We are on our way to uniform tax rates.
Much to his ultimate peril, the contemporary suffers from a weakness; he is inclined to believe anything as long as it is not obvious. Even more frequently, if facing a new encroachment that is shrewdly kept incremental, we nod assuming that it is a final and not an initial demand. Public affairs are not analyzed the way of chess players do: those think several steps beyond their move. This explains the regular rise of temporary levies that become permanent while their promised small burden mutes into millstones.
In accordance with this pattern, a new stealthy attack on private property and the soundness of advanced economic systems is constructed.
We begin by recalling the state of government finances and of the advanced economies. We notice the growing debt of governments. The red lake of ink fed by repeated deficits and deepened by the costs of earlier debts, widens while the private sector thrives. Seeking an explanation for the contradiction of a healthy society and ailing government, we discover the mounting cost of welfare. Closely related is the purchase of the support of dependent groups. Redistribution does not aim at economic rehabilitation but acts as a pacifier and makes dependency attractive as a way of life.
Due to the political class’ interests, expenses and deficits grow. There are subtle ways to postpone the reckoning. One is to print money to finance projects that give the impression of rising employment. A pattern for financing emerges. The trick declares unrecoverable debt held by an institution to be collateral when acquired by another, thereby on paper soundly founded entity. Think here of an indebted state’s bank that “buys” government bonds no one wants. However, the shifted around freshly printed money is uncovered by goods and so it will resurface as inflation. There is a system to kicking debt over into the next legislative period. Governors that distribute what others have earned disregard the future. The crash occurs once the overlooked future asserts itself by becoming a present.
Indirectly, the spreading internal collectivism creates a cleavage between national economies. Some countries achieve through small boosts of subventions large tax increases. To protect rears, their policies demand that the flight of the “pluckees” be obstructed. A tide of regulations results. These are rules that force Robin Hood’s victims to cross the forest unprotected.
Some systems have stayed immune to the excesses of collectivism. They keep the state small, efficient and cheap. Undertakings unfold and in a low-tax milieu, success’ reward is not confiscation. Represented on a curve, their score rises faster and higher than that of their high-tariff competitors. Evidently, the enterprising and the mobile will react to this discrepancy as an opportunity.
A critical reaction to restrictions is to refer in policy debates to the example of the successful and to contrast it to the irrationalities that strangle society. The barricade has another side. Failure seeks comfort by making others participate in it. Quagmire producing elites do not use their power to improve their practice. Doing so would cost them the support of their clients. The alternative remedy is to restrain the achievers. This makes the classical liberal order into a threat to those that rely on etatism.
As in the case of the USSR, uncompetitive systems are unable to reform without losing power. To protect themselves, the directors of deficit-financed high dues schemes need to limit the attraction of sound systems by depriving these of the advantage of innovation and moderate costs. A pattern discernible in the EU provides a hint. Centralization creates opportunities to block financially responsible entities. This is achieved by removing economic policy, welfare, and immigration from the control of competent national governments.
The ultimate setting of policy is transferred to a bureaucratic elite legitimized by its office. This goes so far that, in case of member states with the “wrong” party in power, EU commissars limit the right of democratically elected parliaments to legislate.
We have elites that must pursue policies floating on red ink and they are unable to redress the imbalance of revenue and outlays by increasing productivity and cutting expenditures. The centralists’ way out is to undermine the competitive advantage of soundly governed nations and to extort them to submit. Even in non-member states, individual and corporate taxes provoke pressure to raise dues and their banks are to act as the tax collecting agencies of indebted governments. Total transparency is becoming the international standard. This means global taxation and the delivery of all data about activities abroad to the care of states in which a nonresident has citizenship.
These Big Brother policies point to a logical, but still unimaginable, extension. One is the coming universal taxation regardless of domicile and the venue where income is generated. There will be a hole to be closed in that financial Berlin Wall. High earners are mobile and they will try to move to well governed countries that attract them by sound management and modest taxes.
This recalcitrance of the capable will need to be countered by the architects of economic failure. It will be done by imposing universal standards for taxation. That will apply to states, and in federally systems, to local government. Countries that underbid the set rate will be coerced to comply through economic blockades. Once the high taxes of the laggards have become a straight jacket “to fit all”, there will be little chance to escape the consequences of bad governance. Exploiting that, taxes will rise and the power of those that distribute the intake to their clients will grow. It is wrong to believe that you escape if the policy “kills” you; beyond the bend of the road, standardized inheritance taxes are nearing. There is good news. It is that upon implementation there will be –to take the current US case- no “IRS scandals” because today’s abuses will become our accepted practice.