The middle class cannot do what corporations do. Corporations pay little corporation tax in Germany; their share amoutrs to 2.6% of all taxes. For decades, corporations received more in subsidies than they paid in profit taxes in Germany. Corporate enrichment leads to state deficits.
THE TAX STATE IN THE GLOBALIZATION TRAP
By Eberhard Hamer
[This article published in: Zeit-Fragen, Nr.8, 2/20/2006 is translated abridged from the German on the World Wide Web,
http://www.zeit-fragen.ch/. Eberhard Hamer is a professor in Hanover.]
Politicians and the media stylize globalization as the great advance of our economic and social life. National factors are antiquated according to the opinion of the government. The German citizen fits into Europe and the world without national identity.
FLIGHT INTO TAX HAVENS
Europe and world orientation are not recommended everywhere as progress but are also opposed where politics is harmed by globalization, above all in the tax state. An “erosion of the tax base” (German Central Bank) and a migration of tax debtor5s and tax circumstances occur on a broad front, that is the flight of taxpayers from high tax systems into tax havens or at least low tax countries which enormously reduce high national taxation in Germany.
For decades, the mammoth international conglomerates hardly allowed profits to ac cumulate in Germany. [1] Through financial acrobatics, they can amass oil profits in the tax-free Bahamas. High purchase prices benefit German oil firms although the profit does not settle in Hamburg.
Other firms shift their own patent divisions or service-oriented companies into tax shelters where they pay high patent fees or royalties to save or shift their German taxes.
…AND SUBSIDY PROFITS
Moving a holding company to Switzerland where it is only taxed at 8% instead of the high German tax rate is popular. For a long time, banks and insurance companies used the trick of internationalizing their profits as much as possible, saved national taxes in high tax Germany and paid no taxes or trifling taxes in low tax countries. As a result, German corporations pay little corporation tax; their share amounts to 2.6% of all taxes. For decades, they even received more subsidies than the profit taxes paid in Germany. [2] No wonder that the German economy and its trade associations have struck up the eulogy of globalization since time immemorial.
THE MIDDLE CLASS CANNOT DO WHAT CORPORATIONS DO
Politics joined or accepted this mass exodus of German corporation profits into low tax foreign countries without comment. Politics first became mobile when the middle class took seriously the globalization invocations and tried to save their profits from the 24,000 greedy public bodies and high German taxes. For a long while, the middle class could not do what corporations could do. The envy campaign was mobilized. Tax evasion of the middle class was decried as immoral, criminal and punishable in all socialist newspapers and circles. The internal revenue offices were reinforced with more than 10,000 additional employees – not to investigate corporation profits but middle class businesspersons, owners of capital and retired persons whether they did anything like the corporations, namely accumulate and pay taxes abroad and not at home.
The globalization freedom invoked by politics and the media clearly ends where the redistribution possibilities of the tax- and welfare state are curtailed. That corporations do not pay taxes in Germany any more was accepted. But more and more middle class persons escaped high German taxes in realms of lower taxes. This led to the erosion of the tax base, considerable tax shortfalls particularly with the income tax and thus limitation of the German tax-, redistribution- and welfare state.
Ludwig Erhard always said: the market cannot be cheated.
THE INTERNATIONALIZATION OF TAXES
Globalization is also an additional free enterprise competition in the tax state that a national politics cannot annul. The middle class is prevented less and less from using these globalization chances for tax savings. The next generation of our young entrepreneurs thinks much more internationally and has understood the warnings of politics not to think nationally. In paying taxes, they think nationally less and less. Seminars on the internationalization of the German tax duty have a boom season. More than 10 million people at the lowest base react directly and are only diligent in moonlighting or illicit work when no tax accumulates.
The tax state is caught in its own globalization trap. A high tax country will inevitably be leveled in the long run because it will lose tax refugees and taxpayers until politics yields and taxes are lowered to the international competitive level. This is true for bourgeois and socialist governments. Politics is forced to what it obsessively avoided in the past: the downsizing of the state. The trimming of the state is reduction of the welfare state claiming more than half of all public spending, not only reduction of the excessive bureaucracy.
DISMANTLING THE WELFARE STATE – GLOBALIZATION
In the next years in Germany, globalized competition will force dismantling the most luxuriant social system of the world – a social system so attractive internationally that hundreds of thousands try to access since everyone who accesses this system automatically becomes a member of the social society and gains existential security. Even when politics becomes unwilling and incapable of correction, it has no possibility in the globalization age of maintaining high tax burden systems and high benefit systems on account of tax evasion. What one does not want to do out of political foresight must be done out of the dictate of empty treasuries.
According to the old idealist state theory of the Contract social, the state is based on the common will – contract – of its citizens who voluntarily assume the costs of this state. In other words, paying taxes is not only a necessary but also a moral and accepted civic duty. This theory can easily be established as long as the state takes only 10% (Middle Ages) to 13% (1913) of the gross national product or personal profits. However the state tax rate is now around 50%; the middle class rate is over 60%. Little is left for the worker from his work. No wonder that the approval of the exploited population fell disproportionately. The state is the great robber who seizes the wages and income, assets and inheritances of the citizens ever more greedily and unscrupulously and no longer the accepted commonality worthy of support.
No wonder that the exploited citizens try in masses to save their prosperity through tax evasion. The mass movement of moonlighters amounting to more than 10 million participants shows that the citizens’ tolerance limit toward compulsory public taxes is reached. They want to save themselves from their state instead of supporting the state. For that reason, more than 10,000 entrepreneurs flee with their enterprises or assets from Germany every year.
Two mis-developments or aberrations caused the excessive public financing need to the disadvantage of workers:
1. The tax evasion of the global players and
2. The political corruption of campaign goodies.
At the beginning of the 1980s, a study of a Lower Saxony institute demonstrated that the mammoth German conglomerates for years received more subsidies from the state than they paid in taxes. [3] This development has intensified in the wake of globalization, freedom of capital gains and freedom of settlement. Practically no global player increases profits where profits are heavily taxed. He transfers them to the tax havens…
FROM CRY FOR HELP TO SOCIAL CLAIM
The absurdity of this social transfer is that the greater prosperity of the population increases the social benefits. The reason is that the social benefits serve the cry for help less and less. Before elections, the parties outdo one another in promising voters more social benefits to gain their votes. Social transfers are ever higher and reach more and more groups of the population who were not needy but gradually understood these pleasant gifts as claims. In addition, globalization undermined the open social system.
Whoever reached German soil was a member of the German social system in some form. Life was better than at home. Because these permanent social benefits were understood with time as social claims, they could not be reduced any more. The additional support of the voters could only be gained with additional benefits.
…AND EXPLOITATION OF THE MIDDLE CLASS
When the upper group flees from the tax state, the lower group adjusts to the social benefits. Since the middle class must pay, it bears a disproportional tax burden. Thus the redistribution system with subsidies benefiting the corporations and social benefits helping the working class has become an exploitation system against the middle class. The middle class that did not migrate cannot evade taxes and increasingly loses pleasure in their work. More than 30,000 entrepreneurs give up every year in Germany.
The state is in a tight spot in fulfilling its redistribution obligations with the increasing financial need of the social treasuries and the decreasing number of workers. Public indebtedness has served as a way out. This also reaches its constitutional limit and cannot permanently increase on account of the interest burden.
A competition of tax- and fiscal systems is promised in globalization. Migrations of businesses occur corresponding to the coexistence of high tax and low tax countries. The high tax country must lower taxes to keep businesses in the country. Thus the globalization pressure actually forces countries to make their location conditions more favorable than neighboring countries. Tax- and social cost reductions diminish the migrations of enterprises, persons and financial sources.
Such reasonable reactions out of competitive pressure only occur in the private sector among persons and enterprises that can utilize the competitive freedom of tax evasion or extension through globalization, not in the public sector of compulsory taxes. For corporations, the location of their firm headquarters or profit center is indifferent. Corporations branched out with parent companies and subsidiaries for whom tax evasion is possible actually force national fiscal policy to certain adjustments. Therefore the corporation tax was lowered so no higher corporation taxes were paid since the legal tax shift in conglomerates was more rewarding.
THE STATE IS EXTORTED
Whoever can migrate fiscally as a globalized conglomerate can extort the state treasury. The banks and insurance companies did this in 2003 in demanding from the government tax-free sales of financial interests in Germany as exists in other countries. Thus a tax gift of more than 10 billion was lined up for a handful of banks and insurance conglomerates.
On the other hand, middle class personal businesses cannot use the extortion argument of globalization against the tax authorities. An owner-business only functions when the owner is in local enterprise. [4] A personal business can establish branches abroad but cannot shift the taxes there. The income taxes of the entrepreneur living in the country remain in the respective country. Thus the entrepreneur must mover abroad with his family to evade the high German taxes. However an abundance of laws, regulations, procedures and judgments arose in the past decades to prevent the tax evasion of entrepreneurs.
TAX- AND SOCIAL- BUREAUCRACIES
In the times of the economic miracle and the booming economy of the post-war decades, so many taxes and social security contributions gushed into the public treasuries that the growing public bureaucracy and redistribution could be financed. Now we have an economic downswing and incipient crisis. The state and social treasuries stand with their financial backs to the wall despite the highest revenues on ac count of ever-higher tax obligations. This has led to ever-sharper tax laws and a growing tax bureaucracy and social bureaucracy. Some time or other, the growing state- and social burden will be harder and harder to finance by fewer and fewer middle class persons. A tax battle will be waged between the greedy tax state and citizens and middle class businesses. The taxpayers no longer pay gladly and voluntarily but only reluctantly under prot3est and pressure. They feel plundered by the state.
In this situation, a tax system can no longer assume the consent of the citizens. Therefore fiscal policy, financial management and tax courts focus on the unwillingness of the taxpayer and see him as the potential tax evader. In other words, a tax system that is no longer morally accepted can only6 be enforced through pressures criminalizing all who want to escape their forced looting.
For the tax state, the citizens are no longer the sovereign in whose favor and interest it acts. Instead they are probable tax sinners who will only pay under force…
NEW FORMS OF GLOBAL TAXATION
…Tax resistance against state taxes is greater than against monopoly prices. The state itself depends on monopoly prices for the tax on oil, wine tax and other consumer taxes since this taxation seems more elegant, invisible, cheaper and more secure than the antiquated wage- and profit tax systems.
With the decline of states and their taxation possibilities sinking in globalization and with the increasing powers of world finance-, world-raw material- and world production monopolies, a permanent system change from the old national tax to the new monopoly revenue system could result for the monopolies and for the states.
CONCLUSION
1. Globalization has led to an inconsistent tax system:
• Global players shift their profits to tax havens so they are unavailable for high tax countries.
• The working class cannot endure the tax shortfall of conglomerates because they receive more social benefits than they pay in taxes and social security contributions.
• Therefore tax states focus on the exploitation of the middle class loyal to the location cannot evade the tax state.
2. The growing Moloch state, the subsidies of conglomerates and the growing social benefits through election gifts to more and more households lead to increased spending of the state that can only be “counter-financed” by the middle class. Therefore the middle class is fiscally ransacked. Unlike the conglomerates, the middle class is hindered, discriminated, criminalized and under total surveillance whenever it reacts through global transfer of its capital, assets and personal flight.
3. Globalization forces the complete reorientation of the tax state – so monopolies and the state finance themselves through monopoly prices as already occurs with the gas tax and citizens will no longer be forced to pay taxes through an expensive and ineffective tax administration.
By Eberhard Hamer
[This article published in: Zeit-Fragen, Nr.8, 2/20/2006 is translated abridged from the German on the World Wide Web,
http://www.zeit-fragen.ch/. Eberhard Hamer is a professor in Hanover.] Politicians and the media stylize globalization as the great advance of our economic and social life. National factors are antiquated according to the opinion of the government. The German citizen fits into Europe and the world without national identity.
FLIGHT INTO TAX HAVENS
Europe and world orientation are not recommended everywhere as progress but are also opposed where politics is harmed by globalization, above all in the tax state. An “erosion of the tax base” (German Central Bank) and a migration of tax debtor5s and tax circumstances occur on a broad front, that is the flight of taxpayers from high tax systems into tax havens or at least low tax countries which enormously reduce high national taxation in Germany.
For decades, the mammoth international conglomerates hardly allowed profits to ac cumulate in Germany. [1] Through financial acrobatics, they can amass oil profits in the tax-free Bahamas. High purchase prices benefit German oil firms although the profit does not settle in Hamburg.
Other firms shift their own patent divisions or service-oriented companies into tax shelters where they pay high patent fees or royalties to save or shift their German taxes.
…AND SUBSIDY PROFITS
Moving a holding company to Switzerland where it is only taxed at 8% instead of the high German tax rate is popular. For a long time, banks and insurance companies used the trick of internationalizing their profits as much as possible, saved national taxes in high tax Germany and paid no taxes or trifling taxes in low tax countries. As a result, German corporations pay little corporation tax; their share amounts to 2.6% of all taxes. For decades, they even received more subsidies than the profit taxes paid in Germany. [2] No wonder that the German economy and its trade associations have struck up the eulogy of globalization since time immemorial.
THE MIDDLE CLASS CANNOT DO WHAT CORPORATIONS DO
Politics joined or accepted this mass exodus of German corporation profits into low tax foreign countries without comment. Politics first became mobile when the middle class took seriously the globalization invocations and tried to save their profits from the 24,000 greedy public bodies and high German taxes. For a long while, the middle class could not do what corporations could do. The envy campaign was mobilized. Tax evasion of the middle class was decried as immoral, criminal and punishable in all socialist newspapers and circles. The internal revenue offices were reinforced with more than 10,000 additional employees – not to investigate corporation profits but middle class businesspersons, owners of capital and retired persons whether they did anything like the corporations, namely accumulate and pay taxes abroad and not at home.
The globalization freedom invoked by politics and the media clearly ends where the redistribution possibilities of the tax- and welfare state are curtailed. That corporations do not pay taxes in Germany any more was accepted. But more and more middle class persons escaped high German taxes in realms of lower taxes. This led to the erosion of the tax base, considerable tax shortfalls particularly with the income tax and thus limitation of the German tax-, redistribution- and welfare state.
Ludwig Erhard always said: the market cannot be cheated.
THE INTERNATIONALIZATION OF TAXES
Globalization is also an additional free enterprise competition in the tax state that a national politics cannot annul. The middle class is prevented less and less from using these globalization chances for tax savings. The next generation of our young entrepreneurs thinks much more internationally and has understood the warnings of politics not to think nationally. In paying taxes, they think nationally less and less. Seminars on the internationalization of the German tax duty have a boom season. More than 10 million people at the lowest base react directly and are only diligent in moonlighting or illicit work when no tax accumulates.
The tax state is caught in its own globalization trap. A high tax country will inevitably be leveled in the long run because it will lose tax refugees and taxpayers until politics yields and taxes are lowered to the international competitive level. This is true for bourgeois and socialist governments. Politics is forced to what it obsessively avoided in the past: the downsizing of the state. The trimming of the state is reduction of the welfare state claiming more than half of all public spending, not only reduction of the excessive bureaucracy.
DISMANTLING THE WELFARE STATE – GLOBALIZATION
In the next years in Germany, globalized competition will force dismantling the most luxuriant social system of the world – a social system so attractive internationally that hundreds of thousands try to access since everyone who accesses this system automatically becomes a member of the social society and gains existential security. Even when politics becomes unwilling and incapable of correction, it has no possibility in the globalization age of maintaining high tax burden systems and high benefit systems on account of tax evasion. What one does not want to do out of political foresight must be done out of the dictate of empty treasuries.
According to the old idealist state theory of the Contract social, the state is based on the common will – contract – of its citizens who voluntarily assume the costs of this state. In other words, paying taxes is not only a necessary but also a moral and accepted civic duty. This theory can easily be established as long as the state takes only 10% (Middle Ages) to 13% (1913) of the gross national product or personal profits. However the state tax rate is now around 50%; the middle class rate is over 60%. Little is left for the worker from his work. No wonder that the approval of the exploited population fell disproportionately. The state is the great robber who seizes the wages and income, assets and inheritances of the citizens ever more greedily and unscrupulously and no longer the accepted commonality worthy of support.
No wonder that the exploited citizens try in masses to save their prosperity through tax evasion. The mass movement of moonlighters amounting to more than 10 million participants shows that the citizens’ tolerance limit toward compulsory public taxes is reached. They want to save themselves from their state instead of supporting the state. For that reason, more than 10,000 entrepreneurs flee with their enterprises or assets from Germany every year.
Two mis-developments or aberrations caused the excessive public financing need to the disadvantage of workers:
1. The tax evasion of the global players and
2. The political corruption of campaign goodies.
At the beginning of the 1980s, a study of a Lower Saxony institute demonstrated that the mammoth German conglomerates for years received more subsidies from the state than they paid in taxes. [3] This development has intensified in the wake of globalization, freedom of capital gains and freedom of settlement. Practically no global player increases profits where profits are heavily taxed. He transfers them to the tax havens…
FROM CRY FOR HELP TO SOCIAL CLAIM
The absurdity of this social transfer is that the greater prosperity of the population increases the social benefits. The reason is that the social benefits serve the cry for help less and less. Before elections, the parties outdo one another in promising voters more social benefits to gain their votes. Social transfers are ever higher and reach more and more groups of the population who were not needy but gradually understood these pleasant gifts as claims. In addition, globalization undermined the open social system.
Whoever reached German soil was a member of the German social system in some form. Life was better than at home. Because these permanent social benefits were understood with time as social claims, they could not be reduced any more. The additional support of the voters could only be gained with additional benefits.
…AND EXPLOITATION OF THE MIDDLE CLASS
When the upper group flees from the tax state, the lower group adjusts to the social benefits. Since the middle class must pay, it bears a disproportional tax burden. Thus the redistribution system with subsidies benefiting the corporations and social benefits helping the working class has become an exploitation system against the middle class. The middle class that did not migrate cannot evade taxes and increasingly loses pleasure in their work. More than 30,000 entrepreneurs give up every year in Germany.
The state is in a tight spot in fulfilling its redistribution obligations with the increasing financial need of the social treasuries and the decreasing number of workers. Public indebtedness has served as a way out. This also reaches its constitutional limit and cannot permanently increase on account of the interest burden.
A competition of tax- and fiscal systems is promised in globalization. Migrations of businesses occur corresponding to the coexistence of high tax and low tax countries. The high tax country must lower taxes to keep businesses in the country. Thus the globalization pressure actually forces countries to make their location conditions more favorable than neighboring countries. Tax- and social cost reductions diminish the migrations of enterprises, persons and financial sources.
Such reasonable reactions out of competitive pressure only occur in the private sector among persons and enterprises that can utilize the competitive freedom of tax evasion or extension through globalization, not in the public sector of compulsory taxes. For corporations, the location of their firm headquarters or profit center is indifferent. Corporations branched out with parent companies and subsidiaries for whom tax evasion is possible actually force national fiscal policy to certain adjustments. Therefore the corporation tax was lowered so no higher corporation taxes were paid since the legal tax shift in conglomerates was more rewarding.
THE STATE IS EXTORTED
Whoever can migrate fiscally as a globalized conglomerate can extort the state treasury. The banks and insurance companies did this in 2003 in demanding from the government tax-free sales of financial interests in Germany as exists in other countries. Thus a tax gift of more than 10 billion was lined up for a handful of banks and insurance conglomerates.
On the other hand, middle class personal businesses cannot use the extortion argument of globalization against the tax authorities. An owner-business only functions when the owner is in local enterprise. [4] A personal business can establish branches abroad but cannot shift the taxes there. The income taxes of the entrepreneur living in the country remain in the respective country. Thus the entrepreneur must mover abroad with his family to evade the high German taxes. However an abundance of laws, regulations, procedures and judgments arose in the past decades to prevent the tax evasion of entrepreneurs.
TAX- AND SOCIAL- BUREAUCRACIES
In the times of the economic miracle and the booming economy of the post-war decades, so many taxes and social security contributions gushed into the public treasuries that the growing public bureaucracy and redistribution could be financed. Now we have an economic downswing and incipient crisis. The state and social treasuries stand with their financial backs to the wall despite the highest revenues on ac count of ever-higher tax obligations. This has led to ever-sharper tax laws and a growing tax bureaucracy and social bureaucracy. Some time or other, the growing state- and social burden will be harder and harder to finance by fewer and fewer middle class persons. A tax battle will be waged between the greedy tax state and citizens and middle class businesses. The taxpayers no longer pay gladly and voluntarily but only reluctantly under prot3est and pressure. They feel plundered by the state.
In this situation, a tax system can no longer assume the consent of the citizens. Therefore fiscal policy, financial management and tax courts focus on the unwillingness of the taxpayer and see him as the potential tax evader. In other words, a tax system that is no longer morally accepted can only6 be enforced through pressures criminalizing all who want to escape their forced looting.
For the tax state, the citizens are no longer the sovereign in whose favor and interest it acts. Instead they are probable tax sinners who will only pay under force…
NEW FORMS OF GLOBAL TAXATION
…Tax resistance against state taxes is greater than against monopoly prices. The state itself depends on monopoly prices for the tax on oil, wine tax and other consumer taxes since this taxation seems more elegant, invisible, cheaper and more secure than the antiquated wage- and profit tax systems.
With the decline of states and their taxation possibilities sinking in globalization and with the increasing powers of world finance-, world-raw material- and world production monopolies, a permanent system change from the old national tax to the new monopoly revenue system could result for the monopolies and for the states.
CONCLUSION
1. Globalization has led to an inconsistent tax system:
• Global players shift their profits to tax havens so they are unavailable for high tax countries.
• The working class cannot endure the tax shortfall of conglomerates because they receive more social benefits than they pay in taxes and social security contributions.
• Therefore tax states focus on the exploitation of the middle class loyal to the location cannot evade the tax state.
2. The growing Moloch state, the subsidies of conglomerates and the growing social benefits through election gifts to more and more households lead to increased spending of the state that can only be “counter-financed” by the middle class. Therefore the middle class is fiscally ransacked. Unlike the conglomerates, the middle class is hindered, discriminated, criminalized and under total surveillance whenever it reacts through global transfer of its capital, assets and personal flight.
3. Globalization forces the complete reorientation of the tax state – so monopolies and the state finance themselves through monopoly prices as already occurs with the gas tax and citizens will no longer be forced to pay taxes through an expensive and ineffective tax administration.
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