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Tuesday, October 19, 2004

Europe meets Mr. Laffer's Curve

John Kerry has established that the top priority on his domestic agenda will be repealing President Bush's tax cuts. Unfortunately, it appears that Sen. Kerry is not only looking to Europe's disastrous foreign policy model, but he seems determined to adopt their counterproductive taxation policies as well.

Bruce Bartlett has a very interesting commentary over at the Washington Times regarding the effect tax rates have on gross domestic production. A recent report from the Bureau of Labor Statistics states that the per capita GDP in the US for 1993 was $34,960 -- over $4,000 more than Norway, which has the highest rate in Europe -- and a stunning $10,000 more than such economic stalwarts as Germany and France. What is more, the numbers show that, despite the advent of the EU, the gap between the production rates in Europe and the US is slowly widening.

The practical result of this gap is that US citizens enjoy a higher living standard than Europeans, including much more living space. What the Europeans do have, however, is more vacation (including more sick days) and much fewer work hours than their American counterparts. The result is evident, Europeans are not producing because they are not working.

Bartlett's explanation of the work/productivity gaps between the US and Europe is pure Supply Side. According to a recent study by Edward Prescott of the Federal Reserve Bank of Minneapolis, labor rates in Europe and the US directly correspond to taxation rates. Simply put, Europe's high taxes act as a disincentive to work. This connection is, of course, the basis for the Laffer curve. As Barlett points out, if the French were to drop their tax burden from 60% of their GDP to 40% the average Frenchman would enjoy 19% more consumption than he does now.

Lower taxes = more production = higher standard of living. Perhaps someone should tell this to Sen. Kerry.
Centinel 7:53 AM #


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