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Home Publications Blogs Beat the Press Germany Does Not Have the Second Highest Tax Rate in Europe and the European Central Bank Is Incompetent

Germany Does Not Have the Second Highest Tax Rate in Europe and the European Central Bank Is Incompetent

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Tuesday, 20 September 2011 06:48

The Washington Post has a lengthy article on Germany which touts the austerity measures the country imposed in the last decade. It tells readers that Germany has the second highest tax rate on ordinary workers based on a chart that strangely excludes Denmark and Sweden, the two highest tax countries in Europe.

The article also never mentions the role of the European Central Bank (ECB) in the current economic crisis hitting most of Europe. The crisis was the result of the failure of the ECB to take steps to counteract housing bubbles before they grew to dangerous levels.

It has been made worse by the relatively restrictive monetary policy pursued by the ECB after the collapse of the bubble. While the Fed pushed its short-term rate to zero and engaged in several rounds of quantitative easing to bring down long-term interest rates, the ECB never allowed its overnight rate to fall below 1.0 percent and actually raised the rate to 1.5 percent in the spring. This has both slowed growth and increased the borrowing cost of heavily indebted countries.

The failure to mention the role of the ECB might lead readers to believe that the excessively generous social benefits are responsible for the European economic crisis. They are not.  

Comments (5)Add Comment
Move in the "right" direction
written by John Puma, September 20, 2011 8:11
Mr Baker says: "The failure to mention the role of the ECB might lead readers to believe that the excessively generous social benefits are responsible for the European economic crisis."

I submit that this IS better than SCREAMING that "excessively generous social benefits are responsible for the European economic crisis" as our "serious media outlets" have been wont to do for several months now!
...
written by Alex, September 20, 2011 9:00
To be honest, Denmark and Sweden aren't in the Euro, so perhaps they just confused "Europe" and "Eurozone".

Also, Denmark and Sweden have their own monetary policy, and they've done rather better. Which only bears out the point about the ECB.
...
written by skeptonomist, September 20, 2011 9:55
There is evidence that excessively generous social benefits are at least partly responsible for the situation in Greece. When things were going well, social benefits were expanded. Meanwhile, wage growth was kept low and benefits cut back somewhat in Germany, putting them in a favorable international position. This suggests that restraint is useful - in good times, not bad times. This is standard Keynesian economics.

Germany's tax rates are among the highest in Europe, while according to the graph those of the sick men - Greece, Portugal, Ireland and Spain - are scarcely half the highest rates (along with those of the U.S.). The rates given are for the "average worker", but I doubt if high-income people get a big tax break in the more prosperous countries in Europe. More evidence, if any were needed, that high tax rates do not impede economic growth.
...
written by skeptonomist, September 20, 2011 10:19
The article chooses to make an issue of the cutbacks in social security in Germany over the last 10 years - perhaps because of editorial pressure - but the tax rate graph shows that the rate for them is still the highest among the countries in the graph. Spain's very low rates have not saved them from major problems. The legend on the graph says that Germany's government was made "less generous", but the graph itself shows the opposite (assuming benefits are proportional to tax rate).
Surprised that the Post brought this up
written by Matt, September 20, 2011 4:43
I'm somewhat surprised that Fox on 15th brought this up - I wonder how they square their "OMG TAXES BAD" logic with Germany being one of the most stable countries in the EU...

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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