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Thursday, November 17, 2005

Europe: Revitalization Or Decline?

The question that any analyst of Europe asks is whether the E.U. can be revitalized or whether it is fated to continue an incremental downward spiral to marginality. While pundits on both sides of this political equation have opinions, answers aren’t readily available.

All one can look at are signs, but these are available in abundance.

The French who often tell rude jokes about Boring Belgians are now seeing rich French figures who have found their next door neighbor an escape from draconian French taxes. The Halley’s of the Carrefour supermarket chain have settled in Belgium as has Philippe Jaffre former head of Elf Aquitaine, the state oil company.

Fiscal exiles include singers Charles Aznavour and Patrica Kaas; the actress Emmanuelle Beart and Isabelle Adjani, among others.

For those who are obliged to pay at the highest income bracket (80 percent) as well as a “solidarity tax on wealth,” it often means an annual tax bill greater than their income. In order to conceal the effect of onerous taxes, the French government estimates that the flight of capital accounts for a loss of about $2 billion a year while unofficial estimates have it closer to $30 billion.

France obviously needs this tax revenue to support the generous compensation for the unemployed. All an out-of-work person has to do to maintain generous benefits is call in every six months to confirm that no new job has been secured. Prime Minister Dominique de Villepin has proposed giving the unemployed a bonus of $1200 for taking a job, even as the government weighs a three strikes rule - a loss of payments if three job offers are turned down.

When the government tried to make it easier for small companies to lay off workers, thousands of strikes took to the Paris. Apparently French workers don’t realize the easiest place to lose a job is also the easiest place to find a job.

Whenever enlightened French officials discuss the value of privatization, they are obliged to retreat from that position because union leaders refuse to give ground from the commanding heights of the state guided economy.

According to one study the average French pay stub lists more than 40 deductions, compared to two in Britain and four in the United States. The government says it doesn’t want anyone’s tax bill to exceed 60 percent of household income, but as long as it refuses to eliminate the anomalous wealth tax, the proposal is little more than an empty wish.

France, of course, is not alone on the socialist scale. Germany has a minimum wage almost twice as high as the one in France and it also suffers from an unemployment rate of over eleven percent.

Mrs. Merkle’s lead during the recently completed campaign virtually evaporated when she discussed the need for social welfare retrenchment. A dose of the medicine needed to put a charge in the lackluster German economy is still not politically acceptable. As a consequence, the near tie in the election has left Germany without a policy direction and close to political paralysis.

Clearly if things get worse, change might be more readily accepted. Yet the downward slope in Germany with the precarious status of the banks and the intractable high unemployment rate might well have served as a catalyst for reform. But a mandate for change did not emerge from the election.

This analysis, of course, is a snapshot. History, on the other hand, is a montage. Yet a montage is composed of snapshots. What one sees is ominous. Decline is palpable. In fact, the axis of the world’s economy has already shifted from the Atlantic to the Pacific. World shaking events surround us and for most Europeans the news cannot be good.

11 comments:

Tom Van Dyke said...

The European statist does not believe wealth can be created or destroyed--only shared.

Entrepreneurship is a code word for "exploitation," and no tax or regulation can have any negative effect on the size of the economic base. Economies can only grow or shrink due to inexplicable natural cycles of feast and famine.

Therefore, it must be ensured that everyone be given "enough," whatever that is, and no one can have "too much," whatever that is, just to make it "fair." Whatever that is.

Matt Huisman said...

As Gerald Ford likes to say, “A government big enough to give you everything you want is big enough to take away everything you have.”

And that’s true. But there’s an intermediate stage: A government big enough to give you everything you want isn’t big enough to get you to give any of it back.

--Mark Steyn

James F. Elliott said...

I find little to object to in this post. We all know that the French system is broken. I for one, had no idea that the highest tax bracket was 80 percent! Even from my socialist-leaning point of view, that is grossly unfair.

However, there is this from the post: "Germany has a minimum wage almost twice as high as the one in France and it also suffers from an unemployment rate of over eleven percent." There is little evidence that minimum wages cause unemployment. In the United States, locales with living wage requirements experience growth in employment - the theoretical models are not borne out by real life experience. I am sure that Dr. London is correct on the larger scale that there are aspects to the German system that are onerous and overly-burdensome, thereby creating strain on the economy, but it would seem that the minimum wage contention is a broad overgeneralization.

Tom Van Dyke said...

From the internet:
"This study, by Dr. Aaron Yelowitz of the University of Kentucky, utilizes government collected data to examine the labor market effects of Santa Fe’s living wage increase. Dr. Yelowitz finds that the living wage in Santa Fe significantly increased unemployment and decreased hours worked for those who were able to keep their job. Even more troubling, this research found that almost the entire negative effect of the living wage was concentrated on the city’s least-skilled and least-educated employees. These are the very individuals the living wage is purportedly helping."

Hunter Baker said...

James, would you be astonished to know that the United States once had a top marginal rate of 90%. It was at 75% when Reagan made his massive cuts in the tax rates. Amazingly, revenues increased, even with a new top rate of 34% (that's close if not exact).

Why? Because people stop trying so hard to avoid taxes at lower rates. They are willing to make more and it makes less sense to engage in dodges.

Matt Huisman said...

Following up on TVD's point, price controls are a form of job protection. They keep higher skilled people employed because lower skilled people cannot compete on price for the work with low skill requirements.

Hunter Baker said...

Minimum wage requirements are part of the "wishing makes it so" method of governance. It is worth just so much to an employer to hire a person to do a certain job. If you put a floor above it, the employer will have to ask existing employees to do the task or have the business do less of what it does. The result is trouble for existing employees and an artificial limitation on productive activity. I have no idea why anyone would be stupid enough (and I don't like to speak that way) to endorse the notion.

James F. Elliott said...

I have no problem with reasonably low tax brackets for high-income people. My rule of thumb tends to be, "Will the level of tax reduce their quality of life?" Since the CEO of Coca-Cola makes $300 million a year, the man can afford to give up half that and maintain his lifestyle (and his extended family's, for that matter!) What concerns me more is that corporate income-tax share has fallen to ridiculously low levels, to the point that wage-earners (and I'm not talking the CEO of Coca-Cola here!) are carrying almost all of the burden. I love picking on the oil industry, so I'll do it again: ExxonMobile made $10 billion in pure profit last quarter. Know how much tax they paid? $0.00. That's bullhonkey, yo.

It's interesting that Santa Fe had such a negative reaction to living wages. Santa Clara County and San Jose both have living wage requirements and employment increased for those same workers. In fact, Santa Fe is the exception, not the norm.

James F. Elliott said...

j-deal, I invite you to look at wage-earner versus corporate share of tax for the last fifty years. You will find that the share of taxes corporations pay is well under 35% - in fact, their share is at the lowest point in that time frame. What we are seeing is the people who can least afford taxes paying the bulk of the taxes.

Is it just me or did your long reply answer the "Big Oil pays no corporate taxes" by entirely avoiding the question? You can go and read the trascripts of the Big Oil execs under oath just last week. They get more tax breaks than they pay in taxes. They even said that they don't need the tax breaks. You're arguing against real life with theory.

James F. Elliott said...

"And if you don’t like Big Oil, you should be happy to know that over the last 25 years, they have paid more in taxes than they have earned. Over a trillion dollars!"

That's blatantly not true. You literally just lied.

"The money passed to shareholders will be taxed on capital gain, and dividend."

Oh, you mean the taxes that hardly exist any more?

Again, you're arguing theory without any attention to what ACTUALLY OCCURS in reality.

James F. Elliott said...

Besides, j-deal, isn't your argument basically "We can never actually tax corporations." It's euphemistic double speak masquerading as logic. By your very argument, you argue against the existence of corporations. After all, where's the exchange for the benefit of limited liability if you can't actually tax the corporation?

Of course, conservative arguments about taxes are grounded in ideological blindness in the first place, so I don't actually expect you to get any of that.