New York University's independent student newspaper, established in 1973.

Washington Square News

New York University's independent student newspaper, established in 1973.

Washington Square News

New York University's independent student newspaper, established in 1973.

Washington Square News

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High taxes in Europe hurt businesses

In a campaign speech last month, Leader of the Labor Party Ed Miliband promised to raise the income tax rate among England’s wealthiest from 45 to 50 percent if elected prime minister. The Economist jokes that his tax hike will only bring in the amount of money needed to buy a few English Premier League strikers. Although Miliband’s pledge seems to be politically motivated — he might be vying for support from the working class at the expense of the elitist conservatives — his move may have unintended consequences. By raising taxes on England’s wealthy, the damage to businesses could be significant.

The same problem afflicts continental Europe, specifically France. Last month, President Francois Hollande, who famously declared, “I don’t like the rich,” received court approval to tax salaries over 1 million euros at a rate of 75 percent. Like those of Miliband, Hollande’s political pet projects are strictly political. However, France is tiring of Hollande’s leadership. Hollande has finally been asked to answer for his country’s stagnant growth. In response, the conflicted president took a political U-turn, promising a “pact of responsibility” going forward. The “pact” entails heavy cuts in government spending rather than his administration’s usual increases in taxes and subsidized job creation efforts. Considering the liberal platforms that he ran for president on, his supporters feel betrayed.

Miliband and Hollande aside, there is a rising trend among European nations to overburden the rich, hurting attempts at capitalism. For all companies, higher taxes yield higher product prices for consumers. Aside from the standard incentivization argument — workers taxed more have less incentive to work hard — the greater worry is that firms will begin to leave Europe in search of more business-friendly economies. With growth in emerging markets occurring much faster than in developed countries, the choice is becoming easier to make. How many French bosses (let alone Chinese ones) would rather launch a company in France than in China, or countless other countries for that matter?

In a survey of 148 countries conducted by the World Economic Forum, Spain, France and Italy were ranked 125th, 130th and 146th, respectively, as having the most burdensome government regulation. A different study that determined the ease of doing business in a country ranks Spain one spot below Tunisia, France one spot below Armenia and Italy two spots below Belarus. If European officials want to improve their global standing, they must alter their economic trajectory. Businesses will move abroad if they do not.

A version of this article appeared in the Thursday, Feb. 27 print edition. Vittorio Bisin is a contributing columnist. Email him at [email protected]

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