Sent: 02-06-2009 12:31:01
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We need higher taxes
Earlier this month the Wall Street Journal ran an opinion column written by Arthur Laffer and Stephen Moore.
Mr Moore is not the first choice hooker for the Wallabies! He is actually a senior economics writer for the WSJ. Arthur Laffer is the author of the famous "Laffer curve" which I have dealt with previously in this column.
The "Laffer Curve" shows that at some point tax rates become too high and revenue falls. So we have the perverse situation that 100% tax rates won't produce any revenue and neither will 0% tax rates.
The WSJ article says that US State Governments are facing very large budget deficits and in some States their solution is to raise taxes on the "rich". In some cases state governors have argued that such increases are "fair". This soaking the rich mantra has a familiar ring to it for Australians still happily listening to their Prime Minister.
Laffer and Moore show that lower taxing states not only take less money from their citizens they also provide more job opportunities. From 1998 to 2007 more than 1,100 people per day moved from high tax states to low tax states.
The States with the biggest fiscal deficits have the highest taxes.
Laffer and Moore quote from 1998 study which found that, "A more progressive tax thus induces firms to hire fewer high skilled employees and to hire more low skilled employees."
The US has the advantage that it has 50 States and it is easier to see the benefits of comparison and competition. Australia sadly has far fewer states than the US and hence we don't get to see these benefits. We also don't seem to have very effective administration at the state bureaucratic level.
It is common to hear that our State Government should be reformed or removed. I don't share that view. I think our States just need to be run better and more competitively.
Australia has seen the impact of very bad financial mismanagement. Think Victoria, South Australia and to a lesser extent WA during the 1980s. Think NSW now. The net migration out of NSW is happening for a reason and it's not only governmental incompetence.
You can read the Laffer and Moore article at http://www.atcbiz.com.au/r.php?r=0fy8qp8
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