because of run-of-the-mill statism, and Denmark does okay because it’s only […]
[…] cada año hay más gasto (y más deuda). También hay normas contra el déficit en naciones como Grecia, Francia e Italia y esos países no son precisamente ejemplos de disciplina […]
[…] And raising them again. […]
[…] The trendline for Greece helps to explain why that nation is […]
[…] The trendline for Greece helps to explain why that nation is […]
[…] it goes without saying that big-sized welfare states are doomed to collapse. Think Greece and extend it to Italy, France, Japan, and other developed nations (including, I fear, the United […]
[…] is more spending (and more debt) every year. There are also anti-deficit rules in nations such as Greece, France, and Italy, and those countries are not exactly paragons of fiscal […]
[…] is more spending (and more debt) every year. There are also anti-deficit rules in nations such as Greece, France, and Italy, and those countries are not exactly paragons of fiscal […]
[…] ne change rien au fait que le problème essentiel de la Grèce est de trop dépenser. Cela montre simplement qu’il est important de comprendre les effets secondaires d’une trop […]
[…] doesn’t change the fact that Greece’s main fiscal problem is too much spending. It simply shows that it’s also important to recognize the side-effects of too much spending […]
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[…] in the European Union operate in a similar fashion, yet that hasn’t stopped nations such as Greece, France, and Italy from over-taxing and over-spending, or from accumulating more […]
[…] I wonder if Greek taxpayers would want to tell their counterparts in New Jersey how that story ends. […]
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[…] nations perform as they recover (or don’t recover, as I expect in the cases of Italy and Greece) from the European fiscal […]
“With more taxes in the offing, with more pension and salary cuts, and with Turkey sending more immigrants to Greece, there is no way for Greece to be governed without the government declaring martial law to enforce its policies on the population.”
“Greece: A Democracy in Crisis”
by Maria Polizoidou
https://www.gatestoneinstitute.org/10041/greece-crisis
[…] άρθρο δημοσιεύθηκε αρχικά στα αγγλικά στις 7 Φεβρουαρίου 2017 και παρουσιάζεται στα ελληνικά […]
[…] by free trade, sound money, a sensible regulatory structure, and good governance. Moreover, as we see from the tragedy of Greece, spending restraint doesn’t even lead to good fiscal policy if it’s accompanied by huge […]
My prediction is that Greece is on its way to becoming a “Mussaka Republic”. That will be its ultimate equilibrium point.
In other words Greece will become a society governed by a democratically elected cadre that controls and colludes with a heavily taxed tourism industry to control who gets the permits to exploit Greece’s unique geographical tourism endowment.
Then the government will distribute a modest proportion of the heavy tax loot on tourism to buy votes through the democratic process and propagate the Moussaka Republic conditions — much the same way the pitchfork democracy caudillos handle Venezuela’s oil endowment.
Much like Venezuela and oil, Greek tourism and its relatively easy money will crowd out of Greek society any other industry and skill. All other skills in the country will keep withering cementing Greece’s fate as a Moussaka Republic.
This transformation of Greece into a moussaka republic has not completed yet. It is still underway. For now, whatever money is left from past economic activity is still been consumed by the government machinery which is the major employer and unmovable voting block. But that money is finally running out. The tourism industry is the only one actually surviving because, as I said, in spite of all the regulatory and tax weights being placed on it, it is an industry without international competitors.
So it won’t be long before Greeks in the tourism industry remain the only somewhat wealthier segment of the population, at which point a government employee and voter-lemming supermajority will demonize them as lucky elites and will try to live of them. That step will cement Greece’s transition into a Moussaka Republic. So wait for the moment where the general Greek populace wakes up to the realization : “What about those lucky chaps working in tourism? That’s the only source of wealth left — let’s tax it and live off it — after all the Greek tourism endowment belongs to every Greek. If my current government will not do it I’ll elect a strongman who will clear house”.
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But forget Greece. Much bigger players, like Italy and Spain, and especially France, are on the same Greek trajectory. These bigger countries either are or will soon be ripe for implosion.
Perhaps the most important thing is that the populations of these countries form a supermajority within the EU. Thus, the wallets of the still wealthier European north will be voted away by the south, unless the EU disintegrates, something that would ultimately be good. Then the nations of Europe will start competing again placing a floor on the amount of coercive collectivism any one country can support before imploding.
Now, these “wealthier” counties of the European north are themselves on a 1-1.5% annual growth trajectory trendline — a mere third of world average growth! Apparently these countries can afford to have their wallets stolen by a Southern European supermajority? Really?
The EU continent is doomed. The sooner it disintegrates the better for Europeans and the whole planet.
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Now, if Americans stay on a 2% growth trendline trajectory –half the world average — the same disintegration fate awaits the US down the line. Having a structural growth rate that is half the world average is an arithmetically deterministic destiny to decline. And what cannot go on will not go on.