As the European economy grapples with yet another bailout of a bankrupt sovereign state, a storyline is emerging that seeks to frame this latest instance of government interventionism along deliberately disingenuous lines. According to this misleading narrative, Ireland’s abysmal fiscal condition did not come as a result of chronic state overspending, but is instead due to the island nation’s comparatively-low corporate income tax rate.
Sound like a familiar song? On both sides of the ocean there appear to be plenty of Keynesian apologists who believe that economic downturns are always caused by greedy capitalists – never by greedy politicians and government bureaucrats.
Now several European nations – led by France and Germany – are insisting that Ireland raise its 12.5 percent corporate tax rate as a prerequisite for receiving a Eurozone loan that would pump tens of billions of Euros into its banking system. Such a tax increase aims to bring Ireland in line with corporate tax rates in France (33 percent) Germany (30 percent), Spain (30 percent) and Great Britain (28 percent) – but it would also stifle productivity and job growth at a time when Irish citizens need their economy to be firing on all cylinders.
While it certainly makes sense for Europe’s sovereign nations to minimize their financial exposure – it would make even more sense for them not to expose their taxpayers to such risks in the first place. Of course under “continental rule” it is often difficult for these nations to distinguish their own interests from those of the “collective.” This creates an additional disincentive for sound sovereign financial management – as if European governments needed another excuse to act in a fiscally reckless manner.
But consider this: Why would one nation watch out for its bottom line when it can simply pass the buck – or in this case, the Euro – on to another nation’s taxpayers?
Obviously, the solution that makes the most sense in all of this is for sovereign governments to confine themselves to a very narrow list of core functions on behalf of their own citizens – and then to perform these functions with maximum efficiency and transparency. Clearly such a rational view of government was long ago abandoned by Europe’s welfare statists, just as it has been cast to the curb in recent years by socialist-leaning politicians in the United States.
Yet while America’s own Keynesian interventionists – led by U.S. Federal Reserve Chairman Ben Bernanke – continue to blame other nations’ debt crises for the ongoing sluggishness of the global economy, very few are willing to “call a Shamrock a Shamrock” as it relates to the Irish debt crisis.
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