Tax rates lower in poorer countries

[sean 0]

I always get the "you don't like it, then MOVE. There are countries with low taxes rates" and was wondering how an Objectivist comes back at it.

Richer countries

http://en.wikipedia.org/wiki/List_of_count...velopment_Index

Poorer countries

http://en.wikipedia.org/wiki/List_of_count...rcentage_of_GDP

(you can sort by the second column)

Mexico: low tax rate, close to us, but it is 53 on the list standard of living list. The lowest tax rates seem to be Muslim, or at least Middle Eastern, countries.

Could the argument be made that places like Mexico might have lower taxes, but no one is flocking there because because the threat of violence is greater when you don't pay up?

[L-C 0]

I always get the "you don't like it, then MOVE. There are countries with low taxes rates"

That's what those of us who aspire to one day move to the US have been told...

[rtg24 0]

Why should you have any less of a right to live in the US than the socialist in front of you? In fact, when the socialist is saying this, he is blaming you for daring to refuse to give him your money. It's a bit of an insult, no? Ask him what makes him better than you. As an altruist, he is obligated to immediately deny that he is better than you.

There are other costs to living in lower tax countries.

One of the biggest questions for investors this century is will Asia take off as the economic region for the next century. If so, living in the US might not make as much sense. A friend visiting Seoul noted that everybody, and really everybody including blue collar workers had a much higher purchasing power (noticeable especially in shop prices, and the way people dressed extremely expensively) than in the US.

That being said, I believe - and so do all the brains trying to migrate there - that the US is the place where teh fight is most likely to be won. Sure, we could, with sufficient effort, turn Britain, or even France, into a free market heaven. It's not worth it, nowhere near as much as the US and its exceptional geopolitical situation (no enemies close, large oceans protecting against "uncivilized" attacks, enormous domestic market allowing for thriving economy at low cost, etc.), and especially since Americans actually care about ideas (which is why your socialists are so much more annoying than our socialists).

[softwareGuru 0]

Could the argument be made that places like Mexico might have lower taxes, but no one is flocking there because because the threat of violence is greater when you don't pay up?

One useful way to look at government intervention in an economy is to break it down into: structural, fiscal and monetary.

By structural, I mean the various (economy-related) laws that make people act in ways they would not in a free-economy:for instance laws that require a tedious licencing process for anyone wanting to start a business, laws making it difficult to bring new property (e.g. Brazil's slums) into the formal system of property-rights, laws that give unions an unfair advantage in negotiations with employers, laws that impose heavy "environmental"controls, and so on. A way to sum these up would be: how well the law recognizes property-rights and allows people to control the disposition of their property. By fiscal, I mean that sub-segment of laws that decides how much tax will be imposed and is best measured by things like "% of GDP under direct government control". By monetary, I mean the extent to which the government devalues its currency via inflating its supply.

By far, structural issues are the most important factor that distinguishes wealthy economies from poorer ones. Of course, if tax rates and monetary policy are extremely bad they can override, but the most common situation is that structural issues hold back economic growth. If one looks at the "Asian tigers" of the 1990's and at China and India, the key thing these countries did was make it easier for their businessmen to set up businesses and run them in a way that was far more unfettered than the past.

[Maarten 0]

Another huge issue is whether the government generally respects individual rights. Not paying much in nominal taxes doesn't really mean much if you have no freedom from various forms of government coercion, or if there's a poorly functioning rule of law in that particular country. Such considerations are probably more important than tax rates as they form the foundation for making money successfully.

[softwareGuru 0]

Another huge issue is whether the government generally respects individual rights. Not paying much in nominal taxes doesn't really mean much if you have no freedom from various forms of government coercion, or if there's a poorly functioning rule of law in that particular country. Such considerations are probably more important than tax rates as they form the foundation for making money successfully.

Exactly. These are the kinds of things I think of as "structural". Hernando de Soto's books focus on some of these issue.

For instance, I think structural changes starting in the late 1990s were a key reason the U.S. economy took off, but the "supply-siders" were in vogue and gave excessive credit to lowering of tax-rates. If the government's share of the GDP is high, it does have an impact; if tax rates at the higher-income brackets are high (for a given government share of GDP), that too has an impact, but I think there is a tendency to over-credit the effects. The 1970's-style "1 for me, 19 for you" tax system can make extra profit seem futile, but within today's ranges, most businessmen will not stay at home and stop being productive if they have to pay more in taxes.