Economic Nonsense: 9. International agreement on tax rates would benefit everyone


International agreement on tax rates would hurt everyone except those who collect and spend taxes.   Governments have little restraint on the degree to which they can take the money earned by their citizens and spend it on overblown projects designed ultimately to buy votes and secure their re-election.  They meet some resistance as they increase their tax take, but people can do little except grumble.  Very often there is little difference between the major political parties, or between the tax rates they levy while in office, so democratic restraints are minimal. The one effective restraint is the ability of people to move to another jurisdiction.  This is especially true of modern economies which place considerable value on the talents of high-achieving individuals.  Government is restrained on what it can tax them by their ability to move.  When faced with punitive tax rates, they can relocate to somewhere more favourable.  High earners in France, and those with aspirations to become so, began to leave the country in significant numbers when faced by government plans to levy a top income tax rate of 75%.  Similar effects have been observed elsewhere.

What is true of individuals can be true of companies.  They, too, can choose to relocate to areas where tax rates are friendlier.  The Republic of Ireland found its low 12.5% rate of corporation tax attracted companies to base themselves within its borders.  High rates of corporation tax elsewhere added to Ireland's attraction.

Those who support high taxes dislike this restraint and many of them call for international harmonization of tax rates.  The aim of this is to make it pointless to relocate, and to remove the one curb on over-large and over-costly governments.  They dislike what they call 'tax competition.'  But relatively low taxes on high earners and business constitute a business-friendly environment and are conducive to economic growth.  Those who call for harmonization are in effect saying they do not want any countries to be more business-friendly than others.  Denied an escape to less oppressive tax regimes, people become the helpless prisoners of rapacious governments.