As then-Governor Bill Richardson explained while lowering New Mexico's tax rates, "businesses move to states where taxes are falling, not rising." As globalization makes it ever easier for capital and jobs
to cross borders, nations increasingly feel the same pressures to lower tax rates. The subsequent benefits of tax competition are straight-forward: citizens see lower tax rates, while economies grow faster thanks to
Yet, as the video explains, politicians often resent having to lower taxes and they get angry when jobs and investment move across borders in response to punitive policy. In hopes of tilting the playing
field further in their direction, they want to form tax cartels to insulate themselves from the beneficial pressures of competition. On the international level, global bureaucracies such as the OECD seek to
undermine the sovereign right of nations to adopt pro-growth policy. On the domestic level, some politicians work to undermine tax competition through the so-called Streamlined Sales Tax Project, which allows states
to tax sales made in other jurisdictions. These policies not only harm local economies, but also reduce everyone's freedom to escape bad policies.
"With welfare states like Greece and Portugal collapsing," said CF&P Foundation President Andrew Quinlan, "it is more important now than
ever to ensure that citizens can escape high tax jurisdictions. Without the pressures of tax competition, politicians would never admit that their big spending welfare states are unsustainable," he concluded.
"Tax competition is constantly under assault from politicians and international bureaucracies," added Dan Mitchell of the Cato Institute. "If high-tax
governments are allowed to form an 'OPEC for politicians,' the result will be less freedom and reduced prosperity for all."
This Economics 101 video succinctly explains why tax competition restrains excessive government since politicians realize that jobs and investment can cross borders if they get too greedy and impose
punitive tax policy.
This new video is part of CF&P's Economics 101 video series, which is designed to explain free market concepts, with
particular emphasis on reaching students and young people. This is the twelfth video in the series.