American Elephants

When corporations in the private sector run extended losses — spending more than they take in — employees share in the adjustments that have to be made.  Jobs are lost, and salaries cut.  When governments  spend more than they take in, running huge and extended deficits, they are inclined to raise taxes and their own salaries.

It is well-known that government employees on average receive higher pay and more benefits than the private sector employees who perform similar jobs.  So when unemployment is high and debt is high and deficit spending is really high, what should happen then?

The recession hit Ireland hard.  Known as the Celtic Tiger, Ireland went from being one of the poorest countries in the European Union to one of the richest.  Financial services became a major part of Ireland’s economy, and left it vulnerable to the housing bubble and the financial crisis.

Ireland took action.  The current Irish budget (translating from euros to dollars and rounding) takes these steps:

• Government employees’ salaries up to $40,000 will be reduced by 5%.
• The next $54,000 of salary will be reduced by 7.5%.
• The next $74,000 of salary will be reduced by 10%.

This gets up to salaries of $168,000. Salaries over that amount may have marginal reductions of as much as 15%.

Economics 101: When you tax something, you get less of it.  Oddly enough, Congress is searching for more ways to raise taxes on American citizens.  They might take a leaf from Ireland’s plan.  Just a thought.

(h/t: Alex J. Pollock)