Daniel J. Mitchell
Without some sort of external constraint, they will over-tax and over-spend, creating the kind of downward economic spiral already happening in some European nations.
Speaking of which, new evidence from Europe bolsters my case.
Back in 2009, facing pressure from the big G-20 nations, all of the world’s major low-tax jurisdictions – even Switzerland – acquiesced to the notion that human rights laws protecting financial privacy no longer would apply to foreign investors.
In other words, high-tax governments now have much greater ability to track – and tax – flight capital.
So how have they responded since that time? Well, look at this chart from the European Union’s new report on taxation trends. Tax rates have begun to increase, reversing a very positive trend (which began with the Reagan and Thatcher tax cuts, though this chart only shows data since 1995).
We can’t say, of course, that the increase in tax rates since 2009 is because tax competition was eroded. Just like we can’t say the reduction of tax rates in the preceding years was because of tax competition.
But we do know that simple economic theory tells us that monopolists are more likely to raise prices than firms in competitive markets. Likewise, governments are more likely to raise tax rates if they think taxpayers don’t have escape options.
And we also know that the proponents of higher tax rates, such as the statist bureaucrats at the Paris-based OECD, are also the biggest opponents of tax competition. The OECD even complained in one of its reports that tax competition “may hamper the application of progressive tax rates.”
Well, those international bureaucrats (who, by the way, get tax-free salaries) are getting their wish. Tax rates are increasing.
- So the political class can breathe a sigh of relief.
- But what about the people of Europe? Well, economic growth is almost non-existent and unemployment is at record levels.
However, you can’t make an omelet without breaking a few eggs. As a past representative of Europe’s political elite once remarked, “let them eat cake.”
Marie Antoinette eventually may have regretted her choice of words, but Europe’s current politicians are probably more clever and have contingency plans. When the you-know-what hits the fan and Europe descends into social disarray and economic chaos, ordinary people will be the ones at risk.
Unfortunately, the United States is on the same path, as shown by these sobering charts from the Bank for International Settlements (and also as illustrated by these very funny Michael Ramirez and Bob Gorrell cartoons).
For more information on the important liberalizing impact of tax competition, here’s the video I narrated for the Center for Freedom and Prosperity.
But remember that restraining fiscal burdens is not the only reason to preserve tax competition and tax havens. There also are very important moral reasons to support low-tax jurisdictions.
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Relations between North Korea and the world are off to a familiar start in 2013. Last week, the United Nations Security Council passed a resolution tightening sanctions on Pyongyang in response to its missile test last December. The reclusive regime responded by predictably issuing threats against America and its allies. It seems likely now that Kim Jong-un will order a nuclear test in the next few weeks. What will follow? The kabuki dance continues.
If North Korea does indeed detonate a nuclear device, the United States and its allies should avoid reacting hysterically. As I counseled on the missile test in December, provocative acts by Pyongyang do not deserve a response from Washington. The North carries out these tests to upset its rivals. The White House’s reserved response to the missile test was an encouraging sign. Any nuclear test warrants only an extended yawn.
But what can Washington do to ultimately prevent North Korea from developing its nuclear program further and force it to engage the international community? I authored a piece running today at the National Interest that provides a few suggestions:
The United States should not push for renewal of the Six Party talks. The North announced that it would not surrender its nuclear weapons until “the denuclearization of the world is realized.” This may well be yet another negotiating ploy. However, Washington and its allies should take it seriously.
Instead of begging Pyongyang to return to negotiations and requesting China to make Pyongyang return, the administration should indicate its openness to talks but note that they cannot be effective unless North Korea comes ready to deal. No reward should be offered for the North’s return to the table.
Third, the United States should spur its allies to respond with the only currency which the Kim regime likely understands: military strength. Washington has had troops on the peninsula for nearly 63 years, far longer than necessary. That has left the ROK and Japan dependent on America. They should take over responsibility for dealing with the North’s military threats.
Washington should unilaterally lift treaty restrictions on the range and payload of South Korea’s missiles, a bizarre leftover from Seoul’s time as a helpless American ward. The administration also should indicate its willingness to sell whatever weapons might help the ROK and Japan enhance their ability to deter and even preempt a North Korean attack. The changing security environment should cause Japan to formally revise the restrictions placed on military operations by its post-World War II constitution.
I have a number of other policy recommendations in the full article, which you can find here.
View full post on Cato @ Liberty
Eric Sprott and David Morgan Respond to CFTC Commissioner Bart Chilton on Silver Manipulation
Silver industry experts Eric Sprott and David Morgan take on the silver manipulation controversy, and discuss Bart Chilton’s recent comments regarding silver in his interview with Jim Puplava.
In a "virtual" roundtable with Jim Puplava, Eric Sprott of Sprott Asset Management and David Morgan of Silver-Investor.com each respond to excerpts from Jim’s earlier interview with CFTC Commissioner Bart Chilton on silver price manipulation.
Click here for full Financial Sense interview with Eric Sprott and David Morgan
For those who missed the Bart Chilton’s comments regarding commodities manipulation in an interview with FoxBusiness last week, the commissioner’s interview can be seen below:
Statistics: Posted by DIGGER DAN — Tue Mar 20, 2012 2:28 pm
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