Why do Americans laud European Taxes?

Americans laud European taxes, but are often blind to the consequences, costs, and implications of adopting their tax regimes.

October 14, 2024

By: Bobby Casey, Managing Director GWP

In the US, you often hear politicians insisting the rich must pay their fair share. What’s often obscured is what “fair share” means, what it is meant to pay for, and how far will that amount go.

Americans laud European taxes because they think they live this wonderful prosperous life under a heavy tax regime and socialized everything. But vacation Europe versus resident Europe are very different things depending on who you are.

It’s like when Americans get nostalgic about bygone eras, and want to institute those policies again. “Why can’t we have affordable housing like our grandparents had?” Because house built at that time would pass today’s regulatory standards. In 2011, the additional cost of housing regulations were $65,220 per house. In 2021, that cost rose nearly 44% to $93,870.

If you want what they got, you gotta do what they do.

France

France is the 7th largest economy in the world, but it’s ranked 62nd out of 184 countries for economic freedom.

Americans see their elaborate welfare state with the free stuff and think it’s amazing to never have to worry about paying for those things themselves. Americans laud European taxes because they think it yields these enviable results. Here’s what they don’t see:

French social security contributions: These play a significant role in the payroll calculations. Employers and employees contribute to the social security system, with the employer’s share being 45% of the gross salary and the employee’s share ranging from 20-23% of remuneration.

Payroll taxes in the US are 15.3%, and split between employer and employee 50/50 with each party paying about 7.65% of the gross pay into the pot. So if you make $100,000 gross per year, your employer pays $7,650 on top of that to the feds, and then you pay $7,650 to the feds from that pay. That’s before any income tax hits.

Take that same $100,000 salary in France. Your employer would pay $45,000 on top of your gross salary to the government, and you would pay $20,000 to the government before any income tax is taken out.

Your employment yields $65,000 to the government annually. That’s a whole extra salary for another employee!

Their unemployment rate is 7.5%. Why are Americans eager to have this?

It’s like union negotiations: they ask for the sun and the stars, but then the only way to pay for it is to let staff go.

Italy

Italy is the 9th largest economy in the world; 3rd largest economy in the EU and 2nd in manufacturing.

This is an interesting one, because back in 2013, it made international news when Fabrizio Pedroni, own of Italian factory Firem, packed up and moved to Poland without telling a soul.

According to Pedroni, his decision was forced on him by low-cost rivals in Eastern Europe, uncompetitive labor in Italy, and high taxes. Firem had sales of about €3 million ($4 million) last year but hasn’t posted a profit since 2008.

It had been five years of no profit before he had enough.

Fast-forward to today. You don’t get unemployment at 8.2% and ranked 81st in economic freedom for nothing.

Corporate taxes are prohibitive, for sure. Corporations pay taxes twice a year in Italy and what is due is assessed off what was paid the year before. So, if you paid $100,000 in taxes in 2023 here’s how it would work:

In June 2024, you pay 40% of that amount for the current year, which is $40,000. In November 2024, you pay the remaining 60% which is $60,000. The following June 2025, you would pay any additional taxes owed for 2024 when everything is settled, plus 40% of the total you paid for 2024.

You’re paying taxes in advance of making any money. It’s based on how much the government expects you to make.

This is a non-starter for start-ups. They leave you alone for about three years (sometimes up to five years) and then their tax guys come in and assess what they think you can make based solely on your capital investments and assets!

You need to find a way to hit that mark. No accounting for any market fluctuations or conditions. By year three, the Italian government expects that you’ll be making at or better than the year before no matter what.

Americans laud European taxes, but why? Do they want high unemployment? Do they want start-ups to fail and capital flight?

Sweden

Swedish healthcare is always at the ready whenever Americans get hyped up about universal healthcare. To be fair, they do have a far more freer market with lower corporate taxes, and lower regulations. They are ranked 9th in economic freedom, and encourage entrepreneurship. They also have 7.9% unemployment.

SwEdEn DoEs It!

Johan Norberg, Swedish author, historian of ideas, documentarian, and a senior fellow at the Cato Institute, was asked to respond to Bernie Sanders and his cohort who keep pointing to Scandinavian countries for their bountiful welfare state.

Norberg confirms what I said earlier about people who pine for yesteryear’s affordable housing: if you want what they had, you gotta do what they do.

“So today, if Bernie Sanders wants to imitate Sweden, he would have to reform Social Security, partially privatize it,” said [Johan] Norberg in an interview with ReasonTV, a division of Rea​son​.com. “He would have to … abolish property taxes and inheritance taxes, and stuff like that, implementing national school voucher systems…. So, Sweden today is not what he remembers from the 1970s. It’s a much better and freer place than it was back then.”

Norberg goes on to dispel the notion that it’s just the ultrarich who foot the bill for all the things. It’s quite the opposite. Everyone pays in a considerable amount to have this welfare state. In the 1970s and 1980s Sweden experienced a lot of capital flight and learned that the rich won’t abide by footing the bill for every whim.

“If you have a universal generous welfare state, and make the rich pay for it all, they will stop being rich. They will move. They will stop starting those businesses, the Ikeas of the future, and will move. Instead, you have to get most of the taxes from low- and middle-income households. That’s the dirty little secret of the Swedish welfare state.

“The socialists love the poor taxpayers because they are reliable, loyal taxpayers. They don’t dodge. They don’t move to Monaco. They don’t have tax attorneys. So we have the bulk of our government revenue coming from regional and local income taxes, which are flat. Income taxes are not progressive…. Also, things like a value-added tax at 25%, in general, on most goods. It’s obviously regressive. The poor pay as much as the rich when they buy food, in taxes.”

Americans laud European taxes, but if you want what they have, you have to do what they do. And it would be political suicide to overhaul the US’s welfare state this way. Americans like the net benefits they see these countries getting such as “free” higher education, “free” healthcare, and state funded retirements.

But nothing is free. There are only compromises.