Tax competition comes to Europe

Fans of big, expensive and heavy-handed government in the United States often point to European tax rates as evidence that not everybody is as "selfish" as low-tax-advocating Americans. If Belgian, Danes, French and Germans can be happy with an extensive, intrusive state and the soaring taxes it takes to support such an entity, why can't folks on this side of the Atlantic get with the program?

Well, as it turns out, many Europeans aren't so happy with that arrangement.

The International Herald Tribune reports that even in Denmark, where the economy is chugging along largely thanks to a very un-European measure of economic freedom, many skilled workers are fleeing to jobs beyond the borders in order to escape confiscatory tax rates that can reach 63%.

As a self-employed software engineer, Thomas Sorensen broadcasts his qualifications to potential employers across Europe and the Middle East. But to the ones in his native Denmark, he is simply unavailable.

Settled in Frankfurt, where he handles computer security for a major Swiss corporation, Sorensen, 34, has no plans to return to the days of paying sky-high Danish taxes. Still, an unknowing headhunter does occasionally pass his name to Danish companies.

"When I get an e-mail from them, I either respond negatively but politely," Sorensen said. "Or I don't respond at all."

Born and trained at Denmark's expense, but working - and paying lower taxes - elsewhere in Europe, Sorensen is the stuff of nightmares for Danish companies and politicians searching for solutions to an increasingly desperate labor shortage. ...

The Confederation of Danish Industries estimated in August that the Danish labor force had shrunk by about 19,000 people through the end of 2005, because Danes and others had moved elsewhere. Other studies suggest that about 1,000 people leave the country each year, a figure that masks an outflow of qualified Danes and an inflow of less skilled foreign workers who help, at least partially, to offset the losses.

So European governments find themselves trying to court employers and workers at least partially by keeping individual tax rates at a competitively low level. Those governments that don't compete, suffer the consequences.

But isn't Europe as a whole a mecca for high taxation?

Well ... not so much anymore.

The movement toward lower taxes passed Denmark by, even as it took root in much of Europe.

Small East European countries, notably Estonia and Slovakia, started the trend by imposing low, flax taxes on income and corporate profits about five years ago. Those moves helped prod Austria, and eventually, Germany, to slash high marginal rates as well.

Danish taxes also contrast sharply with those in nearby London, often jokingly referred to among Danes as a Danish town, because so many of them live there. Lower taxes on high earners have been a centerpiece of the policy mix that has fed the rise of London as a global financial center since the 1980s.

Low taxes are a relative matter, of course. But with the relatively open borders of the European Union, allowing people to move and work where they wish, people can settle in the environment that offers what they want -- and what many obviously want is lower taxes.