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Archive for March 1st, 2011

Here’s a new mini-documentary from the Center for Freedom and Prosperity, narrated by Natasha Montague of Americans for Tax Reform, that explains why the process of tax competition is a critical constraint on the propensity of governments to over-tax and over-spend.

The issue is very simple. When labor and capital have the ability to escape bad policy by moving across borders, politicians are more likely to realize that it is foolish to impose high tax rates. And they oftentimes compete for jobs and investment by lowering tax rates. This virtuous form of rivalry helps explain why so many nations in recent years have lowered tax rates and adopted simple and fair flat tax systems.

Another great feature of the video is the series of quotes from winners of the Nobel Prize. These economists all recognize competition between governments is just as desirable as competition between banks, pet stores, and supermarkets.

The video also discusses how politicians are attacking tax competition. It mentions a privacy-eroding scheme concocted by governors to tax out-of-state purchases (how dare consumers buy online and avoid state sales tax!).

And it also discusses a very destructive tax harmonization effort by a Paris-based bureaucracy (the Organization for Economic Cooperation and Development, subsidized with American tax dollars!), which would undermine fiscal sovereignty by punishing jurisdictions that adopt pro-growth tax systems that attract labor and capital.

The issues discussed in this video generally don’t get a lot of attention, but they are critical for the long-run battle to restrain government. Please share widely.

P.S. This speech by Florida’s new Governor is a good example of how tax competition encourages governments to do the right thing.

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The Tea Party doesn’t mince words. In a bold editorial posted at Foxnews.com, the leaders of the Tea Party Patriots, along with Andy Quinlan of the Center for Freedom and Prosperity and a private investor named Steve Baer, make the case for cutting up the government’s credit card.

Reading this column makes me feel wimpy. I’ve been assuming that Congress eventually will raise the debt limit, and my focus has been on getting Obama and the Senate to give up something in exchange – perhaps some sort of reform of the budget process to restrain spending as a trade for more borrowing authority. I’d like to see, for instance, a rejuvenated version of Gramm-Rudman that imposes limits on spending growth.

And I’ve already blogged about Senator Toomey’s legislation, which would prevent the Treasury Secretary from deliberately defaulting on the debt as part of a cynical ploy to force Congress to give Obama a blank check.

But maybe I’ve been aiming too low. Here are some key excerpts from the Tea Party oped.

Nearly all of the 87 freshmen who made Boehner Speaker campaigned against raising the limit on the USA’s public debt, capped for now at a staggering $14.3 trillion. Treasury Secretary Tim Geithner calculates that our national credit card will max-out near June. Yet Boehner has already muffed his lines, blurting intent to boost the borrowing limit on Obama’s Mastercard. …We are eyewitnesses to the troubling fact that Geithner has beguiled some leaders with the patently false notion that House resolve against further borrowing equals default to U.S. bondholders. This, in turn, argues to Boehner that it would be reckless not to raise the ceiling ahead of max-out. Yet, as Sen. Pat Toomey (R-Penn.) and Rep. Tom McClintock (R-Calif.) contend via clarifying legislation, non-borrowed tax revenues are more than ample to cover debt service – just not enough to pay for every nice, silly or evil thing to which Washington has become accustomed. …the epic, blockbuster feature presentation in the nation’s political theater should be all about House GOP shutdown of the president’s credit card – the outlaw means by which official Washington has confessed to robbing unborn generations of Americans: In 2006, an audacious newcomer told his Senate colleagues that “raising America’s debt limit is a sign of leadership failure…. Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren.” Playing the centrist, of course, he became president in 2008. …Strategic inaction on the debt ceiling, plus bold messaging…, represents a GOP WMD (weapon of mass discipline) that can incinerate every obstacle to the bipartisan reforms so desperately needed in our dysfunctional U.S. government. Wielding this awesome weapon without cooperation from the Senate or the president, House Republicans can rescue the American Republic from Washington’s outlaws.

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