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February 24, 2008
Iceland and Taiwan to Slash Corporate Tax Rates
Dan Mitchell at the CATO Institute has a new piece about the latest examples of the trend towards lower tax rates on productive activity around the world. In this case it is Iceland and Taiwan slashing tax rates. You can read the piece by clicking on this link.
Iceland, which currently has a 36 percent flat tax on labor income, a 10 percent flat tax on capital income, and a corporate tax rate of just 18 percent, has just announced a reduction in the corporate tax rate from 18 per cent to 15 per cent.
Meanwhile, Taiwan (current 25 percent corporate tax rate compared with a 39 percent-plus US rate) plans to slash the corporate rate to 17.5 percent and reduce personal income tax rates.
These governments are not driven by ideology--free market or otherwise. They are reducing tax rates on productive capital because they have decided that they must do so to actively compete for the capital that will drive higher productivity and paychecks for their workers. Like it or not, capital owners today can move their capital wherever in the world it will earn the best risk-adjusted return. It costs little to do so. And it is virtually undetectable by anyone when they do it. This makes it much more difficult to craft a tax policy that achieves distributional, or fairness, goals and raises the stakes, in terms of lost jobs and paychecks, when policy makers inadvertently drive capital offshore.
Worth keeping in mind as we get closer to the election this fall.
JR
Posted by John Rutledge at February 24, 2008 1:21 AM
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