Action and Reaction: Tax Cuts Here and Abroad

By August 7, 2007Taxation

Overseas, leaders taking steps to encourage investment and economic growth.From Bloomberg:

In his first economic act since taking office, Mr. Sarkozy is pushing a tax law to lure back exiles such as rock star Johnny Hallyday, 64, and members of the Mulliez clan, who control the French retailer Groupe Auchan SA. The measure will increase exemptions on the “fortune” tax — the bete noire of rich expatriates — and cap the total individual tax rate at 50 percent of income.

Mr. Sarkozy, 52, needs these wealth-creators to help rekindle an economy that’s lagging behind its neighbors and to sustain future growth.

In the United States, the arguments for lowering corporate tax rates are also persuasive, the Economist writes.

IT IS more than two decades since America led the world in tax reform, and what Ronald Reagan called “that old jalopy of our tax system” is looking in need of a lot more than a new spray of paint. Last week Hank Paulson, the treasury secretary, held a summit in Washington, DC, to address the part of the system that is most visibly lagging behind best practice in the rest of the world—the taxation of firms.

The gathering of tax experts, business leaders and other heavy-hitters, including Alan Greenspan, former chairman of the Federal Reserve, agreed with Mr Paulson that Uncle Sam was “undermining the competitiveness of American workers” with high corporate tax rates. However, nobody at the summit expected Congress to do much about it, especially given its current preoccupation with easing taxes on the middle class and increasing them on the rich, particularly those who have made their fortunes in private equity.

And in the U.S. Congress? Well, there’s a 61 cent per pack increase in the tobacco tax. A $7.5 billion increase in taxes on foreign subsidiaries doing business in the United States (included in the farm bill). New taxes on hedge funds and private-equity partnerships. The energy bills’ $16 billion in additional taxes on energy companies. Etc. Etc. And, as this Wall Street Journal editorial summarizes, ETC.

(The Journal’s Kimberly Strassel also addressed the tax increases in her Potomac Watch column last Friday.)

We can just imagine our global competitors sizing up U.S.-based manufacturers and saying to themselves, “OK, they’re going to be losing their last competitive advantages over the next five years. How can we take their customers?” A tax-raising Congress just makes their job all that much easier.

Leave a Reply