NCPA - National Center for Policy Analysis

Britain And Germany Are Cutting Taxes

March 17, 1999

The leftist Labor Party government in Britain has just put forward a significant tax rate reduction and the leftist German Chancellor Gerhard Schroeder sacked his finance minister after German companies threatened to revolt over his planned tax increases. Schroeder now promises to cut taxes on business, rather than raise them.

Among the measures announced in Britain:

  • The corporate tax rate will be reduced from 31 percent to 30 percent, with a 10 percent tax rate applied to the first $16,300 of profit, and small businesses will also be allowed a 40 percent deduction on all new investment.
  • A new bottom tax rate of 10 percent will be introduced for low income workers, and the basic tax rate most taxpayers pay will be cut from 23 percent to 22 percent.
  • The tax rate on long-term capital gains will be just 10 percent, with the first $11,500 of gains by individuals exempted, and the threshold for paying estate taxes will be raised $13,000, with a top tax rate of 40 percent.

Overall, taxes will be cut by more than $6 billion or about 1 percent of Britain's gross domestic product.

In Germany, business united to attack Lafontaine's plan to raise taxes, pointing out that they already pay the highest corporate tax rates of any major country -- as high as 58 percent. Major corporations threatened to leave the country, leading Schroeder to fire him.

Big German companies seldom ever speak out against government policies. But an increasingly competitive world market has led many of them invest heavily abroad. Last year German companies invested almost $100 billion in foreign companies, led by Daimler-Benz's $38 billion takeover of Chrysler.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, March 17, 1999.


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