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April 17, 2003

A Better Way to Chastise France

By

Yes, folks, it finally happened. French President Jacques Chirac swallowed his pride and placed a let's-be-friends-again phone call to President Bush.

As well he should have. France's behavior regarding Iraq has been despicable. In addition to providing Saddam Hussein's brutal regime with valuable technology, the French government actively worked to sabotage our campaign against the Iraqi dictator.

Unfortunately, the French people may be just as misguided as their leaders. French vandals recently desecrated the graves of allied soldiers. And a poll taken while the war was in full swing showed that only one-third of the French wanted America to win.

The French people certainly have a right to their opinions, even if they conveniently forget that they are able to exercise that right only because of the sacrifices made by American soldiers. But that doesn't mean France shouldn't suffer any consequences. Many Americans, for instance, are boycotting French products or canceling plans to vacation in France. These are fine gestures, but they aren't likely to have much long-term effect.

A far better way to teach France a lesson is to strengthen our economy. We live in a competitive global economy, and anything we do to lower taxes and cut regulation helps attract jobs and capital from around the world. And because France has an incredibly oppressive tax system and a bloated welfare state, we can be sure that French entrepreneurs and investors would jump at the chance to shift their money to the United States.

There are a number of pro-growth tax policies that would simultaneously help America and hurt France. President Bush's proposal to eliminate the double-taxation of dividends is a great idea, for instance, but his proposal would only eliminate the double-tax for U.S. residents. Foreigners who invest in the American economy would still be subject to a second layer of tax. But if the Bush plan were expanded to cover all shareholders, domestic and foreign, this would attract more investment funds to America.

Our economy would benefit in obvious ways. The influx of capital would boost our financial markets and help create jobs for American workers. But the icing on the cake is that much of the money would come from high-tax welfare states such as France. And since the French government has such a socialist mentality, we can safely assume that they'd never lower their taxes in an effort to stay competitive.

The Bush administration also should take this opportunity to withdraw a proposed IRS regulation that would help countries such as France impose taxes on foreign money deposited in American banks. This counterproductive scheme, proposed in the waning days of the Clinton administration, would hurt our banks, undermine our competitiveness and drive money from our economy. The White House has sensibly blocked this regulation from being implemented, but bureaucrats at the Treasury Department have refused to withdraw it.

The time has come to kill this foolish IRS initiative, once and for all. Doing so would be good tax policy, good regulatory policy and good economic policy. And if those reasons aren't sufficiently compelling, the White House should kill the regulation so that exploited French taxpayers can move their money to America. (The French already can protect their money in Luxembourg and Switzerland, but wouldn't it be a good idea to have that money in America, creating U.S. jobs?)

If the people of France want to deposit money in American banks, we should welcome them with open arms. We certainly shouldn't be forcing our banks to become deputy tax collectors for foreign governments -- especially if foreign governments are making it harder for the United States to win the war against terrorism.

But we shouldn't just welcome French money. John Fund of The Wall Street Journal suggests that we encourage more talented French professionals to immigrate here. France's oppressive tax system punishes successful people and destroys economic opportunity. Thousands of highly productive French doctors, engineers, and scientists would gladly move to America. The French government would hate to see these people leave, if only because they are sources of tax revenue for a greedy government. Letting them come to America, therefore, would be the best of both worlds.

It would never make sense to change our laws just to hurt another nation. But we should always adopt policies that will help our economy grow faster and create more jobs. And if these policies happen to attract jobs and capital from France, that is a big fringe benefit. If we're going to punish the French, why not help ourselves in the process?


-Daniel J. Mitchell is the McKenna fellow in political economy at The Heritage Foundation (www.heritage.org), a Washington-based public policy research institute.

Distributed nationally on the Knight-Ridder Tribune wire

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