Europe’s Dismal Fiscal Future

Nations such as France and Germany already are over-burdened by excessive taxes and spending, but things are going to get worse. A column in the Wall Street Journal notes that the number of potential workers per retiree is going to shrink dramatically. This helps explain, of course, why so many European politicians are opposed to tax competition. Mobility of labor and capital undermines their ability to keep Ponzi schemes afloat:

A shrinking population in itself is not necessarily a problem. But the rise in the “old age dependency” most definitely is. Fewer and fewer younger workers will have to finance the retirement of more and more elderly people in need of a range of support services from pensions to health care. European Commission forecasts suggest that the number of people aged 65 and older as a percentage of the working population (aged 15-64) will more than double between now and 2050 to 53% from 25%. …A continuation of the current pay-as-you-go pension systems, where employee contributions are used to pay for the pensions of those already retired, seems unsustainable. It would require an almost superhuman willingness among the shrinking pool of workers to pay ever rising payroll taxes for the increasing ranks of the older generation. It would overstretch the solidarity between generations and would only accelerate an already observable brain drain. Many of the most talented Europeans are already looking for higher salaries and lower taxes abroad.

But Americans should not gloat. Entitlement programs are pushing the United States in the same direction.