Comment by DanielBMarkham | Hacker News Reader

Comment by DanielBMarkham | Hacker News Reader

There is a lot of loaded language in that report, and I got the feeling that the reporter should have taken an economics class before doing it. It was like watching a ignorant economics student get lectured about reality and she not wanting to accept any of it.

So, instead of pulling down a bunch of theory from the shelf and going over it, I'll just point out the obvious flaw: she believes that the country "owns" all the businesses inside of it and that by the companies acting in their own best interest, somehow they are cheating the rest of us. Most folks who have really thought about this realize that everybody acts in their own self interest and that government's role is to set things up so they grow and that a reasonable amount of money can be harvested to help fund things. At times it sounded to me like she wanted the country to be a prison: set up shop here and you can never go abroad. Paying a tax lawyer to make the best moves for your company was cheating. Etc.

I am deeply troubled that people are using mental models of business that look at businesses like the corner shopkeeper when business doesn't work like that anymore. Business is increasingly location-independent. Ranting about how unfair all of this is? It's not going to change that fact. It's 2011. I can live in Aruba, have corporate offices in Switzerland, have officers scattered around the world, make things in a dozen countries, market on the net, and sell in a hundred countries. You're using a mental model that doesn't match up to reality. You'll never make progress like that.

Never once did she mention that the United States double-taxes income where no other country in the world does - a critical part of the entire discussion. That omission alone should tell you how well-researched and thoughtful the piece was.

Excellent points. To add to this:

a) Taxes are used to pay for a whole host of things that large majorities find highly undesirable, including bombing Libya, harassing air travellers, and bailing out Wall Street. Whether you are on the left or right, you can add a slew of other programs that are of dubious or negative value.

b) Taxes are also extracted involuntarily, literally at the point of a gun if one thinks about the limit case of tax resistance. Try protesting the war(s) by not paying your taxes, and soon enough the IRS will come with guns and throw you in jail.

There are some government programs each person will agree with. But it's the lump sum, involuntary nature of taxes that make them a highly inefficient way to fund said programs.

What would be a more efficient way to fund Medicaid and bombing Libya?

I agree with your view of what the realities are. But I don't see why should applaud them: What happens if a country like Switzerland or Singapore has a sustainable competitive advantage over the USA or Germany, that simply cannot be overcome? They can achieve some efficiencies by "freeloading" that bigger countries cannot match, for example Switzerland doesn't train enough doctors at their own universities but relies heavily on hiring doctors from Germany.

If companies cannot compete, in the long term they goe bankrupt and disappear. But how would a country disappear? It's not like every citizen could simply move somewhere else.

Also the correlation/causality is not entirely clear to me. Possibly countries are more succesful, because they have lower taxes. But at some point it could also be true that only countries that are already succesful are able to lower their rax rates so much.

> What happens if a country like Switzerland or Singapore has a sustainable competitive advantage over the USA or Germany, that simply cannot be overcome?

You may find the theory of absolute and comparative advantage to be enlightening in its detail; but the broad conclusion is that even if country A is better than country B at everything, it will still make sense for A to focus on some things and B on other things.

I know comparative advantage, but does it really apply to competition with tax rates?

For example inside the European Union it doesn't matter in which country a company is based, you have basically freedom of trade for goods and services. In Germany the medium age is 45 years, in Ireland it is 35 years; Population > 65 years is 20,6% vs.11,6%. Even if all other regulation in Germany + Ireland was identical, it seems unrealistic that Germany could sustain as low a tax rate, since the government has bigger expenses due to demographic issues alone. (Retirement benefits, medical)

If every company moved to Ireland because of the lower tax rate, what should be done with the old people in Germany?

You seem to labour under the illusion that if the money isn't taxed in a particular country, it somehow disappears from that country altogether. Yet wages are paid to employees and profits are distributed to shareholders. Lower taxes allow companies either to lower their prices or distribute more wages and profits. That's generally considered to be A Good Thing. If Germans want a slice of those profits, they can buy shares in the Irish-domiciled companies like everyone else.

Employees and shareholders do not get their money from the government. But what about old people, government employees, social services? It just seems to me that the "assets" of the government move to a low tax country, but the "liabilities" stay the same...

If there was a hypothetical "ZeroTaxCountry", to which companies could declare their allegiance and pay no taxes at all. Would you consider that "A Good Thing" as well, since it seems to have all the benefits you alluded too?

You're right that future liabilities are a mess. In Australia in the early 1990s the government introduced a program of compulsory superannuation. Already something like a trillion dollars has been saved by Australians against their retirement under the scheme. Singapore does something similar. Australia has also put away tens of billions of dollars against the future liabilities of public service pensions.

Will it completely do away with government liabilities? No. Australia too will face higher health care costs. But some of those costs will be defrayed by the superannuation and taxes levied on an economy that grew faster without the taxes than with them.

I am ambivalent about the Euro-US situation. On the one hand, it sucks that you face a period of painful adjustment to inescapable economic reality. On the other hand, your politicians have steadfastly refused to face up to those realities. As an Australian I find it annoying that profligate governments in Europe and the USA are hurting my prospects, even though here we've largely enjoyed fairly sensible economic policy for the past 25 years.

That's what happen when you tie yourself to a company whose business is to tax away income from a movable source. Economics is about learning the rules of the game, not changing it. If it could be changed, than the economists would look for what can't be changed. And then optimize for that.

As if it is good thing the company moving to a no tax country. From the point of view of the company's clients, it actually would, since it would mean that its products have the potential to be the cheapest of the market.

They can achieve some efficiencies by "freeloading" that bigger countries cannot match, for example Switzerland doesn't train enough doctors at their own universities but relies heavily on hiring doctors from Germany.

How is this "freeloading"? Medical schools located in Germany train doctors, who then pay the medical school. People in Switzerland pay the doctors for services.

Is Germany also freeloading on Switzerland if they purchase Swiss chocolates or watches? Is the US freeloading off India because the US buys BPO services from India?

Not entirely comparable. Most universities don't have tuition fees in Germany, the highest fees are 1000€/year, while it is estimated that the costs of educating a medical student are at least 30,000€ / year. Basically the education is heavily subsidized by the German taxpayer, so if a huge number of doctors later work and pay taxes in Switzerland it is somewhat suboptimal.

Ok, so the real problem is that Germany is forcing it's citizens to subsidize doctors and the Swiss, rather than that the Swiss are freeloading.

The obvious solution (for Germany's citizens, if not their politicians) would be to charge market rates for medical education.

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