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World Bank: Anti–Money Laundering Rules Hurt the Poor
I’ve complained many times about the pointless nature of anti–money laundering laws. They impose very high costs and force banks to spy on their customers, but they are utterly ineffective as a weapon against criminal activity. Yet politicians and bureaucrats keep making a bad system worse, and the latest development is a silly scheme to ban $100 bills!
It also seems that poor people are the main victims of these expensive and intrusive laws. According to a new World Bank study, half of all adults do not have a bank account, with 18 percent of those people (click on the chart below for more info) citing documentation requirements—generally imposed as part of anti–money laundering rules—as a reason for being unable to participate in the financial system.
But this understates the impact on the poor. Of those without bank accounts, 25 percent said cost was a factor, as seen in the chart below. One of the reasons that costs are high is that banks incur regulatory expenses for every customer, in large part because of anti–money laundering requirements, and then pass those costs on to consumers.
Time for Me to Defend My Work on Tax Havens
A few days ago, I explained why I’m a big fan of tax competition. Simply stated, we need to subject governments to competitive pressure to at least partially offset the tendency of politicians to over-tax and over-spend.
Tax havens play an important role in this liberalizing process, largely because they do not put themselves under any obligation to enforce the bad tax laws of other jurisdictions. They also use privacy laws to protect their sovereign control of what gets taxed inside their borders (this is what separates a “tax haven” from a more conventional low-tax jurisdiction). This means they are fiscal safe zones, particularly for people who want to protect their assets from the pervasive double taxation that exists in so many nations.
Not everybody agrees with my analysis (gee, what a surprise). To cite one example, the petty bureaucrats at the OECD got so agitated at me in 2009 (when I was offering advice to representatives of so-called tax havens while standing in a public lobby of a public hotel) that they threatened to have me thrown in a Mexican jail.
Now I have a new critic, though hopefully someone who would never consider thuggish tactics to suppress dissent. Ann Hollingshead writes for the Task Force on Financial Integrity and Economic Development, which (notwithstanding the name of the organization) seems to favor bigger government.
Anyhow, she wrote an article specifically criticizing my work on tax havens. So I figured it was time for a fisking, which means a point-by-point rebuttal. Here’s how she begins, and I’ll follow up her points with my responses.
Officially Dan Mitchell is a Senior Fellow at the Cato Institute, a conservative public policy research organization, and a researcher on tax reform. Unofficially, he has (perhaps ironically?) called himself the “world’s self-appointed defender of so-called tax havens.”
No irony on my part. As I have openly stated, tax havens are a key part of tax competition, which is a necessary (though sadly not sufficient) process to restrain the greed of the political class.
Oddly enough, Mitchell and I agree on many of the facts about these havens. We both have observed, for example, that there are buildings in Delaware and the Cayman Islands that house thousands of corporations. Mitchell concludes there is nothing wrong with either; I conclude there is something wrong with both. Mitchell also agrees that the United States“could be considered the world’s largest tax haven.” On that topic, he’s even cited my paper on non-resident deposits in secrecy jurisdictions. In his comment, he does not take issue with my methodology or my results, but rather concludes that my finding that the United States is the largest holder of non-resident deposits “makes the case for pro-market policies.” I, on the other hand, have argued that these findings support across the board reform, rather than that limited to traditional offshore financial centers.
Fair enough. We both recognize that the United States is a big tax haven. But we have different conclusions. I think it is unfortunate that only non-resident foreigners can benefit from these policies, while Ann wants to crack down on small low-tax jurisdictions such as Monaco, Bermuda, Liechtenstein, and the Cayman Islands, as well as big nations such as the United States. Sadly, Ann’s side has somewhat prevailed, and many of the havens have agreed to become deputy tax collectors for nations with bad tax law.
So how is it that two (relatively intelligent?) people can draw such different conclusions? I would argue our differences lie not in our facts, or perhaps even our economics, but in our underlying philosophical and theoretical differences.
I guess I should be happy that she holds out the possibility that I’m “relatively intelligent.”
The Laffer Curve Shows that Tax Increases Are a Very Bad Idea – even if They Generate More Tax Revenue
The Laffer Curve is a graphical representation of the relationship between tax rates, tax revenue, and taxable income. It is frequently cited by people who want to explain the common-sense notion that punitive tax rates may not generate much additional revenue if people respond in ways that result in less taxable income.
Unfortunately, some people misinterpret the insights of the Laffer Curve. Politicians, for instance, tend to either pretend it doesn’t exist, or they embrace it with excessive zeal and assume all tax cuts “pay for themselves.”
Another problem is that people assume that tax rates should be set at the revenue-maximizing level. I explained back in 2010 that this was wrong. Policy makers should strive to set tax rates at the growth-maximizing level. But since a growth-generating tax is about as common as a unicorn, what this really means is that tax rates should be set to produce enough revenue to finance the growth-maximizing level of government – as illustrated by the Rahn Curve.
That’s the theory of the Laffer Curve. What about the evidence? Where are the revenue-maximizing and growth-maximizing points on the Laffer Curve?
Well, ask five economists and you’ll get nine answers. In part, this is because the answers vary depending on the type of tax, the country, and the time frame. In other words, there is more than one Laffer Curve.
With those caveats in mind, we have some very interesting research produced by two economists, one from the Federal Reserve and the other from the University of Chicago. They have authored a new study that attempts to measure the revenue-maximizing point on the Laffer Curve for the United States and several European nations. Here’s an excerpt from their research.
Figure 6 shows the comparison for the US and EU-14. …Interestingly, the capital tax Laffer curve is affected only very little across countries when human capital is introduced. By contrast, the introduction of human capital has important effects for the labor income tax Laffer curve. Several countries are pushed on the slippery slope sides of their labor tax Laffer curves. …human capital turns labor into a stock variable rather than a flow variable as in the baseline model. Higher labor taxes induce households to work less and to acquire less human capital which in turn leads to lower labor income. Consequently, the labor tax base shrinks much more quickly when labor taxes are raised.
There’s a bit of jargon in this passage, so here are the charts from Figure 6. They look complex, but here are the basic facts to make them easy to understand.
The top chart shows the Laffer Curve for labor taxation, and the bottom chart shows the Laffer Curve for capital taxation. And both charts show different curves for the United States and an average of 14 European nations. Last but not least, the charts show how the Laffer Curves change is you add some real-world assumptions about the role of human capital.
Some people will look at these charts and conclude that there should be higher tax rates. After all, neither the U.S. or E.U. nations are at the revenue-maximizing point (though the paper explains that some European nations actually are on the downward-sloping portion of the curve for capital taxes).
But let’s think about what higher tax rates imply, and we’ll focus on the United States. According to the first chart, labor taxes could be approximately doubled before getting to the downward-sloping portion of the curve. But notice that this means that tax revenues only increase by about 10 percent.
This implies that taxable income would be significantly smaller, presumably because of lower output, but also perhaps due to some combination of tax avoidance and tax evasion.
The key factoid (assuming my late-at-night, back-of-the-envelope calculations are right) is that this study implies that the government would reduce private-sector taxable income by about $20 for every $1 of new tax revenue.
Does that seem like good public policy? Ask yourself what sort of politicians are willing to destroy so much private sector output to get their greedy paws on a bit more revenue.
What about capital taxation? According to the second chart, the government could increase the tax rate from about 40 percent to 70 percent before getting to the revenue-maximizing point.
But that 75 percent increase in the tax rate wouldn’t generate much tax revenue, not even a 10 percent increase. So the question then becomes whether it’s good public policy to destroy a large amount of private output in exchange for a small increase in tax revenue.
Once again, the loss of taxable income to the private sector would dwarf the new revenue for the political class. And the question from above bears repeating. What should we think about politicians willing to make that trade?
And that’s the real lesson of the Laffer Curve. Yes, the politicians usually can collect more revenue, but the concomitant damage to the private sector is very large and people have lower living standards. So that leaves us with one final question. Do we think government spending has a sufficiently high rate-of-return to justify that kind of burden? This Rahn Curve video provides the answer.
President Obama Accuses Bill Clinton of ‘Thinly Veiled Social Darwinism’
Actually, Bill Clinton must be something even worse than a social Darwinist. That’s because the title of this post is wrong. Obama said that Paul Ryan’s plan (which allows spending to grow by an average of 3.1 percent per year over the next decade) is a form of “social Darwinism.”
But the proposal from the House Budget Committee Chairman only reduces the burden of federal spending to 20.25 percent of GDP by the year 2023.
Yet when Bill Clinton left office in 2001, following several years of spending restraint, the federal government was consuming 18.2 percent of economic output.
And by the President’s reasoning, this must make Clinton something worse than a Darwinist. Perhaps Marquis de Sade or Hannibal Lecter.
Here’s a blurb from the New York Times on Obama’s speech.
Mr. Obama’s attack, in a speech during a lunch with editors and reporters from The Associated Press, was part of a broader indictment of the Republican economic blueprint for the nation. The Republican budget, and the philosophy it represents, he said in remarks prepared for delivery, is “antithetical to our entire history as a land of opportunity and upward mobility for everyone who’s willing to work for it.” …“Disguised as a deficit reduction plan, it’s really an attempt to impose a radical vision on our country. It’s nothing but thinly veiled social Darwinism,” Mr. Obama said. “By gutting the very things we need to grow an economy that’s built to last — education and training, research and development — it’s a prescription for decline.”
I’m particularly amused by the President’s demagoguery that Ryan’s plan is “antithetical to our entire history” and “a radical vision.”
Is he really unaware that a small and constrained central government is part of America’s history and vision? Doesn’t he know that the federal government, for two-thirds of our nation’s history, consumed less than 5 percent of GDP?
Of course, that was back in the dark ages when people in Washington actually believed that the Constitution’s list of enumerated powers in Article 1, Section 8, actually enumerated the powers of the federal government. How quaint.
No wonder this Ramirez cartoon is so effectively amusing. It certainly seems to capture the President’s view of America’s founding principles.
Revolt of the Irish Tax Slaves
I wrote last year about a backlash from long-suffering Greek taxpayers. These people – the ones pulling the wagon rather than riding in the wagon – are being raped and pillaged by a political class that is trying to protect the greedy interest groups that benefit from Greece’s bloated public sector.
We now have another group of taxpayers who are fighting back against greedy government. My ancestors in Ireland have decided that enough is enough and there is widespread civil disobedience against a new property tax.
Here are the key details from an AP report.
Ireland is facing a revolt over its new property tax. The government said less than half of the country’s 1.6 million households paid the charge by Saturday’s deadline to avoid penalties. And about 5,000 marched in protest against the annual conference of Prime Minister Enda Kenny’s Fine Gael party. Emotions ran raw as police backed by officers on horseback stopped demonstrators from entering the Dublin Convention Centre. …One man mistakenly identified as the government minister responsible for collecting the tax had to be rescued by police from an angry scrum. Kenny said his government had no choice, but to impose the new charge as part of the nation’s efforts to emerge from an international bailout. …The charge this year is a flat-fee €100 ($130) per dwelling, but is expected to rise dramatically next year once Ireland starts to vary the charge based on a property’s estimated value. Anti-tax campaigners have urged the public to ignore the tax demand, arguing that the government doesn’t have the power to collect it.
What makes this new tax so outrageous is that Irish taxpayers already have been victimized with higher income tax rates and a more onerous value-added tax. Yet they weren’t the ones to cause the nation’s fiscal crisis. Ireland is in trouble for two reasons, and both deal with the spending side of the fiscal equation.
1. The burden of government spending exploded last decade, more than doubling in less than 10 years. This wiped out all the gains from fiscal restraint in the 1980s and 1990s.
2. Irish politicians decided to give a bailout not only to depositors of the nation’s failed banks, but also to bondholders. This is a grotesque transfer of wealth from ordinary people to those with higher incomes.
It’s worth nothing that academic studies find that tax evasion is driven largely by high tax rates. This makes sense since there is more incentive to hide money when the government is being very greedy. But there is also evidence that tax evasion rises when people perceive that government is wasting money and being corrupt.
The serfs are fighting back
Heck, no wonder the Irish people are up in arms. They’re being asked to cough up more money to finance a bailout that was both corrupt and wasteful.
Let’s close by looking at American attitudes about tax evasion. Here’s part of a column from Forbes, which expresses surprise that Americans view tax evasion more favorably than behaviors such as shoplifting and littering.
A new survey suggests Americans consider cheating on their taxes more socially acceptable than shoplifting, drunk driving or even throwing trash out the window of a moving car. …only 66% of the participants said they “completely agree” that “everyone who cheats on their taxes should be held accountable” and only 72% completely agreed that “it’s every American’s civic duty to pay their fair share of taxes”–suggesting, as the Shelton study does, that perhaps disapproval of tax evasion is not as strong as, say, disapproval of stealing from private businesses.
I’m not sure, though, why anybody would be shocked by these results. We have a government in Washington that is pervasively corrupt, funneling money to scams like Solyndra.
These same people want higher tax rates, which will further encourage people to protect their income.
If we really want to promote better tax compliance, whether in the U.S., Ireland, or anywhere in the world, there are two simple answers. First, enact a simple and fair flat tax to keep rates low. Second, shrink government to its proper size, which will automatically reduce waste and limit opportunities for corruption.
But none of this is in the interests of the political class, so don’t hold your breath waiting for these reforms.
Patriotism, Loyalty, Tax Competition, and ‘Tax Fugitives’
I fight to preserve tax competition, fiscal sovereignty, and financial privacy for the simple reason that politicians are less likely to impose destructive tax policy if they know that labor and capital can escape to jurisdictions with more responsible fiscal climates.
My opponents in this battle are high-tax governments, statist international bureaucracies such as the Organisation for Economic Co-operation and Development (OECD), and left-wing pressure groups, all of which want to impose some sort of global tax cartel—sort of an “OPEC for politicians.”
In my years of fighting this battle, I’ve has some strange experiences, most notably in 2008 when the OECD threatened to have me thrown in a Mexican jail for the supposed crime of standing in a public area of a hotel and advising representatives of low-tax jurisdictions on how best to resist fiscal imperialism.
A few other bizarre episodes occurred in Barbados, back when I was first getting involved in the issue. Here’s a summary of that adventure.
Read the rest of this post »
Based on Where the Top 1 Percent Lives, the Occupy Crowd Should Be Protesting Against Big Government
I’ve written before about how big government is enriching people in the Washington metropolitan area. This is for two reasons.
First, bureaucrats are paid too much, getting twice as much compensation, on average, as people in the productive sector of the economy.
Second, lobbyists, contractors, and interest groups have figured out how to get lucrative positions at the federal trough.
A new report from MSN Money illustrates how the political elite is getting very rich by plundering honest Americans. America has 3,033 counties, and they identified the 15 richest jurisdictions from that list.
Of those 15 super-elite counties (the top 1/2 of one percent), 10 are in the Washington metropolitan area. I’ve identified them with stars in the map.
You may be wondering, by the way, about the location of the other counties in the top 15. Well, four of them are suburbs of New York City, meaning that they are home to rich Wall Street people who mooched from the taxpayers thanks to TARP bailouts and other subsidies.
So if you really want to be cynical, you could count them as auxiliary counties of Washington, DC. That’s probably an unfair conclusion, but TARP was unfair to honest and hard-working people, so I don’t feel too guilty.
As far as I can tell, the only untarnished jurisdiction in the top 15 is Douglas County, Colorado. And given that these are the folks who are implementing a good school choice plan, it seems that we have a group of productive people who also believe in doing the right thing.
For more information about the overcompensation of bureaucrats, this video is loaded with information.
Most important of all, remember that any proposals to increase government spending will further widen the income gulf between the political elite and regular Americans. And any initiative to boost the tax burden would lead to the same result.
President Obama’s Corporate Tax Reform Rearranges the Deck Chairs on the Titanic
American companies are hindered by what is arguably the world’s most punitive corporate tax system. The federal corporate rate is 35 percent, which climbs to more than 39 percent when you add state corporate taxes. Among developed nations, only Japan is in the same ballpark, and that country is hardly a role model of economic dynamism.
But the tax rate is just one piece of the puzzle. It’s also critically important to look at the government’s definition of taxable income. If there are lots of corrupt loopholes — such as ethanol — that enable some income to escape taxation, then the “effective” tax rate might be rather modest.
On the other hand, if the government forces companies to overstate their income with policies such as worldwide taxation and depreciation, then the statutory tax rate understates the actual tax burden.
The U.S. tax system, as the chart suggests, is riddled with both types of provisions.
This information is important because there are good and not-so-good ways of lowering tax rates as part of corporate tax reform. If politicians decide to “pay for” lower rates by eliminating loopholes, that creates a win-win situation for the economy since the penalty on productive behavior is reduced and a tax preference that distorts economic choices is removed.
But if politicians “pay for” the lower rates by expanding the second layer of tax on U.S. companies competing in foreign markets or by changing depreciation rules to make firms pretend that investment expenditures are actually net income, then the reform is nothing but a re-shuffling of the deck chairs on the Titanic.
Now let’s look at President Obama’s plan for corporate tax reform.
- The good news is that he reduces the tax rate on companies from 35 percent to 28 percent (still more than 32 percent when state corporate taxes are added to the mix).
- The bad news is that he exacerbates the tax burden on new investment and increases the second layer of taxation imposed on American companies competing for market share overseas.
In other words, to paraphrase the Bible, the President giveth and the President taketh away.
This doesn’t mean the proposal would be a step in the wrong direction. There are some loopholes, properly understood, that are scaled back.
But when you add up all the pieces, it is largely a kiss-your-sister package. Some companies would come out ahead and others would lose.
Unfortunately, that’s not enough to measurably improve incomes for American workers. In a competitive global economy, where even Europe’s welfare states recognize reality and have lowered their corporate tax rates, on average, to 23 percent, the President’s proposal at best is a tiny step in the right direction.
How Can Obama Look at these Two Charts and Conclude that America Should Have Higher Double Taxation of Dividends and Capital Gains?
As discussed yesterday, the most important number in Obama’s budget is that the burden of government spending will be at least $2 trillion higher in 10 years if the President’s plan is enacted.
But there are also some very unsightly warts in the revenue portion of the President’s budget. Americans for Tax Reform has a good summary of the various tax hikes, most of which are based on punitive, class-warfare ideology.
In this post, I want to focus on the President’s proposals to increase both the capital gains tax rate and the tax rate on dividends.
Most of the discussion is focusing on the big increase in tax rates for 2013, particularly when you include the 3.8 tax on investment income that was part of Obamacare. If the President is successful, the tax on capital gains will climb from 15 percent this year to 23.8 percent next year, and the tax on dividends will skyrocket from 15 percent to 43.4 percent.
But these numbers understate the true burden because they don’t include the impact of double taxation, which exists when the government cycles some income through the tax code more than one time. As this chart illustrates, this means a much higher tax burden on income that is saved and invested.
The accounting firm of Ernst and Young just produced a report looking at actual tax rates on capital gains and dividends, once other layers of tax are included. The results are very sobering. The United States already has one of the most punitive tax regimes for saving and investment.
Looking at this first chart, it seems quite certain that we would have the worst system for dividends if Obama’s budget is enacted.
The good news, so to speak, is that we probably wouldn’t have the worst capital gains tax system if the President’s plan is enacted. I’m just guessing, but it looks like Italy (gee, what a role model) would still be higher.
Let’s now contemplate the potential impact of the President’s tax plan. I am dumbfounded that anybody could look at these charts and decide that America will be in better shape with higher tax rates on dividends and capital gains.
This isn’t just some abstract issue about competitiveness. As I explain in this video, every single economic theory — even Marxism and socialism — agrees that saving and investment are key for long-run growth and higher living standards.
So why is he doing this? I periodically run into people who are convinced that the President is deliberately trying to ruin the nation. I tell them this is nonsense and that there’s no reason to believe elaborate conspiracies.
President Obama is simply doing the same thing that President Bush did: Making bad decisions because of perceived short-run political advantage.
According to Obama’s Budget, Burden of Federal Spending Will Be $2 Trillion Higher in 10 Years
President Obama’s budget proposal was unveiled today, generating all sorts of conflicting statements from both parties.
Some of the assertions wrongly focus on red ink rather than the size of government. Others rely on dishonest Washington budget math, which means spending increases magically become budget cuts simply because outlays are growing at a slower rate than previously planned.
When you strip away all the misleading and inaccurate rhetoric, here’s the one set of numbers that really matters. If we believe the President’s forecasts (which may be a best-case scenario), the burden of federal spending will grow by $2 trillion between this year and 2022.
In all likelihood, the actual numbers will be worse than this forecast.
The President’s budget, for instance, projects that the burden of federal spending will expand by less than 1 percent next year. That sounds like good news since it would satisfy Mitchell’s Golden Rule.
But don’t believe it. If we look at the budget Obama proposed last year, federal spending was supposed to fall this year. Yet the Obama Administration now projects that outlays in 2012 will be more than 5 percent higher than they were in 2011.
The most honest assessment of the budget came from the President’s Chief of Staff, who openly stated that, “the time for austerity is not today.”
With $2 trillion of additional spending (and probably more), that’s the understatement of the century.
What makes this such a debacle is that other nations have managed to impose real restraints on government budgets. The Baltic nations have made actual cuts to spending. And governments in Canada, New Zealand, Slovakia, and Ireland generated big improvements by either freezing budgets or letting them grow very slowly.
I’ve already pointed out that the budget could be balanced in about 10 years if the Congress and the President displayed a modest bit of fiscal discipline and allowed spending to grow by no more than 2 percent annually.
But the goal shouldn’t be to balance the budget. We want faster growth, more freedom, and constitutional government. All of these goals (as well as balancing the budget) are made possible by reducing the burden of federal spending.
Data in New World Bank Report Shows that Large Public Sectors Reduce Economic Growth
When Ronald Reagan said that big government undermined the economy, some people dismissed his comments because of his philosophical belief in liberty.
And when I discuss my work on the economic impact of government spending, I often get the same reaction.
This is why it’s important that a growing number of establishment outfits are slowly but surely coming around to the same point of view.
- The European Central Bank published a study showing “…a significant negative effect of the size of government on growth.”
- A study by two Harvard economists found that “large adjustments in fiscal policy, if based on well-targeted spending cuts, have often led to expansions.”
- The Organization for Economic Cooperation and Development noted in recent research that welfare programs are economically destructive because they lure people into dependency because “net disposable income would increase despite putting in fewer hours.”
- A study from the International Monetary Fund concluded that “Cuts to pension and health entitlements had the most beneficial effect on economic growth.”
This is remarkable. It’s beginning to look like the entire world has figured out that there’s an inverse relationship between big government and economic performance.
That’s an exaggeration, of course. There are still holdouts pushing for more statism in Pyongyang, Paris, Havana, and parts of Washington, DC.
But maybe they’ll be convinced by new research from the World Bank, which just produced a major report on the outlook for Europe. In chapter 7, the authors explain some of the ways that big government can undermine prosperity.
There are good reasons to suspect that big government is bad for growth. Taxation is perhaps the most obvious (Bergh and Henrekson 2010). Governments have to tax the private sector in order to spend, but taxes distort the allocation of resources in the economy. Producers and consumers change their behavior to reduce their tax payments. Hence certain activities that would have taken place without taxes, do not. Workers may work fewer hours, moderate their career plans, or show less interest in acquiring new skills. Enterprises may scale down production, reduce investments, or turn down opportunities to innovate. …Over time, big governments can also create sclerotic bureaucracies that crowd out private sector employment and lead to a dependency on public transfers and public wages. The larger the group of people reliant on public wages or benefits, the stronger the political demand for public programs and the higher the excess burden of taxes. Slowing the economy, such a trend could increase the share of the population relying on government transfers, leading to a vicious cycle (Alesina and Wacziarg 1998). Large public administrations can also give rise to organized interest groups keener on exploiting their powers for their own benefit rather than facilitating a prosperous private sector (Olson 1982).
Acting as the Typhoid Mary of the Global Economy, the OECD Urges Higher Taxes in Latin America
Is it April Fool’s Day? Has somebody in Paris hacked the website at the Organization for Economic Cooperation and Development? Have we been transported to a parallel dimension where up is down and black is white?
Please forgive all these questions. I’m trying to figure out why any organization—even a leftist bureaucracy such as the OECD—would send out a press release entitled, “Rising tax revenues: a key to economic development in Latin American countries.”
Not even Keynesians, after all, think higher taxes are a recipe for growth.
Ah, never mind. I just remembered that the OECD is a hotbed of statism, so the press release makes perfect sense. After all, the U.S.-taxpayer-funded organization has become infamous for reflexively advocating big government.
- The OECD has an anti-tax competition project designed to prop up Europe’s bankrupt welfare states.
- The OECD is pushing a “Multilateral Convention” that is designed to become something akin to a World Tax Organization, with the power to persecute nations with free-market tax policy.
- The OECD has endorsed Obama’s class-warfare agenda, publishing documents endorsing “higher marginal tax rates” so that the so-called rich “contribute their fair share.”
- The OECD pulled off a hat trick of bad policy in a 2010 document, promoting a value-added tax, Obama’s global warming agenda, and failed Keynesian stimulus.
- The OECD endorsed Obamacare, as I explain in this video.
- The OECD even advocates higher taxes when nations are in the middle of economic crisis.
With this dismal track record, it’s hardly a surprise that the Paris-based bureaucracy is now pushing to undermine prosperity in Latin America. Here’s some of what the OECD said in its release.
Additional tax revenues enable governments to simultaneously improve their competitiveness and promote social cohesion through increased spending on education, infrastructure and innovation. Latin American countries have made great strides over the past two decades in raising tax revenues.
You won’t be surprised when I tell you that the Paris-based bureaucrats do not bother to provide even the tiniest shred of proof to support the silly claim that higher taxes improve competitiveness. But that shouldn’t be surprising since even Keynesians don’t believe something that absurd.
And the claim about social cohesion also is a bit of a stretch given the riots, chaos, and social disarray in many European nations.
The only accurate part of the passage is that Latin American nations have increased tax burdens over the past 20 years. To the tax-free bureaucrats at the OECD, that is making “great strides.”
Let’s see what else the OECD had to say.
Despite these improvements, significant gaps between Latin America and OECD countries remain. The average tax to GDP ratio in OECD countries is much higher than in Latin American countries (33.8% compared to 19.2% in 2009, respectively). As the countries in the region still find themselves in relatively strong economic conditions, now is the time to consider reforms that generate long-term, stable resources for governments to finance development.
Wow. The OECD is implying that Latin American nations should mimic OECD nations. In other words, the bureaucrats in Paris apparently think it makes sense to tell nations to copy the failed high-tax, welfare-state model of countries such as Greece, Italy, and Spain.
Is that really the lesson they think people should learn from recent fiscal history? Are they really so oblivious and/or blinded by ideology that they issued the release as these European nations are in the middle of a fiscal crisis?
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