Competition vs Fairness

Amity Shlaes writes in the 4/9/12 Wall Street Journal, Tax Policy is About Competition, Not Fairness, What John F. Kennedy understood that today’s politicians forget.

Excerpt:

Heller’s successful plan to combat the recession of the early 1960s was the Kennedy-Johnson tax cuts, which pushed the unemployment rate below 5% and the growth rate above 5% from 2%. Crucially, the administration’s marketing pitch didn’t talk about “fairness” but about competition. In the 1963 State of the Union Address, for example, Kennedy spoke about obstacles that “undercut our efforts to compete with other nations.” He called “one step, above all, essential” to solve the problem: “the enactment this year of a substantial reduction and revision in federal income taxes.”

Heller and Kennedy recognized that taxation (not only growth) is all about competition. Cities compete with cities, counties with counties, states with states, and nations with nations. These natural experiments run in real time.

Legislators at all levels of government are beholden to data sets that contain little material about states, even less about other countries, and scarcely any easy-to-follow comparisons. Yet while everyone here at home was recrafting the earned-income tax credit or the Alternative Minimum Tax, the United States this month became the country with the highest corporate tax rate in the entire developed world.

HKO comments:

Raising taxes without concern for the competition for labor and capital is like a business raising the price of his product or service without consideration of competitors.  In an effort to raise revenue you will see them decline.  This is what happens when we staff government with political drones with no private sector experience.

Not only must our businesses compete with businesses from other countries with different tax structures, but the individuals who must add the higher friction costs of regulation and taxes, can find alternative sources for their capital than putting it in the path of confiscation authorities.  The richer Americans, the very ones targeted for higher taxes, have the most alternatives to avoid the taxes.

I also like the article because it addresses the successful tax policies of Kennedy:  good tax policies do not have to be the domain of one party.