German official flays US policy on tax breaks

The Peninsula ^ | November 14, 2004

[NCjim]

The German deputy finance minister, Caio Koch-Weser, sharply criticised the US administration in an interview made available yesterday for showering tax breaks on the wealthy and letting deficits get out of control while failing to improve the economy.

He said it had “handsomely reduced taxes for those who earn the most money. Economically speaking, that was not good, since it hardly succeeded in reviving the economy and has accumulated huge budget deficits.”

In the interview, to appear in Der Spiegel magazine on Monday, Koch-Weser said it would have been wiser if President George W Bush had spread tax cuts more equitably.

The burgeoning budget and balance of payments deficits were a cause of concern to money markets that the recent presidential election had done nothing to allay, Koch Weser said.

He added that the US badly needs to restore budget discipline as deficits soar to record levels.

The current account deficit, reflecting international trade, reached more than $166bn in the second quarter of this year, and some experts predict the total for the year could be as high as $600bn.

Europeans suspect that the US government has deliberately allowed the dollar to slide in order to finance its deficits and sustain exports.

[Moonman62]

How can the GDP per capita be so high in the District Columbia?

[Eva]

Yes, the Germans have set an excellent example of how to ruin an economy. Old Europe would love to see the US in the same desparate condition as Germany and France, with high unemployment, a top heavy government payroll and a socialized healthcare system that depends on denial of service to hold down costs.

I read an article in the WSJ that discussed the problem of cross border healthcare in the EU, over loading member healthcare systems because patients are getting around the long waits by seeking treatment in other countries and demanding that the countries pay for the airfare as well.

[Libloather]

...sharply criticised the US administration in an interview made available yesterday for showering tax breaks on the wealthy and letting deficits get out of control while failing to improve the economy.

That'll end once a flat tax is introduced. The German peoples can finally sleep well tonight...

[In veno, veritas]

Politicians earn big bucks.

[meyer]

Nice stats and article from the Journal, but I'm wondering what, exactly, is the "product" that is being produced domestically in the District of Columbia.

[snowsislander]

It probably behooves us to at least some attention to other countries, since they are helping to fund our deficit spending by buying our debt:

                                         MAJOR FOREIGN HOLDERS OF TREASURY SECURITIES
                                                   (in billions of dollars)        

                                              
                                                 HOLDINGS 1/ AT END OF PERIOD

                               2004     2004     2004    2004     2004     2004   2004    2004
COUNTRY                         Aug     July     June     May    April      Mar    Feb     Jan

Japan                         721.9    695.8    689.3   668.0    652.4    646.3  614.5   583.8
Mainland China                172.3    166.9    164.9   164.1    161.0    157.3  153.8   156.6
United Kingdom                134.8    130.4    126.5   125.3    132.7    122.7  107.0    93.7
Caribbean Banking Centers 2/   91.3     91.1     85.8    68.4     57.1     67.4   60.5    55.2
Korea                          63.4     61.5     60.5    58.7     59.2     60.4   57.0    59.6
Taiwan                         56.4     57.6     57.7    57.3     56.8     54.8   55.7    53.1
Hong Kong                      49.4     50.4     52.4    52.7     52.1     50.7   53.1    54.0
Switzerland                    48.9     48.1     49.6    49.2     51.0     48.6   48.2    45.1
Germany                        48.3     49.0     47.7    49.7     50.1     45.7   46.0    47.5
OPEC                           43.1     43.9     43.7    45.8     45.0     43.0   41.0    43.4
Mexico                         35.6     34.1     38.6    36.5     30.6     28.9   28.5    27.5
Canada                         33.1     33.3     30.6    33.1     33.3     30.7   28.3    26.1
Luxembourg                     26.4     26.0     26.4    25.6     26.2     27.8   27.7    26.3
Singapore                      26.0     26.1     27.0    26.4     27.2     26.7   25.7    23.0
Ireland                        21.7     18.2     16.7    19.3     15.0     14.7   15.7    14.8
Turkey                         16.4     15.0     15.0    15.7     16.3     14.9   14.2    14.5
Brazil                         16.2     16.2     13.2    12.9     12.4     13.1   11.3    10.7
Italy                          14.8     15.7     16.0    16.1     15.7     15.0   14.9    14.7
Thailand                       14.8     13.8     11.4    10.9     10.8     11.9   15.3    13.5
Belgium                        14.1     14.3     14.6    13.7     13.3     12.8   12.9    14.6
India                          14.0     14.9     15.9    15.9     15.9     13.6   13.3    15.7
Israel                         12.5     13.6     17.9    18.0     15.5     16.4   14.1    10.5
France                         10.2     11.9     11.2    11.1     12.3     16.5   12.3    16.0
Sweden                         10.1      9.7     10.1    11.5      9.9     10.5   10.6     9.6
Spain                           9.2     10.4     10.7    10.6     11.5      9.3    9.7    10.8
Netherlands                     7.3     14.6     14.7    13.6     15.5     12.4   12.6    13.2
Australia                       6.6      7.5      6.9     7.3      7.5     10.0   12.6    10.8
All Other                     120.8    123.3    117.9   114.1    117.9    115.6  111.3   112.2
Grand Totals                 1839.6   1813.3   1792.9  1751.5   1724.2   1697.7 1627.8  1576.5

Of which official            1112.8   1086.4   1083.7  1067.3   1044.8   1029.5  988.0   963.7
 Bills                        237.6    230.3    231.8   232.9    224.8    231.6  224.0   214.5
 Bonds and notes              875.2    856.1    852.0   834.4    820.0    797.9  764.0   749.2

Department of the Treasury/Federal Reserve Board
October 18, 2004

1/   Estimated foreign holdings of U.S. Treasury marketable and nonmarketable bills, bonds and notes
      are based on Treasury Foreign Portfolio Investment Survey benchmarks and on monthly data
      reported under the Treasury International Capital (TIC) reporting system.
2/    Includes Bahamas, Bermuda, Cayman Islands, Netherlands Antilles, and Panama.

It wouldn't be as pleasant a process selling our treasury debt if no foreigners were showing up to buy it at its current yield.

[meyer]

I noticed that too. What could DC possible add to the GDP

I was thinking that maybe GDP was supposed to mean "Gross Domestic Pork", but then I noticed how far down the list W. Virginia was.

[matchwood]

Interestingly enough, they don't need tax breaks to move here - over 400,000 have and the Germans are offering them tax breaks to move back. No takers German DW-TV reports.

[DixieOklahoma]

meanwhile, the rumbling and robust U.S. economy shattered Germany's unemployment rate of 9% with a rate of 5.4%. Also in related news US new home ownership is at an all time high absoulty shattering german ownership rates.

[mlocher]

He said it had “handsomely reduced taxes for those who earn the most money. Economically speaking, that was not good, since it hardly succeeded in reviving the economy and has accumulated huge budget deficits.”

it is interesting that the europeans actually believe that we have a weak economy? what is the recent unemployment rate? 5.2%? lowest it has been in several years.

much of western europe has a far worse economy than ours. i think that the european leaders are blasting our "weak" economy to take political pressure off of themselves.

[Moonman62]

Politicians earn big bucks.

Yes, but the P in GDP stands for product as in productivity. And everyone else in DC is on the dole.

(Actually, I think it's all the associated lawyers and lobbyists that make all the big bucks. Politician's salaries are meager by comparison.)

[spinestein]

"In the interview, to appear in Der Spiegel magazine on Monday, Koch-Weser said it would have been wiser if President George W Bush had spread tax cuts more equitably."


Considering the top marginal tax rate is 37% and the bottom marginal tax rate is 10% does this mean he is advocating the more "equitable" arrangement of making them the same (maybe a flat tax where everyone pays the same rate, perhaps 25%)?

No, I didn't think so either. Koch-Weser himself "would have been wiser" to educate himself about the facts of a topic before he opened his soup-cooler and made an ass of himself.

[gcruse]

He's not entirely off base. Cutting taxes and raising spending are fine if you simultaneously cut the size of government, which Bush did not do.

[lepton]

How can the GDP per capita be so high in the District Columbia?

Lawyers, lobbyists, high-paid civil servants. All of the government support staff that doesn't live in VA or MD.

[spinestein]

"He's got a point about our obscene deficits? Why doesn't Bush have the least bit of fiscal discipline or conservative values when it comes to Big Stupid Government?"


When they criticize our "obscene deficits" they are not suggesting we limit the growth of government spending. They think we should just jack up the tax rates, especially on the rich. To them, a forty percent marginal tax rate on someone who makes 300,000 dollars a year is obscene. 60 or 70 percent would be more reasonable. If you think this is exaggeration just look at the tax rates in the EU countries.

[snowsislander]

That graph is strange. D.C. produces nothing but burdens; are they measuring GDP on the basis of how much money those parasites piss away?

I believe that the answer to that question is "yes". Also, lawyers tend to be very compensated, and DC has a great number of them.

I think it might be more accurate if we subtracted "legal activity" from our GDP calculations rather than adding it, since I think that a large part of what these lawyers do does indeed subtract from our productive capacity.

Even more consternating is to consider that we are producing more lawyers than ever before. We are up to 512,070 lawyers (BLS) right now; looking at the total number of people involved in legal services (judges, paralegals, etc.) for the last ten years:

Series Id:     CEU6054110001 Not Seasonally Adjusted Super Sector:  Professional and business services Industry:      Legal services NAICS Code:    5411 Data Type:     ALL EMPLOYEES, THOUSANDS
Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec	Annual
1994	963.4	963.6	963.6	963.9	962.3	980.1	980.5	971.5	957.5	958.9	961.3	960.6	965.6
1995	955.7	955.0	956.0	954.4	952.3	974.0	971.7	965.9	954.0	955.2	957.5	958.9	959.2
1996	955.2	957.9	960.9	959.1	961.4	982.7	984.8	978.4	963.2	968.6	973.9	974.7	968.4
1997	972.6	973.0	976.4	978.8	979.6	1000.3	1004.1	995.2	985.1	988.9	995.3	1000.5	987.5
1998	997.4	999.8	1004.1	1006.1	1010.4	1034.4	1040.4	1032.9	1023.0	1030.9	1034.7	1038.8	1021.1
1999	1034.5	1037.0	1040.1	1043.0	1044.4	1067.5	1068.4	1060.5	1049.7	1053.1	1058.3	1059.9	1051.4
2000	1056.6	1053.8	1054.4	1052.0	1054.3	1084.4	1084.1	1075.4	1064.8	1067.3	1069.6	1072.1	1065.7
2001	1068.9	1071.2	1074.4	1074.9	1083.4	1109.5	1110.8	1104.2	1093.0	1097.0	1102.4	1105.3	1091.3
2002	1099.6	1099.8	1100.8	1098.8	1106.7	1125.9	1127.6	1122.4	1116.3	1126.9	1129.1	1129.6	1115.3
2003	1122.8	1127.7	1130.9	1130.5	1133.4	1152.6	1148.6	1137.8	1129.5	1139.8	1145.5	1142.4	1136.8
2004	1131.0	1132.3	1131.8	1134.4	1136.9	1162.3	1163.8	1150.2	1145.9(p)	1149.0(p)
p : preliminary

shows that this is a popular and growing field of endeavor.

[NHResident]

German economists had their turn in the spotlight during the late 19th and early 20th centuries - they labored long and hard and delivered.........- Communism and National Socialism - the latter of which despite the defeat of its militant form during WWII - survives today throughout 'Old Europe'.

Germany with its 'Worker' councils, high unemployment, extremely low productivity and sclerotic growth rate is viewed as a creditable source of economic 'wisdom' only by economic ignoramouses like Lester Thorow at MIT, J.K. Galbraith, the osssified big-government math modelers at UCLA.

This guy is yet another theoretician trying to give us advice that will drive our economy into the same dead end as Europe.

[spinestein]

"Cutting taxes and raising spending are fine if you simultaneously cut the size of government"


The size of the government and the level of government spending are synonymous for budget purposes. Therefore to raise spending and cut the size of government (or vice-versa) is an impossibility by definition.

[Potomac]

So, they got that cheap dollar is improving American export and blocking inport? Guys it's just economy. High deficit= cheap dollar = lower income for UE= lower prices of American products, so they are more available for UE consumers= Germans and Frances are blasted.

[JasonC]

"hardly succeeded in reviving the economy"

GNP, 2nd quarter 2001 - $10.174 trillion
GNP, 2nd quarter 2004 - $11.964 trillion
Nominal, +5.6% annual rate for 3 years despite a recession and 9-11.

Real GNP in the year 4/00 to 4/01 (first year Bush in office) - +0.4%
Real GNP in the year 2/03 to 2/04 (last full year available) - +4.7%

Peak US unemployment rate, the last recession - 6.3%
The one before that, peak rate (1992) - 7.8%
Present US unemployment rate - 5.6%
Present German unemployment rate - 10.4%

The German unemployment rate has risen continuously for the last 9 months, and is currently at a 5 year high. The US unemployment rate has fallen for 16 months, and is at the same level it was when Clinton was re-elected in 1996.

We need economic advice from Germany like we need military advice from the French...