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Archive for the ‘Tax Competition’ Category

Two years ago, I shared a map looking at how heavily wine was taxed in different states.

What is showed was that you shouldn’t sip your Chardonnay or guzzle your Merlot in Kentucky. Unless, of course, you wanted to give politicians a lot more money to spend (or you slip across the border like Michael J. Rodrigues when buying booze).

Now the good people at the Tax Foundation have a related map. It shows which states have the highest and lowest taxes on beer.

Kentucky is still a high-tax state, but the “winner” of the beer tax contest is Tennessee.

At the risk of drawing too many conclusions, it does appear that southeastern states generally have high taxes on booze. Along with Alaska.

Maybe that’s a “Bible Belt” phenomenon. Though I’m somewhat forgiving of Tennessee for high excise taxes since the Volunteer State at least avoids the huge mistake of imposing an income tax on the wages and salaries of residents. No wonder it’s been growing faster than neighboring states.

Returning to the main topic, the Tax Foundation explains, taxes amount to a big share of the final price.

The Beer Institute points out that “taxes are the single most expensive ingredient in beer, costing more than labor and raw materials combined.” They cite an economic analysis that found “if all the taxes levied on the production, distribution, and retailing of beer are added up, they amount to more than 40% of the retail price.”

P.S. Since we’re looking at states, I can’t resist sharing bad news from one state and good news from another state.

We’ll start with some grim news from Minnesota. I’ve already commented on the insanity of using the State Department’s refugee program to subsidize terrorists.

Well, the Daily Caller reports that terrorists also have learned to bilk other programs to finance that hate of the modern world.

Two Somali-American men living in Minnesota are facing fraud charges — in addition to terrorism charges — after they allegedly used federal student loan money to purchase airline tickets to get them to Syria in order to join ISIS. …

This doesn’t quite entitle them to join the Moocher Hall of Fame, but it should outrage taxpayers anyhow.

Our good news come  from California.

J.D. Tuccille of Reason speculates that gun control has basically become impossible in the Golden State because there are simply too many guns.

California is a state where officials pride themselves on tightening the screws on gun owners. …But it’s a losing battle. Even in a political environment where villainizing guns and gun owners is a winning tactic, the ranks of the same are beyond officials’ grasp, and growing. Last year, almost one million firearms were sold in the state…it’s a good bet that California’s gun owners, and their guns, are here to stay.

Here’s a chart he including showing gun sales.

And J.D. reminds us that these are just the legal sales. As illustrated by the amusing t-shirt at the bottom of this post, there are doubtlessly lots of undocumented weapons in the state.

The bottom line is that future gun control efforts in California will probably run into the same problems that have thwarted the schemes of despicable politicians in Connecticut. Three cheers for the Americans who disobey bad law!

And since it’s Memorial Day weekend, it’s a good time to be thankful the all the folks in the military who fought to preserve our freedoms. Including the freedom to engage in civil disobedience when politicians try to trample our rights.

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I wrote just yesterday about new evidence showing that decentralized government is more efficient.

Part of the reason is because local governments are easier for voters to monitor and more likely to reflect the actual preferences of residents.

Another reason is tax competition. It’s relatively easy to “vote with your feet” by moving from one community to another, and this makes it difficult for interest groups and politicians to impose excessive tax burdens.

Now we have some serendipity.

I’m in Gdansk, Poland, for a Liberty Fund seminar on “Economic Growth, Entrepreneurship, and the Future of the Welfare State.”

Two of the readings, by great scholars from the Austrian school of economics, had passages about the importance of decentralization.

In 1960, here’s some of what Friedrich Hayek wrote in his classic, The Constitution of Liberty.

While it has always been characteristic of those favoring an increase in governmental powers to support maximum concentration of these powers, those mainly concerned with individual liberty have generally advocated decentralization. There are strong reasons why action by local authorities offers the next-best solution…it has many of the advantages of private enterprise and fewer of the dangers of coercive action by government. Competition between local authorities or between larger units within an area where there is freedom of movement…will secure most of the advantages of free growth. Though the majority of individuals may never contemplate a change of residence, there will usually be enough people, especially among the young and more enterprising, to make it necessary for the local authorities to provide as good services at a reasonable costs as their competitors. It is usually the authoritarian planner who…supports the centralist tendencies.

I should have remembered that quote from my collection of pro-tax competition statements by Nobel laureates.

In any event, I’m glad my memory was refreshed.

And here’s some of what Ludwig von Mises wrote in his 1944 book, Omnipotent Government. He approached the issue from the opposite direction, explaining that proponents of redistribution needed centralization so their intended victims couldn’t escape by moving across city borders.

Every step toward more government interference and toward more planning means at the same time an expansion of the jurisdiction of the central government. …It is a very significant fact that the adversaries of this trend toward more government control describe their opposition as a fight against Washington…against centralization. …This evolution is not accidental. It is the inevitable outcome of policies of interference and planning. …There can be no question of adopting these measure for only one state. It is impossible to raise production costs within a territory not sheltered by trade walls.

And remember that there’s academic evidence showing that decentralization limits redistribution.

So the statists were smart to oppose welfare reform, since that meant decentralization and less wasteful and counterproductive spending.

Just as the statists are smart to push for a nationwide sales tax cartel. And just as the statists are wise to push for an end to international tax competition.

All of which means, of course, that the rest of us (at least those of us who value liberty) should follow the wisdom of Hayek and Mises.

P.S. Hayek even has groupies.

P.P.S. And Hayek even came back to life for Part I and Part II of the Hayek v Keynes rap videos.

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Economists generally like competition because it promotes economic efficiency, more prosperity, lower prices, and higher wages.

But some types of competition can be misguided.

For instance, Americans used to dominate membership in the Bureaucrat Hall of Fame.

Now, however, government employees in other nations have risen to the challenge and shown they can be just as spectacularly unproductive and wasteful as their American counterparts.

Maybe even more so.

Consider the doctor for Italy’s government-run healthcare system who only worked 15 days over a nine-year period.

Even more impressive, how about the bureaucrat in India who managed to go 24 years without showing up for work.

Now we have another foreign honoree.

Here are some blurbs from a BBC report about one French bureaucrat who went above and beyond the call of duty.

A top French civil servant has been forced to resign after spending more than €40,000 (£29,000; $44,000) on taxis in 10 months. Agnes Saal stepped down as head of France’s TV and radio archives at the demand of the culture minister. She had previously argued she needed to travel by taxi, despite having a chauffeur as well as a private car. But she admitted her son was responsible for €6,700 of the bill… She said giving him her reservation number was a “silly mistake”.

Yes, there was a “silly mistake,” but that mistake took place when France decided to create a Ministry of Culture.

Then another “silly mistake” was creating a sub-bureaucracy to be in charge of archives.

And then an additional “silly mistake” was to give the head bureaucrat of that useless division a credit card.

And perhaps the biggest “silly mistake” was to assign a chauffeur to a person holding a job that shouldn’t even exist.

All that being said, Ms. Saal deserves to be in the Bureaucrat Hall of Fame because it takes a special sense of entitlement to have a chauffeur yet still run up a $44,000 taxi bill in just 10 months.

That’s nearly $145 per day she foisted on overburdened French taxpayers, which doesn’t even count the cost of the car and chauffeur!

And I suppose we should give an “honorable mention” award to Ms. Saal’s predecessor. In his new position, he has also demonstrated an unwavering commitment to waste, fraud, and abuse.

She replaced Mathieu Gallet, who is now head of French public radio and is himself at the centre of a scandal after reportedly spending €100,000 on renovating his office and hiring a €90,000 PR consultant, just as he was preparing a cost-cutting plan.

Oh, and will anybody be surprised to learn that the over-paid bureaucrats at France’s taxpayer-subsidized radio network just finished a record-long strike?

Employees at Radio France ended their longest ever strike earlier this month, after walking out for 28 days.

Sigh. I can’t wait for the day when France will be forced to reconsider whether state-run and state-financed media networks are a proper function of government (like has already happened in Greece).

P.S. On another topic, I wrote a few days ago about the types of policies that lead to more “SuperEntrepreneurs” in a nation.

Well, the World Economic Forum has published related research about the impact of taxes on “superstar inventors.”

They start by looking at some of the research about taxation and labor mobility.

There is currently heated public debate about whether higher top tax rates will cause an exodus of valuable, high income and highly skilled economic agents. …Kleven et al. (2014) study a Danish tax reform that temporarily reduced top tax rates on high income foreigners and they find very strong effects on the inflow of migrants. In another recent paper Kleven, Landais, and Saez (2013) show that highly paid football players react to top tax rates when choosing in which country to work. …A group of highly valuable economic agents that policymakers perhaps might worry about is inventors, the creators of innovations and potential drivers of technological progress. Inventors may well be important factors for a country’s development and competitiveness – highly skilled migration has been shown to be both beneficial for a receiving country’s economy and to disproportionately contribute to innovation (Kerr 2013).

Then they focus specifically on highly productive inventors and how they migrate to places where the tax burden is less onerous.

…the average top 1% inventor has hundreds of times more citations. Among top inventors, some are highly successful migrants. In general, higher quality inventors are more mobile than lower quality inventors. …In recent research (Akcigit, Baslandze, and Stantcheva 2015) we study the international migration responses of superstar inventors to top income tax rates for the period 1977-2003 using data from the European and US Patent offices, as well as from the Patent Cooperation Treaty (Miguelez and Fink 2013). …From outside survey evidence, we know that superstar inventors are highly likely to be in the top tax bracket and, hence, directly subject to top tax rates. …There has is a strong and significant correlation between top tax rates and those inventors who remain in their home countries. The relation is strongest for superstar inventors. Figures 2 and 3 show that superstar inventors are highly sensitive to top tax rates. The elasticities imply that for a ten percentage point reduction of top tax rates from 50% to 40%, a country would be able to retain on average 3.3% more of its top 1% superstar inventors. …our results suggest that, given a ten percentage point decrease in top tax rates, the average country would be able to…attract 38% more foreign superstar inventors.

Here’s the bottom line.

The loss of highly skilled agents such as inventors might entail significant economic costs, not just in terms of tax revenues lost but also in terms of reduced positive spillovers from inventors and, ultimately, less innovation in a country.

In other words, class-warfare tax policy ultimately is very destructive for the jurisdictions that practice the politics of hate and envy.

P.P.S. I wrote a few years ago about legal tank ownership in America.

But there’s a catch. You theoretically have to disarm the gun, which would take away part of the fun.

Well, maybe you can make up for that loss of firepower by owning a flamethrower, which apparently is legal in 48 states.

Not sure I would want one of these, but I bet the answers to my IQ test for criminals and liberals would be even more interesting if homeowners added some their arsenals.

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There are some things in life that are guaranteed to make me smile.

Georgia Bulldog victories are on that list, of course, and I also relish occasional moments of glory on the softball field.

Shifting to the world of public policy, nothing warms my heart and brings a smile to my face faster than news that taxpayers have successfully escaped the greedy and grasping claws of government.

I cheered when successful French taxpayers moved across the border when Francois Hollande imposed a 75 percent class-warfare tax rate. And I was overjoyed when elitist French politicians whined that the geese with the golden eggs were escaping.

I was happy to learn about consumers traveling across borders to escape punitive air-travel taxes in places such as England and the Netherlands.

I applauded when Toyota moved hundreds of jobs from high-tax California to low-tax Texas. And when oppressed taxpayers successfully escaped from New Jersey. Or from Detroit.

I also was glad to find out that Americans can dramatically reduce their tax bills by moving to Puerto Rico, which is a completely legal tax haven for U.S. citizens.

I’m even happy when American companies use “inversions” to get out from under America’s insanely punitive approach to business taxation. I’ll also defend individual Americans who reluctantly give up their passports to protect themselves from confiscatory taxation.

The common theme in all these examples is that politicians were unable to seize as much money as they hoped because taxpayers had the ability to shift economic activity to jurisdictions with better policy.

This is why tax competition is so praiseworthy – and also why we need to be so concerned about sinister efforts to create cartels for the purpose of replacing this liberalizing process with an “OPEC for politicians.”

But I’m guilty of digressing. Today, we simply want to focus on good news.

And I know this Bloomberg story made me feel all warm and fuzzy. Here are some excerpts about the looming decision of at least one bank to escape excessive English taxes.

HSBC, Europe’s largest bank, has faced calls to move its domicile away from the British capital after the government increased the levy on bank’s balance sheets for an eighth time this year. HSBC is hit the hardest by the tax and paid 750 million pounds ($1.1 billion) last year. Both the Labour and Conservative parties have pledged a more onerous tax regime for banks in their manifestos for the May 7 U.K. election. “Banks and pay are still easy cannon fodder for politicians,” said Jonathan Tyce, senior banks analyst at Bloomberg Intelligence in London. “The lines between the Labour and Conservative parties are more blurred than usual and either way, it doesn’t look promising for banks or bankers.” …Standard Chartered Plc, another British bank that like HSBC makes most of its profit in Asia, is also being urged by Aberdeen Asset Management Plc, its second-largest shareholder, to relocate to Asia because of the cost of being in London.

Good. I hope both banks leave.

While I have grudgingly admitted that David Cameron’s government has done a decent job of restraining spending in recent years, taxpayers haven’t reaped many dividends. Yes, there have been some very successful reductions in the corporate tax rate and a modest reduction in the top tax rate on personal income, but these reforms were more than offset by big tax hikes when Cameron first took power.

P.S. If I understand correctly, HSBC didn’t get a bailout during the financial crisis. But if I’m wrong and the bank did mooch off taxpayers, then I’m much less sympathetic.

P.P.S. Shifting to another topic, I like to share examples of how some nations enjoy faster growth than others, mostly because these comparison invariably help to show why small government and free markets are the best route to prosperity.

To echo this point, here’s a very enlightening chart I just saw on Twitter, which shows per-capita economic output for a group of nations that were all roughly equal back in 1997.

What’s remarkable is that a couple of those nations dramatically boosted living standards in a very short period of time while others have stagnated.

And since I’ve written about the good reforms in Estonia and Poland and complained about bad policy in Venezuela and South Africa, you can understand why this is yet another example of why leftists have no good response to my two-part challenge.

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The Organization for Economic Cooperation and Development is a Paris-based international bureaucracy with the self-proclaimed mission to “promote policies that will improve the economic and social well-being of people around the world.”

But if there was a truth-in-advertizing requirement, the OECD would instead say that its mission is to “promote policies that will increase the size, scope and power of government.”

Here are just a few examples of statist policies that are directly contrary to the interests of the American people.

The OECD has allied itself with the nutjobs from the so-called Occupy movement to push for bigger government and higher taxes in the United States.

The bureaucrats are advocating higher business tax burdens, which would aggravate America’s competitive disadvantage.

The OECD is pushing a “Multilateral Convention” that is designed to become something akin to a World Tax Organization, with the power to persecute nations with free-market tax policy.

It supports Obama’s class-warfare agenda, publishing documents endorsing “higher marginal tax rates” so that the so-called rich “contribute their fair share.”

The OECD advocates the value-added tax based on the absurd notion that increasing the burden of government is good for growth and employment.

It even concocts dishonest poverty numbers to advocate more redistribution in the United States.

And, most recently, the OECD published a report suggesting numerous schemes to increase national tax burdens.

And here’s the insult on top of injury. You’re paying for this nonsense. American taxpayers finance the biggest share of the OECD’s budget.

And I’m sure you’ll be happy to know that the OECD is now pushing for a massive energy tax.

Here are some relevant passages from an article in the OECD Observer.

…it’s prime time to introduce a tax on carbon… “Every government will need to explain how their policy settings are consistent with a pathway to eliminate emissions from fossil fuel combustion in the second half of the century,” says OECD Secretary-General Angel Gurría. This means looking at all policy measures to assess if they are effective in reducing CO2 emissions and in line with governments’ climate change objectives. An OECD report, Climate and Carbon: Aligning Prices and Policies outlines specific actions.

By the way, you can access the Climate and Carbon report by clicking here. But since I assume few if any people will want to read a turgid 57-page paper, let’s stick with excerpts from the short article in the OECD Observer.

All you really need to know is that the OECD (like the IMF) wants governments to boost energy prices, both explicitly and implicitly.

Explicit carbon pricing mechanisms, such as carbon taxes… other policies affect a country’s CO2 emissions and can effectively place an implicit price on carbon. …It’s time for governments to ramp up the development of alternative energies and to nail a price onto every tonne of CO2 emitted.

The article also includes other recommendations that are very worrisome. It suggests other fiscal changes that would boost taxes on the energy sector.

Needless to say, this means higher costs on energy consumers.

…carbon pricing should also include a review of the country’s fiscal policy to ensure that budgetary transfers and tax expenditures do not, directly or indirectly, encourage the production and use of fossil fuels.

By the way, when the OECD talks about “budgetary transfers” and “tax expenditures,” that’s basically bureaucrat-speak for back-door tax hikes such as changes to depreciation rules in order to force companies to overstate their income.

And since we’re deciphering bureaucrat-speak, check out this passage from the article.

…compensatory or other measures to mitigate the regressive impacts of reforms without losing the incentive to reduce emissions.

What the OECD is basically saying is that an energy tax will be very painful for the poor. But rather than conclude that the tax is therefore undesirable, they instead are urging that the new tax be accompanied by new spending.

Maybe this means higher welfare payments to offset increased energy prices. Maybe it means some sort of energy stamp program.

The details aren’t important at this point, particularly since the OECD isn’t making a specific proposal.

But what is important is that the OECD is using our tax dollars to advocate bigger government. So maybe the moral of the story is that we should stop subsidizing the OECD.

P.S. On a related topic, and in the interest of fairness, I have to give the OECD credit for being willing to publish an article on tax competition by my Australian friend, Professor Sinclair Davidson.

Sinclair points out that the OECD’s anti-tax competition campaign is based on the premise that bad things happen if labor and capital have some ability to migrate from high-tax nations to low-tax jurisdictions.

Yet the OECD has never been able to put forth any evidence for this assertion.

High income economies have tended to follow irresponsible fiscal policies over an extended period of time. …governments have been trying to access new sources of revenue. …The OECD has been campaigning on “harmful tax practices” since the late 1990s. …The report itself was a somewhat wordy affair that actually failed to define what ‘harmful tax practices’ constitute.Most damning of all, however, is that the OECD was unable to produce any actual evidence of these dire consequences, arguing instead: “A regime can be harmful even where it is difficult to quantify the adverse economic impact it poses”. The dog had eaten their homework.

What’s really going on, as Sinclair explains, is that politicians want a tax cartel to enable bigger government.

It turns out that governments and politicians, like business, don’t always appreciate having to work at improving themselves and offering a more attractive mix of services and taxation in order to attract business. …It is perfectly understandable why governments would want to establish a tax cartel. …countries, rather than respond to such competition by competing themselves, have chosen instead to engage in fiscal imperialism – bullying and cajoling sovereign nations to change their domestic policies.

Again, kudos to the OECD for allowing a contrary viewpoint.

I guess the bureaucrats are more relaxed now than they were back in 2001, when the OECD threatened to cancel an entire conference simply because I was present, or in 2008, when the OECD threatened to have me thrown in jail for giving advice to low-tax jurisdictions at another conference.

P.P.S. For additional information on why American taxpayers shouldn’t be subsidizing a left-wing bureaucracy in France, here’s my video on the OECD.

Now you can understand why eliminating handouts for the OECD should be a gimme for congressional Republicans.

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I’m a relentless (probably to the point of being annoying) proponent of tax competition among jurisdictions.

It’s one of the reasons why I favor tax havens and federalism. Simply stated, politicians are less likely to do bad things when they know economic activity can escape to places with better policy.

And I’m more than happy to pontificate on the theories that support my position. But every so often it helps to have a powerful real-world example.

Our example today deals with the fact that the United Kingdom has a very punitive tax on air passengers, but the U.K. government also is devolving some powers to regions such as Scotland. And this bit of decentralization is already generating some pressure for tax reductions.

Here are excerpts from a story in Scotland’s Herald.

The UK government’s decision to devolve control of Air Passenger Duty (APD) to Holyrood means that a family of four could eventually be saving as much as £388 for a one-way journey to long-haul destinations. The promise to hand the Scottish Government control of APD is part of the UK government’s devolution package… The Scottish Government last week said it would halve the rate within the next Parliament and abolish completely “when the public finances allow”.

That sounds like good news for travelers, but some folks aren’t happy.

…airports as well as tourism bodies south of the border are up in arms, fearing that it will create an uneven playing field for the aviation sector as passengers in the catchment areas of airports such as Newcastle, Manchester and Liverpool will simply drive across the border to rival airports in Scotland to avoid potentially huge APD costs. Newcastle airport’s planning director Graeme Mason told the Sunday Herald that Scotland cutting or scrapping the passenger levy would create an unfair “cross-border market distortion” that would fester unless the UK government matches any reduction in APD south of the border.

Notice the Orwellian distortion of language from Mr. Mason. We’re supposed to view lower taxes as a “cross-border market distortion.”

But what he (and others) refer to as a “distortion” is actually the healthy process of competition.

Just as the I-Phone was a “distortion” for the Blackberry, but very good news for consumers. Just as the personal computer was a “distortion” for the typewriter industry, but very good news for consumers.

Countries, just like companies, should suffer when they don’t provide good value in exchange for people’s hard-earned money.

Here’s more from the story, including the fact that English airports in the long run will probably benefit because the government will now feel pressure to lower the tax burden on air travel.

…anyone travelling long-haul could potentially save themselves hundreds of pounds. The saving could be enough, for example, to undermine direct flights between Newcastle and New York that are set to launch in the May. But in Scotland, the decision to devolve APD to Holyrood has been greeted with delight by airports, the tourist industry and businesses which have campaigned both before and since the independence referendum to get rid of the tax. And many of those behind the campaign say that airports in England will eventually benefit from the abolition of the tax in Scotland, as this increases pressure on the UK government to follow suit.

Here’s some real-world evidence of tax competition promoting better policy on travel taxes.

After introducing a form of APD in 2008 the Dutch government scrapped the tax within a year after Dutch residents started travelling in their droves to airports in neighbouring Germany to avoid the tax. Belgium, Denmark, Malta and Norway have also scrapped flight taxes for similar reasons. That leaves the UK as one of only five countries in Europe to levy a passenger departure tax (the others being Austria, France, Germany and Italy) but the UK tax is, on average, five times higher than those other countries and is thought to be the highest in the world… In 2011 the UK government was forced to slash APD on long-haul flights in Northern Ireland, to stem the flow of passengers travelling south to Dublin to take advantage of the Republic of Ireland’s low and now abolished tax on flights.

By the way, the story also reminds us about how dangerous it is to give a government a new source of revenue.

Air Passenger Duty (APD) was introduced by John Major’s UK Conservative government in 1994. It was originally payable at just £5 for one-way domestic and European flights and £10 elsewhere but it has become a nice little earner for successive governments who have steadily increased the levy to the point that it is now the highest tax of its kind anywhere in the world. Long-haul flights in the cheapest economy class are now charged between £67 and £94 per flight, depending on the distance travelled. Other classes of travel, including so-called premium economy class, are charged between £138 and £194 per long-haul flight while anyone travelling in a small plane is charged between £276 and £388 per flight.

Jut keep all this data in mind the next time someone tells you we should let politicians impose a VAT, an energy tax, or a financial tax.

Since we’re on the topic of tax competition, let’s look at the tennis world to see how taxes drive behavior.

In her column for the Wall Street Journal, Allysia Finley explains that top tennis players respond to fiscal incentives.

…tennis players respond to economic incentives and often act as strategically off the court as on. For the past three years Spain’s Rafael Nadal…has bowed out of England’s annual Queen’s Club tournament, traditionally a Wimbledon warm-up, because the U.K. charges foreign athletes a prorated tax on their world-wide income (including endorsements). The more tournaments he plays in Britain, the more he owes Her Majesty’s Government.

Heck, those U.K. tax laws on worldwide income are so powerful (in a bad way) that they even chased away the world’s fastest man.

So what nations offer a more hospitable environment?

Two of my favorite places, Monaco and Switzerland, are high on the list.

The top five French players on the men’s circuit— Jo-Wilfried Tsonga, Gael Monfils, Gilles Simon, Julien Benneteau and Richard Gasquet, as well as Germany’s Philipp Kohlschreiber, all claim residence in Switzerland, ostensibly to avoid paying their home countries’ punitive 45% top personal income-tax rates (not including surcharges or social-security contributions). …the most popular haven for tennis players is the principality of Monaco, which doesn’t tax foreigners’ world-wide income. …Swedish tennis legends Bjorn Borg and Mats Wilander escaped to Monte Carlo during their primes in the 1970s and ’80s to dodge their home country’s 90% top marginal rate, which has since fallen to 57%. …Today, Monaco is the putative home of many of the world’s top-ranked men and women players. They include Serbia’s Novak Djokovic (1), the Czech Republic’s Petra Kvitova (4), Tomas Berdych (7) and Lucie Safarova (16); Canada’s Milos Raonic (8); Denmark’s Caroline Wozniacki (8); Bulgaria’s Grigor Dimitrov (11); and Ukraine’s Alexandr Dolgopolov (23). Players who hail from former communist countries are especially keen, it seems, on keeping their hard-earned money.

Even inside the United States, we see the benefits of tax competition.

Florida is one of the big winners and California is a big loser.

The U.S. has its own Monaco: no-income-tax Florida. It’s no coincidence that America’s top-ranked players Serena (1) and Venus Williams (18) and John Isner (21), as well as Russia’s Maria Sharapova (2) and Japan’s Kei Nishikori (5) live in the Sunshine State. So do twins Mike and Bob Bryan, who have won 16 Grand Slam doubles titles. Like the Williamses, they come from California, where the 13.3% state income-tax rate is the nation’s highest.

Indeed, it’s not just tennis players. Golfers like Tiger Woods have Florida residency. And those that remain in California are plotting their escapes.

Even soccer players become supply-side economists!

So whether it’s taxpayers escaping from France or from New Jersey, tax competition is a wonderful and necessary restraint on the greed of politicians.

P.S. I’ve shared horror stories of anti-gun political correctness in schools.

Well, the Princess of the Levant just sent me this bit of humor.

For more gun control humor, click here.

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If nothing else, our leftist friends deserve credit for chutzpah.

All around the world, we see concrete evidence that big government leads to stagnation and decay, yet statists repeatedly argue that further expansions in taxes and spending will be good for growth.

During Obama’s recent state-of-the-union address, he pushed for class warfare policies to finance bigger government, claiming such policies would be an “investment” in the future.

But it’s not just Obama. Hillary Clinton, on several occasions (see here, here, here, and here), has explicitly argued that higher tax rates and bigger government are good for growth.

The statists at the Paris-based Organization for Economic Cooperation and Development (financed with our tax dollars) actually argue that higher taxes and more spending will somehow enable more prosperity, both in the developing world and in the industrialized world.

And some left-wing “charities” are getting in on this scam. Oxfam, for instance, now argues that higher tax rates and bigger government are necessary for growth and development in poor nations. And Christian Aid makes the same dodgy argument.

The Oxfam/Christian Aid argument is especially perverse.

If they actually think that bloated public sectors are the key to faster growth in the developing world, shouldn’t they provide at least one example of a jurisdiction that has become rich following that approach?

Let’s examine this issue more closely.

Here are some excerpts from a column in the most recent issue of Cayman Financial Review. Written by the Cato Institute’s Marian Tupy, it looks at the challenge of boosting prosperity in sub-Saharan Africa.

Marian starts with some good news. The 21st Century, at least so far, has seen genuine progress.

Real gross domestic product has been ticking along at an average annual rate of 4.8 percent, while per capita income has grown by roughly 40 percent. …The benefits to ordinary people have been impressive. The share of Africans living on less than $1.25 per day fell from 56 percent in 1990 to 48 percent in 2010. …If the current trend continues, Africa’s poverty rate will fall to 24 percent by 2030. In addition, per-capita caloric intake has increased from 2,150 kcal in 1990 to 2,430 kcal in 2013. …Moreover, between 1990 and 2012, the percentage of the population with access to clean drinking water increased from 48 percent to 64 percent. Many African countries have also seen dramatic falls in infant and child mortality. Over the last decade, for example, child mortality in Senegal, Rwanda, Uganda, Ghana, and Kenya declined at a rate exceeding 6 percent per year.

This is very good news.

And foreign investment deserves some of the credit. When western multinationals enter a nation, they play a vital role in creating (relatively) high-paying and building a nation’s capital stock.

Particularly since the overall economic and policy climate in many sub-Saharan nations is very dismal.

As you can see from the accompanying map, based on the Fraser Institute’s Economic Freedom of the World, most nations in the region are either in the most economically repressed category (red) or the next-t0-last category (yellow).

In either case, these countries obviously have far too much taxes, spending, regulation, and intervention.

Needless to say, these policies make it difficult for local businesses and entrepreneurs to succeed, which means the jobs and prosperity made possible by foreign investment are absolutely vital.

But Marian warns that this progress could come to a halt if African nations fall victim to class-warfare proposals that seek to demonize multinational firms as part of a push to expand tax collections.

…future growth could be at risk if economic conditions on the continent deteriorate.  And that may happen if policy makers decide to adopt a more hostile approach to entrepreneurs and investors. Specifically, African governments are urged to take a stance against so-called tax havens, which are alleged to deprive the former of significant chunks of tax revenue. …Oxfam, a British charity, has argued that…tax maneuvering by multinational companies is entrenching poverty and weakening developing countries’ economies. According to Oxfam, “Developing countries lose an estimated $100 billion to $160 billion annually to corporate tax dodging.” As such, Oxfam has urged the G20 to rewrite international tax laws so that “developing countries are not taken advantage of by the rich.”

The problem with this ideology, as Marian explains, is that foreign companies won’t have nearly as much incentive to create jobs and growth in Africa if tax policy becomes more onerous.

Africa has one of the world’s riskiest business environments. Government accountability and transparency are low. The rule of law and protection of property rights are weak. Corruption is high. In a sense, low taxes compensate domestic and foreign investors for shortcomings of the business environment that are more difficult to address: a low tax rate can be legislated overnight, but corruption-free bureaucracy takes generations to accomplish. What’s true for corporations is also true for individuals. Many wealthy Africans continue to work and create wealth in the difficult African business environment in part because they know that at least a portion of their wealth is safe from inflation and predation.

But the most important part of Marian’s article is the section where he debunks the notion that bigger government somehow leads to more prosperity.

…the argument in favor of higher tax revenues assumes that government spending is an efficient driver of economic growth. This is a common misperception in the West, which is now being applied, with potentially disastrous consequences, to the developing world. In America, for example, Hillary Clinton has argued that more revenue improves economic development and the “rich people … [who] do not contribute [jeopardize]… the growth of their own countries.” She has urged “the wealthy across the Americas to pay their ‘fair share’ of taxes in order to eliminate poverty and promote economic opportunity for all.” Is the former Secretary of State correct? Are developing nations suffering from inadequate levels of public spending? Is there a need for more revenue to finance bigger government so that national economies can grow faster?

Marian looks at the actual data.

And he makes the absolutely essential point that western nations became rich when government was very small and there was virtually no redistribution.

According to the International Monetary Fund, government outlays consume, on average, about 27 percent of economic output in sub-Saharan nations….the burden of government spending averaged only about 10 percent of economic output in North America and Western Europe through the late 1800s and early 1900s – the period when the nations in these regions enjoyed huge increases in living standards and evolved from agricultural poverty to middle-class prosperity. If the goal is to have African nations copy the successful growth spurts of western nations (keeping in mind that per-capita economic output today in sub-Saharan Africa is roughly equal to per-capita GDP levels in Western nations in the late 1800s), then the latter’s experience implies that high levels of government spending are not necessary. Indeed, too much spending presumably hinders growth by leading to the misallocation of labor and capital. Moreover, it should be pointed out that the United States and other currently rich countries also had no income taxes when they made their big improvements in economic status.

In other words, the best recipe for African prosperity is the one that worked for the western world.

Sub-Saharan Africa needs small government and free markets.

And, yes, there is a role for government in providing the rule of law and other core public goods, but African nations already collect more than enough revenue to finance these legitimate roles.

Here’s the bottom line.

Of course, not all government spending is bad for growth. Upholding the rule of law and protecting property rights costs money, but helps growth. Historically, African governments have been at their weakest when providing for these “night watchman” functions of the state. And their economies suffered as a result. Were African governments to focus on a set of narrow, clearly defined goals, they would find plenty of revenue to finance their accomplishment – without having to resort to punitive tax policies that are likely to undermine Africa’s long term economic prospects.

P.S. Since today’s topic dealt with tax havens, that’s my excuse to share this interview with the folks at the Mises Institute. I wax poetic about why tax havens are a liberalizing force in the global economy, while also touching on issues such as double taxation, corporate inversions, financial privacy, and FATCA.

For more information, here’s my video series on tax competition and tax havens.

P.P.S. On a completely separate topic, I’ve often made the point that the “Obama recovery” is very anemic.

Well, here’s some new evidence from the Wall Street Journal.

Wow, less than half the growth we got under Reaganomics.

Seems like a good opportunity for me to reissue my two-part challenge to the left. To date, not a single statist has successfully responded.

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