Thursday, September 01, 2005

Schroeder's Cunning Plan?

Schroeder is looking suspiciously happy, so unless he's messed up the medication he has a plan - maybe a flat tax that could bring a new golden age of prosperity to Germany.

Right now he's worrying observers.

"He has probably laughed more than any other chancellor," said Michael Naumann, his former culture minister. "The whole country is sinking into a depression and the chancellor has a smile on his face. Why, we're not sure."

"No chancellor has been rinsed out of office in such a euphoric mood," Die Welt commented.

Here's the flat tax from a US perspective.

...what would the impact of such a system be on Federal tax receipts? Very positive, because income tax rate reductions tend to raise income tax receipts. The Kennedy income tax cuts of the 1960s reduced top rates from 91% to 71% and boosted revenues by one-third, raising the four-year average annual tax revenue growth from 2.1% to 8.6%. The Reagan tax rate reductions of the 1980s saw tax revenue increase 56% over eight years.

The reason for such increases in tax receipts is economic growth--lower tax rates mean higher economic growth, more investments, more jobs, greater incentive for people to work harder to earn more money, and thus the economy expands, which in turn means more government tax revenue.

This is the magic of the Laffer curve. And the rich will pay more, not less. Take the billionaire Kerry family - most of their cash is hidden away in trusts, but the $5.07 million they do declare gets taxed at just 12.4%:

...this puts Mrs. Kerry's tax rate at well below that of other filers in her super-rich neighborhood. But it also means she is paying a lower average rate than nearly all middle-class taxpayers...

A flat tax means these fat cats pay the same rate as everybody else.

Schroeder's opponent Angela Merkel has an adviser who recommends a 25% flat tax. However she's timidly called it "a vision for the future" & is planning bigger taxes on consumption. Bad idea - it hits the poor and income taxes will still go up given the profligacy of pols - so tax will actually increase. Also 25% is too high - Germany's new Eastern European competitors have flat taxes in the teens.

Schroeder is way behind in the polls, but came from behind at the last election by doing whatever it took to get elected - in that case dumping Germany's only protector by playing the anti-American card.

Now, he has nothing to lose. If he plays the flat tax card and gets elected, there will still be problems with the German economy, but they may well be fixed by the boom triggered by the flat tax. If so, he goes down in history as another Adenauer. If it fails, so what - he has another term.

So here's his pitch:

Vote for me and the middle class and pensioners get a tax cut, the fat cats pay more, and Germany becomes once again the economic powerhouse at the center of Europe.

It's a no-brainer - no wonder he's laughing!