I’m normally disappointed when religious figures comment on economics, particularly since they often turn the individual call to charity into a blank check for government-coerced redistribution. This runs contrary to individual choice, free will, and morality.
So I’m delighted that Ettore Gotti Tedeschi, writing for L’Osservatore Romano, the quasi-official newspaper of the Vatican, persuasively explains how higher taxes simply encourage a downward spiral of more spending, more debt, and economic despair. Here’s the key segment from his column.
…taxation in all its forms only permits further growth in public spending… During a prolonged crisis, inheritance taxes, new forms of taxation or similar alternatives reduce or wipe out resources for investments, discouraging the trust of investors, penalizing the cost of the public debt and the possibilities of its renewal at its expiration. In this context, imposing taxes on property and on income is equivalent to a suicidal anti-subsidiarity of the state to the citizen. Those who legally possess assets, on which they have paid the proper taxes, have contributed to creating wealth and, thanks precisely to these assets, continue to produce them with investments and consumption. Further forms of taxation would not be synonymous with solidarity but only with greater public spending and, perhaps, a higher debt and more widespread poverty. High taxes penalize saving, generate distrust in the ability to stimulate recovery, hit families and prevent the formation of new ones, as well as creating uncertainty and precariousness in employment. In short, they lay the foundations for another phase of unsustainable development.
What makes the editorial so remarkable is that Mr. Tedeschi not only understands economics – as illustrated by his discussion of how higher tax rates discourage productive behavior, but his grasp of real-world politics. He recognizes that higher taxes will simply lead to higher spending.
But maybe that’s an easier lesson for honest Europeans to grasp. For the past several decades, they have seen politicians – over and over again – play the bait-and-switch game of raising taxes, supposedly to reduce red ink, only to have the money used to expand already bloated public sectors.
The value-added tax, not surprisingly, has played a key role in Europe’s fiscal nightmare.
Forty years ago, southern European nations had medium-sized governments and large deficits and northern European nations had medium-sized governments and small deficits.
Today, southern European nations have had large-sized governments and large deficits and northern European nations have had large-sized governments and small deficits.
The only big change is that all these nations now have VATs and the burden of government spending is much higher. But the deficits generally have stayed the same, consistent with the political culture of the respective regions.
In other words, Milton Friedman was correct many years ago when he warned that, “In the long run government will spend whatever the tax system will raise, plus as much more as it can get away with.”
And Mr. Tedeschi is correct today with a similar observation.
