Tax is the price we pay for government.
But when we have competition among producers, we also find more options and lower costs. Those effects are produced by competition’s enforcing of efficiency and productivity. The same principle applies to corporate income tax rates. This bears note in light of the G-7’s commitment to a de facto monopoly on corporate income tax rates. The G-7 has pledged to work toward a global 15% minimum corporate tax rate. It’s a bad idea.
First off, it isn’t true that a government that diverts more of the economy through itself is a better government. Second, we know that some forms of taxation are less good at producing revenue and mitigating impacts on economic growth than other taxes. That is, we lose more economic activity by trying to gain $100 of revenue from X tax than we do from Y tax.
That spectrum runs from very low costs, property taxation, consumption (sales taxes, a VAT) to income (obviously, income tax), getting higher until we reach capital taxation (wealth taxes, dividends and capital gains, and, yes, corporate income taxes). Taxing us at that higher cost end of the spectrum makes us poorer than doing so at the other, lower end, for the same revenue gained. The benefit of the spending is unconnected to how we’re gaining the revenue. So, even if we do desire more government, we still want to be financing it through property and consumption taxation, not corporate or capital.
Competition between countries over corporate taxation thus also benefits us by pushing governments away from that inefficient method of tax collection and toward better alternatives.
The political incentives are entirely the other way around, of course.
Many people believe that if it’s corporations that are handing over the checks, individuals won’t have to. This is why governments are creating this monopoly. They know, or should know, that higher corporate taxes aren’t a good idea. However, government incentives are different from our own. They want to maximize revenue while minimizing public anger.
Top line: This tax pledge means that governments get to continue being inefficient without the competition to force them to do better.
