Tax Competition Catches the Attention of the International Herald Tribune

An article in the IHT reports on the rush to cut corporate tax rates in Europe. The story appropriately credits tax competition, though the story is incomplete in that it should mention the reductions in death taxes, wealth taxes, capital taxes, as well as the flat tax revolution in Eastern and Central Europe:

A tax-cut war is spreading across Europe as leaders of the Continent’s biggest economies give up criticizing smaller neighbors for cutting business-tax rates and decide to join them instead. … It comes after Ireland and new European Union members from Eastern Europe succeeded in attracting investment, and irking their larger rivals, with tax rates of less than 20 percent, among the world’s lowest. … The EU’s average corporate tax rate at the end of 2006 was a record low of 26 percent, and more cuts are in the works this year. … The rush to lower business taxes is a turnaround for the biggest European countries, whose governments once complained that their neighbors were engaging in “tax dumping” and threatened to cut aid to them. Just three years ago, Sarkozy, then the French finance minister, sought EU support to implement a minimum corporate tax rate throughout the bloc. Feeding the complaints were business-tax reductions by Poland, Slovakia and Hungary before their EU entry in 2004. Poland cut its levy to 19 percent from 27 percent. Slovakia adopted a flat-tax rate of 19 percent, down from 25 percent, and Hungary went to 16 percent from 18 percent. The lower rates helped lure operations from companies in higher-tax countries. PSA Peugeot Citroën, an automaker based in Paris, and Siemens, an engineering company based in Munich, for example, moved some production to Slovakia. … Supporters of lower corporate taxes point to the success of Ireland, whose 12.5 percent rate, the lowest in the developed world, is down from 47 percent in 1988. That proved a magnet for such U.S.-based technology companies as Microsoft, Intel and Dell and helped Ireland’s economy grow more than three times the rate of the euro area in the past decade, while still running a budget surplus in nine of the 10 years. … a study of 86 countries last year by KPMG International … showed corporate tax cuts allowed countries to attract and retain business investment with little loss of revenue.