« It's Nagin In New Orleans | Main | Saudis Renege On Reform »
Faced with spiraling deficits and a moribund economy, Germany has once again decided that the government provides the answer to financial stress. The Bundestag passed the largest tax increase in post-war history and targeted the tax on retail transactions:
Parliament passed Germany's largest postwar tax hike on Friday. The country's value-added tax (VAT) will rise from 16 to 19 percent in January to help cut the deficit. But there are worries it will hit the already weak growth of the world's third largest economy.Hoping to control a spiralling budget deficit, Germany's lower house of parliament, the Bundestag, on Friday passed the biggest tax increase in the country's postwar history. The new package calls for a 3 percentage point jump in the value added tax -- from 16 to 19 percent. Proponents want to raise about $25.5 billion more per year starting in 2007, but critics say the hike will dampen the nation's sluggish economy, which has begun a moderate recovery in 2006.
Germany faces pressure from its European partners to meet EU targets that the Germans have violated for the past four years. They need to bring their deficit under control in order to do this. Rather than wait for their modest recovery to increase tax revenues, or lower taxes on investment mechanisms, the Merkel government has decided to pull more money than ever out of the economy.
Taxes are nothing more than government confiscation. Governments require revenue in order to deliver the services desired by their citizens, but the withdrawal of funds from a market gives the market less resources to expand. Germans require a large number of expensive services, an entitlement scheme that puts more and more pressure on their economy as time goes on and fewer Germans contribute to it. The smarter move would be to encourage more investment in their economy rather than taking those funds out of it. Using the VAT as a mechanism for this effort gives a double penalty to the economy; it penalizes consumption, forcing people to keep their money out of the market and encouraging them to put money into static savings instead.
The Germans will likely regret their short-term solution to their long-term problem. The additional taxes will almost certainly grind their recovery slowly to a halt, and the Merkel government will once more be forced to find more revenue to make up the shortfall. Germans, thus far, show little willingness to consider a decrease in spending as the most obvious deficit remedy.
Sphere It View blog reactionsTrackback Pings
TrackBack URL for this entry is
captain*at*captainsquartersblog.com
My Other Blog!
E-Mail/Comment/Trackback Policy
Comment Moderation Policy - Please Read!
Skin The Site
Hugh Hewitt
Captain's Quarters
Fraters Libertas
Lileks
Power Line
SCSU Scholars
Shot In The Dark
Northern Alliance Radio Network
Northern Alliance Live Streaming!
Des Moines Register
International Herald Tribune
The Weekly Standard
Drudge Report
Reason
The New Republic
AP News (Yahoo! Headlines)
Washington Post
Guardian Unlimited (UK)
New York Times
Los Angeles Times
OpinionJournal
Pioneer Press
Minneapolis Star-Tribune
MS-NBC
Fox News
CNN
Design & Skinning by:
m2 web studios
blog advertising
- dave on Another National Health Care System Horror Story
- brooklyn on Hillary Not Hsu Happy
- rbj on Hillary Not Hsu Happy
- Robin S on Requiem For A Betrayed Hero
- Ken on Hillary Not Hsu Happy
- Robin S. on Requiem For A Betrayed Hero
- RBMN on Hillary Not Hsu Happy
- NoDonkey on Another National Health Care System Horror Story
- Robin Munn on Fred Thompson Interview Transcript
- filistro on When Exactly Did Art Die?