Bring On Tax Reform In Europe

Buy a midsize Mercedes in Haderslev, Denmark, and you'll pay more than $90,000, nearly triple the amount you'd pay in Flensburg, Germany, just over 30 miles to the south. Buy Scotch in Sweden, you get hit for $18 in tax, nine times the amount levied in Italy. Such are the contradictions of Europe's crazy quilt of consumer taxes. When it comes to business taxes, the situation is worse. If you're a corporation operating in all 15 of the European Union's nations, you must fill in 15 different corporate tax returns. Worse yet, in some countries you can't offset losses against profits incurred elsewhere in what is supposed to be a single market.

The EU clearly needs some serious tax reform. Recently the EU's Finance Ministries sat down together to start to iron out some of the more egregious variations in rules and tax rates among different countries. But Europe's politicians, of course, are jealous of their national tax-raising powers, the gold badge of sovereignty. They should worry more about their credibility with voters and their failure to create jobs.

One bonus for Europe's planned euro single currency is that it will let consumers compare prices (including taxes) across borders without the fog of exchange rates. That could add to the momentum for rationalizing tax policy. But the risk is that European governments will stampede themselves into leveling taxes up rather than down. This won't do. The sooner politicians grasp that global competition requires competitive public as well as private policies, the better off they and their citizens will be.

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