• Tag Archives Europe

  • What High-Tax Europe Really Looks Like

    Posted on by Azrael 1 Comment

    Promises are mounting in the Democratic Party’s primary debates as contenders try to outbid one another on free health care, free public education, or, in the case of Andrew Yang, just free money. Senator Elizabeth Warren plans to make college free in addition to canceling student debt for millions of people at an estimated cost of $1.25 trillion over 10 years. Senator Bernie Sanders’s “Medicare For All” bill would cost $34 trillion dollars over 10 years.

    This bill alone would almost double the entire US government’s expenditures. Double! Current expenses include interest on the massive national debt, planes, aircraft carriers, tanks and missiles, numerous agencies, NASA and its contributions to the International Space Station, road construction, foreign aid, etc.

    Sanders’s plan would essentially add a second US government on top of the existing one despite the fact that the current government already spends more than it takes in.

    Pointing this out has been labeled a “Republican talking point” (as if the Republicans ever cared that much about balancing a budget). It is heartening, however, to see that journalists are willing to press Democrats on how they will actually pay for these extensive programs.

    Both Bernie Sanders and Elizabeth Warren suggest taxing the rich as a solution to the revenue problem their proposals would engender. They often liken their tax ambitions of making the rich “pay their fair share” to tax rates in Europe. A new report on marginal tax rates offers some perspective on that claim.

    EPICENTER, the European Policy Information Center located in Brussels, just released its “Taxing High Incomes” report, written in cooperation with the Swedish free-market think tank Timbro and the Tax Foundation, which answers the most interesting questions on marginal tax rates.

    The marginal tax rate is the rate that applies to the last unit earned. In a progressive tax system, this is the rate at which the last portion of a taxpayer’s income is taxed, meaning how much you pay on every additional dollar. A distinction is made between the marginal tax rate and the marginal effective tax rate, which also takes into account the amounts paid by the state to the taxpayer (allowances, subsidies, etc.). Thus, answering the question as to how much the rich really pay in taxes is a complicated one.

    This is why the EPICENTER report, comparing top effective marginal tax rates on labor income in 41 OECD (Office of Economic Cooperation and Development) and EU countries is so interesting. For instance, the report looks at social security contributions such as health care and pensions that are tied to previous income. As the authors explain, however, social insurance benefits are capped in most cases. Therefore, any social security contributions paid on high incomes can usually be regarded as pure taxes.

    The report outlines how many taxes can hit high-income earners on every additional dollar. Nominally lower income tax rates do not equate to lower marginal rates. For example:

    Hungary has a flat income tax of 15 percent while the United States has a progressive federal income tax with a top marginal tax rate of 37 percent. As payroll and consumption taxes are low in the United States, the effective marginal tax rate is not much higher, at 47 percent. In Hungary, on the other hand, substantial social security contributions are paid by both employers and employees. In addition, the country has the world’s highest VAT. The result is an effective tax rate of 57 percent—13 places higher than the United States in the country rankings.

    The United States actually does not have low marginal tax rates, as they close in on 50 percent for the highest earners. A number of analyzed states, namely Cyprus, Switzerland, Turkey, Chile, Slovakia, Lithuania, New Zealand, Mexico, and Bulgaria all end up with lower marginal tax rates.

    Is Sweden’s 76 percent tax rate the end goal of the Democratic candidates? If so, they should tread carefully. The EPICENTER report outlines the conflict between efficiency and equity in tax systems and explains how in the long run, high marginal tax rates can affect career choices and migration decisions in addition to lowering returns on education and entrepreneurship.

    As capital flight (people relocating due to high tax rates) increases and interest in investment and entrepreneurship diminishes, the question remains: who will pay for the programs Elizabeth Warren and Bernie Sanders are promising?


    Bill Wirtz

    Bill Wirtz is a Young Voices Advocate and a FEE Eugene S. Thorpe Fellow. His work has been featured in several outlets, including Newsweek, Rare, RealClear, CityAM, Le Monde and Le Figaro. He also works as a Policy Analyst for the Consumer Choice Center.

    Learn more about him at his website.

    This article was originally published on FEE.org. Read the original article.


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  • France Shows What You Actually Get with Democratic Socialism

    Posted on by Azrael Comment

    Strikes and blockades have spread across France as President Emmanuel Macron spends his time touring Europe with a new EU agenda. The French state-run railway service, SNCF, is currently dealing with massive strikes on both the regional and the high-speed inter-city lines. The unions CGT and SUD-Rail are striking in opposition to any change in the status of SNCF (the public rail service) personnel. It should be noted that government reform is very moderate since current employees of the SNCF hired to that professional status will keep all the benefits and privileges associated with it. The changes are merely affecting new employees.

    Massive Public Infrastructure Strikes

    The labor union activists are equally upset by the liberalization of the rail market which is being initiated by the European Union. Through the “Mobility Pack” coming from Brussels, Paris will be obligated to open regional train travel to competition from next year on. With a highly inefficient public service in this area, the SNCF is right to be worried about the potential price competition on its major lines.

    As of now, the service is confronted with the fiscal burden of both massive debts and deficits. Given the monopoly on all transport lines, this is actually a phenomenal “achievement.” It truly takes a government-run system to produce services that operate this poorly. And yet, SNCF employees seem determined not to let the government change a thing. Out of spite, the union plans to run fewer trains than normal until June. However, when the decision to reduce the number of operating trains was made, the union didn’t consider how that might affect their own cause.

    After planning a rally in support of these new changes, the union realized that the lack of trains meant fewer people had access to the transportation needed to attend the rally. One union leader commented on this, saying:

    For this rally, we thought about everything, except the fact that the trains weren’t running.

    You couldn’t make it up.

    The strikes in the public railway sector are paired with equally intrusive strike actions on France’s publicly held airline AirFrance. After more than nine days of strikes, the board had suggested a deal to the union: 2 percent of salary increase in 2018, then a 5 percent over a period of three years. The union responded by demanding an immediate 5 percent increase and announced that the strike would continue.

    With AirFrance being one of the few airlines that connect the country by air, and with almost all train lines paralyzed, the behavior of the AirFrance union seems deliberately coordinated. This trade union behavior only seems confirmed by the fact that in a number of cities, union activists blocked the inter-city buses run by private companies. The German bus travel provider Flixbus had seen a massive spike in reservations following the strikes, and even ran ads online, saying “during the strike, take Flixbus!”

    Being the second-largest strike-friendly country in Europe with 125 days of strikes per 1,000 employees is one thing. Blocking the access of private companies which are merely trying to get people to their workplaces, that is having true resentment for those who work.

    Universities Blocked by Their Own Students

    While paid employees decide not to show up for work, unpaid people also go on strike. A number of French universities, notably that of the Sorbonne University in Paris, are being occupied by their own students. Radicalized students are blocking the entrance for professors and other students and hold general assemblies in which they “vote” regularly on continuing their protest.

    What are they protesting against? They oppose the government’s new “Law for the orientation and success of students” (ORE), through which the Macron administration suggests to select students more through their performance in high school. Until now, no qualifications apart from a baccalaureate were needed to get accepted to a university. This, paired with the fact that French students pay virtually no tuition fees and benefit from large student and housing subsidies, has made faculties considerably over-crowded.

    At a large student protest in the streets of Toulouse, one interviewed student bemoaned the fact that new reforms could lead universities “to choose the students it prefers” and that students that performed better would have better chances.

    The mere notion of merit seems absolutely foreign to French students. Any form of merit-based system is antithetical to their convictions, which have been built over years on three premises:

    1. The government’s responsibility is to make people more equal
    2. Government interventionism improves society
    3. There is a social heritage (welfare) that needs to be protected no matter what

    Why the Upset? Don’t They Already Have Socialism?

    The reforms on public rail and in the realm of universities are minimal reforms compared to what France would actually need. The protests are more of a power play by trade unions and student groups, to see how far they can push the Macron administration. And in fact, they notice that they can indeed push very far. Strikes that began in early April are still continuing right now.

    But why isn’t a society built on this social-egalitarian mantra promoted by what Bernie Sanders calls “democratic socialism” (we still call it socialism in Europe), so discontent with its benefits? French people get all the perks that the Vermont senator asks for, including government-run health care, pension systems, tuition-free universities. And yet, they spend a fifth of their work-time on the streets, bemoaning the overtaking of the “neoliberal order.”

    Here’s the truth: there is no end goal in socialism but to take more and more. No demand is big enough, no social welfare program extensive enough. If you believe that you could satisfy those who argue for any kind of social welfare program by giving it to them, is fundamentally mistaken. On the same side, the result is more devastating for the poorest in society, with larger unemployment, and economic opportunities. Those who fail are unanimously seen as victims of the capitalist system, and those who succeed must have done so through vicious greed and reckless exploitation.

    This is why the innovators and creators of the world reside in the United States, and not in France.

    So you want to be more like France?


    Bill Wirtz

    Bill Wirtz is a Young Voices Advocate. His work has been featured in several outlets, including Newsweek, Rare, RealClear, CityAM, Le Monde and Le Figaro. He also works as a Policy Analyst for the Consumer Choice Center.

    This article was originally published on FEE.org. Read the original article.



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  • Europe Can Only Afford Its Welfare State by Heavily Taxing the Non-Wealthy

    Posted on by Azrael Comment

    I argued last year that leftists should be nice to rich people because upper-income taxpayers finance the vast majority of the American welfare state according to government data. Needless to say, my comment about being “nice” was somewhat sarcastic. But I was making a serious point about the United States having a very “progressive” fiscal system. The top-20 percent basically pay for government and those in the bottom half are net recipients of that involuntary largesse.

    I also pointed out a huge difference between the United States and Europe. Governments on the other side of the Atlantic impose much higher burdens on lower-income and middle-class taxpayers.

    Here’s some of what I wrote:

    …the big difference between the United States and Europe is not taxes on the rich. We both impose similar tax burden on high-income taxpayers, though Europeans are more likely to collect revenue from the rich with higher income tax rates and the U.S. gets a greater share of revenue from upper-income taxpayers with double taxation on interest, dividends, and capital gains (we also have a very punitive corporate tax system, though it doesn’t collect that much revenue). The real difference between America and Europe is that America has a far lower tax burden on lower- and middle-income taxpayers. Tax rates in Europe, particularly the top rate, tend to take effect at much lower levels of income. European governments all levy onerous value-added taxes that raise costs for all consumers. Payroll tax burdens in many European nations are significantly higher than in the United States.

    So does this mean European politicians don’t like ordinary people?

    I could make a snarky comment about the attitudes of the political elite, but I’ll resist that temptation and instead point out that taxes in Europe are much higher for the simple reason that government is much bigger and that means some segment of the population has to surrender more of its income.

    But here’s the $64,000 question that we want to investigate today: Why are European governments pillaging lower-income and middle-class taxpayers instead of going after the “evil rich” and “greedy corporations”?

    Part of the answer is that there aren’t enough rich people to finance big government. But the most important factor is the Laffer Curve. Politicians can impose higher tax rates on upper-income taxpayers and companies, but that doesn’t necessarily translate into higher revenue. Simply stated, well-to-do taxpayers have considerable ability to earn less income and/or report less income when tax burdens increase, and they do the opposite when tax burdens decrease.

    That’s true in the United States, and it’s true in European countries such as Sweden, France, Russia, Denmark, and the United Kingdom.

    So even if politicians want to fleece upper-income taxpayers, that’s not a successful method of generating a lot of revenue.

    Which is why a shift from a medium-sized welfare state (such as what exists in the United States) to a large-sized welfare state (common in Europe) means huge tax increases on ordinary taxpayers.

    I’ve made this point before, but now I have some additional evidence thanks to a new report from the Organization for Economic Cooperation and Development. The Paris-based bureaucracy is probably my least-favorite international organization because of its advocacy for statism, but it collects and publishes lots of useful statistics about fiscal policy in the industrialized world.

    And here are three charts from the new study that tell a very persuasive story (and a depressing story for ordinary taxpayers).

    First, we can see how the average tax burden has increased substantially over the past 50 years.

    And who is paying all that additional money to politicians?

    As you can see from this second chart, income tax revenues have become a less-important source of revenue over time while social insurance taxes (mostly paid by lower-income and middle-class taxpayers) have become a more-important source of revenue.

    The third chart shows the evolution of the value-added tax burden. This levy takes a big bite out of the paychecks of ordinary people and the rate keeps climbing over time (and if we looked just at European governments that are part of the OECD, the numbers are even more depressing).

    Now let’s put this data in context.

    The United States now has a medium-sized welfare state financed mostly by upper-income taxpayers.

    But because of dramatic demographic changes, we are doomed to have a large-sized welfare state. At least that’s what will happen if we don’t reform entitlement programs.

    And if we leave policy on auto-pilot and there’s a substantial increase in the burden of government spending, it’s simply a matter of time before politicians figure out new ways of taking more money from lower-income and middle-class taxpayers.

    Yes, they may also impose higher rates on “rich” taxpayers, but that will be mostly for symbolic purposes since those levies won’t generate substantial revenue.

    Last but not least, don’t forget that European fiscal burdens will mean anemic European economic performance.

    Reprinted from Intentional Liberty


    Daniel J. Mitchell

    Daniel J. Mitchell is a Washington-based economist who specializes in fiscal policy, particularly tax reform, international tax competition, and the economic burden of government spending. He also serves on the editorial board of the Cayman Financial Review.

    This article was originally published on FEE.org. Read the original article.



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