Monday, April 27, 2009

Taxes greater than 50 percent --> Loss of National Competitiveness

So argues Andrew Lloyd Webber in an op-ed to the Daily Mail.

In business, prices are loosely based on cost. In order to remain in business, prices must be above cost. But how much above?

The answer is "what the market will bear." That is, people will pay what they are willing to pay. And generally, the higher the price, the less they will buy.

Thus what separates competitors is their individual unit cost of production. The business with lower cost will reap more profit, which attracts greater investment, which leads to greater growth of revenue-producing assets, which leads to more market share than the competition, which can eventually lead to the demise of the weakest competition (those with the lowest profit/highest unit cost).

Consider whether the same is true of government.

Government has more control over competition (tariffs, quotas, work visas), but these work on imports of goods and services. In a free country such as the United States, there is no restriction on the individual worker exporting themselves to a foreign country to work. (There is, however, a punitive tax on moving financial assets out of the country--for ten years, an ex-patriate must continue to pay taxes.)

Certainly patriotism must be considered as a reason workers dissatisfied with Government regulation and taxation do not leave despite their desire to do so. However, I consider it yet another abuse by Government when this patriotism is abused in order to trap the workers' assets and income for tax purposes.

Government can take a last bite out of those who flee, but ultimately cannot prevent the loss of workers or their talents (or the taxes that they pay).

State governments understand the competitive nature of taxation very well. If you are a big business, state and local governments will mortgage their future revenue streams in order to lure you. (Small businesses like mine are not so fortunate. We end up making up for the subsidies to bigger businesses.)

The national government usually does not need to consider competition. Yet in times of high taxation, worker flight is inevitable. They will take their talents, capital and their income with them.

National Governments, take heed!

No comments:

Post a Comment

Comments are welcome, but must be courteous and thoughtful. I reserve the right to delete comments that do not possess these characteristics.