When I give speeches about the global fight between tax competition and tax harmonization, especially when speaking in jurisdictions with good tax policy, I usually point out that that compromise is a bad idea. To be sure, politicians from high-tax nations can put a lot of pressure on low-tax jurisdictions.
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Especially the threat of financial protectionism.
But I explain that capitulation is a no-win strategy.
That’s because any victory for the left will simply set the stage for future demands. My usual analogy is that you don’t turn an alligator into a vegetarian by feeding him your arm. All that happens is that he then gets hungry for his next meal and brings a friend.
That’s what happened when the Paris-based OECD launched its initial attack on tax competition.
So-called tax havens were told that they needed to be deputy tax collectors for high-tax nations, but this would only involve complying with occasional requests for information about specific taxpayers suspected of evasion. Low-tax jurisdictions agreed, but then the OECD moved the goal posts. And when the dust settled, we wound up with a global system of automatic sharing of personal financial information – including even nations like Russia and China.
And since politicians are now less worried about flight capital, they are raising tax rates. Now the same thing – moving goal posts – is happening in the field of global minimum taxes. Politicians from uncompetitive nations have been pushing to harmonize corporate taxes, including a global minimum rate of 15 percent. The ink isn’t even dry on that scheme, yet the pro-tax crowd is already agitating for its next meal.
Here are some excerpts from an article by Richard Partington for the U.K.-based Guardian.
The G20 group of the world’s most powerful countries is exploring plans for a global minimum tax… Leaders gathering in São Paulo for a key G20 meeting of finance ministers and central bank governors are preparing to discuss an internationally agreed backstop… Aiming to build on the cooperation that resulted in a 15% global minimum tax on multinational companies, which came into effect in January, the plan is being promoted under Brazil’s presidency of the G20… Brazil’s finance minister, Fernando Haddad, under the leftwing government of the president, Luiz Inácio Lula da Silva, is pushing for the adoption of the policy. France’s finance minister, Bruno Le Maire, also gave his backing this week, saying Europe should take it forward. …Zucman said the G20 talks would mark “the beginning of a conversation”. Various details would need to be hammered out between countries.
This sounds crazy. And it is crazy.
Wealth taxes arguably are the most destructive way for governments to grab revenue. Yet some politicians, motivated by greed and class warfare, want to make that tax universal. I hope this idea gets shot down, but keep in mind that even semi-rational politicians are going to be susceptible to bad proposals because so many nations are facing massive long-run fiscal problems.
P.S. Readers who want to learn why tax competition is a good idea should click here, here, and here.
P.P.S. This issue is personal to me for reasons you will understand if you read this, this, and this.
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