[Homestead] Tax competition among countries
genegerue at ruralize.com
Sat Apr 2 07:36:18 EST 2005
Few issues are more hotly argued than taxes and the governmental programs
they support. From the emotional issue of the personal pain to the purely
pragmatic approach of what works best for the country, taxes are an issue
that will always affect each of our lives. This article focuses on tax
competition between countries and argues that lower taxes spur economic growth.
The Outlook for "Tax Competition"
A Flat Tax for the U.S.A.?
By Andrew F. Quinlan
(Editor's Note: For over a decade, tax collectors from the European Union
(EU) and the Organization for Economic Cooperation and Development (OECD)
have carried out a campaign of threats and intimidation against low-tax
jurisdictions to force them to abolish bank secrecy and enforce the fiscal
laws of high-tax nations.
That campaign now lies in tatters. Andrew Quinlan, head of the Center for
Freedom and Prosperity (CF&P), explains why high-tax governments haven't
been able to stamp out tax competition, and what's ahead in the way of
lower taxes and simpler, less coercive tax collection.)
Tax competition is a good thing. Despite longstanding efforts of high-tax
welfare states to harmonize taxes at a uniformly high level, nations that
have lowered taxes have flourished.
Take Ireland, for instance. Not that long ago, Ireland was a high-tax
nation. And it suffered from 15% unemployment and some of the EU's lowest
living standards. Since slashing tax rates in the 1990s, Ireland has
enjoyed a remarkable turnaround. The former "Sick Man of Europe" is now the
"Celtic Tiger." Income is soaring, unemployment has plummeted to 5% and
Ireland is now one of the richest economies in Europe.
Ireland isn't alone in proving that tax competition works. The newest
success stories come from the former communist states of Eastern Europe.
Since 1994, eight European nations have adopted a flat taxEstonia (1994),
Latvia (1995), Russia (2000), Serbia (2003), Ukraine and Slovakia (2004),
and Georgia and Romania this year. Serious discussions are underway to
implement a flat tax in Bulgaria, the Czech Republic, Finland, Poland and
Spain. And outside this "New Europe," even communist China is getting the
flat tax fever. In 2003, they invited flat tax guru Alvin Rabushka to
Beijing to discuss the possibility.
A low, predictable flat tax rate in these countries has not only led to
economic growth, but has also boosted tax revenues. This shouldn't be a
surprise. Corporate tax revenues skyrocketed when Ireland lowered its
corporate tax rate from 50% to 12.5%. The same thing happened in tiny
Estonia, which has a flat rate of tax of 24% for individuals, which is
slated to fall to 20% over the next two years. According to the Bank of
Estonia, government revenue for 2003 was 48 billion kroons (US$4.06
billion). That compares with 42 billion kroons in 2002, and 36 billion
kroons in 2001. Obviously, lower taxes mean morenot lessgovernment revenues.
Motivated by tax competition, several other nations are reforming their tax
systems. Austria recently lowered
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