Harmonize This, Eurocrats
Everyone knows Europe feels bad because it can’t develop an Apple or Google or Facebook or Amazon. That’s why Europe has been fashioning multiple initiatives to punish American tech companies, including last week’s impertinent tax ruling by a European antitrust agency seeking $14.5 billion in back taxes from Apple.
This sum perhaps was not picked completely out of the air: $14.5 billion is approximately the market capitalization of Twitter. So how about we just give Europe Twitter so it will feel like it has a stake in the digital age?
I know, Margrethe Vestager, the Danish politician who heads the European Union’s competition commission, has said “there’s no U.S. bias.” A U.S. Treasury white paper begs to differ, claiming her agency is “targeting U.S. companies disproportionately.” The European parliament two years ago voted in favor of breaking up Google. Tweets from across the Continent praise Ms. Vestager for finally getting tough with those U.S. so-and-sos. Even Boris Johnson, the London politician who led the Brexit vote, says, “For many people it will be . . . the first time they have ever been tempted to side with Brussels over anything.”
No politics involved here. Never mind, too, the gloriously obvious fact that attacking Apple is a politically handy way of disguising a challenge to the tax policies of an EU member state, namely Ireland.
Of course, the real world, in which regulatory actions are not austerely objective and devoid of political incentive, prevails on both sides of the Atlantic. Volkswagen has a lot to answer for with U.S. customers but consider the lopsided $19.4 billion settlement for its diesel infractions. Consider the $1.2 billion fine laid on Toyota basically to validate a phony scare flogged by U.S. congressmen and their trial-lawyer benefactors.
Now compare these figures to GM’s $900 million fine for concealing a defect that GM acknowledges killed 124 customers. With great gymnastics, the Justice Department found a way to limit the U.S. company’s liability to just 800 of the 11.1 million cars containing the fatal defect.
Sen. Chuck Schumer calls the EU tax ruling a “cheap money grab,” and he’s an expert in such matters. The sight of Treasury SecretaryJack Lew leaping to the defense of an American company when in the grips of a bureaucratic shakedown, you will have no trouble guessing, is explained by the fact that it’s another government doing the shaking down.
America’s own loopy tax politics are central here, creating a chunk of Apple earnings accumulating offshore that have yet to be taxed by any jurisdiction. More for Europe necessarily means less for the U.S. because Apple is entitled to domestic tax credits for any taxes paid overseas. That’s why politicians everywhere have been de-lethargized by this fight.
Ms. Vestager, as she never tires of affirming, was a model for the highbrow Danish political soap “ Borgen,” which one reviewer calls “ ‘House of Cards’ for smart people.”
In her current, real-world plot, Ms. Vestager hitches popular anti-Americanism to an abiding agenda of Europe’s leadership class. Tax harmonization is a final refuge of those committed to defending Europe’s stagnant social model. Even Ms. Vestager’s antitrust agency is jumping in, though the goal here oddly is to eliminate competition among jurisdictions in tax policy, so governments everywhere can impose inefficient, costly tax regimes without the check and balance that comes from businesses being able to pick up and move to another jurisdiction.
In a harmonized world, of course, a check would remain in the form of jobs not created, incomes not generated, investment not made. But Europe has been wiling to live with the harmony of permanent recession. When Ireland (which has been booming) can no longer promote its own growth with policies friendly to business, it will be that much easier for other leaders to blame their own social decline on a black cat passing under a ladder, or astrological events, or the unfair practices of Silicon Valley.
What about the undoubted problem of companies like Apple shielding their globally earned profits behind a small country’s friendly tax regime? There’s a remarkably sanitary solution: Get rid of the corporate income tax.
Companies receive their revenues from their customers and distribute them to their suppliers, investors and employees. Thus corporate taxes can be eliminated in complete comfort that the revenue will pop up elsewhere as taxable personal income or taxable consumption expenditure.
The only real function of a corporate income tax is non-transparency. Taxing a company is a way for politicians to pretend they are not taxing any actual voter to pay for programs that voters find desirable as long as they seem not to come with a price tag.
Drop the pretense that citizens don’t have to pay for the amenities they want, and real harmonization becomes possible: The harmonization of tax and spending priorities in the direction of efficiently fostering the clean, peaceful, orderly and civilized countries that productive citizens enjoy living in.
This article originally appeared in the Wall Street Journal.