Europe’s Anti-Low-Tax Campaign

Big, fiscally obese governments in Europe have a long history of over-taxing their citizens. The free-market verdict is in, and it says that Europe is in a state of perpetual stagnation, even decline, as a direct result of confiscatory taxation. Big government is turning Europe into an economic wasteland.

Unfortunately for Europe’s taxpayers, there is little to hope for in the future. One reason is of course the unanimous endorsement of the welfare state: so long as “conservatives” line up with “liberals” and socialists in defending the welfare state there will be no forward progress in terms of easing the burden on taxpayers. But the hard-line defense of big government goes beyond the tragic unanimity among Europe’s politicians – it even reaches beyond the borders of the EU.

One of the great fears of high-tax jurisdictions is the competition from low-tax jurisdictions. In the distorted international debate the latter have been labeled “tax havens” or “tax shelters” and associated with all sorts of disingenuous, sometimes outright false anti-low-tax propaganda. This only goes to show how afraid welfare-statists are of competition from countries and territories with lower taxes. This scare of low taxes shines through very brightly in this interview that Der Spiegel did with the European Union’s High Tax Commissioner, Algirdas Semeta:

SPIEGEL: The finance ministers of France, Germany, Italy, Spain and the United Kingdom want to step up the fight against tax evaders. In a letter, they announced a computerized exchange of information between their tax authorities. Would this help?

Semeta: If the five countries push for more ambitious information exchange, allowing all European Union member states to collect the taxes they are due, it would certainly be a positive thing. Automatic exchange of information has been our standard in the EU for years now, and the European Commission has been pushing to expand its scope to make the fight against tax evasion much stronger. With five of the largest member states also looking to achieve this same goal, we could expect good results. And I think the best way to achieve this now is to quickly adopt the large package of anti-evasion measures which the European Commission has put on the table.

First of all, the problem with tax evasion is the tax, not the evasion. Secondly, this is not directed against people unlawfully evade taxes, but against people who legally avoid taxes by adjusting their work and investments to pay as little in taxes as legally possible. What the large EU member states are doing now is to expand their own legal authority to stop any kind of planned, lawful avoidance of taxes.

In short: they want to make sure no one can, under any circumstances, find a way to legally reduce their tax burden.

The low-tax champions at the Center for Freedom and Prosperity recently published an article that reveals how the OECD – basically a cartel for high-tax countries – is gearing up for yet another assault on low-tax countries and territories. (The CFP is a great outfit, by the way. Support them!) This new push from the OECD to defend ailing, high-tax welfare states is hardly surprising – they have been at it for more than a decade – but it is nevertheless disturbing. It becomes even more troubling when it is coordinated with a similar campaign from the EU’s big member states.

Back to Der Spiegel, which asks High Tax Commissioner Semeta if this new campaign is finally going to break down banking privacy in smaller EU member states like Luxembourg and Austria:

Semeta: I can only welcome the readiness of Luxembourg to adopt the EU standard for greater transparency through automatic exchange of information. And Austria will certainly not want to remain isolated.

The tax tentacles of Europe’s greediest governments know no borders. Then Der Spiegel asks about FATCA and whether or not this is something Europe should copy:

SPIEGEL: The Americans not only have an automated system for sharing information between states, but they take measures such as forcing Swiss banks to cough up information about tax evaders. Is something like this also intended for Europe?

Semeta: The EU is the pioneer of the automatic exchange of information model, upon which the United States’ Foreign Account Tax Compliance Act … is based. As a result, we have very good structures and tools in place which we can use to exchange information with other countries, including those outside of the EU. In our negotiations with the US when FATCA was first conceived, we agreed that information will be exchanged between governments, rather than financial institutions. This is less costly for all parties involved. The other advantage of the agreement is that information flows are not a one-way street. With a combined approach in the EU and the US, we will suddenly see a vast expansion in the automatic exchange of information globally.

Here is what the Center for Freedom and Prosperity has to say about FATCA:

Directed at rich tax evaders — President Obama has claimed that there is $100 billion lost to tax evasion each year — FATCA actually hits middle-class, law-abiding Americans the hardest. The Joint Committee on Taxation estimated that the law would raise less than $1 billion per year in new revenue while inflicting high costs on both the global financial industry and the millions of Americans who live and work overseas. The European Banking Federation and the Institute of International Bankers place the total compliance cost for just the top 30 foreign banks at $7.5 billion. Many banks, faced with paying hundreds of millions of dollars in compliance costs, are opting instead to drop their American clients and abandon the U.S. market. Trillions of dollars are invested in the U.S. from foreign sources each year. If even a tiny fraction of that were to leave because of FATCA, the economic costs would easily surpass the limited revenues expected to be raised by the law. For besieged Americans living abroad, FATCA is a nightmare. Many expats have reported being turned away by local financial institutions. These ordinary workers often seek nothing more than a place to deposit their earnings, which Uncle Sam is making all but impossible — and they can forget about mortgages and pensions. As a consequence, the number of Americans renouncing their citizenship is growing steadily each year. This loss of talent is bad for America.

In short: a bad idea conceived to correct the errors caused by another bad idea, namely high taxes.

Clearly, though, the EU is moving in the direction of creating its own FATCA, or perhaps even worse. Der Spiegel again:

SPIEGEL: The European Savings Tax Directive, which is meant to regulate the taxation of savings across the EU, leaves many loopholes for tax evaders.

Semeta: The savings directive has many merits, but it is true that we identified important loopholes which were being exploited by tax evaders. Already in 2008, the Commission set about trying to close these loopholes and strengthen the EU rules. But, up until now, member states have not managed to agree on a revised directive, because Austria and Luxembourg have blocked efforts. Now that Luxembourg has changed its stance on bank secrecy, and with Austria hopefully soon to follow suit, I hope we will see the fast adoption of a stronger savings directive.

And, of course, the magazine has to finish off with the mandatory questions about “tax havens” like the British Virgin Islands or the Caymans – how hard, does the Spiegel ask, will the EU clamp down on the evil rich people who dare to move their money out of reach from our beloved confiscatory government?

Semeta: Last year, I put forward a new coordinated EU stance against tax havens, which would include a common definition, coordinated blacklisting and sanctions. If implemented by the member states, this approach could serve as a real deterrent to tax havens. I also suggested criminal sanctions for tax evaders. But for many EU countries that was going too far. I hope there will be a growing willingness to act.

Once again: the problem with tax evasion is the tax, not the evasion. And, once again, this is not about tax evasion, because tax evasion is already illegal. This is about tax avoidance through lawful tax planning. That is what the EU – and the U.S. government through FATCA – want to put an end to.

The one tiny question, though, is: what will these high-tax jurisdictions do when they have completely stopped their citizens from lawfully escaping their high taxes, and thereby totally stifled productive economic activity? What are they going to do when productive citizens simply refuse to earn high incomes or accumulate wealth?

Are they going to begin to force people to become wealthy, so they can confiscate the wealth?