Economic Lesson from Europe: Higher Tax Rates Are a Recipe for More Red Ink

We can learn a lot of economic lessons from Europe. Never adopt a VAT unless you want much bigger government. Bigger government means lower living standards. Don’t believe Bernie Sanders about the Nordic nations. Today, we’re going to focus on another lesson, which is that higher taxes lead to more red ink. And let’s hope Hillary Clinton is paying attention. I’ve already made the argument, using European fiscal data to show that big increases in the tax burden over the past several decades have resulted in much higher levels of government debt. But let’s now augment that argument by considering what’s happened in recent years. There’s been a big fiscal crisis in Europe, which has forced governments to engage in austerity. But the type of austerity matters. A lot. Here’s some of what I wrote back in 2014. …austerity is a catch-all phrase that includes bad policy (higher taxes) and good policy (spending restraint). But with a few notable exceptions, European nations have been choosing the wrong kind of austerity (even though Paul Krugman doesn’t seem to know the difference). And when I claim politicians in Europe have chosen the wrong kind of austerity, that’s not hyperbole. As of 2012, there were €9 of tax hikes for every €1 of supposed spending cuts according to one estimate. That’s even worse than some of the terrible budget deals we’ve seen in Washington. At this point, a clever statist will accuse me of sour grapes and state that I’m simp...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs