Europe Starts Tax-Cutting,Too

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

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President Bush’s tax cuts over the last four years were strongly opposed by liberals, and even many moderates saw them as controversial at least. So it is interesting to discover, according to a new report from the Organization for Economic Cooperation and Development, that governments of the left in Europe have been doing pretty much the same thing as President Bush has done here.


First of all, there have been a number of major tax cuts in Europe that have lowered taxes as a share of the gross domestic product by 1%, to 38.9% in 2002 from 39.9% in 2000. Among the 15 members of the European Union, the reduction has been a little greater, to 40.6% in 2002 from 41.8% in 2000.


Such a tax cut may not seem terribly significant, but one must realize that taxes have been climbing very sharply in Europe for decades, and this is the first sustained reduction since records started being kept in 1965. At that time, 15 E.U. countries took only 27.9% of GDP. By 1975, that figure had risen to 33.2%, and by 1985 it was up to 38.8%.


Interestingly, European tax cuts have included meaningful cuts in individual income tax rates for the rich – the most controversial element of Mr. Bush’s program. According to the OECD, 17 of 30 countries cut tax rates on the rich between 2000 and 2003 – some by much more than here. The rich are defined as those with 10 times the average worker’s income.


Among those countries with the largest rate reductions are the Netherlands, which reduced its marginal tax rate on the wealthy to 52% from 60%; Luxembourg, where the rate fell to 38.95% from 47.15%; and Belgium, which dropped its rate to 53.5% from 60.5%. Germany’s rate fell to 51.17% from 53.8%, and in France it went to 56.09% from 61.25%. The American rate went down to 41.42% from 46.51%, by the OECD’s reckoning, which includes state and local taxes.


Looking at corporate tax rates, we see even larger reductions in taxes on the rich. Again we see that 17 of 30 OECD countries cut corporate tax rates between 2000 and 2003 – but this time not including America, where the rate was unchanged at 39.4%, including state and local governments.


The most dramatic reductions occurred in Germany, Iceland, and Ireland. In Germany, the rate was cut to 42.2% from 52%, a reduction of 19%. In Iceland, the rate fell to 18% from 30% – a reduction of 40%. And in Ireland, the corporate rate was lowered to 12.5% from 24% – a 48% reduction.


Other countries with large corporate rate cuts include Belgium (to 34% from 40.2%), Luxembourg (to 30.4% from 37.5%), and Canada (to 36.6% from 44.6%). Only two countries, Germany (40.2%) and Japan (40.9%), now have higher corporate rates than we do.


Perhaps the most interesting reforms have taken place in the area of dividend taxation. Although Mr. Bush’s reduction in the top rate on dividends received by individuals to 15% was highly controversial, America still has one of the highest tax rates on dividends. Only eight countries have higher rates, with 21 having lower rates. Indeed, the average for all OECD countries is well below the rate here – 46.4% versus 51.3%. The OECD includes taxes on corporations, as well as separate taxes on dividends, in its calculation.


The most dramatic change has been in the Netherlands, where taxation of dividends fell to 54.2% in 2003 from 74% in 2000. This was accomplished by removing income from saving and investment from the individual income tax base. It will now be taxed separately at a flat rate of 30%, as compared with a top rate of 52% previously.


Finally, we see that the tax structure of the OECD continues to move much more toward the taxation of consumption. Every OECD country except America now has a value-added tax or other form of national sales tax. These taxes provide about 20% of government revenue. Higher value-added tax rates have financed many of the tax reforms of recent years.


Historically, liberals have been the principal opponents of a VAT here, on the grounds that it takes more from the pockets of the poor than the rich.


But the tide may be turning. Monday’s New York Times ran two articles by prominent liberals arguing that a VAT is necessary to pay for government programs for the poor and to save as many as 100 million taxpayers from having to file tax returns. It will be interesting to see if liberals in Congress follow through.



Mr. Bartlett is a senior fellow at the National Center for Policy Analysis.

NY Sun
NEW YORK SUN CONTRIBUTOR

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.


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