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Archive for the ‘European Commission’ Category

Europe is suffering from economic stagnation caused in part by excessive fiscal burdens.

So what are European policy makers doing to address this problem?

If you think the answer might have something to do with a shift to responsible fiscal policy, you obviously have no familiarity with Europe’s political elite. But if you have paid attention to their behavior, you won’t be surprised to learn that they’re lashing out at jurisdictions with better policy.

Here are a few blurbs from a story in the Economic Times.

The European Union published its first list of international tax havens on Wednesday… “We are today publishing the top 30 non-cooperative jurisdictions consisting of those countries or territories that feature on at least 10 member states’ blacklists,” EU Economic Affairs Commissioner Pierre Moscovici told a news conference. 

This is a misguided exercise for several reasons, but here are the ones that merit some discussion.

1. I can’t resist starting with a philosophical point. Low-tax jurisdictions and so-called tax havens should be emulated rather than persecuted. Their modest fiscal burdens are strongly correlated with high levels of prosperity. It’s high-tax nations that should be blacklisted and shamed for their destructive policies.

2. This new EU blacklist is particularly nonsensical because there’s no rational (even from a leftist perspective) methodology. Jurisdictions get added to the blacklist if 10 or more EU nations don’t like their tax laws. Some nations, as cited in official EU documents, even use “the level of taxation for blacklisting purposes.”

3. As has always been the case with anti-tax competition campaigns, the entire exercise reeks of hypocrisy. Big European nations such as Luxembourg and Switzerland were left off the blacklist, and the United States also was omitted (though the EU figured it was okay to pick on the U.S. Virgin Islands for inexplicable reasons).

By the way, I’m not the only person to notice the hypocrisy. Here are some excerpts from a report in the U.K.-based Guardian.

A blacklist of the world’s 30 worst-offending tax havens, published on Wednesday by the European commission, includes the tiny Polynesian island of Niue, where 1,400 people live in semi-subsistence — but does not include Luxembourg, the EU’s wealthy tax avoidance hub. …the new register does not include countries such as the Netherlands, Ireland.

And Radio New Zealand made a similar point it its report.

Anthony van Fossen, an adjunct research fellow at Australia’s Griffith University, says the list seems to be picking on smaller, easy-to-target tax havens and ignoring major ones like Singapore, Switzerland and Luxembourg. “The list is very strange in that some major havens are ignored, particularly the havens in the European Union itself, and many minor havens, including some in the Pacific Islands are highlighted.”

The more one investigates this new EU project, the more irrational it appears.

Some of the larger and more sensible European nations, including Sweden, Germany, Denmark, and the United Kingdom, didn’t even participate. Or, if they did, they decided that every jurisdiction in the world has “tax good governance.”

But other nations put together incomprehensible lists, featuring some well-known low-tax jurisdictions, but also places that have never before been considered “tax havens.” Is Botswana really a hiding spot for French taxpayers? Do Finnish taxpayers actually protect their money in Tajikistan? Is Bolivia actually a haven for the Portuguese? Do the Belgians put their funds in St. Barthelemy, which is part of France? And do Greeks put their money in Bosnia?!?

As you can see from this map, the Greeks also listed nations such as Saudi Arabia and Paraguay. No wonder the nation is such a mess. It’s governed by brain-dead government officials.

I’ve saved the best evidence for the end. If you really want to grasp the level of irrationality in the EU blacklist, it’s even been criticized by the tax-loving (but not tax-paying) bureaucrats at the OECD. Here are some details from a report out of Cayman.

‘As the OECD and the Global Forum we would like to confirm that the only agreeable assessment of countries as regards their cooperation is made by the Global Forum and that a number of countries identified in the EU exercise are either fully or largely compliant and have committed to AEOI, sometimes even as early adopters’, the email states. …‘We have already expressed our concerns (to the EU Commission) and stand ready to further clarify to the media the position of the affected jurisdictions with regard to their compliance with the Global Forum standards’, Mr Saint-Amans and Ms Bhatia wrote.

Needless to say, being compliant with the OECD is nothing to celebrate. It means a jurisdiction has been bullied into surrendering its fiscal sovereignty and agreeing to serve as a deputy tax collector for high-tax governments.

But having taken that unfortunate step, it makes no sense for these low-tax jurisdictions to now be persecuted by the EU.

P.S. Let’s add to our collection of libertarian humor (see here and here for prior examples).

This image targets the Libertarian Party, but I’ve certainly dealt many times with folks that assert that all libertarians should “grow up” and accept big government.

For what it’s worth, if growing up means acquiescing to disgusting government overreach, I prefer to remain a child.

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One would think that Europeans might finally be realizing that an ever-growing welfare state and an ever-rising tax burden are a form of economic suicide.

The most obvious bit of evidence is to look at what’s happening in Greece. Simply stated, public policy for too long has punished workers and producers while rewarding looters and moochers. The result is economic collapse, bailouts, and the destruction of cultural capital.

But Greece is just the tip of the iceberg. Many other European nations are heading in the same direction and it shows up in the economic data. Living standards are already considerably lower than they are in the United States. Yet instead of the “convergence” that’s assumed in conventional economic theory, the Europeans are falling further behind instead of catching up.

There are some officials sounding the alarm.

In a column for the Brussels Times, Philippe Legrain, the former economic adviser to the President of the European Commission, has a glum assessment of the European Union.

In 2007, the EU accounted for 31 per cent of the world economy, measured at market prices. This year, it will account for only 22 per cent, according to the International Monetary Fund (IMF). Eight years ago, the EU’s economy was a fifth bigger than the US’s; this year it is set to be smaller than America’s. …Continued economic decline seems inevitable.

But it seems that the folks who recognize that there is a problem are greatly out-numbered by those who want to make the problem worse.

For instance, one would think that any sentient adult would understand that the overall burden of government spending in Europe is a problem, particularly outlays for redistribution programs that undermine incentives for productive behavior.

Yet, as reported by the EU Observer, some statists at the European Commission want to mandate the amounts of redistribution in member nations.

The European Commission is to push for minimum standards on social protection across member states… Employment commissioner Marianne Thyssen Tuesday (9 June) said she wants to see minimum unemployment benefits, a minimum income, access to child care, and access to basic health care in all 28 countries. …The commission will look into whether “enough people are covered in member states when they have an unemployment problem; how long are they protected. What is the level of the unemployment benefit in comparison with the former wage they earned,” said Thyssen. …”The aim is to have an upper convergence…”

This is a horrible idea. It’s basically designed to impose a rule that forces nations to be more like France and Greece.

Instead of competition, innovation, and diversity, Europe would move even further in the direction of one-size-fits-all centralization.

Though I give her credit for admitting that the purpose of harmonization is to force more spending, what she calls “upper convergence.” So we can add Ms. Thyssen to our list of honest statists.

And speaking of centralization, some politicians want to go beyond mandates and harmonization and also have EU-wide taxes and spending.

Here are some of the details from a report in the U.K.-based Guardian.

German and French politicians are calling for a…eurozone treasury equipped with a eurozone finance chief, single budget, tax-raising powers, pooled debt liabilities, a common monetary fund, and separate organisation and representation within the European parliament. …They call for the setting up of “an embryo euro area budget”, “a fiscal capacity over and above national budgets”, and harmonised corporate taxes across the bloc. The eurozone would be able to borrow on the markets against its budget, which would be financed from a kind of Tobin tax on financial transactions and also from part of the revenue from the new business tax regime.

By the way, this initiative to impose another layer of taxes and spending in Europe isn’t being advocated by irrelevant back-bench politicians. It’s being pushed by Germany’s Vice Chancellor and France’s Economy Minister!

Thankfully, not everyone in Europe is economically insane. Syed Kamall, a member of the European Parliament form the U.K.’s Conservative Party, is unimpressed with this vision of greater centralization, harmonization, and bureaucratization.

Here’s some of what he wrote in a column for the EU Observer.

The socialist dream that these two politicians propose would soon turn into a nightmare not just for the Eurozone, but for the entire EU. …Their socialist vision of harmonised taxation and more social policies sounds utopian on paper but it fails to accept a basic fact: that Europe is not the world, and Europe cannot close itself off from the world. …After several decades of centralisation in the EU, we have seen the results: …a failure to keep up with growing economic competitiveness in many parts of the world. …Specific proposals such as harmonised corporate taxes are nothing new from the socialists, but they would reduce European competitiveness. …With greater harmonisation Europe’s tax rate would only be as low as the highest-taxing member. …

Syed’s point about Europe not being the world is especially relevant because the damage of one-size-fits-all centralization manifests itself much faster when jobs and capital can simply migrate to other jurisdictions.

And while the Europeans are trying to undermine the competitiveness of other nations with various tax harmonization schemes, that’s not going to arrest Europe’s decline.

Simply stated, Europe is imposing bad policy internally at a much faster rate than it can impose bad policy externally.

P.S. Let’s close with some humor sent to me by the Princess of the Levant.

It features the libertarian character from Parks and Recreation.

And I even found the YouTube clip of this scene.

Which is definitely worth watching because of how Swanson explains the tax system.

I particularly like the part about the capital gains tax. It’s a good way of illustrating double taxation.

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There’s a big fiscal battle happening in Europe. The relatively new Greek government is demanding continued handouts from the rest of Europe, but it wants to renege on at least some of the country’s prior commitments to improve economic performance by reducing the preposterous burden of spending, regulation, and intervention.

That seems like a rather strange negotiating position. Sort of like a bank robber holding a gun to his own head and saying he’ll shoot himself if the teller doesn’t hand over money.

At first glance, it seems the Greeks are bluffing. Or being suicidally self-destructive.

And maybe they are posturing and/or being deluded, but there are two reasons why the Greeks are not totally insane.

1. The rest of Europe does not want a Greek default.

There’s a famous saying, attributed to J. Paul Getty, that applies to the Greek fiscal fight. Simply stated, there are lots of people and institutions that own Greek government bonds and they are afraid that their investments will lose value if Greece decides to fully or partially renege on its debts (which is an implicit part of Greece’s negotiating position).

So while Greece would suffer if it defaulted, there would be collateral damage for the rest of Europe. In other words, the hypothetical bank robber has a grenade rather than a gun. And while the robber won’t fare well if he pulls the pin, lots of other people may get injured by shrapnel.

And to make matters more interesting, previous bailouts of Greece have created a rather novel situation in that taxpayers are now the indirect owners of a lot of Greek government debt. As you can see from the pie chart, European taxpayers have the most exposure, but American taxpayers also are on the hook because the IMF has participated in the bailouts.

The situation is Greece is akin to a bankruptcy negotiation. The folks holding Greek government debt are trying to figure out the best strategy for minimizing their losses, much as the creditors of a faltering business will calculate the best way of extracting their funds. If they press too hard, the business may go bust and they get very little (analogous to a Greek default). But if they are too gentle, they miss out on a chance of getting a greater share of the money they’re owed.

2. Centralization is the secular religion of the European elite and they want Greece in the euro.

The bureaucrats at the European Commission and the leaders of many European nations are emotionally and ideologically invested in the notion of “ever closer union” for Europe. Their ultimate goal is for the European Union to be a single nation, like the United States. In this analogy, the euro currency is akin to the American dollar.

There’s a general perception that a default would force the Greek government to pull out of the euro and re-create its own currency. And for the European elite who are committed to “ever closer union,” this would be perceived as a major setback. As such, they are willing to bend over backwards to accommodate Greece’s new government.

Given the somewhat blurry battle lines between Greece and its creditors, what’s the best outcome for advocates of limited government and individual liberty?

That’s a frustrating question to answer, particularly since the right approach would have been to reject any bailouts back when the crisis first started.

Without access to other people’s money, the Greek government would have been forced to rein in the nation’s bloated public sector. To be sure, the Greek government may also have defaulted, but that would have taught investors a valuable lesson about lending money to profligate governments.

And it would have been better if Greece defaulted five years ago, back when its debt was much smaller than it is today.

But there’s no point in crying about spilt milk. We can’t erase the mistakes of the past, so what’s the best approach today?

Actually, the right answer hasn’t changed.

And just as there are two reasons why the Greek government is being at least somewhat clever in playing hardball, there are two reasons why the rest of the world should tell them no more bailouts.

1. Don’t throw good money after bad.

To follow up on the wisdom of J. Paul Getty, let’s now share a statement commonly attributed to either Will Rogers or Warren Buffett. I don’t know which one (if either) deserves credit, but there’s a lot of wisdom in the advice to stop digging if you find yourself in a hole. And Greece, like many other nations, has spent its way into a deep fiscal hole.

There is a solution for the Greek mess. Politicians need to cut spending over a sustained period of time while also liberalizing the economy to create growth. And, to be fair, some of that has been happening over the past five years. But the pace has been too slow, particularly for pro-growth reforms.

But this also explains why bailouts are so misguided. Politicians generally don’t do the right thing until and unless they’ve exhausted all other options. So if the Greek government thinks it has additional access to money from other nations, that will give the politicians an excuse to postpone and/or weaken necessary reforms.

2. Saying “No” to Greece will send a powerful message to other failing European welfare states.

Now let’s get to the real issue. What happens to Greece will have a big impact on the behavior of other European governments that also are drifting toward bankruptcy.

Here’s a chart showing the European nations with debt burdens in excess of 100 percent of economic output based on OECD data. Because of bad demographics and poor decisions by their politicians, every one of these nations is likely to endure a Greek-style fiscal crisis in the near future.

And keep in mind that these figures understate the magnitude of the problem. If you include unfunded liabilities, the debt levels are far higher.

So the obvious concern is how do you convince the politicians and voters in these nations that they better reform to avoid future fiscal chaos? How do you help them understand, as Mark Steyn sagely observed way back in 2010, that “The 20th-century Bismarckian welfare state has run out of people to stick it to.

Well, if you give additional bailouts to Greece, you send precisely the wrong message to the Italians, French, etc. In effect, you’re telling them that there’s a new group of taxpayers from other nations who will pick up the tab.

That means more debt, bigger government, and a deeper crisis when the house of cards collapses.

P.S. Five years ago, I created a somewhat-tongue-in-cheek 10-step prediction for the Greek crisis and stated at the time that we were at Step 5. Well, it appears my satire is slowly becoming reality. We’re now at Step 7.

P.P.S. Four years ago, I put together a bunch of predictions about Greece. You can judge for yourself, but I think I was quite accurate.

P.P.P.S. A big problem in Greece is the erosion of social capital, as personified by Olga the Moocher. At some point, as I bluntly warned in an interview, the Greeks need to learn there’s no Santa Claus.

P.P.P.P.S. The regulatory burden in Greece is a nightmare, but some examples of red tape are almost beyond belief.

P.P.P.P.P.S. The fiscal burden in Greece is a nightmare, but some examples pf wasteful spending are almost beyond belief.

P.P.P.P.P.P.S. Since we once again have examined a very depressing topic, let’s continue with our tradition of ending with a bit of humor. Click here and here for some very funny (or sad) cartoons about Obama and Greece. And here’s another cartoon about Greece that’s worth sharing. If you like funny videos, click here and here. Last but not least, here’s some very un-PC humor about Greece and the rest of Europe.

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The United States is burdened with some very bad policies that hinder growth and undermine competitiveness. But sometimes you can win a race if your rivals have policies that are even more self-destructive.

And that’s a good description of why the U.S. economy is out-performing Europe and why people in the United States enjoy higher living standards than their European counterparts.

In 2010, I shared data showing that Americans had far higher levels of consumption than Europeans.

In 2012, I updated the numbers and showed once again that people in America far ahead of folks in Europe.

And here are the most recent numbers from the Organization for Economic Cooperation and Development, showing “average individual consumption” for various member nations of that international bureaucracy.

The average for all OECD nations is 100, and the average for eurozone nations is 96, so the U.S. score of 147 illustrates how much better off Americans are than citizens of other countries.

The only nations that are even close to the United States have oil (like Norway) or are low-tax international financial centers (such as Luxembourg and Switzerland).

So why is the United States doing better than Europe?

There are two responses.

First, notwithstanding what I’ve just written, it’s a bit misleading to compare the U.S. to Europe. Simply stated, there are vast differences among European nations in terms of policies and living standards, much more than you find between and among American states.

There are nations such as Switzerland and Finland, for instance, that rank above the United States in Economic Freedom of the World. But there are also highly statist and moribund countries such as France, Italy, and Greece, as well as transition economies in Eastern Europe that are still trying to catch up after decades of communist oppression.

So overall America-vs-Europe comparisons should be accompanied by a grain of salt.

Second, now that we’ve ingested some salt, let’s draw some general conclusions about the role of public policy. Most important, nations with bigger governments and more intervention (as is the case for many European countries) generally don’t grow as fast or have the same living standards as nations with smaller governments and more reliance on competitive markets.

The comparisons can get complicated because there are a wide range of policies that impact economic performance (many people focus on fiscal policy, but trade, regulation, monetary policy, and the rule of law are equally important). Comparisons also can get confusing because there are some relatively rich nations with bad policy and some relatively poor nations with good policy, which is why it is important to look at how rich or poor nations are (or were) when there were significant changes in policy.

For instance, many nations in Western Europe became relatively rich in the 1800s and early 1900s when the overall burden of government was very small. Now they’ve adopted welfare states and growth is much slower (or, in some cases, nonexistent), but they’re oftentimes still in better shape than nations (such as Estonia and Chile) that only recently have liberalized their economies.

Now that we’ve gone through all this background, let’s look at a couple of stories that make me pessimistic about Europe’s future because they capture the mentality that seems dominant among continental policy makers.

First, one of the bright spots for the continent is that there’s been vigorous corporate tax competition. In other words, politicians have been under pressure to lower tax burdens on the business community because of concerns that jobs and investment will migrate to nations with better policy.

As you can imagine, this irks the political class (even though lower rates haven’t resulted in less revenue!).

So you won’t be surprised to learn that there’s a new push for tax harmonization in Europe. Here are some of the details from a news report.

France, Germany and Italy have joined forces to outlaw tax competition between EU countries in a letter to the European Commission. …the language and tone in the joint letter to the new Economic and Taxation Commissioner, Pierre Moscovici, is much more aggressive than in the past. …the letter from the finance ministers of the eurozone’s three largest economies says that “the lack of tax harmonisation in the European Union is one of the main causes allowing aggressive tax planning, base erosion and profit-shifting to develop”. …Vanessa Mock, commission spokeswoman said Mr Moscovici “welcomes these significant contributions to the work being carried out by the commission”.

Hmmm…., the Frenchmen who is the Economic and Taxation Commissioner “welcomes” a call from the governments of France, Germany, and Italy to outlaw tax competition. I’m shocked, shocked, by this development.

But as one British politician explained, this approach of higher business taxes will further undermine European economic vitality.

Now let’s shift to our second story, which illustrates the self-serving greed of the political elite at the European Commission.

Here are some passages from a story on the spectacular golden parachutes offered to outgoing senior Eurocrats. And we’ll focus on the former President of the European Council since he’s such a deserving target of ridicule.

Herman Van Rompuy will be entitled to more than £500,000 for doing nothing at the taxpayer’s expense over the next three years, after finishing his term as president of Europe. After standing down on Monday, the former president of the European Council will be paid £133,723 a year, 55 per cent of his basic salary, until December 2017 – to ease him back into life outside the world of Brussels officialdom.

Gee, how kind of European taxpayers to “ease him back” into the real world.

Except, of course, Van Rompuy’s never been in the real world. He’s had his snout in the public trough his entire life.

And he also gets to pay far less tax on this money compared to the poor slobs in the private sector who are footing the bill for this official largesse.

…The “transitional allowance” does not require Mr Van Rompuy to do any work at all and the cash will be paid under reduced rates of EU “community” tax, which are far lower than taxation in his native country of Belgium. …Mr Van Rompuy has not been a stranger to controversy over the perks of EU officialdom since he took the post in December 2009. He was widely criticised four years ago for using his official motorcade of five limousines as a taxi service to take his family on 325-mile round trip to Paris airport en route to a private holiday in the Caribbean. …The cost of Mr Van Rompuy’s retirement is part of a much larger bill for the handover of the administration in EU as former European Commissioners serving in the last Brussels executive pocket “transitional allowances” worth around £30million.

This scam has been in operation for several years, and keep in mind that excessive pay and lavish perks for commissioners are matched by excessive pay and lavish perks for member of the European Parliament (including taxpayer-financed penile implants).

And lavish pay and perks for European Union bureaucrats.

And don’t forget these are the folks who are pushing for bigger government and higher taxes on a pan-European basis. Like many of our politicians in Washington, they think the private sector is some sort of piñata that is capable of producing endless amounts of revenue to finance ever-expanding government.

Even though the evidence from Greece, Italy, Spain, etc, confirms that Margaret Thatcher was right when she warned that the problem with big government is that sooner or later you run out of other people’s money.

P.S. European bureaucrats have decided taxpayer-financed tourism is a human right. And they also use taxpayer money to produce self-aggrandizing comic books.

P.P.S. The European political elite are so bad that even President Obama has felt compelled to oppose some of their tax initiatives.

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I wrote the other day that Americans, regardless of all the bad policy we get from Washington, should be thankful we’re not stuck in a hellhole like Venezuela.

But we also should be happy we’re not Europeans. This is a point I’ve made before, usually accompanied by data showing that Americans have significantly higher living standards than their cousins on the other side of the Atlantic.

It’s now time to re-emphasize that message. The European Commission has issued its annual report on “Taxation Trends” and it is – at least for wonks and others who care about fiscal policy – a fascinating and compelling document.

If you believe in limited government, you’ll read the report in the same way you might look at a deadly traffic accident, filled with morbid curiosity and fear that you may eventually suffer the same fate.

But if you’re a statist, you’ll read the report like a 14-year old boy with his first copy of a girlie magazine, filled with fantasies about eventually getting to experience what your eyes are seeing.

Let’s start by giving the bureaucrats some credit for self-awareness. They openly admit that the tax burden is very onerous in the European Union.

The EU remains a high tax area. In 2012, the overall tax ratio, i.e. the sum of taxes and compulsory actual social contributions in the 28 Member States (EU-28) amounted to 39.4 % in the GDP-weighted average, nearly 15 percentage points of GDP over the level recorded for the USA and around 10 percentage points above the level recorded by Japan. The tax level in the EU is high not only compared to those two countries but also compared to other advanced economies; among the major non-European OECD members for which recent detailed tax data is available, Russia (35.6 % of GDP in 2011) and New Zealand (31.8 % of GDP in 2011) have tax ratios exceeding 30 % of GDP, while tax-to-GDP ratios for Canada, Australia and South Korea (2011 data) remained well below 30 %.

Here’s a chart from the report showing that taxes consume about 40 percent of economic output in EU nations. And while Americans correctly view the internal revenue code as very burdensome, taxes “only” consume about 25 percent of GDP in the United States.

EU Report Total Tax

Other nations with comparatively modest tax burdens include Canada (CA), Australia (AU), South Korea (KR), and Switzerland (CH).

But it’s important to understand that not all nations in the European Union are identical.

Just as there are high-tax states and low-tax states in America, there are high-tax countries and low-tax countries in Europe. Surprisingly, France was not the worst nation.

…the ratio of 2012 tax revenue to GDP was highest in Denmark, Belgium and France (48.1 %, 45.4 % and 45.0 % respectively); the lowest shares were recorded in Lithuania (27.2 % of GDP), Bulgaria (27.9 % of GDP) and Latvia (27.9 % of GDP).

I’m surprised, by the way, that Sweden isn’t among the highest-taxed nations. I guess they’ve made even more progress than I thought.

Now let’s drill down into the report and look at some of the specific data.

But you may want to stop reading now if you get easily depressed.

That’s because it’s time to look at a chart showing what’s happened to income tax rates. Specifically, this chart shows the average top tax rate on personal income, both for Eurozone (nations using the euro currency) and European Union nations.

As you can see, the average top tax rate has jumped by almost four percentage points for euro nations and by about two percentage points for all EU nations.

EU Report Personal Income Tax

This is very unfortunate. Tax rates were heading in the right direction when there was vigorous tax competition inside Europe. But now that high-tax nations have been somewhat successful in forcing low-tax jurisdictions to become deputy tax enforcers, that positive trend has halted and policy is moving in the wrong direction.

But not in all regards.

Tax competition also has been compelling governments to lower corporate tax rates. And while that trend has abated, you can see in this chart that politicians haven’t felt they have leeway to push rates higher.

EU Report Corporate Income Tax

Though I am very concerned about the OECD’s campaign to undermine corporate tax competition.

If they’re successful, there’s no doubt we’ll see higher corporate tax rates.

Let’s now look at some more depressing data. This chart shows that a continuation in the trend toward higher rates for value-added taxes (VATs).

EU Report VAT

I’ve warned repeatedly that the VAT is a money machine for big government and the EU data certainly supports my position.

But if you want evidence from other parts of the world, there’s some IMF data that clearly shows how politicians use the VAT to expand the burden of government.

Last but not least, let’s now draw some conclusions from all this information.

At the beginning of the column, I mentioned that Americans should not copy Europe because bigger government translates into lower living standards.

Simply stated, there’s a negative relationship between the size of government and economic performance.

So let’s look at another piece of data to emphasize that point. The bureaucrats at the OECD just did a report on the U.S. economy and they produced a chart showing that the current recovery is very anemic. We haven’t recaptured lost economic output, which normally happens after a downturn. Indeed, we haven’t even returned to normal growth levels.

But that’s not news to regular readers. I’ve shared powerful data from the Minneapolis Federal Reserve showing the failure of Obamanomics.

What is noteworthy, though, is comparing Europe to the United States. As you can see from these two charts, euro nations have flat lined. And if you look at the vertical scale, you can see that they were growing a lot slower than the United States to begin with.

Dismal European Economy

In other words, we’re not doing very well in the United States.

But compared to Europe, we’re Hong Kong.

Two final caveats: First, I always like to stress that economic performance is impacted by a wide range of policies. So while I think that rising tax burdens and higher tax rates are hurting growth in Europe, there are other factors that also matter.

Second, any analysis of fiscal policy should also include data on the burden of government spending. After all, a nation with a low tax burden will still suffer economic problems if there’s a large public sector financed by red ink.

And one big warning: Obama wants to make America more like Europe. If he succeeds, we can expect European-style stagnation.

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What’s the defining characteristic of our political masters?

Going all the way back to when they ran for student council in 6th grade, is it a craven desire to say or do anything to get elected?

Is it the corrupt compulsion to trade earmarks, loopholes, and favors in exchange for campaign cash?

Or is it the knee-jerk desire to buy votes by spending other people’s money?

The answer is yes, yes, and yes, but I want to add something else to the list.

One of the most odious features of politicians is that they think they’re entitled to all of our money. But it goes beyond that. They also think they’re doing us a favor and being magnanimous if they let us keep some of what we earn.

Think I’m joking or exaggerating?

Consider the fact that the crowd in Washington says that provisions in the internal revenue code such as IRAs are “tax expenditures” and should be considered akin to government spending.

So if you save for retirement and aren’t subject to double taxation, you’re not making a prudent decision with your own money. Instead, you’re the beneficiary of kindness and mercy by politicians that graciously have decided to give you something.

And the statists at the Washington Post will agree, writing that folks with IRAs are getting “a helping hand” from the government.

Or if you have a business and the government doesn’t impose a tax on your investment expenditures, don’t think that you’re being left alone with neutral tax policy. Instead, you should get on your knees and give thanks to politicians that have given you a less-punitive depreciation schedule.

And the Congressional Budget Office, the Joint Committee on Taxation, and the Government Accountability Office will all agree, saying that you’re benefiting from a “tax expenditure.”

The same attitude exists in Europe. But instead of calling it a “tax expenditure” when taxpayers gets to keep the money they earn, the Euro-crats say it is a “subsidy” or a form of “state aid.”

Speaking at the European Competition Forum in Brussels, EU commissioner Joaquin Almunia said he would investigate whether moves by national governments to tailor their tax laws to allow companies to avoid paying tax had the same effect as a subsidy. Subsidising certain businesses could be deemed as anti-competitive, breaching the bloc’s rules on state aid. …The remarks by the Spanish commissioner’s, who described the practice of “aggressive tax planning” as going against the principles of the EU’s single market, are the latest in a series of salvos by EU officials aimed at clamping down on corporate tax avoidance. …He added that the practice “undermines the fairness and integrity of tax systems” and was “socially untenable.”

Needless to say, Senor Almunia’s definition of “fairness” is that a never-ending supply of money should be transferred from taxpayers to the political elite.

The head of the Paris-based Organization for Economic Cooperation and Development wants to take this mentality to the next level. He says companies no longer should try to legally minimize their tax burdens.

International technology companies should stop considering it their “duty” to employ tax-dodging strategies, said Angel Gurria, head of the Organization for Economic Cooperation and Development. …The OECD, an international economic organization supported by 34 member countries including the U.S., U.K., Germany and Japan, will publish the results of its research on the issue for governments to consider within the next two years, Gurria said.

And you won’t be surprised to learn that the OECD’s “research on the issue” is designed to create a one-size-fits-all scheme that will lead to companies paying a lot more tax.

But let’s think about the broader implications of his attitude about taxation. For those of us with kids, should we choose not to utilize the personal exemptions when filling out our tax returns? Should we keep our savings in a regular bank account, where it can be double taxed, instead of an IRA or 401(k)?

Should we not take itemized deductions, or even the standard deduction? Is is somehow immoral to move from a high-tax state to a low-tax state? In other words, should we try to maximize the amount of our income going to politicians?

According to Mr. Gurria, the answer must be yes. If it’s bad for companies to legally reduce their tax liabilities, then it also must be bad for households.

By the way, it’s worth pointing out that bureaucrats at the OECD – including Gurria – are completely exempt from paying any income tax. So if there was an award for hypocrisy, he would win the trophy.

P.S. Switching topics to the NSA spying controversy, here’s a very amusing t-shirt I saw on Twitter.

The shirt isn’t as funny as the Obama-can-hear-you-now images, but it makes a stronger philosophical point.

P.P.S. Let’s close with an update on people going Galt.

I wrote with surprise several years ago about the number of people who were giving up American citizenship to escape America’s onerous tax system.

But that was just the beginning of a larger trend. The numbers began to skyrocket last year, probably in part the result of the awful FATCA legislation.

Well, we now have final numbers for 2013.

Expats_1998_2013

What makes these numbers really remarkable is that expatriates are forced to pay punitive exit taxes before escaping the IRS.

Which is why there are probably at least 10 Americans who simply go “off the grid” and move overseas for every citizen who uses the IRS process to officially expatriate.

Not exactly a ringing endorsement of Obamanomics.

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I’m not a big fan of the European Commission. For those not familiar with this entity, it’s sort of the European version of the executive-branch bureaucracy we have in Washington. And like their counterparts in Washington, the Brussels-based bureaucracy enjoys a very lavish lifestyle while pushing for more government and engaging in bizarre forms of political correctness.

But just as a stopped clock is right twice a day, it appears that the European Commission is right once every century. Or perhaps once every millennium would be more accurate. Regardless, here are parts of a story I never thought would appear in my lifetime.

Olli Rehn: “Taxes shouldn’t be any higher than this”

According to the UK-based Independent, the European Commission – or at least one European Commissioner – now realizes that there’s such a thing as too much tax.

Tax increases imposed by the Socialist-led government in France have reached a “fatal level”, the European Union’s commissioner for economic affairs said today. Olli Rehn warned that a series of tax hikes since the Socialists took power 14 months ago – including €33bn in new taxes this year – threatens to “destroy growth and handicap the creation of jobs”.

Wow, that sounds like something I might have said.

But even though I endorsed him, Hollande has ignored my advice.

President Hollande has kept his electoral promise to attack French deficits and accumulated debt. He has done so, however, almost entirely by tax increases rather than by cuts in a state apparatus which swallows 56.6 per cent of the country’s GDP.

It’s worth noting, by the way, that tax hikes haven’t worked. Deficits today are still far higher than they were before the financial crisis. Yet the crazy French are not slowing down.

it has emerged that final budget plans for 2014 will include at least €6bn in tax rises. This figure does not include the impact of a programmed rise in the basic rate of VAT from 19.6 per cent to 20 per cent from January next year. …Mr Hollande’s 75 per cent “temporary” tax on incomes over €1m – also blocked by constitutional objections – may also finally take effect in 2014.

Geesh, no wonder even European bureaucrats are saying enough is enough.

Just like the IMF said that Greece had reached the tipping point where taxes were too high.

Just like the United Nations acknowledged the Laffer-Curve insight that taxes can be too high.

Just like the OECD admitted that better tax policy leads to more taxable income.

Just like the European Central Bank found big Laffer-Curve responses to changes in tax policy.

Hmmm…, makes you begin to think there’s a pattern and that people finally understand the Laffer Curve. Though let’s not get too optimistic since this common-sense observation about tax rates, taxable income, and tax revenue has not had any impact on the pro-tax bureaucrats at the Joint Committee on Taxation in Washington. But that’s a separate story.

I feel guilty about writing something favorable about the European Commission, so I want to close with some information showing that this bureaucracy is on the wrong side more than 99 percent of the time. Which should surprise anyone since it is headed by a former Maoist (who is eminently forgettable – other than the fact that he is unintentionally engaged in a contest to see who can be the most laughable European bureaucrat).

Let’s look at some highlights from the past few years.

European Commission bureaucrats lash out at credit rating companies for warning that governments may not be able to pay their bills.

European Commission bureaucrats squander millions of dollars on empty political correctness as they publish calendars that omit Christmas.

European Commission bureaucrats pissed away millions of dollars to create a green-skinned “Mr. Fruitness” superhero.

European Commission bureaucrats wasted money on comic books portraying themselves as super heroes.

But let’s set aside their perks and boondoggles and instead look at the bad policies generated by this army of paper pushers.

The European Commission pushes for tax harmonization because it is “unfair” for some nations to have lower taxes.

The European Commission advocates gender quotas at private businesses.

The European Commission is hostile to entrepreneurship and supports ever-higher levels of regulation and red tape.

The European Commission supports higher taxes as a “solution” to overspending by national governments.

The European Commission has decided that taxpayer-funded vacations are a human right.

The European Commission finances killing ducks at the absurd price of $750 each.

In other words, the crowd in Brussels is just as wasteful as the folks in Washington. And just as profligate as the people in Paris. And just as reckless as the group in London. And…well, you get the idea.

P.S. While the purpose of this post is to congratulate the European Commission on a rare bit of sanity, it’s worth noting that there’s another bureaucracy in Brussels called the European Parliament. I don’t think they’ve ever displayed any evidence of sanity. But since it doesn’t have much power, it also has little opportunity to do really stupid things. That being said, they enjoy a level of pampering that must make American lawmakers green with envy.

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