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Will Foreign Governments Deny U.S. Tax Cuts?
Wes Vernon
Wednesday, Oct. 4, 2000
If the Clinton administration gets its way, future debates among elected officials in this country over tax policy may become academic.
Some international socialist bureaucrat in a far-off country will already have made the decision as to whether you should be allowed to keep more of your own money. Your congressman will be no more than a figurehead, with his hands tied on tax policy.
The Heritage Foundation, with the active encouragement and backing of House Majority Leader Dick Armey, R-Texas, has launched a campaign to spotlight what it sees as a threat from the Organization of Economic Cooperation and Development.
The OECD is a Paris-based trade organization for industrialized nations. It has moved to stop what it calls "harmful tax competition" – i.e., low taxes.
An example of that kind of thinking appeared in the Financial Times for July 19, 2000:
"A spectre haunts world governments," came the dark warning. "They fear that the combination of economic liberalization with modern information technology poses a threat to their capacity to raise taxes."
Conservative lawmakers on Capitol Hill are also fearful, but for the opposite reason. Rep. Armey fired off a letter to Treasury Secretary Lawrence Summers, denouncing the Clinton administration’s support of the OECD effort to stamp out "tax competition."
"This effort is designed to create a [high] tax cartel," warned Armey, "and if the OECD succeeds, our nation will face the risk of higher taxes and a weakened economy. Developing nations will be hamstrung in their attempts to promote economic growth."
During a luncheon at Washington’s Capitol Hill Club, Dan Mitchell, who has a doctorate in economics and is McKenna Senior Fellow on Political Economy at Heritage, noted that the OECD is emphasizing the need to curb "tax competition" from developing nations. It would not be politic for the international organization initially to conduct a frontal assault on the tax policies of the industrialized nations that make up its own membership. Nonetheless, he adds, the sanctions could easily be applied to the U.S. as well. This is the "foot in the door."
"If the U.S. ever wanted to get rid of the capital gains tax, would that be something that violated the standards of so-called ‘harmful tax competition’?" he asked. "If we wanted to get rid of double taxation of savings, say by creating an unlimited and universal Roth IRA, would that be a violation of [new international] tax standards?"
The new OECD report, "Towards Global Tax Co-operation," calls on member nations to pressure low-tax nations and territories to dismantle their "harmful tax regimes" and repeal their privacy laws. If they do not, the report recommends that OECD member nations exercise financial protectionism against them.
In his letter, Majority Leader Armey, a former economics professor, told Secretary Summers that tax competition "is a strong factor in both maintaining and increasing the vibrancy of economies across the globe." He pointed out that when Ronald Reagan reduced tax rates in the 1980s, "not only did he trigger the economic renaissance we enjoy today, he also [prompted] policy-makers in almost every other country to follow suit in order to remain competitive. This competition between nations forces lower taxes and economic growth."
It is not lost on conservatives that the worldwide Reaganesque trends in tax-cutting policies may be the exact reason the Clinton Treasury Department wants to force an international reversal of course. Never mind that it has produced a roaring prosperity for which the Clintonites have claimed credit.
'Imperialistic Arrogance'
Economics professor Everson Hull of Howard University has accused the OECD of engaging in "the most unbridled display of imperialistic arrogance since the American Revolutionary War," a reference to King George III. Hull denounces the OECD for "naming, shaming and blacklisting the [small] low-tax jurisdictions."
As an example, he cited "the Queen of Caribbees, the Island of Nevis." Contrary to OECD rationale, said the professor, "the farthest thing from the minds of these decent men and women is harboring any sort of business with criminals and drug barons."
Mitchell said the OECD was deceptively trying to leave the impression that "[they]’re not really after the tax money, [that they] just want to make sure that these are clean [financial] environments … and of course, [they] have to have all the information, and there can’t be any privacy in order … to make sure these are clean environments."
The OECD, with encouragement from the Clinton administration, is using the concern with money laundering as a foot in the door to dictate worldwide tax policy, according to these economists.
The international organization’s plan seeks to give governments unlimited access to personal financial information to make it easier to tax economic activity in individual countries.
This would make the controversial "Know Your Customer” (KYC) banking regulations "the tip of the iceberg." KYC was modified after hundreds of thousands of Americans loudly protested. The OECD proposal would expand that concept so that other professional service providers "would have to join banks in spying on their customers."
Economist Bruce Zagaris says the plan amounts to an attack on taxpayers, an attack on free trade and global commerce, and an attack on sovereignty, in addition to being an attack on privacy.
As for the purported fight against money-laundering as the rationale for the proposal, Armey believes the scheme would actually "undermine our efforts to fight the war on drugs." He fears the small low-tax nations would have no incentive to cooperate in criminal investigations "if we threaten their ability to maintain pro-growth policies."
Look for a major movement to counteract the OECD plan.
"Wait until the one world conspiracy theorists hear about this," said one economist as he emerged from the meeting arranged by Mitchell. "I know a few of them. I’m going to tell them."
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