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.
[…] boring articles about marginal tax rates. Instead, they only did the right thing because they were worriedabout losing jobs and […]
[…] reading my boring articles about marginal tax rates. Instead, they only did the right thing because they were worried about losing jobs and […]
[…] the Reagan tax cuts and Thatcher tax cuts, politicians all over the world felt pressure to lower their tax rates on personal income. The same thing has happened with corporate tax rates, though Ireland deserves most of the credit […]
[…] the Reagan tax cuts and Thatcher tax cuts, politicians all over the world felt pressure to lower their tax rates on personal income. The same thing has happened with corporate tax rates, though Ireland deserves most of the credit […]
[…] answer, needless to say, is that tax competition is a good thing. Ever since the Reagan and Thatcher tax cuts got the process started, there have been major global […]
[…] by Dan Hannan and Godfrey Bloom, both British members of the European Parliament. And here’s another video on the topic from the Center for Freedom and Prosperity, but you get to listen to someone more appealing than […]
[…] want this? Simple. With a minimum tax, revenue-greedy governments would not have to fear tax competition from jurisdictions with lower rates, thus eliminating any pressure for them to control wasteful […]
[…] the Center for Freedom and Prosperity explains: When labor and capital have the ability to escape bad policy by moving across borders, politicians […]
[…] raise tax rates, after all, if you don’t get more money to waste?). Or maybe they’ve learned because of tax competition (why raise tax rates if that causes the geese with the golden eggs to fly across the […]
[…] potente per frenare l’avidità della classe politica Dan Mitchell Originale (in inglese): International Liberty Traduzione in italiano: Luca A. […]
Just another reason why federal programs should be handed entirely to the states, and federal taxes reduced to little at all. Let the states do what sovereign states should do.
The US has great tax competition between the states. However, there is much less with the fed gov because the US is so big as a country that it is harder for businesses and labor to leave our borders. Tax competition between countries is a larger factor in Europe, where their countries are similar size to US states.
Because tax competition for the US gov is more limited, that explains why the leftists want to move as many functions, and as much power and taxes as they can from the states to the fed gov. Anybody who wants limited gov should try and move as many functions as they can from the feds to the states.