Tax revolts in Europe

Posted: Sep 18, 2000 12:00 AM
Americans like to believe that important things happen here first. Consequently, they pay little attention to occurrences in other countries, believing that they are irrelevant. But in fact, international events and trends are often precursors to those here. For this reason, Americans should pay close attention to the growing European tax revolt. A good example of how foreign events presage those here was the election of Margaret Thatcher as Prime Minister of England in 1979. A year before the U.S. presidential contest between Ronald Reagan and Jimmy Carter, Thatcher had shown that a principled conservative political message was resonating with voters. Her victory showed clearly that growing concerns about high taxes and heavy-handed government were not confined to the U.S. In retrospect, Thatcher's victory clearly foretold Reagan's a year later. The current European tax revolt may be sending the same kind of message. Although ostensibly a revolt against high gasoline prices, it clearly has deeper roots. This is confirmed by the fact that gasoline prices in Europe are not significantly higher now than they were at the start of the year, according to the Department of Energy. In France, for example, where the first protests arose, gasoline prices are only 8 cents per gallon higher. And in England, which is virtually paralyzed by protests, prices have risen just 12 cents. By contrast, gasoline has risen 28 cents per gallon in the U.S. without causing much furor. Another puzzling element of the European protests is their focus on gasoline taxes. True, gasoline taxes are very high in Europe, but they have been high for ages without engendering protests like those seen presently. Nor have gasoline taxes been rising lately. Virtually all analysts blame the price rise mainly on the Organization of Petroleum Exporting Countries, which has forced up the price of oil by restricting output. And for Europeans, another culprit is the sinking euro, the new European currency, which has fallen to about 86 cents per dollar versus $1.17 when first introduced last year. Since OPEC prices oil in dollars, a decline in the euro makes oil more expensive for Europeans. The focus on gasoline taxes by the protestors, therefore, suggests that perhaps it is the tax they are, in fact, concerned about, not just the rising price of gasoline. While it is true that Europeans have long suffered under tax burdens significantly higher than those paid by Americans, it would be wrong to conclude that Europeans are inherently more passive about taxes. In his great book, "For Good and Evil: The Impact of Taxes on the Course of Civilization," historian Charles Adams discusses many, many tax revolts throughout European history. The following passage about French attitudes toward tax collectors in the 18th century is typical. "Overtaxed peasants in France did not accept the view that they were like grass and should be cut down for their own benefit. They protested routinely with murder, mayhem, assaults, arson and other forms of violence. Ten years after a tax revolt near Bordeaux, the finance minister confessed to the Queen that it was safer for a French soldier to walk through a Spanish village (France was at war with Spain at the time) than it was for a French tax man to 'pass from province to province, even to leave one's home.'" In short, the postwar era in which Europeans have seemingly accepted exceptionally heavy tax burdens is atypical of European history. According to the latest data from the Organization for Economic Cooperation and Development, taxes as a share of the gross domestic product averaged 41.5 percent in Europe in 1997, compared with 29.7 percent in the U.S. In France and Belgium, two countries where gasoline tax protests have been loudest, taxes averaged 45.1 percent and 46 percent, respectively. What might account for tax militancy surfacing now? It could simply be that taxes have reached a breaking point, and taxpayers are just seizing upon the most visible tax target. This is the view of Alvin Rabushka of Stanford's Hoover Institution, who has studied the tax revolt in California in the late 1970s. Tax protesters there focused on the property tax because it was highly visible, even if it wasn't California's most onerous tax. Rabushka now believes that Europe has all the key elements that contributed to the California tax revolt, which eventually spread to many other states, and helped elect Reagan. I believe that an important factor has been the single currency in Europe and the breakdown of trade barriers. As a result, differences in taxes among European nations have become more transparent, no longer disguised by different currencies. And the breakdown of trade and travel barriers has meant that consumers are easily able to shop across national borders and take advantage of tax differences. A July 6 article in the New York Times reported that many European drivers were going to other countries to buy their gas where taxes were lower; Britons to France, Germans to Poland, and so on. The French government has already caved-in to protestors and cut its gasoline tax. So far, other European nations are resisting. But the pressure, especially on Britain's Prime Minister Tony Blair, is intensifying. It will be interesting to see whether government concessions contain the revolt or embolden the protestors to demand even more. It will also be interesting to see whether the revolt spreads to America, a nation born of a tax revolt.