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The Liffey Didn't Suddenly Run With Guinness

Kitty Miv, Editor
02 January, 2014

Kitty's Kountry Rankings are below, with a description of how they are kompiled. This week, as every week, I give out Encomiums to countries which have done Good Things, and award Execrations for countries which according to my highly personal and partial views have done Bad Things.

It's a bad week indeed when the nearest I can get to good news for taxpayers is that there are a certain number of countries thinking about tax cuts, but not promising anything. Ireland, for instance, where the Prime Minister at least said there wouldn't be any tax increases in the next Budget. Ireland emerged from its Troika-imposed bailout program ten days ago, but the Liffey didn't suddenly run with Guinness, and there was no red wine in the public fountains. The grim reality is that taxes are higher than they were five years ago in almost every respect except for the corporation tax rate.

Spain is likewise offering jam tomorrow, although its warblings about tax cuts for lower income groups are balanced by redistributive threats directed at higher earners, aiming overall at a higher tax take.

Italy's budget for 2014, hopefully called a "Stability Law," also contains some futuristic douceurs for taxpayers, so far as it can be understood (not very far, and anyway it changes by the day), in addition to including a few new taxes, in case maybe one of them will survive popular riots, the constitutional court, and the EU's single market rules.

Turning away from the bleak reality of Old European countries as they are at the dawn of 2014, I want to reflect a little on how we got ourselves into this mess. "We" evidently being Europeans. I can't label myself "American," "Asian," "Brazilian," or "Australian," so I'll have to make do with "European," although many of the truths I am about to lay out would apply just as much to other regions.

Truth number one is that we have allowed the State to take us over. It farms us for its own benefit, and its crop is tax. Hardly anyone nowadays understands the extent to which we have sold our souls for a mess of pottage, which we can broadly call "entitlements." That's because we grew up in the system, and like frogs being warmed up to boiling point, we didn't feel any pain until it was too late. Income tax, both individual and corporate, dates from 1900, more or less; later in some cases. Originally it was imposed at some very low figure, 1 percent for example, in "exceptional" circumstances. Now, in many countries, individual income tax is being increased "in exceptional circumstances" from 45 percent to 50 percent, although only a minority of people pay such top rates, while a majority of people receive back more than they pay, by way of "entitlements."

The process of growing the State has been more or less constant, and ineluctable, since the 16th century, when nations began to crystallize from the mediaeval mess of princely domains. Technology, so lauded (and correctly) as the buttress of our individual freedoms, has also been the instrument of our domination by the State, beginning with printing. Someone remarked that "absolute power corrupts absolutely," which is merely an observation about human nature. Give a Government power, and it will use it to further the ends of its component bureaucrats, facetiously called "civil servants." Those ends are to increase their own number and power, and their instrument is tax, which creates the sinews of their campaign against the freedoms of their citizens.

Domination of human affairs by the State was forecast by George Orwell, although he was wrong by 50 years or so. Occasional heroes have stood out against it, including in our times Friedrik Hayek, Ronald Reagan and Margaret Thatcher; but by and large its advance has been unrestrained.

Of course it's not right to attribute sinister motives to the individual agents of the encroachment of the State on human liberties. People such as Angel Gurria (of the OECD) and Algirdas Šemeta (of the EU) presumably think that they are pursuing a rightful and accurate path towards some sort of advanced human economic Utopia. Unfortunately they are deluded, and what they are actually doing is to cement the baneful influence of the State with their insistence on information exchange and the extirpation of tax advantages. They are simply playing into the hands of history, poor dupes.

Of course, also, it is not correct to laud tax evasion, which hurts other taxpayers. But there is a greater good, called freedom, which was so painfully won by our ancestors, and which is being given up so carelessly.

This is not quite, yet, a world-wide problem. Percentages of national income taken in tax are still quite low across much of the globe. It is just in Europe that they are so high, and getting higher, with no realistic prospect that they will reduce in the foreseeable future.

State interference in and domination of individual freedoms is directly a function of its control of the economy. At 50 percent, which is roughly where Europe is now, it is dangerous but not yet catastrophic. Another 20 percent, and we will be scarcely distinguishable from the Stalinist USSR, which redistributed everything (and stole what it wanted along the way).

Having offered faint praise to some countries which would fain reduce taxes, let me now offer some not so faint criticism to a country, the USA, which is actively seeking to strengthen the web of tax-based information gathering with its FATCA program.

Regrettably, here is a quote from one of our current news stories: The IRS is finalizing IDES to allow for FFIs and HCTAs to exchange FATCA data automatically with the US. Now, apart from the awful string of acronyms, for which I can only apologize, this is a perfect example of the use of technology to tighten the knot that is binding us ever more tightly to the State. No individual has any freedom whatsoever within this cat's cradle of connections. What remains is to give in, cheat or leave, which latter in the case of American citizens means to give up citizenship. Again, I must emphasize that not paying taxes is wrong. But not so wrong as the Government that extracts them in defiance of liberty. What is especially remarkable about FATCA, though, is that no-one, not even the Treasury, pretends that it will make money. Every estimate of the costs that I have seen, and that is just the external costs, tops USD5bn, and many stretch out to more than USD10bn, whereas the Treasury itself reckons to extract no more than USD1bn in extra tax. It is, pure and simple, an exercise in repression, based on a presumption of guilt. So shame on them for that.


Kitty's Encomiums and Execrations

Methodology: each week (this is the 85th) two or three countries are given encomiums and two or three are given execrations. Those are the entries below with descriptive links. In the following week, each encomium counts as + 1 for that country, and each execration counts as – 1, being added to that country's existing score. Over time, therefore, a ranking will build up for each country, and further countries will join the listing. Germany is on + 1, since in the second week it had an execration and in the first week it had an encomium, leaving it at neutral; then it had an execration in week four, thus dropping to – 1, and another one in week six, dropping to – 2; finally in week 13 it got something right, so it went back up to – 1; then in week 16 it gained a further star, so then it was in neutral territory until week 23 when it dropped back to minus one, but reverting to neutral territory in the following week, then dropping to minus one in week 50, and back up to plus one in week 51, then to plus two in week 52. Some weeks ago it dropped a place, but then quickly recovered one step.

The rankings are intended to be a proxy for business friendliness; evidently they are highly partisan, but as time goes by they are becoming useful for decision-making. For any country in negative territory, you should think carefully before starting a business there.

Kitty's Encomiums:

Ireland promises not very much

Italy promises to be messsy

Spain to fleece the rich

And Kitty's Execrations:

United States the State above all States




About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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