MaxedOutMama
Sunday, April 03, 2005
Ireland, Europe, And Flat Tax
Given Germany's lagging economy, intractable unemployment and aging population, it's no surprise that Germans are wondering how to fix things. Spiegel has an interesting article on Ireland's success. Ireland joined the EU in 1973 as an extremely poor country with few industries. Last year Ireland's domestic growth was around 5 percent and it now has extremely low unemployment. What made the difference? Well, it has a conservative government with a business-friendly attitude. Plus, it cut is corporate tax to the lowest in Europe (far lower than the US) and among other things, it attracted a lot of foreign investment this way:
The moral of the story has been widely understood. Countries that can afford to are adopting flat-tax policies at a rapid rate, and the US has a relatively high corporate tax rate. The Cato Institute has an older article discussing this trend:
You can compare the above to 1991 figures at this site. And the race to the bottom continues. See HispanicPundit for a very updated summary of the situation and Schroeder's proposal. Included is the following graphic of where the US stands:
The UK has profited sharply from lowering its rate, and it appears likely that it will continue to follow the trend. Here is a Telegraph article about the flat tax craze sweeping across eastern Europe:
Much to the disgruntlement of other EU states, Ireland's government went straight to work on its fiscal policy. The most important move: Ireland slashed its corporate tax, which is now 12.5 percent. At the same time, the country invested heavily in education, a move that's had a massive effect, as six out of ten high-school graduates now complete a university degree.One of Ireland's flagship industries is software, and while Ireland's education policies and growth policies are important, statistics there seem to show that its tax policy had the largest effect in drawing foreign investment:
In total, there are now nearly 1,000 software companies in Ireland. About 200 of them are from abroad and those firms account for 90 percent of the country's total software-related revenues.and:
Many corporations not only tap into the competence of the country's English-speaking IT specialists; they also take advantage of the numerous and legal tax shortcuts. Some software companies have the pre-stages of their product programmed in Bangelore in India and then pass it on cheaply to their Irish subsidiary, which then gets the product ready for market entry, before burning it on CDs and shipping it around the globe.Of course all this growth has fueled the expertise for Ireland to develop its own indigenous software startups and those appear to be taking off. For more information on the Irish economy see Richard Delevan's post (amusingly, he is complaining about the "marxist media" in Ireland trying to downplay it). Hat tip for that link goes to No Oil For Pacifists.
The moral of the story has been widely understood. Countries that can afford to are adopting flat-tax policies at a rapid rate, and the US has a relatively high corporate tax rate. The Cato Institute has an older article discussing this trend:
You can compare the above to 1991 figures at this site. And the race to the bottom continues. See HispanicPundit for a very updated summary of the situation and Schroeder's proposal. Included is the following graphic of where the US stands:
The UK has profited sharply from lowering its rate, and it appears likely that it will continue to follow the trend. Here is a Telegraph article about the flat tax craze sweeping across eastern Europe:
"The flat tax is getting closer as it marches across Europe. What's happening in Eastern Europe is an experiment being carried in practice, not theory, and the evidence is that it works," he said.The BBC covered the trend and its possible implications for the UK in January, noting the following irony:
The Adam Smith Institute is to issue its own study concluding that Britain could switch to a flat income tax of 22pc (excluding the £12,000 earned) without losing government revenue. It claims that the rich would pay a greater share of the total tax bill as avoidance and evasion declined. While no West European state has seriously embraced the idea so far, a study for the German finance ministry by economist Wolfgang Wiegard recently proposed a 30pc single rate for both income and company tax.
Gabriel Stein, European economist at Lombard Street Research, said the political landscape was changing fast in Berlin. "The Germans are much more open-minded about this than the French, or indeed Gordon Brown. They are sufficiently worried about what's going on to look into this issue," he said.
It was Karl Marx who, in his Communist Manifesto of 1848, was among the first to call for "a heavy progressive or graduated income tax," at a time when across the early industrialising countries the flat rate was the norm.The escapees from Communism are running as far and as fast from this as they can! We are not going to be able to escape making major changes in our own tax structure if we want to retain business investment, and we must retain business investment. Sobering, especially given political realities in the US.
Subsequently, as capitalist societies became more prosperous, they adopted Marx's demand and introduced higher rates of tax on higher bands of income to finance improved social welfare measures.
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Here's a working link to the Spiegel article.
http://www.spiegel.de/international/spiegel/0,1518,348682,00.html
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http://www.spiegel.de/international/spiegel/0,1518,348682,00.html
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