The U.S. should learn from Greece’s fiscal crisis that large tax burdens stifle growth, according to David Malpass, founder and president of Encima Global.
Greek Prime Minister George Papandreou said in Athens today that the nation’s survival was at stake in talks to win a potential $159 billion European Union-led bailout that included budget cuts denounced by unions as “savage.” The proposed agreement may allocate too much “pain” to the public sector and result in higher taxes, Malpass said in a Bloomberg Radio interview with Tom Keene.
As part of the agreement being worked out with the EU and the International Monetary Fund, Greece may increase value-added tax rates, Kathimerini newspaper reported, without citing anyone. The tax is essentially a 23 percent sales tax, according to Malpass. Value-added taxes, combined with income tax, burden the system so much that it hinders growth, according to Malpass.
“Europe ends up with having both taxes very heavy,” he said. “What you get from that is less prosperity, less economic growth, fewer jobs. And that’s really the direction that we’re headed right now.”
The U.S. is “angling” for a value-added tax too, Malpass said, an initiative he says should be stopped.
Malpass said last month he will seek the Republican Party’s nomination to challenge New York Senator Kirsten Gillibrand because the government has failed to address the causes of the financial crisis that resulted in the biggest economic drop since the Great Depression. Gillibrand was appointed in January 2009 to replace Hillary Clinton when she was named secretary of state.
“There’s got to be a way to bring an upheaval so that Washington stops growing,” Malpass said. “The value-added tax is one of the huge battlegrounds we’ll have over the next few years.”
Malpass was chief economist at Bear Stearns Cos. and served as an economic adviser to the Republican presidential campaign of Rudolph Giuliani, the former mayor of New York City. Bear Stearns was acquired by JPMorgan Chase & Co. in March 2008 in a transaction backstopped by the Federal Reserve.
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