Defending Tax Competition

June 29, 2024 by Dan Mitchell @ International Liberty

At the risk of understatement, I don’t admire very many politicians.  Among leaders who have passed away, I obviously was a fan of Thatcher and Reagan. Among those still alive, my obvious favorite is Javier Milei of Argentina.

 

Because of my support for tax competition, however, I may have to add Hans-Rudolf Merz to my list.  He’s certainly not famous. Especially now. But at one point, he was the Finance Minister of Switzerland.

My admiration for Merz is not simply because he is from a well-governed nation. Instead, I want to praise him for openly (and correctly) defending tax competition.  Though we’re going to have to dig into the archives. Here are some excerpts from a 2005 article that I recently discovered.

Finance Minister Hans-Rudolf Merz has defended the Swiss tax system after the European Commission questioned low corporate tax rates in some cantons. …“For Switzerland, tax competition is not only a theoretical concept. It represents one of the constitutive elements of our system of state and self-understanding,”

Merz said on Friday. “Competition ensures diversity and quality of supply, innovative entrepreneurship, and low prices for consumers. “This forces the policies and administration of competing locations to offer an attractive combination of public services and a tax burden that is as low as possible.” …“The realpolitik alternative to tax competition is a tax cartel. Cartels, however, are seldom advantageous for the citizen.”

Very well stated. And several winners of the Nobel Prize in Economics would agree.  Unfortunately, Merz’s position has not prevailed over time.  Switzerland has been bullied into being part of the global corporate tax cartel that has been pushed by the OECD and the Biden Administration.  But thanks to people like Merz, Switzerland almost always is on the right side, even if it doesn’t always prevail.

P.S. Some British politicians also have defended tax competition (see here, here, and here).

P.P.S. Another former Swiss Finance Minster also deserves praise, in his case for being the father of his country’s very successful spending cap.