When governments have to compete with each other, we get lower tax rates. That’s good for taxpayers and good for growth.
But politicians hate limits on their taxing power, which is why Biden has proposed a global tax cartel. Here are some of my remarks made yesterday on this topic.
If you don’t have time to watch the video, here are the key points I made when asked about the impact of Biden’s scheme.
- The tax cartel is a naked grab for more revenue.
- Higher taxes on businesses arguably are the worst way to collect more tax revenue. Indeed, both the IMF and OECD have research showing the destructive impact of higher corporate tax burdens.
- The global minimum tax will lead to a couple of additional bad consequences. 1) The 15 percent rate will be increased, and 2) Cartels will be created for other taxes.
I was then asked about whether there are better ways of generating revenue, particularly by having economic policies that lead to more growth.
This presumably was an opportunity for me to pontificate about the Laffer Curve, but I decided to make a more fundamental point about how politicians should not have more money.
- The burden of government spending already is excessive.
- The Rahn Curve shows that spending levels should be reduced.
- More taxes will lead to more spending.
I closed my remarks by pointing out that the world enjoyed an era of falling tax rates, which began when Reagan and Thatcher slashed tax rates about 40 years ago.
The average top personal tax rate in the developed world dropped from nearly 70 percent to just a bit over 40 percent.
The average corporate tax rate in industrialized nations dropped from nearly 50 percent to less than 25 percent.
Other nations didn’t copy the U.S. and U.K. because politicians were reading my boring articles about marginal tax rates. Instead, they only did the right thing because they were worried about losing jobs and investment.
One point I forgot to make (particularly in response to the second question) is that I should have explained that tax revenues as a share of GDP did not fall when tax rates were reduced.
Indeed, OECD data shows that tax revenues on income and profits (as a share of GDP) actually have risen during the period of falling tax rates.
The bottom line is that we need tax competition to protect us from “stationary bandits” who would produce “goldfish government.”
