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Monday, April 23, 2012

Sullivan: U.K. Road to Competitiveness Is Paved With Tax Increases

Tax Analysts Martin A. Sullivan (Tax Analysts), U.K. Road to Competitiveness Is Paved With Tax Increases, 135 Tax Notes 390 (Apr. 23, 2012):

It has been the stated policy of the United Kingdom's Conservative-led coalition government "to create the most competitive corporate tax regime in the G20." Chancellor of the Exchequer George Osborne reiterated this policy -- expanded to include all noncorporate business -- in his 2012 budget speech delivered on March 21.

The flagship provisions of the policy are a large reduction in the corporate tax rate, exemption of most foreign profits from tax, and the introduction of a patent box. But these high-profile tax cuts have been accompanied by offsetting tax increases on business and -- by far the most significant tax change since the new government came to power -- an increase in the VAT rate. How the Conservatives have implemented tax reform has important lessons for U.S. policymakers who are considering the same path.

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This won't work. In order to improve competitiveness prices have to go down. That can't happen as long as the tax component of "cost" remains high. There must be a large NET reduction in taxes. A plus here and a minus there simply won't work. The market isn't that stupid. But, obviously, British politicians are!

Posted by: OrderoftheCoif | Apr 23, 2012 8:10:29 AM