Double movements

by Henry Farrell on February 28, 2008

I’ve been too busy with teaching responsibilities the last several days to link or respond to various posts that other people have put up on taxes, collective goods, and related questions, so I’m going to declare intellectual bankruptcy, and just tell you to read “Laura McKenna”:, “Will Wilkinson”: and “Russell Arben Fox”: But I also wanted to point to some interesting stuff that’s been happening in Germany, which is sort of related to this question. The _Financial Times_ has been running stories for the last week or so about a disgruntled former employee of a Liechtenstein bank, who has sold a list of the beneficial owners of various trusts in Liechtenstein to the German tax authorities for several million dollars.

It looks as though this list was a bargain – the German authorities are expecting to collect very substantial amounts of money from aforementioned beneficiaries. The episode also has an important deterrent effect – tax-dodgers who might have thought previously that they could safely evade the German taxman by stashing their money in Liechtenstein (which notoriously refuses to cooperate with foreign tax authorities) are now likely to have second thoughts. Other tax authorities, including the IRS, are looking to use the list or information from the same employee to go after their own tax evaders. But what is interesting to me is the “political reaction in Germany”:

German business is facing a dramatic loss of influence as a political force after the launch of the country’s biggest ever investigation targeting wealthy tax evaders, according to Jürgen Thumann, the nation’s leading business lobbyist. … There is no question that this case has damaged the reputation of all entrepreneurs and managers in Germany,” Mr Thumann, who chairs the BDI industry federation, said. “It has added to the already rampant anti-business mood and confirmed people’s worst prejudice. My concern is that if this continues to drip week after week, we will lose whatever credibility we have left,” he said. “At stake is our reputation as a part of society and our ability to defend our positions in the political arena.”

What I imagine is happening here is that the specific issue of whether prominent German business leaders are hiding their money in tax havens is being melded together with a more general set of concerns about fairness and economic change. There is a general perception that the last few years of belt-tightening measures have produced austerity and personal sacrifice for some, but not for others. There’s been a resurgence of corporate profits, but wages have been stagnating until very recently (the new agreement with IG-Metall will allow some catch up). This isn’t helping the center-left; the German SPD has been badly damaged both by the fact that it was responsible for many of the austerity measures, and by the sleazy corporate cronyism of its last chancellor, Gerhard Schroeder (imo, Angela Merkel is a quite considerable improvement on Schroeder in nearly every way, even if she’s further to the right).

Thus, when people hear that prominent businessmen who have done very well from the reform process are apparently guilty of tax evasion, they not unsurprisingly draw connections between these businessmen’s behaviour and the more general policy aims of the German business lobby over the last several years. In short, the eagerness of German business to disembed itself from the German economy is resulting in a political backlash. I suspect that the _Economist_ has been complaining in its usual fashion about this (I don’t have a subscription any more, so I can’t say for sure), but the only thing that surprises me about aforementioned backlash is that it has taken so long to materialize.



otto 02.28.08 at 8:17 pm

I think the Economist is all online these days. But if you want irritation with Germany’s ‘turning left’, even before Liechtenstein etc, as well as the views you indicate, you could try Wolfgang Munchau’s (he of FT) blog e.g. “The cause of tax evasion are taxes” among others.


SamChevre 02.28.08 at 8:23 pm

Backstory from another blog (and I’m too hurried to research which one–McArdle?); he’s not really a disgruntled employee, so much as a disgruntled scammer–his main complaint was a conviction for fraud.


John Quiggin 02.28.08 at 11:17 pm

According to the Australian media, he’s now living here under an assumed name, and our tax office, along with those of the UK and US, has bought access to the list. One immediate projected result is that Lichtenstein is going to meet EU/OECD demands on tax compliance, modifying the bank secrecy laws that were broken in this instance.


gr 02.29.08 at 6:36 am

It’s true that attitudes in Germany differ in that respect. The ‘man on the street’ is going to be seething with rage at the higher ups. The point about austerity measures is well-taken. Especially since many people in Germany have been told that the measures are really part of some kind of implicit bargain: You accept wage-restraint, more job market flexibility, and lower taxes on capital (all of which have been introduced), and we are going to a) keep your jobs in Germany and b) once again pay our taxes. But the higher ups are perceived as failing to reciprocate. They took advantage of the ‘reforms’ and still don’t pay taxes and still slash jobs like there’s no tomorrow. This is widely considered to be unacceptable, not just by social democrats.


Tim Worstall 02.29.08 at 10:45 am

I have to admit to a certain amusement at one part of this story.
There’s a special 10% tax rate for income received by whistleblowers in the process of their whistleblowing. And yes, this guy did benefit from it.


bjk 02.29.08 at 12:31 pm

Somebody has to make this point, I’ll be the first: maybe the tax rates are too high, and maybe that’s the problem.

In other news, the SPD’s only potential coalition partner is the former communists.


Martin Wisse 02.29.08 at 12:50 pm

That’s what I said two weeks ago when this scandal broke, that it could be an opportunity for Die Linke.

Typical how understanding some people become of crime when it’s the ruling class that’s guilty of it. Would bjk be as understanding if an ordinary thief said he only stole because prices were too high?


bjk 02.29.08 at 1:03 pm

No, they should be fully prosecuted, just like Boris Becker was. And the taxes should be cut too.


Scott Hughes 03.01.08 at 2:38 am

At least they are being charged. Sometimes the big businesses get out with a little sub rosa deal.

But less taxes is what I would like to see most of all.


Theron 03.01.08 at 5:21 pm

Look, natural born mean that you were a citizen the moment you were born. McCain was, because his parents were citizens. He could have been born on the moon – he’d still be a natural born U.S. citizen. He never had to apply for citizenship; hence he is a natural born citizen. As much contempt as I have for the guy, this is the usual nonsense we get from the historically illiterate right wing.

So when do we stop cutting taxes? The whole “less taxes” theme has been bankrupted by its proponents. Economy doing well? Then tax revenues are up, and we can cut taxes. Yay! Economy doing poorly? Well, we need to cut taxes to stimulate growth. Economy doing OK? Well, think how much better it would be if we cut taxes?

And so on, and so on, and so on. The anti-tax types rarely step forward with a coherent argument about how tax rates, economic growth, needed infrastructure, and voter desires for services should be balanced. Nope – just “cut taxes!” and a Laffer curve drawn on the back of a napkin no matter what the situation is.


Theron 03.01.08 at 5:22 pm

Oops! A little too happy on the cut and paste on that last one. I can’t spell worth a dang so I always check stuff in Word or something. Sorry.


s.e. 03.02.08 at 7:19 pm

“At stake is our reputation as a part of society.”
“a part of…”

The choice of words itself is interesting.

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