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Working Paper, When Cal had a magnetic tax system

Working Paper, When Cal had a magnetic tax system - When...

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When California had a Magnetic Tax System Excerpt from: "Opportunities for International Financial Centres in the 21st Century" Mason Gaffney Keynote banquet address at the Conference on the Fundamentals of International Legal Business Practice , hosted by The Bahamas Bar Association, in association with The International Bar Association, The Bahamas Financial Services Board, The Organization of Commonwealth Caribbean Bar Associations, and The Inter-American Bar Association. Superclub Breezes, Nassau, July 16, 1999. The OECD says a "harmful tax regime" is one that "attracts mobile activities." Many of us see that, rather, as a mark of a good system, but I'll return to that. First, let's follow them along a way. Right away we think of low taxes, and that is what the OECD means - on p.27 they specify low income taxes. They, and allied international organizations like the EU, also have a history of jumping nations whose VAT is too low to suit them. That view is too simple by far. Mexico, for example, has very low taxes, but repels both capital and labor anyway. A nation may also attract mobile activities and factors in two other ways. One is by offering superior public services. That, for example, is how many of us became Californians, lured by the State University. The other is by a tax structure that favors mobile activities without stinting on public services. This may be done simply by targeting taxes on IMmobile resources. Let's inspect those points closer. B. Magnetic tax structures The U.S.A. is a great laboratory for testing tax structures. It contains 51 or more separate systems, with free migration of labor and capital guaranteed by The Constitution. The extraordinary growth of California from about 1900 to 1978 shook and recast the economy of the U.S.A., and parts of the whole world. It was not done with low taxes and skimpy public services. It was in part the product of a tax structure that was Magnetic (compared with other states). California's
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natural advantages (a mixed bag) did not promote much growth after the 1849 Gold Rush and the Civil War, when California growth lagged badly for 20 years or more. Neither did the transcontinental rail connection, completed in 1867, promote much growth. Eventually, though, INTERNAL growth-oriented forces prevailed. California provided superior public services of many kinds: water supply, schools and free public universities, health and mental health services, transportation, parks and recreation, and others.
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