Tax migration is coming to stay
As we move to a world of tax migration, how will governments manage to raise revenue to pay for all the things that governments currently do? Perhaps they won't
As they lurch from one public policy disaster to the next, our political elite keep spending money that they do not have. Rather than restrain themselves, they prefer to put the blame on irresponsible businesses for not paying enough tax.
In fact, if you listened to the SW1 people over the past few weeks admonishing Amazon or Starbucks, you could be forgiven for thinking that we are in an economic mess because businesses do not pay enough tax. The economy is not in a mess because companies don't pay enough tax, but because officialdom spends too much.
Had we sensible public administrators, they would first work out how much revenue taxes brought in, then work out how much we could afford to spend. Tragically, the governing class that our moribund democracy produces prefers to work out how much they would like to spend, then helps themselves.
Because the Whitehall elite puts the spending cart before the taxation horse, they come to see any tax cuts as being "unfunded" – but somehow not the spending commitments. Treasury spin doctors are quick to dismiss talk of "unfunded tax cuts". When did you ever hear them say the same about raising our overseas aid spending to 0.7 percent of GDP?
For 30 of the past 36 years, the British state has lived beyond the tax base, running deficits by borrowing or manipulating the money supply to get by.
That's the bad news. The good news is that perhaps this won't really matter anymore.
The Western model of government is bust. When the bond bubble bursts, not only will officialdom no longer be able to live beyond the tax base, the tax "base" is itself becoming more fluid.
As I argue in today's City AM, we are moving to a world of tax migration. However much the SW1 people might rail against it, wealth is increasingly created through the exploitation of intellectual property – and intellectual property is mobile.
How, in such a world, will governments manage to raise revenue to pay for all the things that governments currently do? How indeed. Perhaps they won't.
This blog originally appeared on talkcarswell.com
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