Taxes In Germany

One of the first things that the new government in Germany should do is incorporate across the board tax cuts. Consider the following analogy between the United States in 1979, and Germany in 2005: Record unemployment, extremely low consumer confidence, high interest rates, an ideologue left-leaning president/chancellor. The similarities are really quite ironic.

Gerhard Schroeder is the German version of our own Jimmy Carter. It is quite obvious that today’s Germans are feeling their very own version of a “malaise of low expectations.” Angela Merkel will have to be a modern day Ronald Reagan to restore any hope of another German Miracle. Germany’s economy though, is nowhere near as sickly as the US economy in 1979 was. Reagan restored America’s fabled optimism and the innate can-do attitude that many feel is uniquely American.

Merkel must be very careful not to get too political. She cannot simply sit pat on her current poll numbers. Even though the political tendency would surely be to ride it out while trying not to say so much that she might lose support. Reagan campaigned on lowering taxes, and that was indeed his first initiative after becoming president. He reduced the top rate at the time from around 70% to approximately 35%. He proved that his guiding principles meant more to him than his political standing, as this was not a very popular movement at the time. Remember, that the Democrats controlled congress during Reagan’s presidency. President Reagan stuck to his guns, which is exactly what Angela Merkel must also do.

Does the German population have the stomach for this painful dose of medicine? We shall soon find out. As often happens with the type of lack of leadership we now see in Germany, the population is surely extremely confused about its own government.

A year ago, we read about the 2010 reforms and about sweeping reductions in income tax in Germany. And now, the current government has developed an approach which is a 180 degree change from just 12 months ago. The new plan is to incorporate a 3% increase of income taxes on the wealthiest of Germans. This is totally nonsensical. Who does Schroeder believe will be hopefully providing new jobs in Germany? Of course it’s the wealthiest Germans who would have a chance to do this; not labor unions. Three months ago, his plan to reduce unemployment was to increase federal spending on infrastructure projects. No talk of increasing private sector activity, we’ll just build some tax-payer financed sections of the autobahn, and “bang,” new jobs will be created. This is totally ridiculous. The German left just does not get it. We shall soon find out how far to the right the CDU/CSU is from the SPD/Greens. Fiscal conservatives will be watching very interestingly when we see the so-called conservatives running Germany.