by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Michael Tanner of the Cato Institute admits in a National Review Online column that the United States can learn some valuable public policy lessons from Europe.
For example, we could well benefit from adopting a Swiss-style “debt break.” By law, the Swiss government cannot run a budget deficit over an economic cycle. This is not, strictly speaking, a requirement for an annual balanced budget, but rather it limits the growth in government spending to no more than the average of revenue increases over a multiyear period, after adjusting for the cyclical position of the economy (as calculated by Switzerland’s Federal Department of Finance). This allows the government to smooth budgets during economic slowdowns, when revenues decline and expenditures rise, but prevents ongoing deficit spending. Nor can the Swiss easily raise federal taxes to finance more spending. Maximum tax rates at the national level — an 11.5 percent income tax, an 8 percent value-added tax, and an 8.5 percent corporate tax — are set by the constitution. They can be raised only through a referendum, in which the proposed increase would have to win both a majority of the national vote and a majority of the vote in more than half the Swiss cantons. The equivalent in the United States would be that every tax hike had to be approved by a majority of all American voters and a majority of voters in at least 26 states.
Speaking of taxes, perhaps we should emulate European business taxes. Every country in Europe has a lower corporate tax rate than the United States. Our current corporate rate is 39 percent. In contrast, the highest corporate rate in Europe is 34.43 percent, in France. In Bernie Sanders’s beloved Denmark, it is just 23.5 percent. On average, the EU corporate rate is just 22.8 percent. Much of Europe also has lower capital-gains taxes than we do. It’s an article of faith among liberals that we need to raise taxes on capital and investment. But Belgium, the Czech Republic, the Netherlands, Slovenia, and Switzerland have no capital-gains tax at all. (Overall taxes in Europe are higher than in the United States, but that’s primarily because of regressive VATs, not taxes on the wealthy.)