Tuesday, December 23, 2008

Lessons About Taxation Remains the Same

Recently someone sent me a copy of a speech I gave around fifteen years ago in Warsaw, Poland. It appeared in Vital Speeches of the Day. It was funny, "Kevin, did you see this?" Yes, I'm familiar with it, after all I wrote it. His enthusiasm compelled me to sit down and to review to see if there were any lessons garnered then that would be useful now.

The basic thesis of the speech was that freedom works and I pulled many examples from both history and current circumstances (at the time). One lesson that stood out in particular was the miracle story of Japan. At the time I gave that speech in the early 1990s, Japan was the poster child of economic freedom and had one of the fastest growing economies in the world following infrastructural and economic disaster after World War II. The reason for that phenomenon, at the time I gave that speech could be summed up in three things about Japan:
  • Japanese management and workers cooperate as a team to succeed in the market place, rather than oppose one another as in the case of labor unions. This is reflected in the fact that the Japanese have company unions rather than labor unions. Company unions are inclusive, when they say "us against them" they mean competitors. When labor unions say "us against them" they mean management. These subtle differences are crucial in the success of Japanese corporations.

  • There is great emphasis on savings and investment. The typical Japanese laborer in urban areas saves approximately 20 percent of his income.

  • Finally, the tax system encourages economic growth by staying very low. In fact, their taxes are the lowest of any industrialized country in the world.

Those who monitor current affairs know that Japan is now known for its economic stagnation and has suffered such for over a decade. Why the change in fortune? One does not need to look any further than point number three. Today, Japan has the highest tax rates of any modern economy. Meanwhile a European economy known for perennial economic weakness -- Ireland -- is one of the fastest growing economies in the world. The reason for its success is due to Ireland reducing its tax rates to among the lowest in the world.

Nothing is more effective in attracting capital and stimulating economic growth than lower tax rates. If the United States is serious about fostering economic growth and prosperity, it will demonstrate such by competing with other countries for businesses and jobs through lower tax rates.

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

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