News Release

May 30, 2002

EU Savings Tax Directive A Tax Cartel In Disguise, Cato Expert Says

WASHINGTON--The new EU commissioner for the Single Market, Frits Bolkestein, has come to the United States to convince the Bush administration to sign the EU Savings Tax Directive. This plan would mandate automatic and unlimited exchange of information between nations with regard to nonresident savings. According to Veronique de Rugy, fiscal policy analyst at the Cato Institute:

"The underlying assumption is that low-tax countries (capital-inflow countries) are engaged in unfair tax competition with high-tax nations (outflow countries). As such, the Savings Tax Directive is designed to create a tax cartel and is a significant threat to market-based policy and fiscal competition. But most of all, it is a threat to America's interests."

"The directive would be bad for the U.S. economy. America is a capital-inflow nation, in large part because the U.S. tax burden is much lower than the average tax burden in Europe and because the U.S. is committed to financial privacy for foreigners. Any automatic information-sharing scheme would mean that a large amount of capital would leave the U.S. to be re-invested in other places."

"The directive seeks to protect uncompetitive European nations from the discipline of market forces. Further, it is an effort to preserve bad tax policy. The directive assumes that high taxes are a good thing and that there should be multiple taxation of income that is saved and invested. Advocates assume that the wholesale destruction of financial privacy is the only way to address tax evasion. Yet evidence shows that lower tax rates and tax simplification have a bigger effect."

"If the EU wins, the U.S. economy will lose savings and investment because foreign governments will obtain the power to tax income earned in the United States. The U.S. economy would suffer at a time when it most needs foreign capital. At a minimum, the EU tax cartel would drive $1 trillion out of the United States, according to experts. That translates into fewer jobs and lower incomes for Americans. For the sake of American taxpayers, the Bush Administration should reject the EU's 'Savings Tax Directive.'"