Is it just me or are people obsessed with tax compliance lately? I suppose it is part of this fantasy that high earners and corporations have enough money to pay for all our new spending – we just have to force them to pay up.
You know what might be simpler than jacking up taxes and doubling the size of a government agency? A broader base and simplified tax system that doesn’t leave so much room for getting out of paying taxes. Take the idea of a global minimum corporate tax. Sounds sensible enough; after all, you can’t increase the corporate tax rate too much because it is so easy to send profits overseas where taxes are lower.
But anyone who studied public finance can tell you there’s the tax rate and there’s the tax base. Generally, it is better to have a broader base and a lower rate. You get more revenue that way, and it causes fewer distortions and enhances transparency. Maybe we can convince OECD countries to set a higher corporate rate, but that creates a new race to the bottom to degrade the base. Countries will compete to offer more loopholes and deductions. And that seems worse to me.
Author(s): Allison Schrager
Publication Date: 24 May 2021
Publication Site: Known Unknowns at substack