As a follow-up to our earlier post on tax subsidies for Dutch witches, Bloomberg reports that the witchcraft school that won the comical tax preference from Dutch authorities has since witnessed a tax-subsidized boom in enrollment:
Margarita Rongen, who teaches spells and potions to witches in the Dutch village of Appelscha, says a court ruling that gave her trainees a tax break brought in hundreds of potential new recruits.
Rongen, 56, who offers the Netherlands' only program that certifies witches, is getting applications from as far off as Australia and Dubai, she said. The court, in the Dutch town of Leeuwaarden, ruled on Sept. 26 that the 1,830-euro ($2,208) cost of her course is tax deductible.
"Many people who have reached a dead end come to me because they want to make a change in their life,'' said Rongen, who's been a witch for 37 years. "Now students know they will get their money back.''
The court decision, which recognizes her training as a legitimate way of making money, prompted Rongen to sell weekend tutoring and English-language compact discs. She's employed her son and his girlfriend, also a witch, to help. (Full piece here).
A hilarious example of how tax incentives distort economic activity, reduce overall wealth, and yet still appear to "create" jobs—creating vested economic interests who will fight for their preservation. This case will undoubtedly provide textbook authors with sidebar material for years to come.
We've just updated our popular "Summary of Federal Individual Income Tax Data" page with the latest numbers from the IRS. Here's one of the more interesting tables: average tax rates for various income groups over time.
Average Tax Rate, 1980-2003 (% of AGI paid in income taxes)
|
Year |
Total |
Top 1% |
Top 2-5% |
Top 5% |
Top 6-10% |
Top 10% |
Top 11-25% |
Top 25% |
Top 26-50% |
Top 50% |
Bottom 50% |
|
|
1980 |
15.31% |
34.47% |
21.71% |
26.85% |
17.13% |
23.49% |
14.80% |
19.72% |
11.91% |
17.29% |
6.10% |
|
|
1981 |
15.76% |
33.37% |
22.08% |
26.59% |
18.16% |
23.64% |
15.53% |
20.11% |
12.48% |
17.73% |
6.62% |
|
|
1982 |
14.72% |
31.43% |
20.44% |
25.05% |
16.61% |
22.17% |
14.35% |
18.79% |
11.63% |
16.57% |
6.10% |
|
|
1983 |
13.79% |
30.18% |
18.77% |
23.64% |
15.54% |
20.91% |
13.20% |
17.62% |
10.76% |
15.52% |
5.66% |
|
|
1984 |
13.68% |
29.92% |
18.41% |
23.42% |
15.57% |
20.81% |
12.90% |
17.47% |
10.48% |
15.35% |
5.77% |
|
|
1985 |
13.73% |
29.86% |
18.44% |
23.50% |
15.69% |
20.93% |
12.83% |
17.55% |
10.41% |
15.41% |
5.70% |
|
|
1986 |
14.54% |
33.13% |
19.10% |
25.68% |
15.99% |
22.64% |
12.97% |
18.72% |
10.48% |
16.32% |
5.63% |
|
|
Tax Reform Act of 1986 changed the definition of AGI, so data above and below this line not strictly comparable |
||||||||||||
|
1987 |
13.12% |
26.41% |
18.13% |
22.10% |
14.43% |
19.77% |
11.71% |
16.61% |
9.45% |
14.60% |
5.09% |
|
|
1988 |
13.21% |
24.04% |
17.85% |
21.14% |
14.07% |
19.18% |
11.82% |
16.47% |
9.60% |
14.64% |
5.06% |
|
|
1989 |
13.12% |
23.34% |
17.97% |
20.71% |
13.93% |
18.77% |
12.08% |
16.27% |
9.77% |
14.53% |
5.11% |
|
|
1990 |
12.95% |
23.25% |
17.60% |
20.46% |
13.63% |
18.50% |
12.01% |
16.06% |
9.73% |
14.36% |
5.01% |
|
|
1991 |
12.75% |
24.37% |
17.10% |
20.62% |
13.96% |
18.63% |
11.57% |
15.93% |
9.55% |
14.20% |
4.62% |
|
|
1992 |
12.94% |
25.05% |
17.21% |
21.19% |
13.99% |
19.13% |
11.39% |
16.25% |
9.42% |
14.44% |
4.39% |
|
|
1993 |
13.32% |
28.01% |
17.48% |
22.71% |
14.01% |
20.20% |
11.40% |
16.90% |
9.37% |
14.90% |
4.29% |
|
|
1994 |
13.50% |
28.23% |
17.93% |
23.04% |
14.20% |
20.48% |
11.57% |
17.15% |
9.42% |
15.11% |
4.32% |
|
|
1995 |
13.86% |
28.73% |
18.19% |
23.53% |
14.46% |
20.97% |
11.71% |
17.58% |
9.43% |
15.47% |
4.39% |
|
|
1996 |
14.34% |
28.87% |
18.68% |
24.07% |
14.74% |
21.55% |
11.86% |
18.12% |
9.53% |
15.96% |
4.40% |
|
|
1997 |
14.48% |
27.64% |
18.78% |
23.62% |
14.87% |
21.36% |
12.04% |
18.18% |
9.63% |
16.09% |
4.48% |
|
|
1998 |
14.42% |
27.12% |
19.14% |
23.63% |
14.79% |
21.42% |
11.63% |
18.16% |
9.12% |
16.00% |
4.44% |
|
|
1999 |
14.85% |
27.53% |
19.68% |
24.18% |
15.06% |
21.98% |
11.76% |
18.66% |
9.12% |
16.43% |
4.48% |
|
|
2000 |
15.26% |
27.45% |
20.07% |
24.42% |
15.48% |
22.34% |
12.04% |
19.09% |
9.28% |
16.86% |
4.60% |
|
|
2001 |
14.23% |
27.50% |
19.12% |
23.68% |
14.89% |
21.41% |
11.58% |
18.08% |
8.91% |
15.85% |
4.09% |
|
|
2002 |
13.03% |
27.25% |
18.15% |
22.95% |
13.87% |
20.51% |
10.47% |
16.99% |
7.67% |
14.66% |
3.21% |
|
|
2003 |
11.90% |
24.31% |
16.58% |
20.74% |
12.22% |
18.49% |
9.54% |
15.38% |
7.12% |
13.35% |
2.95% |
|
The idea of a national retail sales tax—favored by promoters of the "Fair Tax"—was officially spiked by the President's Tax Reform Panel at today's meeting in Washington. MarketWatch reports on the Panel's discussion:
The nine-member committee, which must deliver a detailed set of proposals to Treasury Secretary John Snow by Nov. 1, also agreed to reject proposals to replace the existing income-based tax code with a national retail sales tax.
Using Treasury Department data, panel member Ed Lazear, a Stanford University professor and a senior fellow at the Hoover Institute, estimated that a national sales-tax rate would need to range between 64% and 87% in order to replace revenues from the corporate and personal income tax while preserving exemptions on drugs, food, clothing and other goods and services typically excluded from state sales taxes.
"I get the sense - I've picked this up since the first meetings we've had - that this is an area the panel does not want to pursue," said Mack, a Florida Republican. (Full story)
The Panel also came out in favor of reducing the deductibility of home mortgage interest and employer-provided benefits—reforms that promise a firestorm of political opposition from realtors and insurers.
As we've written before, adding these sources of income back into the tax base could allow dramatic across-the-board reductions in rates—leaving more economic pie for everyone, regardless of how it's sliced.
On September 21, the National Governors Association (NGA) released a report purporting to estimate the state revenue loss that would ensue if Congress passed H.R. 1956, the Business Activity Tax Simplification Act of 2005. H.R. 1956 would restrict state business taxation of corporations unless they have in-state physical presence. The NGA’s report (which has based on a partial survey of state revenue departments with help from the Multistate Tax Commission) estimated that the states would collectively lose as much as $8 billion in revenue if H.R. 1956 became law.
Yesterday, the Council on State Taxation (COST) refuted the methodology used by the NGA in its report. COST identified many problems, including:
· Inconsistent results in different states; · Incorrect interpretation of H.R. 1956; · Divergence in revenue estimating methodology; · Insufficient information on methodologies used; and · Bias in the revenue estimating procedures
As COST explains in its response, the NGA’s report does “not provide consistent or credible estimates of the expected impact of H.R. 1956. The shortcomings in the study undermine the usefulness of the estimates in the tax policy debate.”
To add my own contribution to COST’s response, another significant piece missing in the NGA analysis is the dynamic economic impact that H.R. 1956 would have on “production” states, i.e. states that are the location of significant investments in jobs, plants and machinery. Under the physical presence standard, these states would see less business income siphoned off and taxed by “market” states. This would lead to more reinvestment in jobs, plants and machinery and corresponding increases in economic growth and tax revenues for the “production” states.
You can read a press release about the NGA report here and the COST rebuttal here. We have also written on the propriety of the physical presence standard here.
Can we have fundamental tax reform without increasing taxes? Does tax reform have to be revenue neutral or be a tax cut to be effective? These are some questions tackled by the Tax Analysts roundtable discussion held today at the National Press Club attended by Tax Foundation economists.
These questions, however, appear to be moot when considering that due to the explosion of credits, exemptions and deductions the Tax Foundation estimates that 40 million tax filers will have no income tax liability whatsoever. When considering joint-filings and dependents on these returns, approximately 120 million Americans fall outside of the federal income tax.
Tax reform is sorely needed, but how can it occur without increasing taxes when fundamental reform will include reincorporating these non-payers into the system? This is an important consideration the President’s Tax Reform Panel must address.
We've posted a new commentary from president Scott A. Hodge announcing our new "Countdown to Tax Reform" series. In it, he outlines our famous "Ten Principles of Sound Tax Policy"—the core ideas that animate everything we do here at the Tax Foundation.
As anyone who's toured our Washington offices can tell you, this list is literally pinned over our economists' desks every day as we go about our work here in the nation's capital.
They're great stuff—pass it on:
Ten Principles of Sound Tax Policy
1. Transparency is a must. A good tax system requires informed taxpayers who understand how taxes are assessed, collected and complied with. It should be clear to taxpayers who and what is being taxed, and how tax burdens affect them and the economy.
2. Be neutral. The fundamental purpose of taxes is to raise necessary revenue for programs, not micromanage a complex market economy with subsidies and penalties. The tax system’s central aim should be to minimize distortions in the economy, and to interfere as little as possible with the decisions of free people in the marketplace.
3. Maintain a broad base. Taxes should be broadly based, allowing tax rates to be as low as possible at all points.
4. Keep it simple. The tax system should be as simple as possible, and should minimize gratuitous complexity. The cost of tax compliance is a real cost to society, and complex taxes create perverse incentives to shelter and disguise legitimately earned income.
5. Stability matters. Tax law should not change continuously, and tax changes should be permanent and not temporary. Instability in the tax system makes long-term planning difficult, and increases uncertainty in the economy.
6. No retroactivity. Changes in tax law should not be retroactive. As a matter of fairness, taxpayers should rely with confidence on the law as it exists when contracts are signed and transactions are made.
7. Keep tax burdens low. It makes a difference how large a share of national income is taken by government in taxes. The private sector is the source of all wealth, and is what drives increases in the standard of living in a market-based economy. Taxes should consume as small a portion of national income as possible, and should not interfere with economic growth and investment.
8. Don't inhibit trade. In our increasingly global marketplace, the U.S. tax system must be competitive with those of other developed countries. Our tax system should not penalize or subsidize imports, exports, U.S. investment abroad or foreign investment in the U.S. Taxes on corporations, individuals, and goods and services should be competitive with other nations.
9. Ensure an open process. Tax legislation should be based on careful economic analysis and transparent legislative procedures. Tax legislation should be subject to open hearings with full opportunity to comment on legislation and regulatory proposals.
10. State and local taxes matter. The same general principles that apply to federal taxes also apply at the state and local level. Local, state and federal tax systems should be harmonized to the extent possible, including consistent definitions, procedures and rules.
The World Trade Organization has ruled in favor of a U.S. claim that Mexico is unfairly taxing American products containing certain kinds of sugar. As Yahoo News reports:
The United States claimed victory at the World Trade Organization in a dispute over Mexico's tax on soft drinks with imported sweeteners, which Washington said is an unfair trade barrier.
US Trade Representative Rob Portman said a WTO panel sided with the US position that tax of 20 percent violated global trading rules.
"This is an important win for our industry. The WTO panel could not have been clearer: Mexico's beverage tax is discriminatory and contrary to WTO rules," said Portman.
Mexico imposed the tax in 2002 on soft drinks and other beverages, as well as on syrups that use any sweetener other than cane sugar. It results in a tax on most US drinks made with high-fructose corn syrup (HFCS) or beet sugar.
Any policy that eliminates discriminatory taxes designed to favor some industries and companies at the expense of others is a good one. However, an even better policy would be for the U.S. government to be consistent on this issue and eliminate its own subsidies for domestic sugar producers and tariffs and quotas it imposes on foreign sugar -- policies that cost American consumers nearly $2 billion each year according to a GAO Study.
Targeted tax relief makes good headlines, but it's almost always bad tax policy. Why? For one, tax policy is an extraordinarily blunt policy instrument, often spreading benefits and costs in a capricious way.
With the Senate Finance Committee holding hearings this morning on the use of targeted tax incentives to encourage Gulf coast rebuilding, The New York Times reports many economists are questioning the effectiveness of the targeted-relief approach:
Proposals to use tax breaks for rebuilding areas devastated by the recent hurricanes may provide only limited help to people and businesses that suffered actual losses, according to many economists.
The biggest beneficiaries could turn out to be companies from outside the devastated areas that have big federal contracts to carry out cleanup and reconstruction work...
The Bush plan would cost $2 billion, according to White House estimates, and the broader plans could cost several times that much.
But economists say the most valuable tax breaks would benefit companies and investors from outside the damaged areas because the tax breaks are useful only to companies that have profits.
The paradox of employing tax policy as an all-purpose policy tool is that the more targeted relief that's dispensed, the worse the tax system becomes overall, both in terms of complexity and how much it distorts behavior in the marketplace. General tax relief is economically superior to targeted provisions by nearly every criteria of sound public policy.
As we've written before, the more we ask of the tax system the more it asks of us. With broad consensus in Washington that the federal tax code should guide social outcomes, internalize externalities, promote public health, discourage bad behavior, promote marriage and childbirth and reward education—in addition to its core function of raising revenue—is it any surprise we work until mid-April to pay our annual tax bill?
After an unsuccessful attempt at Social Security reform, the Bush Administration hopes to win over skeptics on reforming the income tax code. From Bloomberg News:
The Bush administration is beginning to segue from its failed effort to overhaul Social Security to rewriting the tax code, an issue that is fraught with its own political challenges.
President George W. Bush said yesterday said there is a ``diminished appetite'' for changing the way Social Security is funded, the first time he's conceded congressional action is unlikely this year. His comments came four days after the White House directed its tax advisory panel, headed by former Senators Connie Mack and John Breaux, to recommend ways to revamp the tax code by Nov. 1, ending an indefinite delay in its work.
Changing the subject to overhauling the tax code gives the White House an opportunity to regain traction on its domestic agenda, analysts said. Bush created the panel in January and ordered it to propose ways to simplify the tax code in a way that makes it fairer and promotes economic growth without adding to the budget deficit.
While the political odds of sweeping changes in the tax code seem small, political prognosticators also claimed the chances of tax reform were small in 1986. Despite this, however, the economic realities of the tax code are more certain. We know the current code heavily distorts decisions that consumers, businesses, and investors make everyday, making us less wealthy overall. We know the tax code is unnecessarily complex and most Americans favor simplification of it.
Unfortunately, it is likely that the debate will be framed in terms of the distribution of burdens before and after reform. Headlines such as “Group X will be hurt under tax reform” will likely dominate, ignoring the fact that tax reform’s purpose is not to redistribute income but to broaden the tax base, simplify tax rules, and lower average rates.
Tax Foundation Chief Economist Patrick Fleenor estimates that if the income tax base were broadened to include all sources of the income, we could raise the same revenue as the current system with a flat federal income tax rate of just 9 percent.
Google's brilliant engineers may have tamed the World Wide Web and mapped the planet, but there's one challenge even they may not be able to overcome—local property tax collectors.
It appears Google's plan to expand onto the NASA/Ames Research Center campus in Santa Clara County has local tax authorities up in arms. Why? The campus is on federal land, allowing the internet giant to skirt potentially millions of dollars in local property taxes. From the San Jose Mercury News:
Santa Clara County's tax assessor said he would fight to make sure the high-tech heavyweight won't escape paying its fair share of property taxes by locating its complex on federal land.
The Internet giant, based in Mountain View, announced it intends to build up to a 1 million-square-foot complex on the federal research park at Moffett Field, which Ames officials have dreamt about transforming into the intellectual hub of Silicon Valley.
Assessor Larry Stone estimated a project of that size would generate at least $2.5 million to $3 million in annual property taxes for local governments.
As a rule of thumb, if a growing company like Google shows up in your neighborhood, that's good for economic development. Even if tax authorities win their tax battle with Google, it's likely to be a pyrrhic victory, sending a damning message to other firms looking to potentially locate to the area.
California's business tax climate already ranks 38th worst in the nation. And as we've written before, there's a real danger that if you tax it, they won't come.
On October 1, 13 states became full governing members of the State and Local Advisory Council, a governing board that oversees state compliance with the Streamlined Sales and Use Tax Agreement (SSUTA). The SSUTA was developed by the Streamlined Sales Tax Project (SSTP), a working group of state revenue officials and industry representatives. The goal of SSTP was to simplify state sales and use tax systems to make remote collection of sales (especially sales made by catalogue or Internet sellers) less onerous for retailers.
13 states are currently full members, meaning that their sales tax systems have been adjudged to be in substantial compliance with the SSUTA. 6 more states are associate members, which means that they have taken major steps to comply their sales tax system with SSUTA but have a few more changes to make.
The SSTP was successful because, in the end, it delivered important goals to both the state revenue departments and the business community. The former was concerned about the erosion of the sales tax base caused by purchases made through catalogues or over the Internet—taxes which are essentially uncollectable because of the Quill decision. The latter was concerned about the complexity of complying with over 7,000 distinct state and local sales tax jurisdictions. By simplifying the system and making it easier to collect sales taxes, both sides got what they wanted.
What do the sales tax systems in the governing board states look like? As it turns out, the states currently in the system have higher rates and higher tax burdens than average. See the table below:
| State | Sales Tax Rate | Sales Tax Collections Per Capita | Sales Tax Collections per $1000 of personal income |
| Indiana | 6 | $ 679.51 | 36.82 |
| Iowa | 5 | $ 586.59 | 26.64 |
| Kansas | 5.3 | $ 693.30 | 32.11 |
| Kentucky | 6 | $ 580.12 | 35.59 |
| Michigan | 6 | $ 762.43 | 33.46 |
| Minnesota | 6.5 | $ 771.64 | 34.60 |
| Nebraska | 5.5 | $ 820.54 | 35.25 |
| New Jersey | 6 | $ 687.20 | 26.89 |
| North Carolina | 4.5 | $ 476.40 | 29.04 |
| North Dakota | 5 | $ 569.13 | 35.94 |
| Oklahoma | 4.5 | $ 421.25 | 23.86 |
| South Dakota | 4 | $ 706.02 | 36.66 |
| West Virginia | 6 | $ 540.34 | 44.90 |
| Arkansas | 6 | $ 715.93 | 41.44 |
| Nevada | 6.5 | $ 978.28 | 48.49 |
| Ohio | 6 | $ 591.25 | 30.22 |
| Tennessee | 7 | $ 926.85 | 41.76 |
| Utah | 4.75 | $ 632.54 | 33.23 |
| Wyoming | 4 | $ 848.79 | 33.14 |
| Average of SSTP states | 5.50 | $ 683.58 | 34.74 |
| 50-state average | 4.78 | $ 635.96 | 30.31 |
| Difference | +0.72 | +47.62 | +4.43 |
I will leave it up to the reader to interpret these facts in regards to the claims of sales tax erosion by state revenue officials. From their perspective, is the SSTP a system designed to stop sales tax erosion, or is it a system designed to maintain high sales tax rates and collections?
Citing unfair price competition, the cable industry is asking the Massachusetts legislature to impose a 5 percent tax on satellite television. From Fox 12 News in Providence:
Massachusetts residents who receive satellite television service would face a new five percent tax under the terms of a proposed bill on Beacon Hill.
It's legislation the cable TV industry is pushing because satellite providers such as DirecTV are competing with them for subscribers.
But wording in the bill -- written by the cable industry -- would then nullify the charge for cable subscribers because they already pay up to five percent in so-called franchise fees.
Cities and towns have traditionally charged cable companies the fees to compensate a community for stringing wires and digging up roads to provide their service.
Satellite companies have been spared the fees because their service does not rely on public infrastructure.
Making cable companies (and their subscribers) pay for infrastructure projects they exclusively benefit from is consistent with the benefit principle of taxation. Why should those who will never receive cable pay for the digging of cable lines?
Just because satellite companies can produce a similar product to cable companies without having to pay the costs of laying cable does not imply that lawmakers should use tax policy to "even out" the two prices. If one company can produce at a lower price than its competitors, don't we usually consider that to be a good thing in the marketplace?
The never ending parade of sales tax exemptions moved in to New Jersey and has found a way to complicate Halloween of all things. From Newsday.com:
Just in time for Halloween, sales tax is being removed from Twix bars, Tootsie Rolls and those itchy store-bought Halloween costumes.
New rules bringing New Jersey's sales taxes in line with other states go into effect Saturday, said Tom Vincz, spokesman for the New Jersey Department of the Treasury.
The changes are designed to smooth operations for businesses with multistate trade so that say, a single-serving bottle of iced tea or dandruff shampoo is taxed similarly in several states. New Jersey will join about 20 other states that have signed onto the Streamlined Sales and Use Tax Agreement.
Among the changes, the Department of Taxation's officials say, is one in which sweets made with flour _ such as licorice, KitKats and Nestle's Crunch, will be exempt from tax, while those prepared without flour _ Hershey's chocolate bars, for example _ remains subject to New Jersey's 6 percent sales tax.
We at the Tax Foundation are all for making the sales tax code uniform across states as this cuts down on uncertainty and complexity, but what is the rationale behind taxing one candy and not another?
Robert Frank of the New York Times told us yesterday that children learn best through story telling. Maybe the best way to teach children about poor tax policy is to tell them about the scary tax man who wishes to complicate their Halloween fun by taxing their snickers bars but not their twix bars.
Excess regulatory costs are like sand in the gears of commerce, diverting companies' attention toward legal and administrative tangles and away from productive work.
The Small Business Administration's Office of Advocacy has released a new study (PDF) on the costs of federal regulations on small businesses, including the costs of complying with the federal income tax. In fact, the paper's section on tax compliance relies on the Tax Foundation's own 2002 study of compliance costs by economist J. Scott Moody:
The estimate of the cost of federal tax compliance relies on a 2002 report by the Tax Foundation that provides extensive details about the time required to file federal income tax returns...
The basic approach to the computation of tax compliance costs is straightforward and easy to describe. The first step uses data from the Internal Revenue Service on the amount of time required to complete each type of tax form, and the number of filings for each type of form...
The number of compliance hours is broken down in Table 6 for businesses, nonprofits, and individual filers. The total number of hours required for compliance is nearly 5.8 billion per year, and American businesses account for roughly half of the total hours.
Read the full SBA study here. The press release is here. For more on the cost of tax compliance see here.
For 50 years of the Cold War, it was the West that much of Eastern Europe looked up to and envied. Now the economic policies of Eastern Europe are being debated for their possible implementation in Western Europe, specifically the flat tax.
These new free market approaches coming from Eastern Europe, however, are being met with some resistance. As Business Week explains:
Russians do it, Romanians do it, even Lithuanians and Latvians do it. So far, though, few in western Europe have fallen in love with the flat tax.
Supporters say the flat tax, a system under which all taxpayers pay the same rate, cuts away complicated bureaucracy and encourages people to work harder, earn more, and keep more of their income.
But some see the flat tax as "voodoo economics," stealing from poor wage earners and cutting public spending while widening the wealth gap.
While the domino theory of fighting communism was met with mixed results, a similar domino theory of lower taxes and less regulation is unfolding across Europe. When one country in Eastern Europe that is looking to rapidly grow its economy lowers its taxes for businesses, it encourages business flow, making it a more attractive place for business compared to its neighbor. This forces the neighbor to lower its taxes on businesses in order to stay competitive, which in turn forces its neighbor to do the same, and hence a domino effect.
This domino effect has now reached the former Iron Curtain, or the divide between the former Soviet bloc countries of Eastern Europe and Western Europe. The issue of the flat tax reached that curtain in the recent German elections, where those that were still wary of this flat tax revolution survived the possibility of a complete overhaul, as the article explains. How long this wariness in Germany can persists as Eastern European countries continue to become more competitive is unclear.
Could this impact be felt outside of Europe? In short, yes. As the world becomes a more global economy and geography becomes less a barrier to trade, this domino effect will not be exclusive to countries that are merely geographically close. Or as Thomas Friedman would say, The World is Flat, implying that the global economy is becoming increasingly competitive and differences in economic policies across nations are much more important than they were even ten years ago.
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