The reasons why tax competition is of essential importance

The discussion about the role of competition in connection with state tax collection is of fundamental importance for understanding modern societies. In public perception, taxes are often seen as a necessary evil – something that is unpleasant, but ultimately considered essential for the functioning of a state. Just against this backgroundState monopoly on the collection of taxes at first sight appears as a protective mechanism that protects individuals from a multitude of competing demands. The idea that a new institution that claims part of the income does not appear on every corner of the street in a national territory may have a calming effect for many. It is created that theState monopoly on tax collection guarantees a certain order and legal certainty, because there are not several actors who set up and enforce their own rules.

The peculiarities of regulation in the area of state income

However, the responsibility for monitoring and shaping competition in the area of tax policy does not lie with independent authorities, such as antitrust authorities or monopoly commissions, which specialize in ensuring fair competitive conditions in the economy. Instead, this task is left to the governments that have a natural interest in ithave to protect and expand their own income base. This results in a fundamental conflict of goals: while competition in other areas is considered the engine for innovation, efficiency and progress, it is actively suppressed in the area of tax policy. The policy makers are working specifically to prevent any form of competition in taxation or at least stronglyto restrict. This behavior can hardly surprise, because real tax competition would restrict governments’ freedom of action and force them to align their tax policy more closely with the interests of citizens.

Tax harmonization as a means of control

A particularly memorable buzzword in this context is the concept of tax harmonization. Externally, it is suggested that they want to solve cross-border problems in tax law – for example, to avoid double taxation or to facilitate cooperation between the states. In fact, however, the attempt to suppress tax competition is hidden behind it. theHarmonization of tax rates and rules means that citizens and companies are deprived of the opportunity to switch to different tax conditions. The states thus secure a stable income base and minimize the risk of economic activity migrating to other countries due to tax considerations. However, at the same time, theInnovative power in the area of tax policy is slowed down, because without the pressure of competition there are fewer incentives to develop efficient and fair solutions.

Political framing and the narrative of tax justice

Political communication on the subject of taxes is characterized by terms such as tax justice and tax morality. Again and again the impression is given that a consistent tax policy in particular uses the so-called rich to finance state services. This representation is widespread and is perceived by many people as plausible because theyFeeling that the loads are distributed fairly. But on closer inspection, it is evident that this view is too short: State benefits are ultimately financed from the contributions of the entire population. The idea that others – the wealthy – pay for the welfare state while benefiting from it themselves is an illusion thatpolitical system specifically maintained. It is convenient not to have to deal with your own contribution to financing the community in this way.

The life lie of the welfare state and its effects

The narrative, according to which only the others are always paying for state benefits, has become a kind of life lie of the modern welfare state. It serves to justify political measures and to play out social groups against each other. This becomes particularly clear when it comes to additional expenses for education, health, infrastructure or security. Regularemphasizes that the rich would now have to be asked to pay in order to make these achievements possible. But in truth, the costs are distributed among the general public, while politicians cleverly conceals the responsibility for this circumstance. This strategy is not only convenient, but also effective because it ensures approval for higher taxes and criticizesnipped in the existing practice.

Tax avoidance, tax loopholes and the search for culprits

At this point, another central element of political communication comes into play: the condemnation of tax evasion, tax avoidance and the closure of so-called tax loopholes. Politicians present themselves as fighters for tax justice by constantly announcing new measures against supposed tax evaders. It is created that the rich are onunfairly evade their duty and harm the community. But this representation is shortened, because it distracts from the actual problem: Ultimately, the tax burden is borne by everyone, and measures to combat tax evasion often serve to expand one’s own political leeway. the staging of show processes and the permanent appeal to theTax morality reinforces the image of a constant threat of antisocial behavior that needs to be combated. It is overlooked that the actual cause of tax evasion and avoidance often lies in the high burden and complexity of the tax system.

The fight against tax havens and intensified international tensions

Countries that advertise with lower tax rates and thus attract companies and wealthy private individuals are particularly targeted. These so-called tax havens are perceived as a threat by states with high taxes and are regularly targeted by international campaigns. They are presented as places of injustice and asocial enrichment, while their owntax burdens are justified as a necessary evil. The dispute over tax havens has meanwhile led to a veritable polarization between countries with different tax regimes. In practice, questionable methods are also used to get information and to convict supposed tax evaders. The state is quite ready withto work together to shady actors when it comes to securing their own interests. An open debate about the legitimacy of such measures takes place rarely, since public opinion is characterized by the narration of the necessary fight against tax evasion.

The consequences of a lack of tax competition for prosperity and motivation

The debate about tax competition is often accompanied by the question of how the state could finance itself without the monopoly on tax collection. For many, the idea that tax competition could have a positive effect seems absurd. The state is seen as a guarantor for the fulfillment of sovereign tasks, the financing of whichTax revenue must be secured. However, it is overlooked that taxes have a direct influence on the willingness to perform and the development of prosperity within an economy. As the tax burden increases, the incentive to work more or to be productive decreases, as the yield of one’s own effort is lower. The leisure time is more attractive in comparison, what to do with itleads to less work and productivity decreases. In this way, excessive tax burden can slow down economic development and reduce the prosperity of the entire society.

Tax burden, economic freedom and the value of competition

A small amount of tax burden is beneficial for developing an economy because it creates incentives for performance and innovation. The lower the price of governmental benefits, the greater the motivation to be productive and create prosperity. Competition – also in the area of taxes – can help states to be forced to pay their incomedesign and use your expenses efficiently. In such an environment, citizens’ interests are given greater consideration, as governments are under pressure to provide attractive framework conditions. Without this pressure, there is a risk that tax policy will increasingly be shaped by the needs of the state and less by those of the population. The price for stateBenefits should therefore be kept as low as possible so that the performance of the economy is maintained and even increased.

Conclusions and Outlook for an Open Tax Debate

The dispute over competition in the area of tax collection affects fundamental questions of the relationship between the state and the citizen. The state monopoly on taxes is often considered irrefutable, but an open debate about the possibilities and limits of tax competition is necessary. Only through more competition can it be ensured that the state has its tasksefficiently and the burden on citizens is limited to a reasonable level. Political communication should honestly deal with the actual costs and benefits of tax policy instead of cultivating myths and life lies. Such openness would be an important step towards a modern, efficient and just community that prosperity and freedomequally promotes.