Tax Competition Forcing Lower Corporate Rates in Europe

The news pages of the Wall Street Journal have an excellent article showing how nations in Europe are cutting corporate tax rates in an effort to compete for jobs and capital. The politicians and bureaucrats do not like this process, of course, but European Commission-led efforts to harmonize taxes fortunately have failed. In closing, the WSJ article cites a post on the Cato blog about the shame of America having a higher corporate tax rate than France:

Europe’s major economies are competing with one another to cut corporate taxes as they fight to attract and keep investment, fueling a trend that has taken Europe’s corporate-tax rates below those of other regions. Nominal tax rates on corporate income in the European Union average 26%, compared with 30% in the Asian-Pacific region and nearly 40% in the U.S. The latest moves by European governments suggest business taxes in the EU will fall further in coming years. … In recent years, many smaller European nations – including Ireland and the former Soviet-bloc nations of Eastern Europe – have slashed corporate-tax rates to as low as zero, as part of their economic-growth strategies, and have succeeded in attracting investment from multinational corporations. That success has put pressure on Europe’s larger economies to cut their taxes. Until recently, Germany condemned the low-tax competition from Poland and others as “tax dumping.” But after failing to win support within the EU, Germany has joined in: Chancellor Angela Merkel’s ruling coalition has agreed to cut the corporate-tax rate to just under 30% next year from 39%. Others in Western Europe have reacted to the tax cut in Germany, Europe’s largest economy. In March, Britain’s finance chief, Gordon Brown, announced a reduction to 28% from 30%, following complaints from British companies that Britain was losing its status as one of Europe’s low-tax countries. Nicolas Sarkozy, a leading contender to become France’s next president, wants to cut the French corporate-tax rate to less than 28% from around 34%, albeit with some vaguely defined strings attached. … Elsewhere in Europe, Spain is reducing its tax rate on corporate profits to 30% from 35% in stages. … The Cato Institute in Washington, a free-market think tank, calls it “rather embarrassing” that France has a lower corporate-tax rate than the U.S.