Thursday, 27 May 2010

Tax Burden: the limit may be close

The steady rise in the share of government spending since the early 1970s was a trend that was inexorably moving towards a level that was bound to create tremendous tensions. No longer would it be possible to bribe and pay off various segments of the voters and thus paper over conflicting aspirations in the various parts of the population. It is mathematically impossible for the state to command more than 100% of GDP and breaking point is reached at a much lower level. High tax levels will ultimately sap the willingness to work in those individuals milked by the state for the benefit of the lazy. They may then throw in the towel and happily consume what they have already earned. Why should a well-off professionals or entrepreneurs who have done well and are in mid-life continue to work hard just for the privilege of having half of their income confiscated? In reality his tax burden is much higher as the remaining half is also subjected to additional taxes and fees – above all VAT levied by the government. Once a large part of the producers of wealth starts to live a rentier’s life the whole edifice of the welfare state – and even government – would stand on exceedingly shaky ground.

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