Europes tax cuts a model for the United States

by Don C. Brunell
President, Association of
Washington Business

For decades, European governments raised taxes to fund cradle-to-grave welfare programs for their citizens. Taxes skyrocketed and Europes competitiveness eroded as businesses closed or moved away.
Gradually, government leaders realized that taxing the rich, especially corporations, to provide programs for the needy actually made things worse. When employers were driven out by high taxes, people lost their jobs and tapped into government-funded assistance encumbered by costly bureaucratic rules and regulations. With fewer businesses to pay taxes and more people in need of help, government debt climbed. Rather than being a land of opportunity, Europe became known as the continent of government subsidies.
Europe finally realized its mistake and conditions are improving, according to a recent article in The Wall Street Journal. For example, the German government just approved an 8.9 percent rate reduction on corporate income taxes. From a high of 52 percent in 2000, the overall tax rate will fall to 29.8 percent by 2008.
Germanys tax turnaround is part of a trend, according to The Wall Street Journal. Recently, 25 other developed countries adopted the same tax-cut strategy proposed by President Reagan in 1980.
France, still recovering from last years civil unrest over the job shortages and a stagnant economy, is getting into the tax-cut mode. Its new president, Nicolas Sarkozy, proposes to reduce corporate tax rates from 34.4 percent to 25 percent as a way to put people back to work and bring factories back home.
Even Northern Ireland is slashing its corporate tax rates to 12.5 percent, matching neighboring Ireland. In Asia, Hong Kongs tax rate for corporations is 17.5 percent and Singapore is cutting its rate to 18 percent.
Ironically, the United States may soon have the worlds highest corporate tax rate-39.3 percent when the state average is added to the federal governments 35 percent.
The United States is heading in the wrong direction. Congress is considering higher taxes on corporate dividends and foreign-source income. Lawmakers support only temporary extensions of research and development tax credits, the bread-and-butter staples for those high-tech industries we want to lure and keep here.
Moreover, Congress is refusing to permanently repeal the federal estate tax, so it could revert to its original high rate in 2011. That is a killer for family-owned farms and businesses.
Our state received a welcome report recently from Forbes magazine, ranking us the fifth-best state for doing business. But Washington should be especially cautious. State lawmakers resurrected the estate tax and Washington employers continue to pay the nations highest unemployment insurance taxes. When you add business and occupation taxes, sales taxes and property taxes, Washington ends up being one of most heavily taxed states for business.
On the plus side, our state remains marginally competitive on costs. There are sales tax exemptions for manufacturing machinery and equipment and for research and development. These exemptions help, as long as the state doesnt put too many restrictions on their application.
While some elected officials dismiss high corporate taxes as business collecting taxes for government, thats not the case in todays global economy. Taxes are a major factor employers consider when they decide where to locate. All things being equal, consumers shop for the lowest prices.
Elected officials need to understand that when they play Robin Hood robbing corporations to fund government subsidy programs they end up hurting the very people they want to help.
Its time for America to follow Europes lead and lower its corporate tax rate.

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