May 17, 2012

THEIR POSTWAR EXPANSION WAS A FUNCTION OF ASSEMBLING PARTS CHEAPER THAN WE WOULD:

Japan and Europe Are Killing Themselves (Steve Forbes, June 4, 2012, Forbes magazine)

FORBES columnist Nathan Lewis, a noted economist and money manager, recalled recently that when asked about Japan's prospects seven years ago he blurted out: "They will tax themselves to death." And that is precisely what Tokyo continues to do.

Japan's political leaders are more obtuse and irresponsible than those found in Europe. They have completely forgotten the prescriptions of sound money and ever lower taxes that fueled their nation's extraordinary postwar economic expansion. As if in the grips of a death wish, Japan has, since the late 1980s, repeatedly raised taxes, with new levies of all kinds imposed. In the early 1990s the capital gains tax on property was boosted to 90%--and this was before a slew of other property exactions were piled on. To stimulate the tax-strangled economy Japan has gone on spending binges that would make Paul Krugman, Barack Obama and other big-government believers drool with envy. Today Japan's gross national debt--more than 200% of GDP--vastly exceeds even that of Greece. Nevertheless, Japan is in the process of enacting a new array of tax increases: The top income tax rate, the gasoline tax, the payroll tax, the inheritance tax and the capital gains tax are all slated to go up. The corporate tax rate was cut slightly, but this was more than mitigated by the elimination of numerous deductions. Notes Lewis ominously, "The government is plainly on the road to default."

Extreme? Unlike Greece, Japan still has immense assets. But the tremors foretelling an economic apocalypse are there: Its once vaunted individual savings rate, for example, has virtually disappeared.

Government debt is now held primarily by banks (which are susceptible to government "suggestions" regarding this matter) and official institutions, another indication of trouble. That's a phenomenon, by the way, found in both Europe and the U.S.

Fortunately, though the U.S. currently has an antigrowth strategy, ­positive change is coming. Over the past 18 months many congressional Dem­ocrats, for instance, have been willing to cut deals with Republicans on spending restraint, tax simplification and entitlement reforms. But the White House blocked any such agreements. States are enacting fiscal and government workforce changes that would have been politically inconceivable just a couple of years ago. Governor Romney has a modest tax plan that would cut individual tax rates 20% in return for cutting back on certain deductions.

Posted by at May 17, 2012 5:39 AM
  

blog comments powered by Disqus
« IT TAKES A CERTAIN AMOUNT OF COURAGE....: | Main | BROTHERS IN ARMS: »