The OECD scheme would encourage the world’s major economies to penalize 41 low-tax countries and territories for maintaining attractively low rates unless they essentially relinquish their fiscal sovereignty. It also would institutionalize the exchange of financial information across international borders to help tax authorities chase their citizens’ assets around the globe.
“If we win the fight for the Bush tax cut but lose to the OECD, we will have had a very bad year,” warned Dan Mitchell, a Heritage Foundation fiscal policy analyst. “This would be a huge setback for the long-term prospects for economic freedom and privacy.”
Rather than focus like zoom lenses on enlarging and enacting the Bush tax cut, U.S. tax foes are devoting resources to stopping this Parisian monstrosity.
Meeting Friday afternoon at the 24th annual Heritage Foundation Resource Bank at the Sheraton Society Hill Hotel here, the anti-tax activists quickly became embroiled in a dialogue on the OECD’s handiwork.
“I feel triangulated,” said John E. Coffey, a suburban Philadelphia attorney who, last spring, sought the Republican nomination for Pennsylvania’s 13th congressional seat. Coffey recognized the need to discuss the OECD’s initiative, but also was frustrated that this new international tax hydra has been allowed to linger on the horizon even before America’s could be trimmed. “It was very telling to see a room full of activists spending time trying to fight a rear guard action against the Bush White House during the honeymoon,” Coffey added.
Had the White House dismissed the OECD plan early on, this sideshow never would have opened. Instead, recent weeks have seen free-market think tanks, scholars, and commentators denounce this idea. The Center for Freedom and Prosperity’s web page features a host of articles, editorials, and letters to lawmakers berating this proposal. While principled and impressive, this output represents time and energy diverted from the fight for Bush’s tax cut.
And yet, this is a necessary nuisance. Like an OPEC for tax collectors, the OECD works to keep taxes high. Rather than make wholesale cuts in their own levies, France, Germany and other high-tax countries use the OECD and European Union to fight tax competition from relatively low-tax countries or “tax havens” as the OECD derogates them.
“The OECD pressured the government, both publicly and privately, to drop the corporate profits tax cut” from this year’s Lithuanian fiscal blueprint, explained Elena Leontjeva, president of the Lithuanian Free Market Institute in Vilnius. While the OECD did not derail the tax cut, it got it delayed. “The government put that back in the budget, but not until next year.”
The EU, which dominates the OECD, has censured Ireland for its low tax rates. The Emerald Isle is embarrassing the rest of Europe’s stagnant economies with its high growth, low unemployment and healthy foreign investment, all products of attractive tax rates. Rather than emulate Ireland, other European governments are trying to penalize it for implementing sensible public policies.
The OECD’s project should scare Americans who value financial privacy. An information exchange program would empower tax authorities from around the world to see the banking records of each other’s citizens. With any luck, foreign bureaucrats will keep Americans’ financial data to themselves. But who knows?
The OECD’s free-market foes even persuaded 26 Congressional Black Caucus members to write Treasury Secretary Paul O’Neill a March 14 letter expressing their worries that the OECD plan would impoverish many Caribbean locales, including America’s own U.S. Virgin Islands.
“The initiative will impose serious economic harm on developing nations including many in our hemisphere who belong to, have an association with or have long-established friendly ties with the United States,” reads the letter, signed by such CBC stalwarts as Democratic congressmen Charles Rangel of New York and Maxine Waters of California.
“Workers benefit from increased job opportunities and higher wages,” the CBC letter continues. “Governments also benefit because, even at low rates of tax, there are both direct and indirect increases in revenue.”
The OECD’s supporters defend their proposal as a way to combat money laundering. Richard Rahn, a leading free marketeer and former chief economist of the U.S Chamber of Commerce, is not impressed.
“The real danger is what the government could do with these extra powers,” he said at the Heritage breakout session. “A few criminals may still get to launder cash, but that won’t be as bad as this idea’s effect on the whole population.”
Mitchell added: “If you repealed the Fourth, Fifth and Eighth Amendments, you could reduce crime, but it wouldn’t be worth the cost to individual liberty.”
For now, Mark Weinberger, Assistant Treasury Secretary for Tax Policy, apparently approves of sharing information with foreign tax officials. “Countries generally should not engage in practices that make it easier for other countries’ laws to be broken or frustrated,” Weinberger wrote in a March 26 letter to Senator Don Nickles (R., Oklahoma), columnist Robert Novak recently reported. Such practices “might include bank secrecy rules or an unwillingness to exchange tax information with us that would permit taxpayers more readily to evade our laws.”
Secretary O’Neill is expected to “meet with OECD officials in May and, we hope, give them the bad news,” said Andrew F. Quinlan, President of the Coalition for Tax Competition in Alexandria, Virginia. But why wait? A one-paragraph Treasury press release opposing the OECD initiative would strangle this terrible idea in its crib.
Rather than watch supply-siders tangle with European bureaucrats for several more weeks, a discouraging word to the OECD from Secretary O’Neill or G. W. Bush would let their fellow tax fighters return to the battle for the president’s $1.6 trillion tax cut.