Today’s Political Diary:
Scotland’s Coming Boom
The next country to adopt Reaganite tax reduction policies likely will be Scotland. Alex Salmond, who serves as “First Minister” and heads his government’s ruling coalition, was in New York recently to ring the bell at the New York Stock Exchange and deliver a message to the global investor community that his nation is hungry for investment. The occasion was the Royal Bank of Scotland’s new listing on the Big Board.
Mr. Salmond tells me a key part of his agenda is “lowering the corporate income tax from 28% to 10%.” He also sounds a lot like the Gipper when he says he aims to break the country’s “dependency mentality that is restraining growth.”
“I’m a long-time advocate of supply side economics,” he tells me. “We need to rekindle our spirit of enterprise and turn Scotland into a Celtic Lion.” He says Scotland aims to join the “Arc of Prosperity,” a group of fast-growing nations in the region including Ireland, Iceland and Norway. Over the past 25 years Scotland’s growth rate has averaged 1.8%, compared to 2.3% for Europe and more than 10% for the economic gazelle of Europe, Ireland.
In 1900, Scotland was one of the world’s three richest nations in per capita income, but it turned socialist, as so many European nations did, after World War II. It got rich again the easy way in the 1980s with the discovery of North Sea oil. But high taxes have inhibited capitalizing on the petro-dollars to create a sustained economic expansion.
Scotland’s problem now is that it only controls 15% of its tax system. The U.K. has veto power over the rest, including reductions in corporate taxes. But if British P.M. Gordon Brown signs off on the tax cut, Scotland may be able to duplicate the Irish Miracle in the years ahead. “We want to imitate the Irish success story,” Mr. Salmond says. Ireland’s tax-cutting policies aren’t just a model for Scotland but for the U.S., which lately finds itself lagging in global competition because of relatively high tax rates on job creators.