Missing the Point

In a Letter to the Editor last Thursday, one letter writer had this to say about a Wall Street Journal op-ed, The Great Progressive Tax Escape:

[T]he problem of interstate tax competition, like the continuing bids to draw Amazon to pick a favorable second headquarters, isn’t strictly speaking a problem of high progressive taxes, as your editorial asserts. Better to view it the other way, as a problem of low-tax jurisdictions using these devices to compete in a way that erodes the tax bases of other states. That is exactly what is happening globally as well, when Ireland, Panama, Malta, etc. make rock-bottom offers to global companies to do business there. Developed states and countries cannot run governments at the discounted prices offered by these tax havens….

And yet these States and countries—developed all—do run their governments at “discounted” prices.  The resulting economic activity is how they can afford these additional “discounts.”

The plain fact is high-tax governments do not need the tax rates they have—as demonstrated by the fact that the “winning” States already have low rates and high enough revenue to pay for what those governments have been hired to do.  And they do so despite the plethora of special interest give-backs that so heavily populate even these States’ tax codes.  The high-tax States and the high-tax countries would do well to learn from these examples, and instead of whining about losing an entirely fair competition, reformed their tax codes.  Ireland—and Luxembourg, which the letter writer omitted to mention—have some of the lowest tax rates in the world, and their people are prospering.

A related and equally plain fact is that with low, flat tax rates there’d be no need to compete on who can offer the biggest tax breaks.  Such breaks have considerably less value coming on a base rate of, say, 10%, than they have at usurious rates like 35%.  Further, the base rates, applicable to all and already low, would allow businesses to locate themselves on the basis of sound business and not at all on who’s offering the most goodies.

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