Freitag, August 03, 2007

Utter Stupidity, or German Politicians...

Sorry for the paucity of blogging, been back at work and have been furiously writing up a storm there, not much time left for this.

But this came up today in the Handelsblatt (roughly speaking, the German equivalent of the WSJ).

The Ministry of Finances is planning on introducing a new tax: for German companies investing overseas, they will be taxed on the profits that should result from moving operations out-of-country or should result from expanding operations out-of-country instead of in Germany.

You read that right: if a German company decides to open up operations elsewhere, they should be punitively taxed for doing that instead of doing it in Germany.

The mind boggles.

Not only that, but this is a deliberate thing: the goal is to prevent German companies from doing their R&D in Germany and then opening up operations in, say, Poland, in order to maximize their profits. The taxes are designed to make this unattractive: we're not talking any sort of punitive taxes as punishment, but rather to tax German companies so heavily that they will find it cheaper to produce elsewhere...

But they've forgotten something: that countries where German companies operate, say Poland, tax profits as well: the German proposition is that the companies involved pay their taxes in Germany instead and then use those tax liabilities to compensate for the local tax liabilities.


Me, I want some of what these folks are smoking.

First of all: the idea that the tax authorities in, say, the US will accept that a German company operating in the US will avoid paying US taxes because they pay German taxes is not merely fantasy, it can only be explained as a drug-induced hallucination.

Second of all: the reason that German companies produce out-of-country is not merely that you can hire productive labor elsewhere for less (indeed this is the case...), but more critically it's the way that being a player in global markets works successfully. If you want to be a big international player in your field, then you don't make widgets in Germany and then export them: rather you become the local widget maker that happens to be owned by Germans and that can produce the best damn widgets for that country.

Third of all: this is not a tax on current profits, but rather a tax on expected future profits. If they were to tax German companies on repatriated profits after local authorities taxed them, fine: that's what they do now. But noooooo, this is to punish companies for behaving like they actually want to make money and satsify their client's needs.

The best thing that could happen to Germany would be to fire half of the bureaucrats and to massively downsize government. No one can tell me that a country whose Bureau of Labor spends more money, time and employees on managing itself rather than finding unemployed people new jobs can't slim down.

This idiocy, this utter stupidity, can be clearly laid at the feet of the German socialists, by the way: the Finance Minister in charge is Peer Steinbrück from the SPD, the German socialist party.

This is the kind of stupidity that starts economic and financial crises, the modern-day equivalent of Smoot-Hawley or similar idiocies.

Of course the trade groups and associations are up in arms about this, and there is little chance that it will actually come to this.

But it does serve as a reminder of why Big Government - and oh boy do the Germans loooooove Big Government - is A Bad Thing.

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