German solution: Tax the young!

posted at 8:30 am on April 7, 2012 by Jazz Shaw

For those who like to cite Germany as some sort of model of fiscal probity and “getting it right” in terms of economic modeling, think again. Like many other nations – ours included – the Germans are looking a decade or two down the road and seeing that their tax base simply isn’t going to support all of the pensioners collecting benefits. They’re experiencing their own “baby boom” problem, with projections that there will be seven million fewer workers paying into the system by 2030.

But fear not. They’ve come up with a solution!

Angela Merkel’s Christian Democrats have drafted proposals that, if law, would require all those over 25 to pay a proportion of their income to cushion Germany against a looming population crisis.

The German Chancellor’s ruling party is seeking extra sources of revenue to pay for soaring pensions and bills for social care costs as Germany’s ”baby boomer” generation ages amid a decline in the birth rate.

The proposals, to be adopted by Dr Merkel’s party cabinet after the Easter break, have not yet set a figure on the age tax but officials are considering a special levy of about 1 per cent of income.

Sound familiar? The Germans aren’t facing a theological problem or an ideological problem or a philosophic problem. They’re looking at a math problem. The numbers just don’t add up. Michael Walsh at National Review thinks he recognizes a pattern.

Utterly predictable, of course, especially in the land of Kinderfeindlichkeit. The Germans never really thought this whole la dolce vita thing through. They believed that, via a combination of the American nuclear umbrella and NATO forces (which meant they could cut their defense budget to nearly nothing) and the Teutonic ability to extract a stunning portion of worker salaries to spend on the “safety net” — a safety net that included months-long vacations, free medical care, and trips to spas — they could enter the work force at 28, retire at 50 and spend the rest of their lives in Italy or Greece at someone else’s expense. Nice work if you can get it. But now the party’s over.

Germany realized the same sort of long term benefit in the post-WW2 era that Japan did. (Not that anyone would want to trade places with them, obviously.) By essentially being locked out of any spiraling arms races they were freed from the expense of maintaining and expanding a military. They also got a lot of help with rebuilding their essential infrastructure. They still collected significant taxes, but as Walsh points out, they had the luxury of dumping all of that money into a system which even Americans would regard as extravagant, if not luxurious.

Now the bills are coming due. We certainly haven’ stumbled upon a solution to this riddle yet. Let’s see if the Germans can figure it out.


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