NCPA - National Center for Policy Analysis

Will Europe Catch Supply-Side Enthusiasm?

August 15, 1996

In both France and Germany, leaders are pushing for tax cuts and tax reform only one year after tax increases flopped.

  • In France taxpayers must turn over to government the equivalent of 45 percent of gross domestic product.
  • France's economy edged up only 0.9 percent in the first half of 1996.
  • Last year it hiked its value-added tax to 20.6 percent from 18.6 percent -- and put a surtax on businesses and high earners.

Now that country's finance minister promises a "real, significant" tax cut next year and a budget freeze that would cut real projected spending by $12 billion -- at the same time eliminating 6,500 public sector jobs.

In Germany some 40 percent of GDP is taxed away.

  • Germany has lurched into recession twice in three years and officials predict only 0.75 percent growth this year.
  • After Germany placed a 7.5 percent surcharge on corporate and income taxes to pay for reunification, the average worker there has the highest tax burden in the industrialized world.
  • A so-called trading-capital tax is levied on the value of firms -- even if they are losing money.

While a German tax panel is studying a reform plan to take effect in 1999, the finance minister has jumped ahead to propose a cut in the top marginal tax rate to 40 percent from 53 percent. The political parties are reported to be studying proposals for three tiers of tax, with rates starting and ending in the range of 8 percent to 35 percent.

Back in 1986, few Europeans admitted to a belief in supply-side economics. But they went ahead and cut taxes anyway -- and their economies grew. Now, observers say, maybe they are ready to try it again.

Source: Perspective, "Les Supply-Siders," Investor's Business Daily, August 15, 1996.


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