Monday, May 28, 2007

War Erupts in Old Europe

It can only be described as a mad dash to embrace socialism's greatest heresy - tax cuts.
A tax-cut war is spreading across Europe as leaders of the Continent's biggest economies give up criticizing smaller neighbors for cutting business-tax rates and decide to join them instead.

The move toward lower levies on corporate profits in Spain, Germany, France and Britain is aimed at attracting companies and reinforcing the strongest economic expansion in six years. It comes after Ireland and new European Union members from Eastern Europe succeeded in attracting investment, and irking their larger rivals, with tax rates of less than 20 percent, among the world's lowest.
It's "tax cuts for the rich" and
Supporters of lower corporate taxes point to the success of Ireland, whose 12.5 percent rate, the lowest in the developed world, is down from 47 percent in 1988. That proved a magnet for such U.S.-based technology companies as Microsoft, Intel and Dell and helped Ireland's economy grow more than three times the rate of the euro area in the past decade, while still running a budget surplus in nine of the 10 years.

[Chief European economist Erik] Nielsen at Goldman Sachs [London] is betting that lower corporate taxes, by making businesses more competitive, will help euro-zone economies grow at a faster rate without heating up inflation. An improved business climate has helped raise that rate, the so-called speed limit, to as much as 2.5 percent for the bloc's economies, from 2 percent, he said.

That's consistent with the findings in a study of 86 countries last year by KPMG International, which showed corporate tax cuts allowed countries to attract and retain business investment with little loss of revenue. While governments collect less from companies, the difference is offset by new revenue stimulated by expanded hiring and spending, the study found.
But apparatchiks within the European Union are nervous.
Stefano Scarpetta, an economist at the Organization for Economic Cooperation and Development, said, "Evidence on the links between taxes and investment is not fully conclusive." The OECD, based in Paris, plans to finish a research project on the question by March.
Old Europe adopting the principles of Reaganomics.


No comments: