The Redcoats Are Back With a New Tax
Two hundred and fifty years after we told Britain they could not tax Americans without representation, several European nations have decided that “taxation without representation” is a good idea again. So far, they are getting away with $3 billion a year. President Trump cannot let this go on.
These foreign governments have designed a Digital Services Tax, a new breed of tax based on user participation. It is designed to hit American tech companies while discarding two centuries of taxation norms that form the basis of sovereignty. (RELATED: American Tech Is Under Siege in Europe)
It is designed to hit American tech companies while discarding two centuries of taxation norms that form the basis of sovereignty.
They claim that because their citizens clicked, scrolled, searched, or in some way came in contact with a digital service, these are as much European companies as they are American. Making matters worse, the tax is imposed on revenue instead of profits.
It is a large and growing threat to all Americans.
A new report by Prof. Sinclair Davidson finds that American firms are paying nearly $3 billion annually to foreign governments due to these DSTs, and they are expected to pay $6 billion by 2030. Over the next 10 years, the cumulative cost will be $117 billion.
For instance, in the U.K., five foreign firms are responsible for 90 percent of their DST revenue. In Spain, 76 percent of firms hit by the DST are American, while only 3 percent are domestic. In Italy, 62 percent of firms hit by the DST are American, and only 7 percent are domestic.
Digital Services Taxes and their stepchild, “Significant Economic Presence” (SEP) rules, are designed to target large technology firms, so that non-American competitors, especially in Europe, are not touched. Davidson predicts the SEP taxes will cost $20 to $50 billion by 2035
In Trump’s first term, his U.S. Trade Representative found these were unfair trade practices and recommended 25 percent tariffs. Before they went into effect, Biden came into office and decided to pursue the Global Minimum Tax. That has gone nowhere, but now countries want their DSTs back.
So far, Britain, France, Italy, Spain, and Turkey have imposed Digital Services Taxes.
President Trump understands this attack. Last summer, he got Canada’s prime minister, Mark Carney, to scrap their DST hours before the first payments were due. This is progress.
Unchallenged, these digital services taxes will spread to other nations and other user services. Europe should join America in valuing innovation, hard work, respecting property rights, and keeping taxes low.
This is also the 250th anniversary of Adam Smith’s Wealth of Nations. These companies create their value in the U.S., benefitting from America’s highly educated and specialized workforce, American free inquiry, low taxes, and free-enterprise culture. They are protected by American laws and pay U.S. taxes to fund it.
They are American companies through and through. If other countries want to compete for their business, they can choose policies to attract them; we would all benefit, but theft isn’t one of them. Heck, many are now moving from California to Texas for that very reason due to their new wealth tax. (RELATED: Y’all Street Is Eating Wall Street’s Lunch)
Europe’s tax-and-regulate recipe isn’t doing them any favors. How badly is Europe doing? If Britain were to become a state, it would be the 51st poorest state in the nation. Just below Mississippi. Germany would be the 50th. Just above Mississippi — until three years from now, if trends continue, Germany would fall below Mississippi.
Americans’ purchasing power is double that of Europe. Americans earn higher wages, have more disposable income, have larger homes, invest more, and can correctly spell word likes honor and humor. The economic gap between the U.S. and Europe is widening. Europe’s bureaucratic overlords have sadly chosen to tax American firms rather than have a society free enough to create their own wealth.
American innovation can’t thrive while other countries dream up new taxes to steal their success. The president has correctly cited DSTs as an unfair trade practice discriminating against American firms, and will do so again. Europe and Turkey should follow the Canadian example, decide to be a firm economic and security partner of the United States, collaborate in wealth creation, and throw their DSTs into the dustbin of history.
Grover Norquist is president of Americans for Tax Reform. Philip Thompson is Policy Analyst for IP & Trade at the Tholos Foundation.
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