Tuesday, May 10, 2016

Tax competition redux: the Kansas-Missouri tug-of-war

Image result for tug of war
Although I dislike the use of quasi-military imagery to describe tax competition, I think "tug-of-war" is more commonly used than "rope-pulling contest" and this is, I think, a good image to describe the phenomenon. This Planet Money podcast brilliantly captures the rope-pulling contest that characterizes tax competition among US states, which is a version of the same game playing out among the nations of the world. It should not escape attention that the taxes at stake in this story are those on property, but the two states are also involved in a race to the bottom on corporate tax--Kansas was featured in a prior Planet Money podcast (The Kansas Experiment) because its Governor is a true believer in a Laffer curve that tips at single-digits. 

The ending to this story is only surprising to those not paying attention to tax competition. Like any good rope-pulling contest, it ends with most of the people laying in the mud or on each other, and a short-lived victory for the last ones standing since there is always someone else willing to pick up the rope and tug again.

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