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The Confiscation Conundrum in Europe
Wolf Richter www.testosteronepit.com
No one likes paying taxes. You’d think. And it’s not just income taxes but a slew of other taxes. In San Francisco, we already have an 8.5% sales tax—but propositions to increase the state portion are worming their way onto the November ballot. At least we get to vote on it. And if it passes, it’s our own @#%& fault. In Japan, efforts to raise the national consumption tax from 5% to 8% by 2014 and to 10% by 1015 have led to a groundswell of opposition and a nasty political fight—yet Japan is the one country of all developed countries whose budget deficit and national debt are truly catastrophic.
But if my premise is correct that no one likes paying taxes, what the heck happened in Europe? Eurostat has just published Taxation Trends in the European Union, and it leaves reasonable people gasping. The good news first—or the bad news, depending on the point of view....
There has been a phenomenal race to the bottom in corporate income taxes across the 27-member European Union, as countries compete to attract businesses. While the debt crisis has slowed this trend, it has not stopped it. The graph below shows the decline of the average top tax rate in the EU, and the parallel decline in the Effective Average Tax Rate (EATR):
For 2012, France is king of the hill with 36.1%, followed by Malta with 35%, and Belgium with 34%. At the bottom are Ireland with 12.5% (it maintained the rate despite heavy pressures from other EU countries to raise it in exchange for bailout payments) and Bulgaria and Cyprus with 10%. How long the race to the bottom can continue is uncertain; people who are experiencing the effects of “austerity” may show some impatience with the corporate sector.
Insidiously, personal income tax rates in the EU, and in particular in the Eurozone (EA-17), have been rising since the beginning of the debt crisis, after many years of declines. In 2010, beleaguered Greece [for an awesome and at once shocking video of the brutal street clashes last year, check out.... "Horrific Moments in Greece"] jacked up its top rate by 5 percentage points to 49%, and the UK hit the magic 50%. In 2011, Spain, France, Italy, Luxembourg, Portugal, and Finland raised their personal income tax rates. In 2012, French President François Hollande has vowed to impose a 75% top rate. However, the averages have been kept from skyrocketing by the Eastern Member States that have cut their top rates—Hungary, for example, knocked it from 40% to 16% in 2011.
The greatest personal income tax sinners are Belgium with a top rate of 53.7%, Denmark with 55.4%, and Sweden, congratulations, with 56.6%. Among the heroes: the Czech Republic and Lithuania with 15% and Bulgaria with a lovely 10%.
But the shocker in Europe is the Value Added Tax. Unlike a sales tax, a VAT is levied at each stage from production to retail on the difference between input costs and sales price, hence on the “value added.” Countries have large administrations to police this complex system that is rife with fraud. The VAT is applied to services as well—so the base is broad. And the rates are not only confiscatory for most part, but they’re suddenly shooting up:
VAT rates vary from 15% in Luxembourg to 25% in Hungary, Denmark, and Sweden, and a vertigo-inducing 27% in Cyprus—why not make it 100%? Germany is an example of recent trends. The top personal income tax rate dropped from 53.8% in 2000 to 47.5% in 2012, the top corporate income tax rate dropped from 51.6% to 29.8%, and the VAT dropped from 16% to.... Oops! It didn’t drop. It rose to 19%. Thus, people have to pay 18.7% more for the same goods—hitting disproportionately those who spend all the money they make, a good part of the population.
Countries may have lower VAT rates for certain categories. In France, where the standard VAT is 19.6%, the rate for restaurant meals (excluding alcohol) was lowered in 2009 to 5.5%. Other items were already in the 5.5% category, such as cable TV or some pesticides. But restaurants are a significant part of the French economy with €80 billion in sales and 800,000 jobs. As France was getting dragged into the debt crisis, it needed to reduce its budget deficits. Voilà, as of January 1, 2012, the VAT on restaurant meals has been raised to 7%, and President Hollande has threatened to raise it further.
For the EU, tax revenues from all taxes and compulsory social security contributions in 2010 were 38.4% of GDP. On the reasonable end: Lithuania 27.1%, Romania 27.2%, Latvia 27.3%, and Bulgaria 27.4%. At the top: Belgium 43.9%, Sweden 45.8%, and drumroll, Denmark with 47.6% of GDP. Okay, the people may get a lot for it, but by golly, does the government have to confiscate nearly half of the country’s economic output? This is how the EU stacks up against the US and Japan:
Then there is gold. For many years, a meme has floated around that the worldwide prices of gold and silver are manipulated, which is to say suppressed, by various powers of darkness. Not an unreasonable assertion. Read.... Precious Metals Market Manipulation?
And here is a hilariously pungent cartoon by Ben Garrison that applies to the European debacle as well.... "Welcome to SH*T CREEK."
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When taxes are low the economy will grow.
When taxes are high the economy will die.
How many times do we have to repeat it? GDP is a meaningless, contrived, government fabricated number. The only ratio that matters is after-tax income of Americans vs. government expenditures. Today, in the U.S.. that number is about 1:1.
Fair point but the Media don't like the public to know that GDP is confiscated before it reaches their Bank Account. At least in the days of old they only had a few people filing taxes and paying them. Now it is Grand Larceny as they simply intercept pay between payroll computer and bank computer
Hungary VAT rate is also 27% from the start of 2012.
GOLD is VAT free in the EU though. :)
Income tax and most other work-related taxes might soon be abolished in Europe. Many countries are openly discussing this. For this to work VAT must climb to an estimated target of 30-35%.
The massive overhead of tax collectors (and rules) will be abolished too, and people with money have no means to avoid paying taxes: the more you buy the more you pay.
VAT works like this: A producer charges it to his buyer - let's say a supermarket - the supermarket charges it to the consumer. This way the production/sales chain pushes the charge to the ultimate destination: the consumer, so it's only paid to the state once, at the beginning of the chain.
Many countries already let small businesses keep the VAT as a stimulus, and when this system is in place (no work related taxes) people with the lowest incomes will get the VAT back.
Another plan is a basic income. As work is a less and less an available source of income, a basic income will redistribute work and at the same time guarantee spending power. Combined with the 35% VAT this will provide a social, lean, democratic, stable and quite weatlhy society.
might soon be abolished in Europe. Many countries are openly discussing this
Actually Greece and Italy have perfected the technique - Greece has gone further than most
So funny, haha. Typically everyone on this site is against paying taxes, but when the Greeks don't pay it they are bad people. You are a hypocrite sir.
"Many countries already let small businesses keep the VAT as a stimulus"
where??
Netherlands, Denmark, Sweden
Har-har, you are completely clueless!
How about not collecting any VAT tax - that would truly make the collection cheap and bring everyone in compliance.
What a fool. But it's all right, some refreshing and entertaining euro-fireworks should start soon :-)
Fucking socialists.
How about not collecting taxes at all. I bet you cannot name one thing that has to be paid for with tax money.
i also see there is no mention of reducing governmental spending
After the army and social services, the collecting of tax is one of the largest costs.
(deleted dupe post, sorry)
so it's only paid to the state once, at the beginning of the chain.
How can a tax on VALUE-ADDED only be paid at the beginning of the VALUE-ADDED Chain ?
http://answers.yahoo.com/question/index?qid=20080109071737AAg9KdI
Value added tax (VAT) avoids the cascade effect of sales tax by taxing only the value added at each stage of production. For this reason, throughout the world, VAT has been gaining favour over traditional sales taxes.
The consumer pays the tax in the end, but the actual bill is paid at the beginning of the chain/each stage of production.
All VAT paid by businesses is tax deductable by the way. Not many people here seem to know much about running a business.
Thus putting the greatest cost on the average consumer, as the wealthy class consume the least as a percentage of income. Very social, democratic and wealthy for the few that will pay an even smaller percentage in taxation.
Fascism and the new VAT. Good luck with that.
The idea is to make labour cheap, so no taxes on labour. This makes people in the West competitive without letting their wages go down.
35% on a new Ferrari is quite high.
When you pay 20% VAT to hire a lawyer to right and injustice it seems bizarre that the State gains revenue from a Citizen defending his rights. VAT was introduced by France because French dodged Income Tax - it is a complex Cascade Tax that was imposed on countries in Northern eUrope that did NOT evade Income Tax. It is a complex mess because it is applied to prescription drugs in Germany and on petrol which means VAT is levied on Oil Tax and you end up paying Tax on Taxes.
The EU has an average Tax Revenue = 38% GDP versus 15.7% in the USA.
The 50% Band in the UK 9now 45%) has an additional 11% NIC on top so it was 61% with NO Tax Deductions.
France does not charge £400 Road Tax to own a car - it is priced into petrol.
Britain has a Financial Transactions Tax called Stamp Duty since 1694 - the US Colonists revolted when asked to pay
It is estimated that Citizens lose 80% income in taxes in one form or another with many being non-income related
Let's just cut to the chase and admit that we are slaves. Actually, more like ants in an ant farm, toiling away for our lords and masters as they figure out new ways to make our lives more byzantine and therefore more occupying of their attentions. Those poor schmucks; imagine what they would have to do without us.
Corporates capture and enmesh themselves in political structures in order to create the rules.
The rules are skim off all wealth, socialise any losses incurred.
The lesson has always been that when humanity becomes the servant of the state instead of society serving humanity we have a recipe for a monster state.
+1. The scorpion and the frog. The macro concept is covered very well on ZH. Automation and technology are eliminating massive amounts of jobs. But we need jobs, for the sake of jobs. The US tax code is the forerunner to the TSA. We pay people to make other people strip naked and swim across the river with a scorpion on your back. As far as I can tell, robots are not good at bizzare taxation schemes (yet)
Those 'tax' figures don't seem real to me ... It feels cheaper to live here at home in Europe than it does to Europeans when we are in the US, and that includes living outside the big US cities.
It seems US taxes are much more 'sneaky', coming at you from all directions, like the separate 'state taxes' and the 'sales tax' in the US stores that are added last-minute at the cash register ... whereas here the price on the shelf is marked all-tax-included. Great bottles of wine for less than € 3, for example.
It's damn nicer living here, too, maybe that's part of why it doesn't feel so 'taxed' - we actually get a quite wonderful quality of living in north-west Continental Europe. No police state, no poverty among legal residents, little crime ... 'Social democracy' in fact works.
Quasi-paradise is worth slightly higher taxes, if it comes down to that.
It seems US taxes are much more 'sneaky', coming at you from all directions, like the separate 'state taxes' and the 'sales tax' in the US stores that are added last-minute at the cash register ... whereas here the price on the shelf is marked all-tax-included.
Personally, I much prefer knowing exactly how much tax is included in everything I purchase. I like when the fuel pumps show exactly how much Federal and State tax is collected for each gallon of gasoline, how much sales tax is printed on my grocery store receipt, and so on. It makes it easier to compare "apples-to-apples".
When I lived in California, the taxes didn't "seem" so bad, but the cost of living was astronomical, by American standards. I knew those costs came from the high income and corporate taxes, the cost of abiding by so many business regulations, the higher state costs for fuels used to transport goods within California, the costs from so many class action lawsuits and the high environment barriers to new construction which kept real estate prices so high. In effect, California was like a huge, centrally planned version of Disneyland, and when people try to control everything in an economy, it blows up in their faces, the middle class gets squeezed out, and the state gets left with rich and poor. The optimist says it's a result of "unintended consequences", but the pessimist sees a lust for power and control by the central planners who never gave a damn about the middle class in the first place.
I don't want a VAT in America. "No taxation without observation!"
A US friend was assigned to a project in the UK for a few months recently. He observed that the locals made less than he did, paid more in taxes, and endured a much higher cost of living. It was pretty much the same way on his next contract in Munich. He also noticed that the locals touted their great standard of living, the free health care, and the long vacations. Given the small amount of their wages each worker really controlled at the end of each month, they may have lacked production incentive. They seemed to go through the motions a lot while eagerly anticipating their long vacations. My friend said the Europeans (and Brits) had the weakest work ethic he observed when compared to the Americans and Japanese he worked with during projects in those nations.
It seems the old East German adage applies to Western Europe as well, "We pretend to work and they pretend to pay us."
As for the rest of "bank guy in Brussels" outlook, Europe's system is set for self-destruction, given that the median age in the Eurozone is now older than Florida, the US capital of retirees. Between the horrific rates of unemployment for people under 30 and the increasing numbers of the aged moving into the very high medical cost years, the Eurozone appears doomed to increasingly desperate revenue confiscation schemes.
To paraphrase, "May God bless and keep the socialists, far from us."
I lived in West Germany for two years and indeed found the locals pretty industrious. The reputation was when they were at work, they worked hard, and when they left work, they left it; putting in about 36 hours per week, I believe. Not sure what the real disposable income was like for them, but the mehrwehrtsteuer (VAT) in those days was a "mere" 14%. Income taxes were settled up every quarter and many people had ways of avoiding them. I used to take care of minor matters with Marlboros and USDA beef. I did get very tired of hearing how great the socialism was with all the government-provided services.
When Europeans berate Americans for owning guns, hoarding gold, and complaining about their government, it brings to mind the quote from "Easy Rider": "They'll talk to ya and talk to ya and talk to ya about individual freedom. But they see a free individual, it's gonna scare 'em."
Funnily enough you probably have more disposable income in Germany because housing costs are capped by rent control and UK mortgages are ARM without tax deductibility - though Munich is overpriced like London. The British have a weak work ethic - far too social - Germans are far better. There is no focus in Britain, no detail orientation and no quality control. Services are worse than Manufacturing - especially Law Firms and Accountants and Bankers - poor Client Service and attempts to cheat the client are commonplace, either false invoicing or simply ignoring instructions even in writing. Mentality is to do what they want and not what the client/customer wants.
Cost of living is horrendous in UK - much higher than in Europe because so much that taxes should pay for in the UK is simply a Standing Charge and everything has to be paid for as an extra - like tutoring for school children, health care, physio, etc etc.
The Middle Class get a raw deal in the UK and the Unskilled enjoy the highest standard of living on earth especially if they never work. The MIddle Class get worse Medical Care, worse Schooling, worse Policing than otherwise simply to cross-subsidise tthe highest standard of living on earth for Unskilled and (Unemployed) labour
Also far fewer gun crimes and murders.
That correlates with population size - the Uk will see big increases with population density in inner cities. Also British Crime Statistics do not include Crimes against <18 years
Bank Guy
The comparisons would need to include local property taxes, toll fees, license fees, and the various (US) state income taxes.
Relative government borrowing, federal, state, municipal would also need to be included to get a better picture of government "revenues".
And, as you suggested, it isn't simply a matter of total taxation. If, for example, two countries each effectively taxed 30%, but:
Country A provided public health care and education with its taxes, and
Country B provided bank bailouts and warmaking goods, with education and health care unfunded ...
How can you include Road Tolls ? They are user fees for using a particular road as in France. TV Licences in Europe are a TAX but you don't mention them. Italy just tried to tax dogs and cats to raise revenues. State Income Taxes are offset to Federal taxes. Property Taxes in the UK are horrendous because they are regressive and foreigners buy mansions in London and don't pay. Belgium is subsidised by huge EU contributions to the Capital of Chaos in the EU so it can provide services paid for by German and British taxpayers.
The US spends a fortune on Healthcare 17% GDP the highest in the world....
Sandmann
1 My "list" was hardly intended to be exhaustive.
2 The discussion is about government share of GDP.
Gov't revenue is Gov't revenue.
You are too hung up on your definition of "taxation". Toll fee, property, luxury, restaurant, amusement, hotel, court fine, license, sales, VAT, SocSec deduction, and income tax are all revenue sources regardless of how heavily the alleged "user" pays for them or who benefits by (roads, bridges, SocSec, parks, schools, etc.).
Are we to assume a sales tax on food and clothes, or a property tax on homes should not be counted as taxation because only the "users" pay it?
except for the fact that country A is insolvent, having clung to the notion of the free lunch for too many decades... the only exceptions are those countries who squander enough energy/resources to keep up with the prolifigate spending... which also comes to an end, eventually.
and the fact that there really isn't a country A given that the entire developed and semi-developed world decided to join the fed in a contest to kick the can... you've got a hybrid AB at best...
The point remains. It matters how state revenues are used.
Stating the obvious that governments do not spend purely "A" (citizen benefit) or "B" (citizen oppression) is beside the point.
Yes, it matters how state revenues are used, but you're not addressing the issue of insolvency... show me a state that spends and I'll show you a state that spends more than it collects. After we eliminate the states that are prolifigate spenders, we're practically out of real world examples, save the few countries that are oil rich relative to their populations...
In short, you'r trying to draw a distinction without a difference...
Probably because you're living in a fantasy land.
for less than € 3
Wine Tax in UK is £2.17 per bottle or 2.68 Euros per bottle
http://blog.bauduc.com/2011/03/24/13-unpalatable-facts-about-uk-wine-duty/
Meanwhile, here’s a breakdown of a £20 bill for a bottle of wine in a restaurant, listed at £17.80: 12.5% service, 20% VAT, 69% restaurant gross margin, 27% wine merchant gross margin, 25p delivery, £1.81 duty, 39p freight and storage. Cost of the bottle, including wine and packaging, ex-cellars? 90p – half the cost of the duty. (So a high rate tax payer has to earn forty quid to pay for a bottle that the producer flogged for less than a pound.)
Try Whisky
http://www.whiskybroker.co.uk/index_files/costsinvolved.htm
http://ec.europa.eu/taxation_customs/resources/documents/taxation/excise...
Bottle Whisky carries tax of £7.15/bottle + 20% VAT
in Italy (Tirol) we bought an ok white wine bottle for 1.99 Euros.
The taxes are misleading because they show minimal tax rates, i.e. for incomes up to 20K Euros. If you,re making 50k euros it goes parabolic, very easy over 50 up to 70%. Why else huge migration streams into Switzerland?
how do they know what your income is?
Ugh, because your employer wires your salary and deducts for your health and other insurance and those transactions are usually proportional to your pay? And a myriad other ways I guess
Not sure why you'd want anyone here to read Doug Casey's head in the sand position on gold manipulation. Isn't he the same guy selling 'resort' expat property in one of the poorest provinces in Argentina?
From: http://ferfal.blogspot.com/2009/06/doug-casey-on-argentina.html
What's your point?
It seems none, but your comment is almost as long as TFA. Well done, genius!
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