Tax Law

Taxes & Sovereignty: The Euro Experiment

Henry Kissinger predicted the demise of the euro many years ago. He and other euro-skeptics saw a fundamental flaw in the structure of the single currency.

The flaw -- which remains in place to this day -- is that countries adopting the euro must forfeit monetary policy to the
European Central Bank but retain full political sovereignty over fiscal policy. The powers to tax and spend were deemed too vital a national interest to be transferred to a collective EU body. Thus the euro-zone wants to enjoy the practical benefits of a common currency without the hardship of giving up sovereignty where it matters most.

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Also note the EU maintains rules making it virtually impossible to harmonize tax policy. A mere qualified majority is sufficient to adopt an EU directive in other policy areas, but approval of a tax directive requires the unanimous consent of all 27 EU member states. That means a single holdout can effectively veto the advancement of tax policy. Why was taxation singled out for the unanimity requirement? You guessed it ... sovereignty. (Just imagine if the U.S. Congress couldn't pass a law unless all 50 states agreed to it. Sounds like a system designed to fail.)

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View TaxAnalysts' Robert Goulder's opinion in its entirety on TAX.com.

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