October 10, 2002

Letter to the Editor:
Forget the Swiss, Mr Bolkestein. Pick on
someone your own size - the US

From Mr Daniel J. Mitchell and Ms Veronique de Rugy

Sir, Frits Bolkestein, the European commissioner for taxation, should pick on someone his own size. He launches a demagogic attack on Switzerland ("I cannot stand Switzerland cheating on tax", October 7), arguing that Swiss financial privacy laws are making it harder for Europe's welfare states to impose a second layer of tax on income that is saved and invested. But why does he give the US a free pass? After all, the Bush administration has already announced that it has no intention of participating in this indirect form of tax harmonisation. This is the death knell of the savings tax directive, and we say good riddance. Supporters of market-based tax policy may not agree on everything, but there is universal agreement that tax systems should have certain characteristics, including neutral treatment of income that is saved and income that is consumed. Another widely shared principle is territorial taxation, the common-sense notion of taxing only activity inside national borders. The savings tax directive, which would emasculate privacy laws to allow the extra-territorial imposition of discriminatory taxes on capital income, clearly violates these tenets of good tax policy.

Mr Bolkestein argues that it is important to reduce tax evasion, but he falsely claims that this requires the destruction of fiscal sovereignty and financial privacy. There is another option, a route that is consistent with respect for individual rights. Lower tax rates and fundamental tax reform would dramatically reduce both the incentives for tax evasion and the opportunities for tax evasion. This is exactly what we saw in the US, when President Ronald Reagan's tax cuts triggered a huge increase in the amount of income reported - and taxes paid - by those with high incomes.

Daniel J. Mitchell, The Heritage Foundation, Washington, DC, 20002, US

Veronique de Rugy, The Cato Institute, Washington, DC 20001, US
 

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