Taxes

Why Governments Hate It When Other Countries Have Low Taxes

While international bureaucrats enjoy tax-free salaries, they never tire of trying to raise taxes on everyone else.

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Thatcher
Screenshot via Youtube

During a visit to the World Bank this week, I got a sobering lesson about the degree to which the people working at international bureaucracies, including the Organization for Economic Cooperation and Development, dislike tax competition.

For years, these organizations—which are funded with our hard-earned tax dollars—have bullied low-tax nations into changing their tax privacy laws so uncompetitive nations can track taxpayers and companies around the world. The global bureaucrats want to rewrite the rules of international commerce to protect uncompetitive nations, such as France, from the consequences of reckless fiscal policy.

The bureaucracies, which are controlled by high-tax nations, don't like it when companies, investors and entrepreneurs invest their capital in low-tax nations.

They have a point. Tax competition means that taxpayers can shop around for the best place to invest money based on a variety of factors, including the tax treatment of their investment. As a result, capital will most likely flow out of high-tax nations to go to a low-tax environment. And that's a good thing.

As Nobel laureate Gary Becker wrote, "competition among nations tends to produce a race to the top rather than to the bottom by limiting the ability of powerful and voracious groups and politicians in each nation to impose their will at the expense of the interests of the vast majority of their populations."

It was the friendly but fierce tax competition between then-Prime Minister Margaret Thatcher in the United Kingdom and President Ronald Reagan in the United States that led to significant reductions in top marginal income tax rates in both countries, as well as a cut to the corporate rate. Arguably, the cuts unleashed the economic growth of the '90s and led other countries to cut their taxes, too. This is why, as another Nobel laureate, James Buchanan, said, "tax competition among separate units … is an objective to be sought in its own right."

In most cases, investing in low-tax nations isn't illegal; the problem for high-tax nations and those at the World Bank is that it's getting in the way of maximum tax extractions for countries such as France. They also claim that their fight against tax competition is a fight against tax evasion. However—as we have seen after the release of the Panama Papers, which were stolen from Panama-based firms—for the most part, taxpayers are pretty honest. Politicians, not so much.

Now, some people do evade taxes by investing their assets in low-tax countries. However, that's no reason to force low-tax countries to act as deputy tax collectors. Investors have committed no crime in the country where the money is invested, and low-tax nations shouldn't have to enforce other countries' tax laws unless they sign a tax treaty for that purpose. Second, a more effective way to fight evasion would be for high-tax nations to implement a reasonable and non-punitive tax code that finances a modest-sized, non-corrupt government. This would instantly improve tax compliance.

Translation: If France is upset about tax evasion, it should cut the size of its government and reform its confiscatory tax regime. Forcing financial institutions to automatically share the private information of all their foreign clients won't solve anything.

While international bureaucrats enjoy tax-free salaries, they never tire of trying to raise taxes on everyone else. Take the Organization for Economic Cooperation and Development's latest attempt to impose a one-size-fits-all system of "automatic information exchange" that would necessitate the complete evisceration of financial privacy around the world. A goal of the Convention on Mutual Administrative Assistance in Tax Matters is to impose a global network of data collection and dissemination to allow high-tax nations to double-tax and sometimes triple-tax economic activity worldwide. That would be a perfect tax harmonization scheme for politicians and a nightmare for taxpayers and the global economy.

This is bad policy regardless, but just imagine what it would mean for the United States to exchange sensitive financial information—such as balances, interest, dividends and proceeds from sales of financial assets—about American citizens or corporations with countries that have systemic problems with corruption or aren't so friendly to us.

Somehow the bureaucrats persuaded the lawmakers on the Senate Foreign Relations Committee to approve it. Thankfully, it's currently being blocked by Sens. Rand Paul, R-Ky., and Mike Lee, R-Utah. But the bureaucrats won't give up. They are true believers in tax harmonization.

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  1. it should cut the size of its government and reform its confiscatory tax regime

    Good one.

    1. If they did that, they wouldn’t be able to reward their friends and punish their enemies.

      (and control everyone else).

  2. If France is upset about tax evasion, it should cut the size of its government and reform its confiscatory tax regime. Forcing financial institutions to automatically share the private information of all their foreign clients won’t solve anything.

    I won’t even dignify the first sentence with comment. However, if banks are hiding foreign governments’ hard-earned money to which they are fully entitled, those governments have a right to know about it. All we’re asking is everyone competes on a level playing field set by the country with the highest, most economically stifling tax scheme.

    1. ts funny, if you and I agree to set prices we get arrested. When governments do it its ‘leveling the playing field’.

      1. They’re not price fixing, they’re creating “tax harmonization.” Totes different. /sarc

        1. I’ve been telling my friend who runs owns a convenience store that he should get with the other Iraqi who owns a convenience store on the other side of town and ‘harmonize’ their prices. He’s not down with that though.

          He also won’t move on my suggestion that a rag and a can of gas could thin out competition in the area.

          Nobody has the entrepreneurial spirit that the capitalistic system demands nowadays.

          1. He also won’t move on my suggestion that a rag and a can of gas could thin out competition in the area.

            Nobody has the entrepreneurial spirit that the capitalistic system demands nowadays.

            It occurs to me that one could make a very good living as a “business consultant” who specializes in helping small businesses with “thinning out their competition.” How’s that for entrepreneurial spirit?

            1. If you’re good at something never do it for free. And he won’t pay me.

              1. Too lazy to do it himself, won’t pay someone to do it for him… sheesh, what’s wrong with people?

            2. Entrepreneurial spirit, mafia spirit, whatever. Same dif, right?

              1. mafia spirit, government spirit, same thing right?

    2. “All we’re asking is everyone competes on a level playing field set by the country with the highest, most economically stifling tax scheme.”

      On a national level, that means every state should follow California and New York.

      1. See CARB in ol’ California for an example
        http://www.ocregister.com/arti…..ances.html

  3. Thieves hate when their victims can see that those who aren’t the victims of thieves prosper. Whodathunkit?

  4. Trudeau – that sparkling beastion (I combined ‘beast’ with ‘bastion’) – is trying to convince G7 countries to cut austerity out and embrace government spending to spur growth.

    1. It’s all about the multiplier. For every $30 million we spend, we can get $3,000 back.

      1. A fractional multiplier is still a multiplier! How can we afford *not* to invest in government?

        1. So is zero. And negative numbers.

    2. Japan would like a word with Mr. Trudeau.

      1. Exception that proves the rule.

        /Krugabe

  5. YouTube Privilege = They get Reason.tv videos before H&R

    Namely “Katie Couric Responds to Deceptive Editing Charges

    1. That’s already been posted to HR

      https://reason.com/blog/2016/05…..ptively-ed

      Yesterday by the dateline.

      1. nevermind. *response to*.

  6. While international bureaucrats enjoy tax-free salaries, they never tire of trying to raise taxes on everyone else.

    “Taxes for thee, but not for me.” Also, their salaries are really tax free?! Holy fucking shit, that seems like pretty big “loophole” there. Something tells me Obama et al aren’t interested in closing that particular “loophole” though.

    1. The US is the only significant country in the world to tax overseas employment, so we’ve got that covered. It’s the other international apparatchiks that get tax breaks in their countries.

      1. Several European countries (such as France) tax overseas earnings of citizens and former citizens for a period of time after leaving their home country if they move to a “tax haven” country.

  7. More Young Adults Live With a Parent Than With a Spouse, Partner

    As Pew reports, the trend is most prevalent among young men, with 35 percent of male millennials opting for the comforts of mom and dad’s home, compared to 28 percent who were living with a spouse or partner in their own place.

    Young women, on the other hand, are actually more likely to be living with a spouse (35 percent) than their parents (29 percent).

    1. We’re becoming more like Europe every day! Next it’ll be that millennials are waiting until they’re in their 30’s to get married and move out.

    2. Worse reflection on the parents than the kids.

      1. Empty nest syndrome seems preferable to lazy layabout syndrome.

      2. *shrugs* Not disagreeing, but there’s really no good guys here. The parents are spineless cunts, and their adult children are lazy, shiftless layabouts who have probably been coddled their whole lives. Can we just toss them all into a volcano? There’s probably not enough woodchippers to get rid of them all, plus dropping them all en masse into a volcano would be faster.

        1. I take it you didn’t notice that those numbers add up to 63%, which means that 37% of these ‘lazy’ people live on their own and give everyone else the finger while still being the largest one section of that demographic. If you read it another way, 65% of Millennials are living on their own despite the largest economic downturn since the 1930’s. You might want to ask yourself what the Boomers fucked up, but the easy answer is ‘pretty much everything’.

          MATH HARD! KRUNK SMASH MATH! MILLENNIALALALS LAY-Z! NOT DOOMERS FAULT!

          1. the largest economic downturn since the 1930’s

            Uh, wat? No it is not. The 2008 recession is over. You know how I know its over – all the construction projects in my podunk little down stopped dead in 2008. There’s been empty lots and half-built buildings for a few years. In 2014 all that construction started back up within a 6 month period.

            Get off your arse and get a job.

            ECONOMICS HARD! KRUNK SMASH! BLAME BOOMERS FOR OWN FAILINGS!

            Though I will agree that the article is over blown. 2/3 of millennials are supporting themselves (or sponging off a girlfriend – but dude’s have been doing that for generations) and so the big deal is supposed to be that 1 in 3 are living with parents up from 1 in 5 a few generations ago.

            1. And Millennial would have entered the workforce when? Since supposedly this group started out sometime in mid-1980, they would have started entering the workforce circa 2003-2005 depending when you want to start counting them as millennials. (If you use the ‘born in 2000’ ideal, which I haven’t seen many places that do, then you would be correct.)

              I was born in 1983, and I’m told I fall within the Millennial range by a lot of people. These types of idiotic generational labels are rarely well defined though so it’s probably comparing apples to oranges. If the economy has recovered, I guess the Fed didn’t get the memo yet or maybe they’re just dragging their feet.

            2. The definition of recession as they use it is pretty interesting. You might think that like a hole, where getting out of the hole defines recovery, but the end of the recession is achieved when you stop falling. So the recession is over, not when you get out of the hole, but rather when you hit bottom.

              Kinda like you are no longer sick after you die.

          2. I wasn’t intending to imply that ALL millenials should thrown into a volcano along with their parents, just the 35% of males and 29% of females that live with their useless, enabling parents along with said parents. Perhaps that wasn’t clear.

            Or maybe you’re just a keyboard warrior asshole who likes to take any and all opportunities to be a prick to random strangers on the internet, in which case go fuck yourself.

            1. “Can we just toss them all into a volcano?”

              Something that is actually stated can not be considered implied. It’s a quote. Also, I’m here aren’t I? Therefore I am in fact a ‘keyboard warrior asshole’. Did you not get the memo? ^_-

              Needless to say, I didn’t take you seriously when you wanted to throw people into a volcano, and frankly I agree that there are a lot of members of that (my?) generation that could use a good ass kicking but I know plenty of boomers that could use an even bigger boot since they’ve had control whereas the other has not. Blame where blame is due. (Plus, who raised these whiney assholes anyway?)

              1. I blame the “greatest generation” for many of our problems.Most overrated douche bag generation ever.

                Bankrupting us with entitlement programs
                Creating the drug war
                Cheering on other stupid wars
                Enforcing Jim Crowe

                Most of the stuff libertarians hate started with them.

                There is little this fuck wit generation didn’t turn to garbage. Fighting WW2 doesn’t give them a pass for all the other damage they did.

            2. Seems to me you would need to toss the layabout enabling parents in the volcano as well.

          3. If you read it another way, 65% of Millennials are living on their own despite the largest economic downturn since the 1930’s.

            Fuck you…

            I grew up during the last “largest economic downturn since the 1930’s”. My father (age 42) died of cancer- bankrupt- in 1982, when I was 17. I had already moved out… moved back home for 6 months to take care of my younger brother while dad was doing his last 5 months in the hospital- then moved out again.

            “Millennial”- a person reaching young adulthood around the year 2000

            So, 35% still live in mom’s basement at age 30-35… Let’s Occupy Wall Street!

            1. The difference between the 1982 recession and the 2008 one is that the former happened – and the latter didn’t. Recessions have an economic function. Clear out the malinvestment, let assets/capital move from bubble areas to something more productive because its been underinvested. If the post-recession is the same damn growth group as the pre-recession, then all that happened was the infliction of harm on folks at the bottom. 1982 we moved from mfg-led growth to financial-led growth. 2008 all we did was move from one financial asset bubble to another one (in large part because we are desperately trying to avoid the mother of all credit crises).

              Milennials still living at home is more a function of failing to let the financial sector fail in 2008 than it is of moral decline.

              1. I think you have a good point here, but in truth the recession of 2008 did happen, but we suspended ourselves above the bottom of the hole instead of hitting the bottom and climbing out.

                Since we prevented the correction of the issues that led to the recession, we are afraid to let ourselves fall, and can’t climb out until we do.

    3. At the founding of the Republic, a 21-year old voter was likely employed, married, had kids. In other words, a full, responsible adult.

      And now you have 25 year old men still on their parents’ insurance.

      The implications of postponed adulthood on voting will be profound.

      1. At the founding of the Republic, a 21-year old voter was likely employed, married, had kids.

        And he was probably dead by 50.

      2. I think postponed adulthood is good in some ways. But you need to be learning what it takes to function in the real world too. And you should at least be prepared to be an independent adult by 18 or so.

      3. Raise the voting age to 25. As long as there’s no draft, 18 year olds can suck it.

      4. And you know, I’ll speak up as a member of the generation in question who is 26 and unmarried – it’s all fine and good to not conform to every expectation for the perfect life (white picket fence, 1.5 kids, etc – I hate all those cliches), but at 25 you’d damn well better have a plan for how to feed, clothe and house yourself for the rest of your life without leaning on someone else.

    4. I lived with my parents until I was 25. But I was working full time at a proper job and it allowed me to be in a position to buy a house. I always hate renting. But I’ve always had a pretty adult relationship with my parents.

      I don’t know if there’s a point there. It’s not necessarily pathetic and weird, I guess. Or so I like to think.

      1. So what you’re actually saying is that you would have fallen into the demographic of people who lived with their parents which is all that this is measuring? Huh. How do you live with yourself?

        /sarc

  8. You can still move to somalia if you don’t agree to the terms of your “social contract”.

    Unless of course you illegally immigrated here and have been hanging around awhile. Then it would be cruel to make you leave.

    1. Not without permission you can’t.

  9. This BS “Convention on Mutual Administrative Assistance in Tax Matters” is going to be sold to the masses as “the rich are hiding their money, and this treaty will help us go after them.”

    Democracy is really prone to demagoguery.

    1. Funnily enough – so is tyranny. I don’t think the problem is the political system, the problem is the people who are in it.

      1. Nope, WRONG!

        Democracy is a highly flawed concept completely opposed to individual rights. The founders tried to deal with that with a constitution and a representative government with differently composed houses.

        It might even work if we actually followed the constitution.

  10. The more I see the benefits of competition and the drawbacks of monopoly (which is always government-mandated monopoly, often at the behest of cronies), the more I am inclined to take it as a natural law, like seeing that when I eat too much I gain weight, or when I drive with an impatient lead foot, mileage drops. I can understand the argument that competition has its own inefficiencies which collectivism can cure, but it hasn’t, not ever, so I also conclude that competition has long term benefits which collectivism destroys.

    At some tipping point, it evolved from a truism into a principle. I simply no longer believe that government works well, under any circumstances. Private enterprise, fully freed markets, whatever it’s called, is always the best answer.

    Articles like this are only surprising in that I continue to be astounded at how many idiots continue to wax poetic about Chavez, Casto, Mao, Stalin, Lenin, Marx, and all the other unuseful idiots, while castigating their fellow travelers Hitler and Mussolini.

  11. They also claim that their fight against tax competition is a fight against tax evasion. However?as we have seen after the release of the Panama Papers, which were stolen from Panama-based firms?for the most part, taxpayers are pretty honest. Politicians, not so much.

    Pretty big evasion there. “Don’t worry about corporate multinationals playing accounting games to avoid taxation, look over there at those corrupt politicians! Squirrel!”

    So it’s fine for tech companies to shift all their profits to some international tax haven? Those who own should pay no taxes, leaving the tax burden to fall on those who work.

    1. Abolish income taxes – corporate and individual.

      Repeal the 16th amendment.

      And for Pete’s sake, stop lusting after other people’s money.

      1. Now I need a new pair of pants… Thanks.

    2. Ya know, if you think it’s immoral to evade taxes legally, go ahead and surrender more of your pay to the gubmint.

      Go ahead. We won’t carp. Might laugh, but it’s your money.

    3. There is nothing wrong, illegal, or immoral about tax *evasion*. Its simply making use of the very tools government gave you to manage your tax bill.

      There is tax compliance and there is tax evasion. All tax ‘avoidance’ is, is what we call tax payments that are in doubt. Once the numbers are crunched it falls into either tax compliance or tax evasion.

      Ultimately ‘tax evasion’ boils down to ‘I don’t think that *someone else* paid as much tax as I’d like them to have’. *You* never evade, you always pay exactly what you have to and not one cent more and that is right and proper, but those *other people . . .

      Envy politics.

      1. Ask Richard Murphy if he ever evades taxes. He’ll tell you no even though he’s set himself up as a corporation to funnel income through (with his wife as an officer!). Ask the Guardian and they’ll tell you their offshoring was not tax avoidance but prudent financial planning to minimize their tax liability. Ask OxFam and they’ll tell you the same thing regarding why their charity shop income is funneled through a separate corporation to minimize tax liability.

    4. ‘Tax burden to fall on those who work’.

      Don’cha mean ‘labor’ – because that statement is classic Marxist philosophy written all over it. Of course the capitalists don’t work. Owners don’t work. They just own and magically their capital always returns at a rate higher than inflation.

      Are you a fan of Picketty’s ‘work’? How about How ’bout Rushkoff’s ‘Throwing Rocks at the Google Bus’ – a work of scholarship so well done that the author can’t even bring himself to use existing terms as they are commonly meant and likes to make up whole new terms. Or maybe Russel Brand is more your pace.

  12. Bureaucrats like to raise taxes like businesses like to raise prices . . . the differences is: voters have little power, while consumer’s hold all the cards. That’s why the free market works well for the little guy and why the welfare state fails everyone but bureaucrats.

  13. I wonder if Maggie Thatcher knew that John Major was sharpening his knife at that moment?

  14. I got a sobering lesson about the degree to which the people working at international bureaucracies, including the Organization for Economic Cooperation and Development, dislike tax competition.

    That was all I needed to read.

    Dumb ass…

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  16. I remember listening to NPR not long ago whine about how individual states in the US have lower taxes than others and how it wasn’t fair!!! I believe they went so far as to say the federal government needs to meddle and force tax fairness policies on the states. Surprise surprise, the NPR pinheads want the federal government to strap on its jack boot. My wife once donated to NPR (or our state’s public radio). Never again!

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