Why Europe wants America to raise taxes

June 30, 2009

When the G20 went after tax havens last April, I said it was just a first step toward a push for “tax harmonization,”  a fancy phrase that really means getting low-tax nations to raise their tax rates. Then I see what the prime minister of Finland is advocating:

We have to initiate discussions at the European Union level about how to prepare for the post-crisis period. Getting public finances in order is a must if we are to grow, create employment and provide the welfare services that we in Europe value so much. …  This will require tight control and, in many countries, painful cuts. However, it would be unrealistic to assume that all the balancing could be done on the spending side alone. … The overall tax rate will have to rise as well over the longer term. In some areas that can be done without much consultation between the countries. … However, raising such taxes can have detrimental effects on economic activity. This is especially so when a country acts on its own: capital and people can respond by migrating to jurisdictions with lower rates. … Parallel measures would help all of Europe: tax competition risk would be reduced and the public finances of individual countries would improve. Such co-ordinated tax changes could set also an important global example. In particular, it might encourage the US – with lower tax levels in most areas – to do what has to be done to address its spiralling budget deficit.

My spin:  Don’t raise the bridge, lower the river! Why countries don’t try to instead supercharge their economies is beyond me.

2 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

I’ve seen and heard this BS before. We’re entering the decade of shared pain, higher taxes and lower wealth for all. A race to subsistance and servitude.

“Migration” in this context equates to free will and hence the eventual loss thereof to the collective “betterment”. Governments, Continents, new World Bodies should not be allowed to set prices or taxes anymore than companies formed in cartels.

Wake up

Posted by Hank Reardon | Report as abusive

Europe is just jealous. They have been plowing so much money into their beloved welfare programs, that it just doesnt seem fair that the US should enjoy such low tax rates. Even though we obviously dont embrace a European style welfare state.

Comparatively, the US does have lower overall rates, and could it possibly be that these have spurred some growth whileas the European Union’s main growth driver is Eastern Europe. Now that source of growth is being reined in. So could this initiative really be a way to constrain US growth, so that future European growth doesn’t look so bad?

While US tax rates will likely go up in the not to distant future, US legislators and the IRS should avoid the European and Canadian VAT model. US tax revenues can be increased through creativity and fairness. We should not levy a high VAT on sales, which are already being taxed at the state level. Since the US economy is dominated by consumer spending, clearly it is unwise to reduce the volume of this spending through burdensome taxes. A more efficient tax model, when combined with more efficient government, should yield a significant improvement in tax revenues. A VAT, while deceptively simple, should be a last resort, since it will stifle any existing economic advantages the US currently enjoys over its European rivals.

Posted by Greg | Report as abusive

[...] Pethokoukis at Reuters’ “Political Risk” blog explains, “Why Europe wants America to raise taxes” by citing the words of Finland’s prime minister. Post global recession, the prime [...]