2013 – The Year of American Opportunity

America has the world’s highest corporate income tax. Our personal income taxes are not as high as they are in Europe, and thankfully we don’t have a European value added tax. But the combination of the taxes we have, and the increasingly ridiculous enforcement of those taxes, is slowly but relentlessly eradicating our advantage as a relatively lightly taxed economy. Once we get to a point where our government is just as costly, burdensome and bureaucratic as governments in other countries, our days as the home of economic freedom and opportunity will be gone.

Thankfully, the 2013 GOP budget suggested some really good ideas for tax cuts and other reforms that would reinvigorate the American economy and put us back on a track toward economic freedom and rising prosperity. Mitt Romney seems to be favorable to lower taxes, deregulations and a more opportunity-friendly economy. That is good, because a combination of Romney in the White House and the GOP budget from the House would bring about a better, sounder economic policy at the right time, both nationally and globally. Lower taxes and a better business climate in America in 2013 would be a perfect timing, seeing how the rest of the world seems determined to tax itself out of competition. Here is a quick look at three examples from Europe, Japan and South Africa, starting in the EU with a report from the Wall Street Journal:

The U.K. government could see its direct contribution to the European Union budget reduced by €7.6 billion ($10.04 billion) by 2020 if the EU’s proposal for a regional transaction tax to fund Brussels’s spending is agreed upon, Budget Commissioner Janusz Lewandowski said Thursday. The European Commission’s proposal is the centerpiece of last year’s EU budget plans for 2014-20. … In its report, the Commission estimates that by 2020 a financial-transactions tax levied on shares, bonds and derivatives could generate €81 billion annually. The Commission says a third of that would be reserved for member states while Brussels would automatically receive the other two-thirds, some €54 billion.

It is extremely unlikely that the fluid, fast-paced and innovative financial industry would sit back and let itself be taxed like this. When Sweden tried a similar kind of transactions tax in the 1980s, almost all of its financial transactions moved abroad. As a result, the tax created practically no new revenues but led instead to other losses for government as financial firms relocated or created subsidiaries in New York, London and Luxembourg.

If the EU were stupid enough to go ahead with a transactions tax, America would be well advised to take competitive advantage of this. But the prospective advantages for America don’t stop at attracting players in the financial industry. The European Commission, also known as the EU government, is trying to sell this new tax as a “swap”, where member states would be able to reduce their current taxes because the EU would need less contributions from them. But seeing how Europe’s welfare states are struggling to stay afloat and keep their budgets in balance, it is extemely unlikely that they would cut their taxes accordingly, no matter how sweetly the European Commission is trying to sell its transactions tax:

According to the Commission, the French contribution to the EU budget would fall by €8.8 billion, Germany would see its payments fall €10.7 billion and Italy would provide €6.5 billion less.

The most probable scenario is that the welfare states in Europe will gobble up what is now sent to Brussels, which would leave Europe with an even higher tax burden on its businesses than is the case today.

Again, America would benefit from higher taxes in Europe. But it is not just the Europeans who are thinking about giving America back its competitive edge. Japan is about to double its national sales tax, a move that would sink the Japanese economy deep into the hole, crush domestic markets and severely weaken the Japanese economy. This would free up lots of investment-hungry capital that cannot find profitable prospects in Japan – but could easily do so in America under a Romney presidency with Paul Ryan-style fiscal policy. The Japan Times has the story on the pending Japanese economic harakiri:

There’s no such thing as a popular tax increase. Woe betide the leader who sees no other way out of a fiscal impasse. Such is Prime Minister Yoshihiko Noda’s unenviable plight. A kōreika shakai (高齢化社会, aging society) like Japan’s must fund its swelling shakai hoshōhi (社会保障費, social welfare costs) — to say nothing of Tohoku reconstruction — somehow. Whether a shōhizei zōzei (消費税増税, consumption tax increase) is or is not the best way to go is a question best left to experts (or maybe not, given their disagreements among themselves). The point is that Noda has made up his mind and must now convince a discouraged and suspicious nation. … Noda faces determined opposition within his own party. This is more likely to intensify than diminish following last week’s abrupt party endorsement, in the face of unappeased objections and resentment, of a zozei hōan (増税法案, tax increase bill) to be deliberated in the Diet. “Shūtaisei no jiki datta (集大成の時期だった, Time to wrap things up,”) Noda told a press conference. Proponents of 増税, pointing to the daunting expenses Japan faces and the massive indebtedness which infects it even now, say, “Kono mama da to Girisha ya Supein no yō ni shakkin de tsuburete shimau” (「このままだとギリシヤやスペインのように借金でつぶれてしまう」”At this rate Japan will be crushed by debt like Greece and Spain”).

Even though Japan does not have a welfare state of European proportions, its social security system is nevertheless built on the same unsustainable principle: government makes spending promises far into the future without having the slightest guarantee that it will be able to pay for that spending.

But it is not just mature economies like Europe or Japan that are trying to tax themselves back into a deep, long, lasting recession. In one of the world’s forgotten corners, South Africa emerged from its transition out of Apartheid as a promising newcomer with a zest for prosperity and plenty of opportunity to go after it. Since then, the ANC government has failed repeatedly at getting the South African economy airborne, and after a recent but apparently short-lived growth period they are now about to slide back in the hole again. According to the South African Business Day, higher taxes are looming over the edge of the African continent:

THE [new national government] budget has effectively introduced a wealth tax on individuals through the increased level of taxation on the real drivers of the economy, says Eugene du Plessis, tax director at accounting firm PKF. Commentators slated the idea that individuals received any relief in Finance Minister Pravin Gordhan’s third budget, saying that they would in fact be paying almost R33bn more this year. Matthew Lester, tax professor at Rhodes University, said at a BDO post-budget briefing in Pretoria yesterday that only 378300 individuals were paying 54% of all the individual taxes, 19% paid no taxes as they fell below the tax threshold, and 24% of the registered taxpayers paid 4% of all the taxes. Speaking at another post-budget briefing organised by tax advisory and audit firm Mazars, head strategist at ETM Analytics Russell Lamberti also criticised some of the tax proposals, saying the budget was unlikely to help grow an economy struggling to create employment and reduce the income and poverty gap. 

Again, we have an example of a welfare state that is over-spending and trying to make the highest-earning citizens pay for unearned benefits for the rest. But…

…Prof Lester said there were not enough wealthy people in the country to tax.

There has been an exodus of professionals from South Africa in recent years. If America reaffirms itself as an opportunity society with a strong, sound and freedom-friendly economy, we can attact lots of talent from a country like South Africa. If the government of that country wants to punish its most productive citizens, we should not be ashamed to take advantage of that.

America is at a great position to rise again as an engine of prosperity, a magnet of opportunity – and a guardian of liberty. All it takes is a return to fiscal sanity, limited government and low taxes.