Which Nation Will Be the Next European Debt Domino…or Will It Be the United States?

Posted by Daniel J. Mitchell

Thanks to decades of reckless spending by European welfare states, the newspapers are filled with headlines about debt, default, contagion, and bankruptcy.

We know that Greece and Ireland already have received direct bailouts, and other European welfare states are getting indirect bailouts from the European Central Bank, which is vying with the Federal Reserve in a contest to see which central bank can win the “Most Likely to Appease the Political Class” Award.

But which nation will be the next domino to fall? Who will get the next direct bailout?

Some people think total government debt is the key variable, and there’s been a lot of talk that debt levels of 90 percent of GDP represent some sort of fiscal Maginot Line. Once nations get above that level, there’s a risk of some sort of crisis.

But that’s not necessarily a good rule of thumb. This chart, based on 2010 data from the Economist Intelligence Unit (which can be viewed with a very user-friendly map), shows that Japan’s debt is nearly 200 percent of GDP, yet Japanese debt is considered very safe, based on the market for credit default swaps, which measures the cost of insuring debt. Indeed, only U.S. debt is seen as a better bet.

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Half for the Government

Posted by Chris Edwards

The Democrat’s latest plan to raise money for federal health care expansion is to impose surtaxes ranging from 1 percent to 3 percent on higher-income earners.

Currently, the United States is in the middle of the pack of industrial nations when it comes to imposing punitive tax rates on higher earners. The chart shows the top statutory personal income tax rates for the 30 nations in the Organization for Economic Cooperation and Development. The current top U.S. rate is 42 percent (including state taxes), which is the same as the 30-nation average. The data is from the OECD.

With the top federal rate scheduled to jump 5 percentage points in 2011, plus the new 3-percent surtax, the top U.S. rate would hit 50 percent. Fifty percent! Half of all additional income earned by the nation’s most productive workers and entrepreneurs would be confiscated by the government. America’s 50 percent tax rate would be tied with three other nations and would be topped only by the Netherlands, Belgium, Sweden, and Denmark.