Politics & Policy

Taxing Times

The fight for national sovereignty in Europe.

Even before the European Union enlarged by ten new states last Saturday, Old Europe had started to pressure the new states to harmonize with its sclerotic ways. Wolfgang Clement, Germany’s finance minister, said last week that he wanted the new EU member states to increase their corporate tax rates or face a cut in EU aid. Harmonization by threat is an all-too-familiar Franco-German approach–and its one the new states must fight hard to defeat.

#ad#Globalization is usually seen as the expansion of the global market, and particularly an expansion of the reach of large multinational corporations. Many politicians and pressure groups argue that it is essential that global governance structures be expanded to ensure that corporations and the market don’t get out of control and start harming human rights, democratic stability, the environment, culture, and global health.

From about the time of President Kennedy there has been a slow and now accelerating push for global governance, and away from the sovereignty of nation states. This process has always been driven by Europe (initially to avoid another world war). The global-governance institutions that pressure groups, bureaucrats, and politicians promote include international treaties on numerous issues such as climate change, chemicals, and tobacco. There are also proposals pushed by powerful and respected international bodies for agreements on labour standards, environmental protection, and tax harmonization. These entail an entirely different form of globalization–one that is beginning to have a significant, and deleterious, effect.

Many people, especially Europeans, don’t like to see American brands such as Marlboro, McDonald’s, and Coca Cola being sold on every street corner of the planet. But unlike homogenized government agreements from which there is little escape, one does have the choice not to buy these products. Jurisdictional competition is as important for government as it is for business–perhaps more so, because of the hegemonic (occasionally despotic) power governments can wield.


The European elite wants harmonization across the rich world. They argue that with out it, countries will continue to adopt diverse tax and regulatory structures, and the media (even if through glasses tinted with the soft red of mild socialism) will see the success of the lower-taxed, lower-regulated economies–Iceland, Ireland, Luxembourg, Switzerland, Hong Kong, and Singapore–as demonstrating that one doesn’t need to be an economic giant to be economically successful.

Lower-tax countries have recently come under pressure to comply with OECD and EU concerns about tax evasion and money laundering. The claims of OECD and others have some legitimacy (especially in providing information about terrorists and other dangerous characters), but not much. And they must be fought.

If we don’t combat these messages more seriously, the world will be pushed by vested interests–primarily in Europe–toward a harmonized, homogenized global-governance structure that will slow world growth to European proportions–something that aspiring nations can’t afford and we shouldn’t want.

Unfortunately, Europe is no longer an aspiring region. The usual distinction made is between the developing and the developed world, but this is misleading. The U.S. is the richest country in the world and is still aspiring, like most of those normally called developing. Europe is not; it is developed but not aspiring. It has become inward-looking and above all happy with stasis. There are exceptions, of course, but the elite in Europe is generally happy with its lot and wants to keep it, and even export its own brand of fairness.

It’s tax harmonization that can lead to the greatest loss of national sovereignty. And that is where the position taken by the U.S. (and its allies) is so important. No other nation can restrict the activities of European regulators.

Frenchmen Pascal Lamy, Lionel Jospin (both socialists), and Jacques Chirac are all on record wanting tax harmonization; in particular, they want the U.K. and Irish to lower taxes and thereby move in the French direction. Germans Gerhard Schroeder and Joschka Fischer want the same thing. They especially want EU qualified majority voting on tax matters.

Outside the EU these actors are imperialistic in targeting small jurisdictions on tax, and hypocritical in not applying the same rules to their own countries. So far they have failed to convince the U.S. and other aspiring nations to want harmonization, but there are voices, many of them Democrats, who like their ideas. The U.S. administration must continue to engage in the battle for national sovereignty. It should do so for self-interested reasons, but also to help the poorest countries that cannot fight the EU without its help.

Dr. Roger Bate is a visiting fellow of the American Enterprise Institute.

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