The tax mice that roared
LINDSEY, LAWRENCE
The Tax Mice That Roared by Lawrence Lindsey Deputy treasury secretary Lawrence Summers recently asserted that greed was the primary motivating force among tax-cut advocates in the United States....
...Well, you see, Luxembourg is full of banks—some 220...
...The result is that with a total population of 30,000, it also has a workforce of 30,000...
...For those interested in seeing the physical effects of contemporary bourgeois resistance to the power of the state, I suggest the following itinerary: Monaco, Andorra, Luxembourg...
...Lawrence Lindsey, a former governor of the Federal Reserve, is a resident scholar and holds the Arthur F. Burns chair in economics at the American Enterprise Institute...
...And a little principality shall lead them...
...And gas stations...
...The roughly 65,000 inhabitants of Andorra live on land so steep that cows can't graze...
...Somehow the Andorrans can truck petrol up all those winding roads and beat the Spanish and French prices enough to produce long lines at the pump...
...One catch: French citizens working in Monaco have to pay income tax to France, and France's 18 percent value-added tax applies (France takes half and leaves Monaco the rest...
...But they are not the European cousins you normally think of...
...Why should tax-haven services for Europe go to some non-European place like the Caribbean when they could be provided here at home in the heart of the continent...
...It is only two miles long and about one-half mile wide...
...Promoting tax avoidance is close to being official national policy...
...The duchy of Luxembourg is a vision of a quaint, largely pastoral Europe with wooded rolling hills...
...There isn't much in the way of customer services, or anything else, on the way...
...There is no real-estate shortage, as in Monaco or Andorra: The country has 13 times the population of Monaco living on over 800 times as much land...
...But you can't audit cash...
...To get there you must drive through France or Spain (no flat land for an airport) up roads that repeatedly switch back to allow the car to make the grade...
...the Belgian franc circulates freely within its borders...
...It helps that the Spanish and French governments levy a gas tax of nearly $4 per gallon...
...His case should appeal to any economic nationalist...
...An estimated $205 billion is deposited here, over $500,000 per capita...
...Why would such a pleasant political anomaly enjoy a per capita income 60 percent higher than the average for the European Union...
...A smaller version exists on the French border...
...France was not interested in creating a shopper's paradise for millions of French citizens, but could tolerate a geographically limited worker's paradise for residents of other countries...
...The only thing constraining Monaco's growth as a tax haven is its size...
...The ever-efficient Germans came in through the back door, auditing all electronic money transfers out of German banks...
...But to really see people trying to keep more of their own money, Summers should take a few detours on his next trip to Europe...
...call them the tax mice that roared...
...they would fall over...
...This is quite a contrast with the rest of Europe where almost no one works: Double-digit unemployment, early retirement, and extended schooling combine to produce worker-to-population ratios of around 40 percent for much of Europe...
...Rumors are sweeping Luxembourg's competitors that its prime minister will suggest making the principality the official tax haven of Europe when Luxembourg takes over from Holland as president of the European Union...
...Most of the money is German and is there because the local authorities not only don't tax it, but aren't very cooperative with their much larger neighbor's tax-collectors...
...Americans who think switching to a VAT will end tax evasion should definitely pay a visit...
...While the continent is dominated by governments that believe they should be a more than equal partner in someone's paycheck, the city-state of Monaco survives with no personal income tax...
...Sales taxes can produce monuments to government excess just as easily as income taxes...
...While greedy Americans may talk about tax reductions, their European cousins actively take matters into their own hands...
...Better be sure you gas up enough to get there...
...Of course, many workers in Monaco reside in France...
...Monaco, Andorra, and Luxembourg: If the rest of Europe were to follow the lead of these three tiny spots, in 20 years America would be fearing the rise of Europe, Inc...
...The words "financial powerhouse" do not readily spring to mind for a country that does not even control its own money...
...Suddenly, at the border, a town rises above the hillside: no houses, just stores...
...The "city" of Andorra, near the Spanish side, is definitely top of the line, with representatives of every European fashion and jewelry firm on hand...
...Alcohol and cigarettes are plentiful for the masses...
...For example, France (which surrounds Monaco) has 58 million people and 24.2 million in the labor force with more than 3 million unemployed...
...Unfortunately for Luxembourg's prime minister, most of his European counterparts still have a very parochial vision of economic nationalism when it comes to taxes...
Vol. 2 • July 1997 • No. 42
