More Irish Resistance to Corporate Tax Harmonization

Tax-news.com reports that the Irish Taxation Institute is urging united opposition to the European Commission scheme to create a harmonized corporate tax base.  

Some in the business community mistakenly think a harmonized corporate base would mean lower compliance costs because they could file one tax return for all EU nations, but this naive view fails to recognize that curtailing tax competition will make it easier for politicians to increase the overall tax burden:

The Irish Taxation Institute (ITI) has called for political, business and representative groups to unite against moves to harmonise European taxes. ITI made the call on a day when the German Presidency of the EU hosted a meeting in Berlin on the subject of the Common Consolidated Corporate Tax Base or CCCTB.

Commenting on the issue, Mark Redmond, CEO of the ITI said moves towards a common means of paying corporate taxes in the EU is bad for Ireland and bad for Europe. “The more you harmonise taxes, the more tax rates will rise, the more compliance costs will rise and the more unemployment will rise. The proposals put forward to date remain vague. They fail to come clean on the burden they will bring on both domestic and international businesses and they fail to address the widely held belief that it will mean higher corporate tax rates by the backdoor,” he warned.

High Tax Rates Contributing to German ‘Brain Drain’

The UK-based Independent reports that German emigration levels have reached record levels, in large part because the highly skilled are escaping the country’s onerous tax burden. Switzerland is the top destination, especially since a move across the border can yield a 40 percent reduction in the tax burden:

For a nation that invented the term “guest worker” for its immigrant labourers, Germany is facing the sobering fact that record numbers of its own often highly-qualified citizens are fleeing the country to work abroad in the biggest mass exodus for 60 years. Figures released by Germany’s Federal Statistics Office showed that the number of Germans emigrating rose to 155,290 last year — the highest number since the country’s reunification in 1990 — which equalled levels last experienced in the 1940s during the chaotic aftermath of the Second World War.

…Leading economists and employers say the trend is alarming. They note that many among Germany’s new breed of home-grown “guest workers” are highly-educated management consultants, doctors, dentists, scientists and lawyers. …Fed up with comparatively poor job prospects at home — where unemployment is as high as 17 per cent in some regions — as well as high taxes and bureaucracy, thousands of Germans have upped sticks for Austria and Switzerland, or emigrated to the United States. …More than 18,000 Germans moved to Switzerland last year. The US was the second most popular destination with 13,245, followed by Austria with 9,309. Switzerland already has a resident German population of 170,000.

…Claus Boche, a 32-year-old executive, left the west German city of Paderborn two-and-a-half years ago to take up a job with a Swiss management consulting firm. He now lives in Zurich. “Nearly everything is less bureaucratic and more go ahead than in Germany,” he said. “I also pay about 40 per cent less tax. I have no plans to go back.”

…Thomas Bauer, a labour economist from Essen, was scathing about Germany’s employment conditions. “Germany is certainly not attractive when compared to other countries in Europe,” he said. “The taxes are too high, the wages are too low and feelings of jealousy towards high-income earners is widespread. This is a special deterrent to the highly qualified.”

Is Europe Dying?

A Wall Street Journal review of “The Last Days of Europe” warns that the continent’s economic rebound (2.5 percent growth, tepid by American standards) is hardly proof that Europe’s troubles are going away.

The author is worried about Muslim immigration and integration, but the book also focuses on the punitive fiscal system that discourages productive behavior and encourages sloth:

Is it possible, then, that the writers who have spent the past few years predicting Europe’s collapse could be wrong? The short answer is: no. Even a corpse has been known to twitch once or twice before the rigor mortis sets in. The longer answer is provided by Walter Laqueur in “The Last Days of Europe,” one of the more persuasive in a long line of volumes by authors on both sides of the Atlantic chronicling Europe’s decline and foretelling its collapse.

…In the economic field, Europe is celebrating a growth rate of 2.5% annually; in the U.S. a similar pace is regarded as a crisis. Meanwhile unemployment remains brutally high and productivity stagnant. Mr. Laqueur notes that Europeans sometimes embrace their economic sluggishness as part of their “soft power” appeal: all those 35-hour weeks, long vacations and generous social benefits. But the long-term cost of their welfare states — and their confiscatory tax rates — may eventually make such luxuries unaffordable.

…[A]s Mr. Laqueur observes, museums are filled with the remnants of vanished civilizations. Abroad, the U.S. has long surpassed Europe in power, influence and economic dynamism; Asia may do so before long. At home, a profound demoralization has set in, induced in part by the continent’s ruinous past century.

Good News on Income Mobility

Steven Pearlstein of the Washington Post takes a beating around here sometimes, so I want to draw attention to his dynamite column this week on the non-disappearance of the middle class. Drawing on a new book, Social Stratification in the United States by Stephen Rose, Pearlstein demonstrates that

rumors of the demise of the American middle class are greatly exaggerated. In fact, living standards for most Americans are improving. Not everyone is flipping hamburgers or working at Wal-Mart. To the degree that the middle class is shrinking, it is because more people are rising out of it than falling from it.

Pearlstein takes pains to note that Rose “is not your standard-issue conservative market apologist – far from it. He left medical school to get his PhD in economics, then alternated between teaching and community organizing. He served on the Democratic staff of the Joint Economic Committee and in the economics shop of the Clinton Labor Department.” So you can trust him – he worked for Clinton!

And Rose finds, as Pearlstein lays it out, that there’s a lot more good news than the “sky-is-falling rhetoric of the Democratic left” would lead you to believe. Pearlstein notes:

[I]t is often reported that the median household income in the United States is $44,500. Of course, that takes in households of varying size, from singles to the Brady Bunch. It also includes households headed by workers in the prime of their working years (29 to 59), as well as those just beginning or ending their careers, when earnings tend to be lower. So, to get a truer picture of economic well-being, Rose adjusts the data for household size and excludes those headed by people younger than 29 or older than 59. And when he does, it turns out that the median income for the “typical American family” jumps to $63,000, which in most parts of the country buys a pretty comfortable middle-class lifestyle.

This doesn’t mean the middle class isn’t shrinking. In fact, from 1979 to 2004, Rose calculates, the percentage of households in the “middle class” category – those with incomes of $30,000 to $90,000 – fell to 39 from 47 percent. But it would be hard to describe that as bad news when the proportion of well-off households – those with incomes of more than $90,000 – rose by nearly nine percentage points. During the same time frame, the percentage of households that were poor or near-poor remained about the same.

One of the favorite liberal story lines is that the only way middle class families have been able to maintain their standard of living is by forcing mom to work more hours. But that, too, turns out to be an exaggeration. By looking just at married couples at various points in the income ladder, Rose found that for all but the poorest households, inflation-adjusted income was higher in 2004 than in 1979 even after factoring out any increase in spousal work hours.

It is also a myth that the Great American Jobs Machine is producing mostly lousy, low-paying service jobs. Rose simplifies the government data by putting all jobs in three categories: “elite” jobs, encompassing managers and professionals; “good jobs,” such as those held by supervisors, skilled blue-collar workers, craft workers, police, firefighters and clerical workers; and “less skilled” jobs, such as those held by unskilled machine operators, laborers, sales clerks and waiters. Looking at it that way, it turns out that the number of lousy, low-skilled jobs has been on a long, steady decline since 1979, while the number of “elite” jobs has been growing steadily. The number of “good” jobs has declined marginally as skilled office work has replaced skilled factory work.

Rose is concerned, quite properly, about the condition of the poorest people in the American economy, though he and I would probably disagree on the best way to help them enter the economic mainstream.  But he’s also brought a healthy dose of reality to the debate over “the declining middle class.”

For more on these topics, see the recent posts by Brink Lindsey at his personal website and the award-winning Cato Institute book Cowboy Capitalism: European Myths, American Reality by Olaf Gersemann.

Canadian Columnist Urges Radical Corporate Tax Rate Reduction

Highlighting a recent OECD report that admitted the benefits of tax competition and lower tax rates, a Canadian columnist warns that Canada’s high corporate tax rate is making the nation less competitive. All of the arguments apply even more forcefully to the United States, where the corporate tax rate is about six percentage points higher:

…capital and skilled labour are highly mobile these days. Countries compete aggressively for both with lower and lower tax rates. …The OECD says this competition for lower corporate and personal tax rates will continue. “Globalization favours greater tax competition,” the OECD report says. “It encourages the pursuit of efficiency gains in tax systems - by shifting tax burdens away from capital and labour and toward property and consumption.” …In a single decade, competition has reduced corporate tax rates around the world, the OECD report notes, “in some countries by a considerable amount.” In 1996, the highest corporate tax rate in the world was 60 per cent; in 2006, the highest rate is 40 per cent. …What will the highest rate be a decade hence? Twenty per cent? Ten per cent? Zero per cent? …Whatever the number, it will be much less than 28 per cent and it will necessarily determine Canada’s rate - unless we are not interested in attracting investment capital and highly skilled workers from abroad (or keeping our own from going abroad). Mr. Flaherty’s commitment to lower our corporate rate to 30 per cent over the next five years means his success will in fact ensure failure. You can’t pass the puck to the spot where the receiver now is - he won’t still be waiting there.  Mr. Flaherty needs to pass ahead to the receiver’s future position, which requires a corporate rate of less than 20 per cent by 2011. This ought to be easy. No country has yet hurt itself by reducing tax rates, corporate or personal. …the OECD report tracks the steep decline in corporate rates in one, the subsequent compelling rise in tax revenue in the other. In one decade, the world effectively cut its corporate tax rate in half - and doubled the revenue it gets from it. This is the Laffer Curve, vindicated again. The Laffer Curve expresses a simple, incontrovertible proposition: that decreases in tax rates can increase tax revenue.

Free the Scholars

Justin Logan discussed the “Travesty in Tehran” – the arrest and incarceration of Haleh Esfandiari – astutely yesterday. As he noted, these actions are a real provocation at a time when reduced tensions between Iran and the United States are devoutly to be hoped for. But more importantly, the unjust imprisonment of a peaceful scholar is a striking affront to human rights. The people of both Iran and the United States who want to see Iran as part of a peaceful and democratic world must deplore these actions.

And of course, to make matters worse, Esfandiari is not the only scholar currently being held by the Iranian government. The regime is also holding Kian Tajbakhsh of the Open Society Institute; journalist Parnaz Azima from the U.S.-funded Radio Farda; and Ali Shakeri, a peace activist and founding board member at the University of California, Irvine’s Center for Citizen Peacebuilding. There is no evidence that any of these people are engaged in espionage or threatening Iranian national security. Indeed, most or all of them have worked to improve relations between Iran and the United States and to turn both countries away from a collision course.

Leading human rights groups and activists have spoken out against these arrests. In a joint statement, Amnesty International, Human Rights Watch, Reporters without Borders, the International Federation for Human Rights, and 2003 Nobel Peace Prize laureate Shirin Ebadi urged Iran to stop “harassment of dual nationals.”

To add insult to injury, Esfandiari’s husband was informed yesterday that Citibank had frozen his wife’s bank accounts “in accordance with U.S. Sanctions regulations,” which stipulate that U.S. banks are prohibited from servicing accounts for residents of Iran. A resident? She’s an involuntary resident of the notorious Evin Prison. Late in the evening, after many phone calls and the intercession of the State Department, Citibank relented and unfroze the accounts. As painful as that experience was, her husband no doubt wishes that a day’s worth of phone calls could persuade an Islamic government to admit its mistake.

Is Fred Thompson a Small-Government Conservative?

With former Tennessee senator Fred Thompson creeping ever closer to a formal announcement that he will run for president, it is worth asking whether he is the genuine small-government conservative that has been missing from the top tier of the Republican field (with all due apologies to Ron Paul). A preliminary look at his record suggests that while he is not quite the second coming of Barry Goldwater or Ronald Reagan, he may be much better on most issues than the alternatives.

During his eight years in the Senate, Thompson had a solid record as a fiscal conservative. The National Taxpayers Union gives him the third highest marks of any candidate (trailing only Paul and Rep. Tom Tancredo). While he sponsored or cosponsored legislation over the course of his career that would have resulted in a net increase in federal spending of $3.1 billion, that is the smallest increase among the contenders. (By comparison, John McCain would have increased spending by $36.9 billion). He generally shared McCain’s opposition to pork barrel spending and earmarks, and voted against the 2002 farm bill. He voted for the Bush tax cuts and has generally been solid in support of tax reduction.

He has been a consistent supporter of entitlement reform, voting to means-test Medicare and supporting personal accounts for Social Security.

His record on free trade is solid. In the past he has been supportive of comprehensive immigration reform, but has been critical of the current bill, shifting toward a “control the borders first” position. Still, he has not been Tancredo-like in his anti-immigration statements.

On federalism, there may be no better candidate. His Senate record is replete with examples of his being the lone opponent of legislation that he thought undercut federalist principles. He took this position even on legislation that was otherwise supported by conservatives. He opposes federal action to prohibit gay marriage on federalist grounds, although he supports state bans. One blight on this record is his vote in favor of No Child Left Behind.

On the other hand, he supported McCain-Feingold, although he has now backed away from that position, suggesting the law has been overtaken by events. He told John Fund that he was now willing to consider scrapping campaign finance in favor of full disclosure. And his position on civil liberties generally is troubling. He supported the anti-flag burning constitutional amendment and expansion of federal police powers generally. So far he has given no suggestion that he breaks with the Bush administration on important issues like habeas corpus, torture, and surveillance.

On foreign policy he has been a hawk, and supports continuing the war in Iraq. Alas, that seems standard for the GOP these days, but Thompson appears to also take the neoconservative line on Iran, North Korea, and China. It’s hard to be a small-government conservative while favoring widespread military intervention. War is a big-government program.

Of course, spending the last several years in Hollywood has enabled Thompson to avoid taking positions on many current issues. Once he gets in the race, Thompson will have to be much more specific about his positions. But, given the fact that McCain, Romney, and Giuliani are clearly big-government conservatives, Thompson has an opportunity to seize the small-government mantle.