How to Kill Jobs

Making your state unattractive to business and investment means exploding deficits, higher-than-average unemployment, and less tax revenue.

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About 90 percent of filers will either pay a tax preparer or use a computer software service to help with their federal tax returns this spring, a report says.
About 90 percent of filers will either pay a tax preparer or use a computer software service to help with their federal tax returns this spring, a report says.

One might think that, given the failure of the European Union's one-for-all and all-for-one economic policies, the United Kingdom and German finance ministers would see the folly of more en-bloc actions. But in this weekend's Financial Times, UK Exchequer George Osborne and German Finance Minister Wolfgang Schauble pair with French Finance Minister Pierre Moscovici in an astonishingly asinine letter to the editor to urge a collective push for higher corporate taxes.

"Germany, France, and Britain want competitive corporate tax systems that attract global companies to our countries and help our economies to grow," the gentlemen write. "They are a significant source of growth, investment, employment, and tax. But we also want global companies to pay their fair share of taxes."

Indeed, "the international corporate tax system is outdated," these finance ministers write. Governments aren't getting enough because "the digital age and freer movement of capital means companies across the world are increasingly unconstrained by country borders."

[See a collection of political cartoons on the European debt crisis.]

We are taking steps to clamp down on tax avoidance in our own countries. But acting alone has its limits. Clamp down in one country and those companies, their lawyers, and their accountants move elsewhere.

There are a number of troubling elements to this letter. First there is "fair share"—an insidious term coined by political liberals in America and now adopted overseas. Then, too, there is tax "avoidance"—a term politicians use to connote blame where none exists. More worrisome, however, is their solution: to urge the Organisation for Economic Co-operation and Development to harmonize corporate tax rules and presumably establish a minimum rate.

Of course, tax revenues do not simply exist; they are a function of growth and prosperity. Take those away and, no matter the rates, tax revenues decline. That's because people and companies leave, as French President Francois Hollande is discovering, and hiring and spending lags, as President Obama should be learning. Even the writers seem to acknowledge ("growth, investment, employment, and tax") that there is more to government revenue that direct taxes alone.

[See a collection of political cartoons on the economy.]

Healthy companies employ people, which takes them off the dole and turns them into tax-paying citizens. A growing company provides even more of those. And a healthy, growing company attracts investment, leading to further growth and capital expenditures, or—in the case of a publicly traded company—capital gains taxes. All of that also leads to the "milltown" effect of prosperity enriching the entire community. (And let's also not forget the sales tax these governments reap when the company's products are sold, or the gas, toll, and excise taxes needed to transport those products.)

So if Britain, France, and Germany want to attract business, then perhaps they should lower their tax rates and become competitive. That's the lesson from a separate article in the same Financial Times, about Gov. Rick Perry's prospecting tour urging California companies to relocate to business-friendly Texas. California Gov. Jerry "Moonbeam" Brown, dismissed Perry's wooings as "barely a fart," but so far the only noxious fumes have come from the exhausts of moving vans as they floor it to Texas.

[Read the U.S. News Debate: Who Is Handling Its Debt Crisis Better: United States or Europe?]

The lesson for Europe's treasurers is clear. Make your state unattractive to business and investment, and you end up with exploding deficits, poor bond ratings, higher-than-average unemployment, and less tax revenue. Make your state more attractive, however, and businesses flock to participate.

It's called competition—which, both economically and intellectually, Europe's politicians join Governor Brown in lacking.

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