In a subscription-only editorial yesterday, Wall Street Journal Editorial Board member Stephen Moore notes that many countries in the rest of the world, including a few you'd never expect, are adopting the tax-cutting policies of Ronald Reagan, to their benefit:
Earlier this year the cover of Time Magazine depicted Ronald Reagan with a tear running down his cheek -- the message being that the political class has abandoned the Reagan legacy.....
Ironically, the Reagan economic philosophy of lower taxes, less regulation and free trade has never been more in vogue abroad -- so much so that it has become the global economic operating system.
Let's call this phenomenon Reaganomics 2.0.
In the Pacific Rim nations, for example, Malaysia, New Zealand, Singapore, Taiwan and Vietnam all have cut taxes this year or have plans to do so. Singapore has cut taxes multiple times in recent years and it now operates with no capital gains tax.
But the remarkable attitudinal shift on taxes has been in Europe, which in the 1980s and '90s showcased their gold-plated social safety nets, boasted of their citizens' willingness to pay high tax rates to maintain them and were openly contemptuous of the Reagan tax-cutting philosophy. Now those same nations of old-Europe seem to be in a sprint to see which country can get their tax rates lowest quickest. Nicholas Vardy, the editor of "The Global Guru" economic newsletter calls the phenomenon "Europe's Reagan Revolution."
French President Nicolas Sarkozy has plans to cut his country's business income tax by at least five percentage points as part of his economic rehabilitation plan. Spain and Italy are negotiating plans to lower their corporate tax rates, and the U.K. already did so earlier this year. Sweden and Russia last year eliminated their estate taxes because they said the tax was economically counterproductive. In Germany under Chancellor Angela Merkel, the corporate tax rate has been reduced to less than 30% from 39%.
Some of this tax chopping in Old Europe is a response to the success of the U.S. tax rate reductions and the fast pace of job creation that ensued from economic growth -- though few European officials will acknowledge that reality. But a bigger factor more recently has been the impact of the flat-tax revolution in Eastern Europe. Dan Mitchell of the Cato Institute says there are now 14 nations with flat taxes, 10 of them in nations formerly behind the Iron Curtain. "The pace of tax reform in these nations is so frantic, that it's hard to keep up to date with the changes," he says. Poland hasn't yet established a flat tax, but recently cut its business tax to 19% from 27%.
Austria cut its corporate tax rate to keep pace with its neighbor, Slovakia which recently adopted an 18% flat tax. Singapore is cutting taxes to compete with its 16% flat-tax rival Hong Kong. Northern Ireland wants to cut its tax rates so that it can compete with the economic gazelle of Europe, the Republic of Ireland. In 1988 Ireland was a high-unemployment stagnant economy with a 48% corporate tax rate, today that rate is 12.5% and the rest of the world is now desperate to match its economic results. Meanwhile German Finance Minister Peer Steinbrueck sold the latest tax cuts as "an investment in Germany as a business location."
The idea that jobs, businesses and wealth follow low tax rates is widely accepted.
..... This is all very good news -- except in the U.S.
Sad, but true. Congress has proposed tax increases that collectively, if enacted, would dwarf the previous record 1993 increases that even Bill Clinton once admitted went too far (fourth item at link in "The Classics" category). Every major Democratic presidential candidate wants some form of nationalized or nationally-controlled health care; though they may deny it now, they will have to raise taxes, and steeply, to pay for any such program if it is ever enacted. Some of us remember that the original HillaryCare proposal was supposedly going to paid for with only increased cigarette taxes -- a fantasy that didn't survive more than a day or two after the full plan was released.
Finally, the major GOP candidates appear to be satisfied with advocating making the 2001 and 2003 Bush tax changes permanent, and stopping there. Meanwhile, Moore shows that other countries are demonstrating, in case we have forgotten Reagan's multiple tax cuts, that cutting rates several times in stages will lead to even greater prosperity, and even greater tax collections.
The US press remains (deliberately?) ignorant of the tax revolution going on overseas, and stands poised to ridicule anyone who might propose the next logical step -- another income-tax cut. Mr. Moore is very clear, and very correct, about the potential implications:
All of this threatens to move America from leader to laggard in the global race for job creation, capital investment and prosperity. Maybe that explains the tear rolling down the Gipper's cheek.
Cross-posted at BizzyBlog.com.