Topic: International Economics and Development

Europeans Want More Tax Harmonization — Which Means Higher Taxes

There already is a minimum fuel levy in the European Union, but governments are allowed to impose higher taxes (but never lower taxes, of course). This tax difference is causing some truckers to drive longer distances to buy fuel where diesel taxes are lower. The proposed response to this alleged problem is to reduce the difference in the tax among jurisdictions. Needless to say, the Euro-crats have decided that the solution is higher tax rates for all nations.

The EU Observer reports on the latest evidence that tax harmonization is always a scheme to increase government power:

EU tax commissioner László Kovács is set to table a proposal to harmonize the minimum level of excise duties at €359 per 1000 litres of diesel in 2012 and subsequently at €380 in 2014, a move which would see most EU states increasing their current rates.

According to Mr Kovács’ paper — seen by EUobserver — such a rise would stamp out so-called fuel tourism, as big trucks now make detours from their routes to tank in a state where it is the cheapest, generating more greenhouse gas emissions as well as losses to some EU states’ coffers. Germans, for example, are willing to drive two to four additional kilometres for each euro cent price differential compared to a neighbouring country in the case of gas oil. Fuel tourism cost Germany €1.9 billion in 2004.

…[O]ne Lithuanian diplomat [is now] saying the Brussels proposal should be scrapped as it would translate into an overall increase in prices and inflation. “It could freeze Lithuania’s euro hopes”, a diplomat told EUobserver, adding “taxes remain one’s competitive edge and countries with high rates have taken a voluntary risk”.

Religious Think Tank Defends Tax Competition

A scholar from the Acton Institute looks at the tax battle between Swtizerland and EU leaders in Brussels, and exposes the misguided morality of the politicians who denounce tax competition:

The war of words was ignited by the French rock star Johnny Hallyday’s decision in late 2006 to move to Gstaad, Switzerland, because he was tired of France’s exorbitant tax-rates. Mr. Hallyday joins an exodus of individuals and companies from France, Germany, Italy, and Austria taking advantage of Switzerland’s 21 percent overall tax-rate and considerably lower corporate tax-rates. Liechtenstein, Switzerland’s tiny neighbor, maintains even lower tax-rates and has benefited from a similar flight.

For corporate tax-exiles in Switzerland, the situation is especially advantageous. Each canton sets its own corporate tax-rates. This has triggered intense competition between cantons anxious to attract new businesses. In January 2006, for example, the central Swiss canton of Obwalden reduced its corporate tax-rate to 6.6 percent. Over 11 months, it attracted 376 new companies. No wonder large corporations such as Google and IBM have located their European headquarters in Zurich.

Outside Switzerland, the response has been extraordinary. Some French socialists have accused Switzerland of “looting” its neighbors. This is somewhat strange, given that no-one is forcing these individuals and companies to move to Switzerland. Some would suggest that the real “looters” are French governments of left and right who have raised taxes over the past 40 years to such levels that even many relatively modestly well-off French citizens have left or invested their capital in off-shore tax-havens.

…“Tax-harmonization” in the EU, incidentally, never means lowering tax-rates. It invariably involves raising taxes to the same high level. It was on this basis that, when faced with companies leaving Germany to base their headquarters in 19 percent flat-tax Slovakia, Germany’s ex-chancellor Gerhard Schroeder once accused Slovakia of “un-European” behavior. To be truly European — apparently — means giving about half your income to the government.

The European Commission Is Free Market?!?

There is nothing terribly newsworthy in a story from the EU Observer about a move to the left by the European Commission, but it is revealing that the report indicates that the Brussels-based bureaucracy has a free market reputation.

This is, after all, the bureaucracy that pushes for tax harmonization between countries and operates a Soviet-style agricultural subsidy system. But, then again, maybe the bureaucrats are free market when compared to French and German politicians:

The European Commission on Wednesday appeared to be trying to shrug off its reputation as a free-market bulwark, releasing a vision on the future of the EU’s single market which is notably sensitive to social concerns. 

…The current team of commissioners led by Jose Manuel Barroso generally has a pro-market reputation, not least in Germany and France.

…The paper also states that “many European citizens have raised concerns about the perceived disruptive impacts of globalisation,” adding that it is a “matter of social justice” to “anticipate and accompany change for the people and sectors directly affected by the market opening.” Brussels already runs the so-called Globalisation Adjustment Fund which was introduced by Mr. Barroso in 2005 after French president Jacques Chirac criticised the EU for failing to respond to massive lay-offs in France by U.S. computer maker Hewlett-Packard.

The Wisdom of Walter Williams

George Mason University’s Walter Williams is a skilled economist who can spout jargon when necessary, but it is his ability to put economic principles in common-sense language that sets him apart from most of his peers. How many Americans would cease worrying about the trade deficit, for instance, if politicians copied Walter’s words and explained that America and Japan (or China, or Germany, etc.) do not trade with each other:

When I purchased my Lexus, did I deal with the U.S. Congress, the Japanese Diet, George Bush and Shinzo Abe, or did I deal with Toyota and its intermediaries? If we erroneously think of international trade as occurring between the U.S. and Japanese governments, then all Americans, as voters, have a say-so. But what is the basis of anyone having a say-so when one American engages in peaceable, voluntary exchange with another person, be they Japanese, Korean, British, Chinese or another American?

Tax Cuts North of the Border

America traditionally has enjoyed a competitive advantage over Canada, but the Conservative government in Ottawa has announced addtional tax cuts, including reductions in the corporate rate. The rest of the world is responding to tax competition, and the high corporate tax rate in the US is becoming an ever-larger problem for American companies in the global marketplace. Unfortunately, there is no groundswell – or even idle gossip – for a reduction in America’s punitive corporate tax. Tax-news.com reports on the new tax cuts in Canada: 

Jim Flaherty, Canadian Minister of Finance, has announced that he will table the second budget of Canada’s Conservative administration under Prime Minister Stephen Harper on March 19, 2007. …Key tax measures contained in the 2006 budget included the long-promised 1% cut in Goods and Services Tax to 6%, a 2% cut in the general corporate tax rate by 2010, eliminating the corporate surtax on all corporations by 2008, axing the federal capital tax, and increasing the amount of income eligible for the lowest rate of corporate tax for small businesses. In addition, this bottom rate will be reduced by 1% to 11% by 2009.

Mugabe Eats Cake, Zimbabweans Eat…

My Cato colleague Marian Tupy is currently traveling in Africa and unable to blog, so I thought I’d post this snippet from from a New York Times story that would be dear to Marian’s heart:

JOHANNESBURG, Feb. 21 — President Robert G. Mugabe of Zimbabwe turned 83 on Wednesday to the strains of the song “God Bless President Mugabe” on state-controlled radio, along with an interview on state television, a 16-page paean to his rule in Harare’s daily newspaper and the prospect of a grand birthday party — costly enough to feed thousands of people for months, his critics argued — on Saturday.

Zimbabwe’s economy is so dire that bread vanished from store shelves across the country on Wednesday after bakeries shut down, saying government price controls were requiring them to sell loaves at a loss. The price controls are supposed to shield consumers from the nation’s rampant inflation, which now averages nearly 1,600 percent annually.

Mugabe is a piece of work: Not only has his thugocracy destroyed the civil society necessary for a healthy nation and economy, not only has his monetary policy imploded the Zimbabwean currency, not only will history remember him as (in the words of Nobel laureate Archbishop Desmond Tutu) a “caricature of an African dictator,” but he has the audacity to stage a phony national celebration of his birthday.

Hat tip to the NYT for the great headline, photo, and endquote.