Yes, I realize it is theoretically possible that a tax hike could be part of a political deal that produces a good outcome, such as entitlement reform.
But that doesn’t seem to happen in the real world. Indeed, I pointed out almost exactly one year ago that the only budget deal that gave us a surplus was the 1997 pact that cut taxes instead of raising them.
But maybe there’s evidence from other parts of the world showing that tax hikes lead to balanced budgets. Perhaps we can learn something from European nations.
Let’s start with this chart I put together after digging through historical data from the United Nations, European Commission, and Organization for Economic Cooperation and Development. It shows tax burden for the 15 nations of the pre-2004-expansion European Union, minus Luxembourg which didn’t collect this kind of data in the 1960s. Basically, we’re looking at the average tax burden in Western Europe for 1965-1969 and for 2006-2010.
Not surprisingly, it shows that the tax burden has jumped significantly. I suspect the adoption of the value-added tax deserves a good bit of the blame, but that’s a separate issue.
For this post, we’re wondering whether this big jump in taxes resulted in more red ink or less red ink.