A Primer on Tax Competition

The Adam Smith Institute in London has released my paper entitled “The Economics of Tax Competition.” If you want to understand why it is very important to prevent international bureaucracies from crippling national tax sovereignty in order to create an “OPEC for politicians,” you should spend 20 minutes reading this report. If you went to a government school and don’t like reading, this three-part video series covers the same material. Here’s an excerpt from the introductory section:

Tax competition exists when people can reduce tax burdens by shifting capital and/or labour from high-tax jurisdictions to low-tax jurisdictions. This migration disciplines profligate governments and rewards nations that lower tax rates and engage in pro-growth tax reform. …from an economic perspective, economic performance is enhanced because of lower tax rates on work, saving, and investment. …The thought of losing sources of tax revenue worries government officials from high tax nations, who vociferously condemn tax competition (particularly the role of so-called tax havens) and would like to see it reduced or eliminated. Working through international bureaucracies like the European Commission (EC), the United Nations (UN), and the Organisation for Economic Co-operation and Development (OECD), high-tax governments are promoting various tax harmonization schemes to inhibit the flow of jobs and capital from high-tax jurisdictions to low-tax jurisdictions. These proposals are fundamentally inconsistent with good tax policy. Tax harmonization means higher tax rates, but it also means discriminatory and destructive double taxation of income that is saved and invested. …Tax competition should be celebrated, not persecuted. It is a powerful force for economic liberalization that has helped promote good tax policy in countries around the world.

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Sowell for President

In his Random Thoughts column, Thomas Sowell shows more wisdom in his questions than politicians could demonstrate if they ever had to provide answers. The three questions excerpted below underscore the importance of thinking about both the underlying morality of public policy as well as the unintended consequences of government actions:

Since this is an era when many people are concerned about “fairness” and “social justice,” what is your “fair share” of what someone else has worked for? Here is a math problem for you: Assume that the legislation establishing government control of medical care is passed and that it “brings down the cost of medical care.” You pay $500 a year less for your medical care, but the new costs put on employers is passed on to consumers, so that you pay $300 a year more for groceries and $200 a year more for gasoline, while the new mandates put on insurance companies raise your premiums by $300 a year, how much money have you saved? …Government pressures on mortgage lenders to accept less than the full amount they are owed may win votes for politicians, since there are far more borrowers than lenders. But how much future lending can be expected when the lenders know that politicians are ready to intervene at any time to prevent them from getting their money back?

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