April 10, 2008 5:36PM

Who Wins the Tax Competition Debate?

The Wall Street Journal posted an online debate between yours truly and Raymond Baker of the Brookings Institution. We are supposed to decide which is worse: tax havens or high taxes. I began the debate by explaining:

Tax competition is a liberalizing force. When politicians worry that jobs and investment have the freedom to cross borders, their reflexive desire to overtax and overspend is at least somewhat curtailed. Tax havens play a valuable role in this process, and this helps explain why income tax rates have dropped by more than 25 percentage points since 1980 and corporate rates have fallen by more than 20 points. These reforms have greatly strengthened the global economy, improving living standards across the board and helping to lift hundreds of millions of people out of poverty. Efforts by bureaucracies such as the OECD to create a tax cartel — an “OPEC for politicians” — should be rejected.

In his contributions, Mr. Baker largely avoided any debate about tax competition and repeatedly asserted that tax havens were refuges for dirty money. I cited numerous sources that suggest otherwise. I then closed by arguing that: Because of tax havens and tax competition, the world today is much more prosperous and global poverty has been reduced. The OECD should not be allowed to disrupt the world economy by stifling competition and creating an “OPEC for politicians.” Every nation has the sovereign right to determine its own tax and privacy laws — and to control the taxation of economic activity inside its borders. Tax competition is good for America, good for the world, and good for freedom.

It will be interesting to see whether the comments in the reader forum will favor one side or the other.