Monday, March 21, 2005

Germany Cuts Corporate Tax Rate

If you can't beat them, join them. An op-ed in Opinion Journal reports that German Chancellor Gerhard Schröder, a long-time opponent of EU countries cutting any tax rates but especially corporate tax rates, has proposed corporate tax cuts in Germany. Link.
When eight formerly communist countries in central Europe joined the EU last May, German Chancellor Gerhard Schröder was among the earliest and loudest critics of their tax-cutting ways. Low tax rates "are not the way forward" for Germany's new eastern neighbors in the EU, he warned on the eve of the Union's enlargement.

Well, what a difference a year makes. Last week the German chancellor announced plans to cut the federal corporate tax rate to 19% from 25% -- which just happens to be the corporate tax rate of Poland, one of the new EU member Mr. Schröder was so critical of last spring.

German unemployment is at a record, and with several alternatives within the EU to do business far cheaper, businesses or business expansions are moving elsewhere. A table in the article shows the degree of tax difference:

Combined national and local rates of tax on corporate income
2005 2000
Ireland 12.5 24.0
Hungary 16.0 18.0
Poland 19.0 28.0
Slovakia 19.0 29.0
U.K. 30.0 30.0
Netherlands 31.5 35.0
Belgium 34.0 40.2
France 34.3 37.8
Italy 37.2 41.2
Germany 38.3* 52.0
U.S. 39.4 39.4
Japan 40.9 40.9

* Current rate, which consists of federal and local taxes. Gerhard Schröder proposes to cut the federal part of to 19% from 25%, making a combined federal and local rate that would average about 32%.

It tells you a lot when the US ranks behind France, Italy, Germany, and Belgium in any economic measure. That the measure involved something that can cause companies to relocate or outsource should be a big warning. Ireland got the ball rolling, and now that most of the new Eastern European members of the EU have low corporate taxes, the Old Europe dinosaurs will either cut their taxes or face the same fate as the real dinosaurs.

The EU still has a lot of overregulation that keeps us competitive, despite our high corporate tax rates, but if that overregulation ever abates, or if ours continues to get worse, we will be in the same position as Old Europe.


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