Posted on 07/15/2002 8:47:15 AM PDT by xsysmgr
Tax rates in America are too high, but the United States is a low-tax country compared to welfare states like France, Germany, and Sweden. This gives us a competitive advantage in the global economy — and the Bush tax cut of 2001 will help America open up an even bigger lead over Europe's overtaxed economies.
But there is much room for improvement. After all, it is damning with faint praise to say that America's tax system is more competitive than the tax systems of nations like France. The United States needs to reduce marginal tax rates and desperately needs to eliminate the tax bias against income that is saved and invested.
Fundamental tax reform is the answer. A flat tax, for instance, would solve all of the major problems caused by the internal revenue code. Discriminatory and excessive marginal tax rates would be replaced by a single, low tax rate. Saving and investment no longer would be double-taxed. And tax reform would significantly improve the competitiveness of U.S. companies by scrapping the taxation of worldwide income and instead taxing only income earned inside America's borders.
All of these changes would increase economic growth, but an improved standard of living is just one of many reasons why the internal revenue code should be put in the garbage can. We also should replace the IRS with a flat tax (or a national sales tax) because taxpayers no longer would have to divulge intimate details of their personal finances to the government. In other words, tax reform is the single best way to protect the financial privacy of law-abiding citizens.
Under a flat tax, for instance, you don't have to tell the government how much money you have in your bank account and the amount of interest generated by that account. Why? Because there is no tax on interest under the flat tax since tax reform is designed to eliminate the bias that punishes people who save income instead of consuming income.
Likewise, tax reform means you don't have to tell the IRS how much stock you own and the amount of dividends you get. The reason, once again, is that the flat tax is designed to create a level playing field between income that is consumed and income that is invested. And because there is no death tax or capital-gains tax in a flat-tax system, there is no reason for the government to know how much property you own and no reason to know what happens to that property when you sell it or give it away.
Tax reform would be a big boost for privacy, but the pendulum could swing the other direction if international bureaucracies like the Organization for Economic Cooperation and Development, the European Union, and the United Nations are able to implement tax harmonization. These organizations, acting at the behest of Europe's welfare states, want to gut financial privacy laws so that high-tax governments can track — and tax — funds that their oppressed citizens invest in the economies of low-tax nations like America.
The European Union, for instance, wants our government to force U.S. financial institutions to help enforce foreign tax law by helping nations like France tax income earned in America. The Europeans call their scheme a "savings tax directive," but it really is a tax cartel — an OPEC for governments.
More importantly, it is a threat to our economy and an outrageous assault on our sovereign right to govern activity inside our borders. Foreigners have invested more than $5 trillion of capital in America, creating millions of jobs and boosting our financial markets. Yet if our banks and brokerage houses have to become tax police for foreign governments, a substantial portion of that money will flee the U.S. economy. An oppressed French taxpayer is unlikely to shift capital to the United States, after all, if the French government is able to impose French tax rates on any income earned in America
The European Union's plan to create a new OPEC is a threat to privacy and a threat to tax reform. All tax-reform plans eliminate excess layers of tax on income that is saved and invested, but the "savings tax directive" is explicitly designed so that high-tax governments can more easily impose a second layer of tax. Tax reform plans also are territorial, meaning they do not seek to tax economic activity in other nations. But this "good neighbor" policy would be tossed out the window if the international bureaucracies win the battle.
This is why the Bush Administration must tell the European Union that America has no interest in participating in the "savings tax directive." We don't want international bureaucracies to rewrite the rules of taxation and interfere with our right to reform our tax system.
— Daniel Mitchell, Ph.D., is a McKenna senior fellow at the Heritage Foundation and author of the recent Institute for Policy Innovation study, "Tax Reform: The Key to Preserving Privacy and Competition in a Global Economy." The study is available at www.ipi.org.
Tax rates in America are too high, but the United States is a low-tax country compared to welfare states like France, Germany, and Sweden.
Yeah, right! Gimme a break!
Who says that Republicans don't lie.
Oh, this article does eventually get around to addressing a very important issue, but the bulk of it is pure GOP propaganda, that uses half truths and misleading statements to portray a totally false picture. Oh, the author gives lip-service to the disadvantage of worldwide taxation and lack of privacy represented by the IRS, but he would have us believe that worldwide taxation does not effect the overall tax rate and that the IRS can be fixed. I get the feeling that if they thought that it would give them more power, they would even tell us that klinton never lied and say it with a straight face.
Let's look at the facts - ALL the facts.
We can start with the ridiculous assertion that the US is a low-tax country compared to countries like France, Germany and Sweden.
1998 Tax Statistics by CountryNote: Even including the Duh-bya tax cuts, the difference in 1998 and today are nominal.
Country
Maximum Tax Rate (%) Taxes on Foreign Income
Maximum Capital Gains Short Term (%)
Long Term (%)
Personal
Corporate
Personal
Corporate
United States
39.6
The difference between 39.6 and foreign income taxes paid
39.6
35.0
20.0
35.0
France
58.1
NONE
26.0 after $8,315 exclusion
41.7
26.0 after $8,315 exclusion
23.8
Germany
55.9
NONE
55.9
45.0
NONE
45.0
Sweden
57.0
NONE
30.0
28.0
30.0
28.0
When you take ALL of the related facts into consideration, it changes the picture dramatically. In fact, it turns out that each of the high tax countries listed have an overall tax rate that is roughly the same as that of the US, but only if you assume that foreign investors keep at least half of their wealth in their home countries, which several studies have shown is not so. Considering these facts, let's do some realistic calculations using the following assumptions:
For our comparison, we will use a citizen of the US and a citizen of each of the countries named in the above article. To make calculation easy, let's use individuals who make $1,000,000 each. The Swedish citizen pays the least taxes (less than the US citizen), while the French citizen pays the most. But, the tax difference between the foreign citizen and the American citizen is never more than a nominal 3.7% (1.5% of income) in any case. Work the numbers for yourself. We are talking about an insignificant difference.
But, if the foreign citizens move just 10% more of their money offshore, the results change dramatically. Then, even the highest tax country, France, has a 5% advantage over the US, with Sweden and Germany taking a sizable lead. Of course, if the foreign citizens shift more wealth out of the higher tax countries, like Singapore (29%), to lower tax countries like Hong Kong (16%), the difference grows even greater. Factor in capital gains taxes and the margin spreads even further, except in Germany, where their long and short term capital gains are even higher. Then there is always the possibility that they can invest in even lower tax nations or nations that impose no corporate tax at all. Then look at the spread grow.
Of course, regardless of where the US citizen moves his investments, his overall tax rate remains at the same high 39.6%. So, which really is higher; the 39.6% tax rate of the US or France's 58.1% tax rate? When you consider the fact that the US tax rate of 39.6% is on worldwide income, the US tax rate comes out to be much higher, where it counts. But, don't count on GOP propagandists, like the author of the above article, to tell you that.
The plain fact is that neither the career Democrats nor most career Republicans want real substantive tax reform. The only difference between the two, is which economic group they want to punish with their taxes.
This gives us a competitive advantage in the global economy — and the Bush tax cut of 2001 will help America open up an even bigger lead over Europe's overtaxed economies.
If that's true, why then, are so many Americans taking all of their assets and leaving? In fact, a foreign citizen can set up a businesses in the US and another in a no-tax jurisdiction and arrange his receipts such that vast majority of his profits show up in the no-tax country, leaving his US tax bite very low. A US citizen who does the same thing, must still pay the same high US taxes on his foreign income, as well. This qualifies as a competitive advantage for Americans??? Gimme a break!
A flat tax, for instance, would solve all of the major problems caused by the internal revenue code.
To suggest that a flat income tax would solve even a few of the major problems with the current system is preposterous. The only thing that a shift from a progressive income tax to a flat income tax would do, is give the career bureaucrats an excuse to keep the IRS in business for a few more years. The flat income tax is nothing more than a diversion. It is, after all, still a tax on income and as such, would still require the IRS to police collections. There is absolutely NOTHING in the flat income tax that would prevent any of the confiscations and other abuses that have come to symbolize the IRS. In fact, the real problem is the IRS. Any system of taxation that leaves the IRS intact solves nothing. Any system of taxation that taxes offshore income solves nothing.
We also should replace the IRS with a flat tax (or a national sales tax) because taxpayers no longer would have to divulge intimate details of their personal finances to the government.
This is a good example of how the entrenched politicians use half truths to portray a false impression. It is a half truth, because the author did include the national sales tax in that statement. The NRST would indeed get the government completely out of personal finances and eliminate any need for an organization like the IRS, by any name. But, the flat income tax would do little, if any, good in this area.
Party leaders would have you believe that if savings are not taxed, then there would be no reason for the IRS to look into your personal finances. This couldn't be further from the truth. They will still claim a need to have taxpayers divulge the intimate details of their personal finances, to make sure that taxpayers are reporting all of their income. Their reason is that a person who makes $10,000 a month, but deposits $20,000 a month might be under reporting his income. The flat income tax will not solve any of the privacy problems of the current tax system, since it is still a tax on income and would still require the IRS.
Without saying so directly, the author slyly intimates that European nations tax the offshore income of their citizens. In fact, only two other countries in the world tax the offshore earnings of their citizens - Philippines and Eritria. His assertion that the OECD is acting against US wishes is absurd. In fact, the guiding force in the OECD is the US. Furthermore, the stated purpose of the OECD is not to enforce foreign tax collection, but to "eliminate harmful tax competition and enact uniformly high taxes worldwide." That's directly from their web site.
It is a feature of the party propaganda machines, that they will mix their propaganda into all kinds of public statements, press releases and articles, including some that state very potent truths. So it's not surprising that this article should include a very important fact that we should all act on.
Finally, an important fact emerges
The principle conclusion of this article, is one with which I must wholeheartedly agree, even if it was obscured by baseless propaganda and did not emerge until the last 4 paragraphs. The "savings tax directive" that the author talks about is not connected in any way to the OECD, but is rather, an internal EU directive. It is an agreement between EU states to assist each other in tax collection, much as our states assist each other in tax collection. It is and should remain a strictly internal EU function and the US has no business getting involved.
We do better economically over time (a higher growth rate) than countries like Sweden and France in significant part because our tax rates are lower than theirs.
The rest of your post made a lot of sense. But, the above line is a standard answer that career bureaucrats give when they are confronted with the current facts. Unfortunately, the media never challenges them on it and well intentioned people repeat that propaganda on news forums.
In fact, they will go back as far as necessary to find data that appears to support their conclusions. In the study of statistics, that's called "sample manipulation". What it amounts to is that the statistician uses only that part of the sample that would tend to support the desired conclusion. In other words, KnockOff Soda runs a survey of 1,000 people and find that 800 like Coke better than Knockoff Soda. So, they survey another 1,000 and 900 like Coke. So, they do the same thing over and over. They get results of 550, 700, 850 and 450. So, they use the sample that produced 450 that liked Coke and 550 that liked Knockoff Soda and claim that in a survey of 1,000 people, more people liked Knockoff Soda than Coke.
In this case, the current data does not support their desired conclusion, so they work backwards to a time when the US was the best place to invest for many years in the past. For a while, they said that we had the highest growth rate over a five year period. What that translated to was that for the last two years our growth rate was down, but for the previous three years, it was the best. Today they are saying that we have the highest growth rate over a 10 year period. They had to extend the time period a few years further into the past, in order to give the false impression that our growth rate is still the highest. Soon, they will have to go to a 12 year period, then a 15 year period and then a 20 year period. They will keep adjusting the sample backwards, as long as the people are gullible enough to buy into it.
Our current high rate of expatriation means that the current downward trend in our economic growth rate is not likely to change anytime soon. When the wealthy leave, they take their money with them, to prevent its confiscation under the Health Insurance Portability and Accountability Act of 1996, which claims the right of the US government to tax the worldwide income expatriates for 10 years after they have renounced their US citizenship and become citizens of another country. Those people left because of the IRS. They aren't about to put their money back in harm's way.
Certainly other countries have a higher base tax rate. But, because they don't tax foreign income, their overall tax rate, for those who invest offshore (mostly the very wealthy), is usually much lower than ours. This is why the number of billionaires on the Forbes List of World Billionaires has grown by 80% in the last two years, while the number of billionaires on the Forbes Wealthiest Americans list has dropped roughly 13%.
Our economy is not growing nearly as fast as it once did, while other countries are seeing their economy grow at previously unheard-of rates. The reason is clearly the IRS and the abuses of that organization.
As you pointed out, we have lots of problems. You just fail to realize the early signs, that one of our most serious problems is our economy and the reason for that problem is the IRS.
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