February 22, 2007 7:45PM

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.