Greece and the Folly of Trying to Solve an Overspending Problem with Tax Increases – People’s Pundit Daily

U.S. President Barack Obama meets with Greek Prime Minister Alexis Tsipras at Maximos Palace in Athens, Greece November 15, 2016. (PHOTO: REUTERS)

Ive put forth lots of arguments against tax increases, mostly focusing on why higher tax rates will depress growth and encourage more government spending.

Today, lets 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 hasnt worked in Greece because the private sector has been suffocated by giant tax hikes.

the troikaimposed the wrong kind of fiscal reforms. what mostly happened is that Greek politicians dramatically increased the nations already punitive tax burden. The Organization for Economic Cooperation and Developments 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. Its been a taxpalooza Whats 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 its worth, the spending numbers would look better if the economy was stronger. In other words, Greeces performance wouldnt be so dismal if GDP was growing rather than shrinking.

And thats 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.

Lets close by reviewing Greeces 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 nations 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.

Heres 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 nations 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 dont expect Hillary and Bernie to learn the right lesson.

P.S. For more information, heres my five-picture explanation of the Greek mess.

P.P.S. And if you want to know why Im so dour about Greeces 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. Lets close by recycling my collection of Greek-related humor.

This cartoon is quite good, but thisthis one is my favorite. And thefinal cartoon in this postalso has a Greek theme.

We also have a couple of videos. The first one features avideo aboutwell, Im not sure, but well call ita European romantic comedyand the second one features a Greek comicpontificating about Germany.

Last but not least, here are somevery un-PC maps of how various peoples including the Greeks view different European nations.

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Greece and the Folly of Trying to Solve an Overspending Problem with Tax Increases - People's Pundit Daily