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US Think-Tanks Criticise Bolkestein Over Savings Tax Dispute

by Mike Godfrey,, Washington

11 October 2002

Daniel J. Mitchell of the Heritage Foundation, and Veronique de Rugy of the Cato Institute yesterday urged the European Union's Internal Market Commissioner to 'pick on someone his own size'.

Writing in the Financial Times on Monday, Frits Bolkestein criticised Switzerland for its lack of cooperation with regard to the EU Savings Tax Directive, observing that: 'I find it difficult to believe that the Swiss government hesitates to help its EU neighbours to uphold their own laws, including fiscal ones.'

Responding to this article on Thursday, Ms de Rugy and Mr Mitchell drew attention to the hypocrisy of the European Union's stance, given its attitude towards the United States:

'He [Bolkestein] launches a demagogic attack on Switzerland...arguing that Swiss financial privacy laws are making it harder for Europe's welfare states to impose a second layer of tax on income that is saved and invested. But why does he give the US a free pass? After all, the Bush administration has already announced that it has no intention of participating in this indirect form of tax harmonisation.'

They continued: 'Mr Bolkestein argues that it is important to reduce tax evasion, but he falsely claims that this requires the destruction of fiscal sovereignty and financial privacy. There is another option, a route that is consistent with respect for individual rights. Lower tax rates and fundamental tax reform would dramatically reduce both the incentives for tax evasion and the opportunities for tax evasion.'

'This is exactly what we saw in the US, when President Ronald Reagan's tax cuts triggered a huge increase in amount of income reported - and taxes paid - by those with high incomes.'

It would appear that not everyone agrees with this viewpoint, however. Also writing in response to Monday's article, economic spokesman for the European Liberal Democrat and Reformist Group, Christopher Huhne suggested that supporters of the Swiss withholding tax proposals 'are being disingenuous in suggesting that a withholding tax would be equivalent to a system of exchange of information on taxable income'.

'Even a 35% withholding tax on interest, profits and dividends provides an incentive to move money to Switzerland for higher rate income tax payers,' he argued, adding somewhat controversially that: 'Any realistic withholding tax is still an invitation to tax evasion, as the Swiss know.'

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