Brad, Oskar, Noam

Max Sawicky sawicky at epinet.org
Thu Mar 18 13:03:31 PST 1999



>
> Lafontaine had a few major policy goals: EU tax harmonization
*upward*, wholesale reflation of the European economy, promoting capital controls internationally, and defending Europe's labor market regulations.>

I too am skeptical of U.S. support for Lafontaine, but the tax argument is not one of the reasons. Tax harmonization in the EU means harmonizing the VAT. Harmonizing 'upward' makes possible the reduction of income taxes. This is supposed to improve their labor market, but I don't buy it.

Harmonizing under any circumstances will be very difficult. Every country has a veto. From this standpoint, harmonizing is a relatively idle threat. It is not just the rates which are disparate; definition of the tax base varies grossly as well. Turns out that VAT's can be pretty complicated, contrary to some conventional wisdom about tax reform. Harmonizing income taxes is a much taller order, in my view. Harmonization in this realm could easily result in clipping the higher rates.

I published a piece on this, if anyone is interested.

mbs



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