International Investing

From Gartman:

We argue that there are plenty of countries around the world that prove the superiority of flax taxes, citing the huge revenue growth in eastern Europe where it is a race amongst the countries there to flatten and lower tax rates with abandon. But now we learn that the smaller, less populated, and poorer cantons of Switzerland are about to begin an experiment in lower, flatter taxes. Cantons such as Obwalden, bordering on the larger, but lower tax cantons such as Nedwalden, Zug and Schwyz, have been losing citizens and businesses to these other cantons for years. As they lost those taxpayers, the city fathers increased tax rates to make up for lost taxes. They failed, for as taxes were raised, the exodus increased. It became a virtual downwards spiral as revenues fell, tax rates rose, revenues fell again, and tax rates were boosted again… always t the same result.

Now, the finance minister of Obwalden, Mr. Hans Wallimann, has chosen to follow a different path. He cut the corporate tax rate to 6.6% two years ago, compared to the 14-17% taxes that prevail in the cantons, and he cut them again to 6% as of the 1st of this year. In the process, the number of new businesses opening up in Obwalden has gone up by 500%. Admittedly this is from a low base, but until the tax cuts were instituted, Obwalden was losing businesses and tax revenues. Now it is not. Having enjoyed that success, Mr. Walliman is pushing for a flat individual tax of 12.4%. In most cantons, the personal income tax is progressive, moving from something close to 11% on the lowest wages to as high as 40%. Obwalden is “flattening” that to 12.4%. We shall watch, over the coming months, how Obwalden does, but ’tis our guess that the canton’s population shall rise from 34,000 to 100,000 sooner than the tax man in Sarnen can raise a glass to Mr. Walliman’s wisdom.