Alberto Mingardi  

Good bye to tax competition

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Tax competition may well be a thing of the past. The OECD tax conference in Berlin has ratified a new tax deal between fifty countries, to allow automatic exchange of tax information. German finance minister Wolfgang Schäuble rejoiced at this "joint contribution to more transparency and fairness in our globalized 21st century"(*). British finance minister George Osborne added that "tax evasion is not just illegal but immoral" because "you are robbing from your fellow citizens and you should be treated like a common thief". I find this a rather remarkable statement: the problem with theft is apparently one of magnitude. If all robbers were alike, what should we say of organizations that take money without their consent from millions of individuals at the time?

Yet that tax evasion rather than taxation itself is associated with theft sounds paradoxical only to libertarian ears. The OECD has long being pursuing the dismantlement of tax competition (see this 2013 paper by Cato Dan Mitchell). Advocates of closing loopholes have been constantly claiming the moral high ground. The argument is Osborne's: tax evaders are indirectly increasing the tax burden on everybody else, as they aren't paying their dues. It seems to me that behind such reasoning you find the idea that public spending is basically incompressible, and that governments shouldn't be forced to match spending to revenues.

moral high ground3.jpg

Now, tax evaders aren't necessarily a commendable category of people: surely there are a lot of criminals among them (if I don't obey the law when it prohibits killing people, am I really expected to comply with its fiscal provisions?). But I find rather convincing the idea that all those activities that run the gamut between fiscal arbitrage and outright tax evasion have had somehow the effect of lowering overall fiscal burden. The mere possibility of an ever greater erosion of their tax basis may have slightly slowed down that incredible increase in taxation which we have experienced almost everywhere in the West.

The best comment on the OECD conference came from a commenter on the WSJ website, Winthrop Smith: "And the same countries slam Google for making information on people public...". This is an interesting paradox. Apparently, our societies values privacy quite a lot. How to regulate people's posting pictures of their children on Facebook is a question regulators and governments are seriously pondering all over the world. But when we are talking money and bank accounts, "privacy" is deemed something just criminals and libertarian nuts may actually value.

(*) Schäuble seems at least to be aware of the fact that also the way in which you "fight evasion" or "crack down fiscal heavens" could raise ethical question. A few years ago, the German government bought CDs with names of German owner of bank accounts in Swiss banks. "Hopefully tax CDs will soon no longer be worth it", said Schäuble in Berlin, "I always found it problematic to cooperate with 'fences' to enforce the law". This would be a more interesting conversation to have. If the ends do not justify the means, and if the goal of "fighting tax cheaters" doesn't justify by definition all possible means, how should it be pursued?


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CATEGORIES: Taxation




COMMENTS (2 to date)
Don Boudreaux writes:

Well done as always, Alberto.

Just fyi: back in March 1997, Dwight Lee weighed in on this matter - with typical Dwight insight and wit - in The Freeman:

http://fee.org/the_freeman/detail/confession-of-a-compliant-taxpayer

liberty writes:

Really, so you think just because you don't want government programmes, it is moral for the extremely wealthy individuals and hugely profitable businesses to use their economic power to avoid paying taxes to fund those democratically chosen programmes, even as they benefit from them--usually more than those who pay taxes?

I disagree.

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