If you're concerned about the impact of tax increases on the U.S. expansion, cast an eye on Germany, which has been enacting massive tax hikes in the midst of a recession. Economists at Salomon Brothers Inc. report that this year's rise in pension-insurance contributions will claim an additional 0.85% to the payroll-tax rate, bringing it to 9.6% of the taxable wage, and a new nursing-home-care scheme awaiting legislative approval would add a similar amount.
Along with an increase in gasoline taxes, these measures are expected to boost the average German worker's total tax rate this year to 45% of wages, from 44.1% last year and 40.1% in 1990. What's more, that rate is projected to surge past 47% next year, when a 7.5% income-tax surcharge is scheduled to go into effect.
With growing unemployment, real aftertax wages already down by 2.3% since 1990, and household savings rates approaching historical lows, the rising tax bite promises to undermine consumption and prolong the recession, say the Salomon economists.