Per Dollar Spent, OECD Subsidies May Be the Most Destructively Wasteful Part of the Federal Budget
I’m not a fan of international bureaucracies.
I’ve criticized the United Nations for wanting global taxes. I’ve condemned the International Monetary Fund for promoting bigger government. I’ve even excoriated the largely unknown Basel Committee on Banking Supervision for misguided regulations that contributed to the financial crisis.
But the worse international bureaucracy, at least when measured on a per-dollar-spent basis, has to be the Paris-based Organization for Economic Cooperation and Development.
OECD Headquarters: Living the good life at US expense
American taxpayers finance nearly one-fourth of the OECD’s budget, at a cost of more than $100 million per year, and in exchange we get a never-ending stream of bad policy recommendations.
This Center for Freedom and Prosperity study has all the gory details. The OECD bureaucrats (who get tax-free salaries, by the way) endorsed Obamacare, supported the failed stimulus, and are big advocates of a value-added tax for America.
What’s especially frustrating is that the OECD initially was designed to be a relatively innocuous bureaucracy that focused on statistics. Indeed, it was even viewed as a free-market counterpart to the Soviet Bloc’s Council for Mutual Economic Assistance.
My, how things change.
Perhaps the most odious example of bad OECD policy is the campaign against tax competition. Beginning during the 1990s, the OECD has attacked low-tax jurisdiction for the supposed crime of having good tax laws that attract jobs and capital from high-tax nations such as France and Greece.
So why did the OECD launch this project to prop up Europe’s welfare states? The answer can be found in an excellent new study from Professor Andrew Morriss at the University of Alabama Law School and Lotta Moberg, a Ph.D student in economics at George Mason University.
Are Tax Havens Moral or Immoral?
Being the world’s self-appointed defender of so-called tax havens has led to some rather bizarre episodes.
For instance, the bureaucrats at the Organization for Economic Cooperation and Development threatened to have me thrown in a Mexican jail for the horrible crime of standing in the public lobby of a hotel and giving advice to low-tax jurisdictions.
On a more amusing note, my efforts to defend tax havens made me the beneficiary of grade inflation and I was listed as the 244th most important person in the world of global finance — even higher than George Soros and Paul Krugman.
But if that makes it seem as if the battle is full of drama and (exaggerated) glory, that would be a gross exaggeration. More than 99 percent of my time on this issue is consumed by the difficult task of trying to convince policymakers that tax competition, fiscal sovereignty, and financial privacy should be celebrated rather than persecuted.
Sort of like convincing thieves that it’s a good idea for houses to have alarm systems.
And it means I’m also condemned to the never-ending chore of debunking left-wing attacks on tax havens. The big-government crowd viscerally despises these jurisdictions because tax competition threatens the ability of politicians to engage in class warfare/redistribution policies.
Here’s a typical example. Paul Vallely has a column, entitled “There is no moral case for tax havens,” in the UK-based Independent.
To determine whether tax havens are immoral, let’s peruse Mr. Vallely’s column. It begins with an attack on Ugland House in the Cayman Islands.
There is a building in the Cayman Islands that is home to 12,000 corporations. It must be a very big building. Or a very big tax scam.
As I’ve already explained in a post about a certain senator from North Dakota, a company’s home is merely the place where it is chartered for legal purposes. A firm’s legal domicile has nothing to do with where it does business or where it is headquartered.
With the Support of the Obama Administration, Paris-Based OECD Now Wants De Facto World Tax Organization as Part of Its Anti-Tax Competition Campaign
I’ve been battling the Organization for Economic Cooperation for years, ever since the Paris-based bureaucracy unveiled its “harmful tax competition” project in the late 1990s. Controlled by Europe’s high-tax welfare states, the OECD wants to prop up the fiscal systems of nations such as Greece and France by hindering the flow of jobs and capital to low-tax jurisdictions.
Guided by a radical theory know as Capital Export Neutrality, the OECD wants to impose global tax rules that would prevent taxpayers from ever having the ability to benefit from better tax law in other jurisdictions. This is why, for instance, the international bureaucrats are anxious to undermine national tax laws – such as America’s favorable treatment of bank deposits from overseas – that enable people to escape onerous tax regimes.
Bolstered by support from the Obama Administration, the OECD now is taking its campaign to the next level. At its Global Tax Forum in Bermuda, which ends later today, the bureaucrats unveiled a new scheme that effectively would result in the creation of something akin to a World Tax Organization.
The vehicle for this effort is a Multilateral Convention on Mutual Administrative Assistance in Tax Matters. This may sound dry and technical, but the OECD wants all nations to participate in this pact, which has existed for a couple of decades but was radically expanded last year to give high-tax governments sweeping new powers to impose bad tax law on income generated in low-tax jurisdictions.
But the real smoking gun is that the OECD has put itself in charge of the “co-ordinating body” that will have enormous powers to interpret the agreement, modify the pact, and resolve disputes – thus giving itself the ability to serve as judge, jury, and executioner.
This is a profoundly dangerous development with all sorts of very troubling implications. Since I’m in Bermuda trying to destabilize this effort, I don’t have time for extensive analysis, but here’s a press release from the Center for Freedom and Prosperity and here are some of my immediate concerns.
- Higher tax burdens. If high-tax governments succeed is imposing this Multilateral Convention (insert “World Tax Organization” whenever you see that term), tax competition will be undermined and politicians will respond by increasing tax burdens. This is why nations such as France have been pushing this scheme, of course, and why left-wing academics have long dreamed of this type of arrangement.
- Risk to human rights. Amazingly, the Multilateral Convention is open to repressive regimes, which then would have access to all sorts of sensitive and confidential taxpayer information. Already, the thuggish dictatorship of Azerbaijan has signed up, as well as the unstable nation of Moldova and the corrupt government of Mexico. The implications are grim, including the sale of private data to criminal gangs, the loss of sensitive information to hackers, and the direct misuse of American tax returns.
- Loss of sovereignty. For all intents and purposes, the Multilateral Convention outlaws certain pro-growth tax policies and discourages others. Equally worrisome, it creates a system allowing foreign tax collectors to cross borders. The Obama Administration has specifically acquiesced to this provision, so perhaps we will soon see corrupt Mexican tax authorities harassing businesses and individuals on American soil.
- Outlawing tax avoidance. The OECD historically has tried to portray its efforts as a fight against tax evasion, but the Multilateral Convention explicitly talks about “combating tax avoidance.” This should not be a surprise since the Capital Export Neutrality ideology is based on the notion that taxpayers should have zero ability to lower their tax burdens. This means we can fully expect an assault on all forms of tax planning, with American companies almost sure to be among the first to be in the OECD’s crosshairs.
The final insult to injury is that American taxpayers are the biggest funders of the OECD, providing nearly one-fourth of the bureaucracy’s bloated budget. So our tax dollars are being used by OECD bureaucrats (who receive tax-free salaries!) to dream up new ways of increasing our tax burdens. In case you need any additional reasons to despise this bureaucracy, here’s a video detailing its anti-free market activities.
And since I’m recycling some videos, here’s one explaining why tax competition is so important.
New Paper Explains Why Low-Tax Jurisdictions Should Resist OECD Attacks against Tax Competition and Fiscal Sovereignty
One of the biggest threats against global prosperity is the anti-tax competition project of a Paris-based international bureaucracy known as the Organization for Economic Cooperation and Development. The OECD, acting at the behest of the European welfare states that dominate its membership, wants the power to tell nations (including the United States!) what is acceptable tax policy.
I’ve previously explained why the OECD is a problematic institution – especially since American taxpayers are forced to squander about $100 million per year to support the parasitic bureaucracy.
For all intents and purposes, high-tax nations want to create a global tax cartel, sort of an “OPEC for politicians.” This issue is increasingly important since politicians from those countries realize that all their overspending has created a fiscal crisis and they are desperate to figure out new ways of imposing higher tax rates. I don’t exaggerate when I say that stopping this sinister scheme is absolutely necessary for the future of liberty.
Along with Brian Garst of the Center for Freedom and Prosperity, I just wrote a paper about these issues. The timing is especially important because of an upcoming “Global Forum” where the OECD will try to advance its mission to prop up uncompetitive welfare states. Here’s the executive summary, but I encourage you to peruse the entire paper for lots of additional important info.
The Paris-based Organization for Economic Cooperation and Development has an ongoing anti-tax competition project. This effort is designed to prop up inefficient welfare states in the industrialized world, thus enabling those governments to impose heavier tax burdens without having to fear that labor and capital will migrate to jurisdictions with better tax law. This project received a boost a few years ago when the Obama Administration joined forces with countries such as France and Germany, which resulted in all low-tax jurisdictions agreeing to erode their human rights policies regarding financial privacy. The tide is now turning against high-tax nations – particularly as more people understand that ever-increasing fiscal burdens inevitably lead to Greek-style fiscal collapse. Political changes in the United States further complicate the OECD’s ability to impose bad policy. Because of these developments, low-tax jurisdictions should be especially resistant to new anti-tax competition initiatives at the Bermuda Global Forum.
To understand why this issue is so important, here’s a video I narrated for the Center for Freedom and Prosperity.
And here’s a shorter video on the same subject, narrated by Natasha Montague from Americans for Tax Reform.
Last but not least, here’s a video where I explain why the OECD is a big waste of money for American taxpayers.
English Anti-Tax Haven Ideologues Are Just as Foolish and Ignorant as their American Cousins
There’s a supposed expose’ in the U.K.-based Daily Mail about how major British companies have subsidiaries in low-tax jurisdictions. It even includes this table with the ostensibly shocking numbers.
This is quite akin to the propaganda issued by American statists. Here’s a table from a report issued by a left-wing group that calls itself “Business and Investors Against Tax Haven Abuse.”
At the risk of being impolite, I’ll ask the appropriate rhetorical question: What do these tables mean?
Are the leftists upset that multinational companies exist? If so, there’s really no point in having a discussion.
Are they angry that these firms are legally trying to minimize tax? If so, they must not understand that management has a fiduciary obligation to maximize after-tax returns for shareholders.
Are they implying that these businesses are cheating on their tax returns? If so, they clearly do not understand the difference between tax avoidance and tax evasion.
Are they agitating for governments to impose worldwide taxation so that companies are double-taxed on any income earned (and already subject to tax) in other jurisdictions? If so, they should forthrightly admit this is their goal, notwithstanding the destructive, anti-competitive impact of such a policy.
Or, perhaps, could it be the case that leftists on both sides of the Atlantic don’t like tax competition? But rather than openly argue for tax harmonization and other policies that would lead to higher taxes and a loss of fiscal sovereignty, they think they will have more luck expanding the power of government by employing demagoguery against the big, bad, multinational companies and small, low-tax jurisdictions.
To give these statists credit, they are being smart. Tax competition almost certainly is the biggest impediment that now exists to restrain big government. Greedy politicians understand that high taxes may simply lead the geese with the golden eggs to fly across the border. Indeed, competition between governments is surely the main reason that tax rates have dropped so dramatically in the past 30 years. This video explains.
Monday Links
- Under new policy guidelines from the Obama administration, federal drug agents won’t pursue medical marijuana users and suppliers as long as they follow state laws. Cato scholars have long called for drug policy reform, and have examined other drug decriminalization program that have shown tangible, positive results.
- Ignored by the media: Antarctic ice melt lowest ever measured.
- Obama visiting China in November to discuss expanding military agreements. Here’s what’s at stake.
- Video: Why American health care kills.
- Podcast: “Coerced into Medicare“
Curb Your Enthusiasm: Americans Should Not Expect Much from Obama’s Visit to the UN
President Obama’s address to the United Nations General Assembly this morning, and his chairing of the UN Security Council on Thursday, is a grand attempt to tell the world–after eight years of George W. Bush–that the United States will no longer go it alone.
The president has a very difficult task, however, if he expects to invest the United Nations with renewed credibility. The UN is a weak and fractured institution, whose limited power and authority has been steadily undermined by a progression of U.S. presidents, both Democrats and Republicans. We should not forget that President Bill Clinton explicitly circumvented the UN Security Council when he chose to intervene militarily in Kosovo in 1999. Clinton’s evasion of the UNSC established a precedent for future military intervention that the Bush administration happily capitalized upon to send troops into Iraq in 2003.
Susan Rice, our current UN ambassador, endorsed this approach in 2006 when she called for U.S. military action against Sudan. Prior UN approval of such a mission was unlikely, but ultimately unnecessary, Rice argued at the time, because of the precedent set by President Clinton in Kosovo.
For American policymakers who have demonstrated such disdain for the UN in the past to now profess great respect for the institution should not surprise us. The UN is only as relevant as the member states wish it to be. In areas of common concern, the desire to cooperate and compromise may temporarily trump concerns over protecting state sovereignty and preserving freedom of action to deal with urgent security threats. In most cases, however, we can expect the member states, with the United States in the lead, to pursue policies that they believe (not always correctly, as we learned in Iraq) will advance their security. And if the UN weakly sanctions such actions after the fact, or refuses to do so, that will only reveal its irrelevance.
Superb Defense of Tax Sovereignty in New York Times
My friend Pierre Bessard of Switzlerand’s Liberales Institut has a column in today’s New York Times defending financial privacy from the predations of both international bureaucracies and American tax collectors. Pierre sagely notes that the Swiss system respects the privacy of citizens, unlike the “Orwellian” systems in places like America. This approach results in a very high level of tax compliance in Switzerland, and also provides a refuge for oppressed people around the world:
…for us here in Switzerland, our financial privacy laws are a foundation for individual dignity and basic property rights. Unfortunately, the confidentiality that is the hallmark of Swiss banking is coming under increasing pressure. … We think government exists to serve us, not the other way around. We understand that we have to pay taxes — and we do, with numerous studies showing that the Swiss are extraordinarily honest about paying what we owe — but we do not think it is the government’s role to intrude on our privacy and wrench them from us. …Today, Swiss citizens continue to vote on any tax increases in referendums (and sometimes even accept them). These healthy curbs on government contrast with the Orwellian concept of the “transparent citizen” whose every act is known to government. We see our system as a social pact between citizens and the state. Swiss privacy laws help preserve basic property rights. Bank secrecy was introduced in 1934, most notably to protect the identities and assets of Jews in Nazi Germany.
I make many of the same points in a three-part video series produced by the Center for Freedom and Prosperity. With so-called tax havens under increasing pressure, this is a good time to review The Economic Case for Tax Havens, The Moral Case for Tax Havens, and Tax Havens: Myths v Facts.
Adam Smith Goes to Somalia: “Competition Keeps Prices Low”
Many people would agree that modern-day Somalia represents a Hobbesian state of nature. But could anarchy strengthen Somalia’s private sector? This article is certainly very old, but I came across it yesterday and thought the argument would be of interest to political theorists and classical liberals:
…local businesspeople find it easier to do business in a country where there is no government. “There is no need to obtain licences and, in contrast with many other parts of Africa, there is no state-run monopoly that prevents new competitors setting up. Keeping price low is helped by the absence of any need to pay taxes.”
Of course, the absence of a stable and legitimate political and judicial system, compounded by unyielding internecine violence, means individual and private property rights can never be fully protected and we aren’t likely to see foreign businesses flocking to this chaotic country in the foreseeable future. Generally speaking, the proper role of government is to protect individual rights. But the proper role of our government — abroad — should be limited to instances when our national sovereignty or territorial integrity is at risk. As exemplified in Somalia, America’s attempts to stabilize failed states or pacify foreign populations usually fail, exacerbate already disastrous situations, and are, in principle, gratuitous abuses of American power [See: the calamitous U.S.-backed Ethiopian invasion of Somalia].
Tax Havens Should be Emulated, Not Prosecuted
My March 23 Capitol Hill speech defending tax havens against fiscal protectionism is now a two-part Youtube series, complete with the powerpoint slides from my presentation. Unfortunately, we are fighting a defensive battle and the other side is making progress. If you have any suggestions for making stronger arguments for tax competition, fiscal sovereignty, and financial privacy, please don’t hesitate to contact me.
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