How do you say “wrench” in German, French, and Luxembourgish because those are the primary languages spoken in Austria and Luxembourg, and a wrench is exactly what these two nations recently threw in European Union plans to increase national budgets by cracking down on tax evaders.
Tax evasion has long been problematic in the EU and around the world due to a combination of the EU’s lack of authority to tax its member states and the secret banking policies that allow foreign nationals to anonymously stash cash in countries like Switzerland with no questions asked. To compensate, the EU in 2005 enacted a law that requires all EU members and a number of non-EU countries to withhold taxes on the interest gleaned from foreign nationals’ savings accounts and then distribute the funds to the account holders’ respective governments. Most countries are also required to share information identifying the individuals behind the accounts, but there are a few notable exceptions, including Switzerland, Austria, and Luxembourg.
However, Europe’s current economic problems and the ease with which the current law can be circumvented have led the EU to seek permission to negotiate changes to the current legislation. This requires a unanimous mandate from the EU membership, though, and guess who’s refusing to give the go ahead?
That’s right, Austria and Luxembourg. They refuse to provide consent for fear that a new deal would put their own bank secrecy laws in jeopardy, and in doing so, they’re hurting us all.
Well, as we all know, there’s no such thing as economic isolationism in this day and age. Despite the miles of ocean separating the United States and Europe, economic struggles on one side of the pond have pronounced negative effects on the other. For example, when the Greek government cannot get the money it needs from its modern-day equivalents of Aristotle Onassis (72 billion Euros have been moved out of the Greek banking system in the past couple of years alone), that only prolongs the time until it can stand firmly on its own economic feet once again. If you’re not convinced how critical it is for a country to tax its wealthiest individuals, consider the fact that nearly 37% of U.S. tax revenue comes from the richest 1%.
It’s also naive to think that U.S. citizens do not avail themselves of off-shore banking secrecy in order to avoid U.S. taxes. That’s not to say that Austria and Luxembourg agreeing to tax law reform will immediately fill our government’s coffers, but a blow to the banking secrecy that protects tax evaders everywhere would certainly have a beneficial long-term effect.
Finally, the effect that banking secrecy has on other types of crime cannot be ignored. The ability for individuals and corporations to hide funds overseas without the knowledge of their home governments not only allows for easy money laundering, but also facilitates criminal operations such as drug trafficking. It also prevents the type of technicality-driven charges that are often the only way to convict known criminals and criminal organizations, such as was the case with Al Capone in the 1930s. A crackdown on anonymous banking would therefore strike a significant blow against criminals around the globe.
In short, you should be almost as mad at countries like Austria and Luxembourg that put harmful banking secrecy laws ahead of the greater good as Algirdas Semeta, the EU’s tax commissioner, noted.
“Tackling tax evasion is a growth-friendly way of boosting national budgets. How can any member state possibly justify blocking progress in this area,” he told reporters after fruitless talks with EU leadership. “I leave it to [the two governments] to explain to citizens across Europe why they can support tax hikes and spending cuts for ordinary people, but won’t allow us to step up our fight against tax evaders.”
Here’s hoping they pick up the mantle and do the right thing.