The Organization for Economic Cooperation and Development is
comprised of 29 industrial nations, mostly in Western Europe, the
Pacific Rim and North America. They’ve recently released a report titled
“Towards Global Tax Cooperation” that should worry all of us.
The report concludes that low-tax nations are bad for the world
economy and identified 35 nations who are guilty of “harmful tax
competition.” In OECD’s view, harmful tax competition is when a nation
has taxes so low that saving and investment is lured away from
high-taxed OECD countries. The OECD demands that nations as diverse as
Panama, Liberia and Bahrain — as well as offshore financial centers in
the Caribbean and the Pacific — end their harmful tax practices.
In OECD’s view, it’s bad when Canadians move to the United States to
escape high taxes or when a Frenchman invests his money overseas in
order to avoid high taxes. The bottom-line agenda for the OECD is to
establish a tax cartel where nations get together and collude on taxes.
Since the United States is a relatively low-tax nation, and benefits
immensely from foreign saving and investment, you’d think we’d want no
part of OECD’s agenda — but you’d be wrong. The Clinton-Gore
administration thinks that Americans are undertaxed and we should be
more like Sweden or France, where the government consumes up to 60
percent of the GDP. U.S. Treasury Secretary Larry Summers approves of
OECD’s agenda, saying there’s a “need to address globally the problem of
harmful tax competition.”
Summers sees the taxpayers’ ability to protect their money as the
“dark side to international capital mobility.” Apparently, there are
tax-hungry politicians in our country who share OECD’s view that
“globalization has, however, also had the negative effect of opening up
new ways by which companies and individuals can minimize and avoid
taxes. … These actions induce potential distortions in the patterns of
trade and investment, and reduce global welfare.”
Dr. Daniel Mitchell, a senior fellow at the Washington-based Heritage
Foundation, along with Andrew Quinlan, a former senior staff member of
the Joint Economic Committee of Congress, have co-founded the Center for
Freedom and Prosperity. The center’s first mission is to publicize and
attack OECD’s anti-taxpayer agenda.
Mitchell and Quinlan argue that the “harmful tax competition” lament
of OECD is really the welfare state talking. If high-tax nations face
competition from low-tax nations, it threatens funding for their welfare
state. They’re forced to consider lowering taxes. That’s precisely what
many OECD nations did in the wake of our massive cuts in the marginal
tax rate during the Reagan administration. On the other hand, if
high-tax nations can force other nations to be high-tax as well, they
can more easily get away with legislating even higher taxes to support
their welfare states.
The way OECD plans to force nations practicing “harmful tax
competition” to cease and desist is to use pressure through threats of
one kind or another, such as economic sanctions, tariffs, quotas and
other trade restrictions. Already, Bermuda, Cyprus, Malta, Mauritius,
San Marino and the Cayman Islands have caved and promised they’ll
cooperate with OECD tax edicts.
Mitchell predicts that another victim to OECD’s anti-taxpayer agenda
will be financial privacy, but even more importantly, national
sovereignty will be compromised. If OCED has its way and if we, or any
other nation, want to enact pro-growth tax policy, such as elimination
of death taxes or capital gains tax reduction, we’d have to first clear
it with OECD’s Paris or Brussels office.
You don’t have to be an economist or rocket scientist to know that
when there are attempts to eliminate competition of any sort, including
tax competition, watch out and man the barricades.