The Chancellor of Germany, Angela Merkel, has urged her country to adopt tax cuts in order to boost the economy. While Germany has not seen as bad an economic shift as other countries in the area, their economic growth has been slowing. Merkel and her coalition believe that the outdated tax system in Germany has contributed to the economic slow down. Part of the problem is that the tax system has not been changed to keep up with inflation. As people make more money they therefore move into higher tax brackets, but the actual purchasing power of that income is far less than it used to be.
In Germany’s tax code, “bracket creep” generates billions of euros in revenues for the treasury because tax brackets are not adjusted for inflation. The system has not been changed since 1958 and the state took in an extra 76 billion euros from 2005 to 2010. (Full article here).
This is a smart move to counter the ailing economy, yet the Social Democrats have blocked the proposal on numerous occasions. If they act quickly, they may still be able to continue growing their economy. Merkel is also critical of an increase in fees on energy which is set to rise 3.6 cents per kilowatt/hour. Germany gets 25% of its energy from renewable resources, and to pay for this the new rate per kilowatt/hour will be 5.3 cents putting more of a burden on people who need to spend more of their salary on the electric bill.
France on the other hand, is not even considering tax cuts to help the economy, they have set a 75% top tax rate on all income over $1 million. Naturally, the rich are fleeing France in droves. Almost 500 French residences worth over a million Euros have gone onto the market as French businessmen quickly move to avoid the steep increase in taxes. Capital gains taxes are also proposed to rise on the recommendation of France’s new president, the Socialist Francois Hollande. He was elected on the promise to make the rich responsible for more of the debt and costs of running government.
France’s marginal tax rate of 62.21% of stock sales has also reportedly made young entrepreneurs and investors flee. France has been increasingly
seeing start-up entrepreneurs looking to move their headquarters out of France and taking their families with them. With the Internet “it is now possible to work in any corner of the world and come and spend one week a month in France,” said Thibault de Saint Vincent, president of Barnes France. (Full Article Here).
This should come as no surprise, yet many do not employ the basic principles of economics when governing. Taxing the rich at higher rates hurts everyone, it kills investment, and reduces the number of jobs available. Capital gains tax rates are low because of the extreme risk of investing, and the extreme usefulness of these investments to society.
Read about California’s similar problem to France. Their tax rates are too high, and people are moving out.
To explore the Austrian vision of economics, and learn about the three groups of people who advance society–Savers, Entrepreneurs, and Technologists– read “An Economy Absent of Force”.