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“The power to tax is the power to destroy.”
-Chief Justice John Marshall
Every tax imposed by government diminishes the power of the person taxed. Excessive taxation obstructs choice and entrepreneurship, which restricts freedom and prosperity for the individual taxed and the entire community.Cut Spending – Cut Taxes: Sweden – Ryan – Tea Party Budget
“Austerity has failed,” is the mantra of the proponents of big government in America. Seeking to enlarge central control, these predators of the governmental dole are singing in unison, “Look at Europe.”
Okay, let’s inspect Europe. Most of Europe raised taxes, nibbled at “cuts,” and expanded deficits. Their economies are terrible.
However, there are two notable exceptions. Since 2009, Germany and Sweden cut spending and balanced their budgets, which produced good economic growth, substantially better than the economic growth of United States and the remaining European countries. Robert Barro a Harvard economist reports in the Wall Street Journal:
Two interesting European cases are Germany and Sweden, each of which moved toward rough budget balance between 2009 and 2011 while sustaining comparatively strong growth—the average growth rate per year of real GDP for 2010 and 2011 was 3.6% for Germany and 4.9% for Sweden. If austerity is so terrible, how come these two countries have done so well?
Veronique de Rugy of George Mason University succinctly states: The answer is that they constrained spending without jacking up taxes.
Spain, Greece, Italy and most of Europe really didn’t impose austerity – the cuts were insignificant. They continued to spend and increased taxes. Resultantly, these countries continue to stagnate economically.
Instructive is the culture and economic transformation in Sweden. Yes, Sweden the home of central government and high taxes – the benevolent government, adored by socialists everywhere. Sweden has changed. They are reducing taxes and cutting spending. Sweden’s Finance Minister, Andres Borg, reasoned that government policies – high taxes and rigid regulatory controls - had caused decades of economic stagnation.
Sweden was a textbook case of European economic sclerosis. Very high taxes and huge regulatory burden.’
In January 2007, Borg and Prime Minister Fredrik Reinfeldt cut taxes, and began to balance Sweden’s budget by cutting welfare benefits. Yes, they cut welfare benefits and cut taxes and balanced the budget – in Sweden! The excessive welfare state had encouraged less work and less productivity. Borg explains how they framed their message. The Spectator writes:
‘We are the new workers’ party.’ Tax rates would be cut for workers, and welfare cut to pay for it. High welfare levels, he says, can inflict cruelty in the name of compassion. ‘People emigrate from the labour market. Unemployment traps capture a lot of people in social exclusion.’ Tax cuts are not spoken of as an ideological aim, but as a tool to cut unemployment and advance social justice.
When the Great Recession spread to Sweden, Borg rejected the almost universal call for deficit spending. His stimulus was more cuts in spending. Borg explains in The Spectator:
‘Look at Spain, Portugal or the UK, whose governments were arguing for large temporary stimulus,’ he says. ‘Well, we can see that very little of the stimulus went to the economy. But they are stuck with the debt.’
Note, Sweden has the highest growth in GDP in Europe. Obviously, Borg knows wealth, investment and entrepreneurs are essential for a vibrant economy and prosperity. A vibrant economy advances science, art and the standard of living for the entire society. Totally contrary to “tax the rich” chant in America, Borg is enticing entrepreneurs and the wealthy to invest and live in Sweden. Borg has cut the taxes on the rich – again in Sweden!
If you have a high wealth tax and an inheritance tax, people emigrate because it becomes too costly to own a company. Ownership is a production factor. Entrepreneurs are a production factor. Yes, these people are rich and you can obviously argue that we want to encourage social cohesion. But it is also problematic if you drive out entrepreneurs from your country, because they are the source of job creation.’
Compare the cultural and political climate of Sweden to the United States. In 2011, Representative Ryan introduced his spending cuts – The Path to Prosperity - and President Obama invited him to a presidential speech, where the President ridiculed Ryan. Then, the Democrats spent millions on a video showing Ryan pushing a grandma in her wheelchair off a cliff. In the meantime, President Obama and his academic elites increased the deficit by more than a trillion – all in the name of stimulus.
Harvard’s Barro believes these deficits – totallimg over $5 trillion in four years – had a modest impact in 2009 and a negative role in 2011 and 2012.
For the U.S., my view is that the large fiscal deficits had a moderately positive effect on GDP growth in 2009, but this effect faded quickly and most likely became negative for 2011 and 2012. Yet many Keynesian economists look at the weak U.S. recovery and conclude that the problem was that the government lacked sufficient commitment to fiscal expansion; it should have been even larger and pursued over an extended period.
Of course as Borg indicated, now America has more debt – horrendous debt.
Right now, Ryan and the House Republicans are attempting to reduce spending, and to eventually balance the budget. Exactly the opposite, Majority Leader of the Senate, Harry Reid (D-NV) vows to stop any spending cuts. Reid always seeks to increase the power and reach of the central government. In reality – especially compared to Sweden – Ryan and the House Republicans have a moderate proposal. This is politically understandable. The Democrats continue to demagogue The Path to Prosperity and establishment-Republicans are very queasy.
Remember, Andres Borg convinced the people of Sweden that fiscal austerity was good for all Swedes. Sweden cut spending and taxes. The economy and employment expanded. Likewise, Paul Ryan proposes to cut spending to expand the economy and employment. Borg cut welfare benefits. Ryan seeks to restructure many federal programs to the states and local community. Ryan speaks of “subsidiarity,” which is a Catholic philosophy that focuses on the actual person, rather than a class of people, e.g., the poor and unemployed. Rather than classes of people controlled by rules, regulations and bureaucracies of a central government, Ryan proposes community and individually based solutions. The Acton Institute explains:
This tenet (subsidiarity) holds that nothing should be done by a larger and more complex organization which can be done as well by a smaller and simpler organization. In other words, any activity which can be performed by a more decentralized entity should be. This principle is a bulwark of limited government and personal freedom. It conflicts with the passion for centralization and bureaucracy characteristic of the Welfare State.
So far, Ryan has quietly spoken of subsidiarity and local governance. Andres Borg observed that welfare “traps people in social exclusion.” Ryan’s “subsidiarity” returns welfare to the community where true compassion and individual charity excels. However, Ryan and all of us that believe in government closest to the people must articulate and expand our philosophical and moral message to more Americans.
In addition to directly helping people in need – subsidiarity, We the People must set a goal for reducing taxes for all Americas – including the rich. Andres Borg appreciates the entrepreneur and is beginning to entice them back to Sweden. Likewise, America – truly the home of the entrepreneur – must foster opportunities for every American to expand their capacities – to combine creativity with savings to innovate and invent. This is the philosophy and process that made America exceptional, and will restore economic growth and prosperity.
Finally, a fiscal message – austerity – is not enough. We the People must convey the fiscal and human good that is part and parcel of limited government.
Fiscally, a majority of Americans want small, restricted and locally-centered government. The best proposal to reduce federal spending and balance the budget was produced by The Tea Party Debt Commission. Thousands of Americans participated in producing the Tea Party Budget which cuts spending by almost $10 trillion in 10 years.
Now, We the People must communicate with our fellow Americans, presenting our version of the fiscal, cultural and moral renaissance. Decrease the confiscatory and autocratic power of government and increase the power and responsibilities of family and community. Cut taxes and bureaucratic despotism, freeing all Americans to save, invest and expand their economic and social powers.
Bluntly, if America wants to remain an economic and cultural power, America must return to its roots – a government of limited powers. This is the fiscal and cultural war that now besets America. The political elites and their predatory special interest groups – Wall Street, big unions, government bureaucracies and big business – versus most Americans. About 30 percent of Americans favor the political elites and 70 percent are strongly opposed. Our opportunity and mission is to reach the 70 percent with the economic, moral and political alternatives to our present malaise and decline.