The Organization for Economic Cooperation & Development (OECD) 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.