Globalization, Technology Discourage Tax Hikes
May 31, 1997
Two factors are combining to put a lid on tax rates in countries around the world. The first is the globalization of economies in an era of freer trade -- which allows companies and workers to move from high-tax nations to those with lower taxes. Second, the expansion of business conducted over the Internet is making it more difficult to track and tax transactions, economists note.
- Although high corporate tax rates were trimmed in Sweden long ago, its top marginal income tax rate is 60 percent and activates at an income of only $28,000 -- prompting the current flight of talented scientists and engineers to countries where taxes are lower.
- Moreover, sales taxes in Sweden amount to 25 percent -- compared to about 5 percent in the U.S. and Japan.
- France, with taxes of 50 percent of GDP compared to an average of 38 percent in other industrialized countries is obviously at a competitive disadvantage and suffers unemployment of over 12 percent.
- Although the average rate of tax on income from capital and self-employed labor fell from almost 50 percent in European Union countries in 1981 to 35 percent in 1994, the average tax rate on wages has climbed from 35 percent to 41 percent.
Such factors encourage workers, particularly the highly skilled, to emigrate to lower-tax countries.
Even if such workers do not become tax exiles, many earn a growing slice of their income from overseas, through consultancy work, for example. Only a computer, a telephone and a modem are needed and such income is relatively easy to hide from the tax collector. Taxing personal savings also becomes more difficult when these can be zapped from one side of the globe to the other. Cross-border sales of equities and bonds, for example, have surged from 3 percent of America's GDP in 1970 to 136 percent in 1995.
Source: "Disappearing Taxes," Economist, May 31, 1997.
Browse more articles on International Issues