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04-03-2001 (New York)

Polarized Forces Working to Fight
OECD Crackdown on Tax Havens

     Washington, April 3 (Bloomberg) -- Liberals and conservatives in Congress are pressuring the Bush administration to end U.S. support for international plans to sanction countries identified as tax havens.

     Democratic members of the Congressional Black Caucus, including Representative Charles Rangel of New York, have joined their usual adversaries, top Republicans including House Majority Leader Dick Armey of Texas and Senate Majority Whip Don Nickles of Oklahoma, in opposition to efforts of the Organization for Economic Cooperation and Development. The OECD is moving to blacklist three dozen low-tax countries suspected of enabling wealthy citizens to evade taxes in their home countries.

     The convergence of usually polarized forces is drawing attention to problems with the OECD effort, said Andrew F. Quinlan, president and CEO of the Center for Freedom and Prosperity, the only group lobbying against the OECD campaign.

     ``We are very pleased that the right and the left are coming together on this issue, because this issue has nothing to do with politics,'' Quinlan said.

     The Bush administration hasn't indicated whether it will move to reverse the policies of former President Bill Clinton, who supported the OECD crackdown. The Black Caucus, whose Website proclaims it ``the conscience of the Congress,'' supported Clinton in his fight against impeachment and protested the election procedures that gave the presidency to George W. Bush.

     The concerns come from different directions. U.S. conservatives say the OECD effort is an attempt to protect high tax rates; the Black Caucus members are concerned about economic conditions in the Caribbean.

     Quinlan said the issue is important to the U.S. economy because non-U.S. citizens invest some $7 trillion in it, and the OECD program could, by extension, be applied to the U.S. Non-U.S. citizens don't pay U.S. tax on those savings and capital gains. ``We are the world's largest tax haven,'' Quinlan said.

     Strange Bedfellows

     On the conservative side, the effort has attracted the likes of Armey, Nickles, and Senate Foreign Relations Committee Chairman Jesse Helms of North Carolina. Among the liberal Democrats criticizing the OECD effort are Rangel, the top Democrat on the tax-writing House Ways and Means Committee, New York Representative Major Owens, and Donna M. Christensen, the non- voting representative from the U.S. Virgin Islands, which the OECD lists as a potential tax haven.

     Armey wrote to Treasury Secretary Paul O'Neill last month that the OECD effort was designed, ``in effect, to create a tax cartel for the benefit of a small handful of high-tax nations.''

     In a letter to O'Neill dated two days earlier, the Congressional Black Caucus complained that ``wealthy OECD nations should not have the right to re-write the rules of international commerce on taxation simply because they are upset that investors and entrepreneurs are seeking higher after-tax returns.''

     OECD Defense

     The OECD says its efforts are being misinterpreted.

     ``What the project is aimed at is preventing non-compliance with tax laws, or to put it in the vernacular, it is directed at `tax cheats,''' OECD Secretary General Donald J. Johnston wrote in a February letter to Texas Representative Sam Johnson, another Republican foe of the crackdown. ``No individual government has sufficient power to reach or control these illegal activities.''

     In an interview, Rangel, who cosponsored a package of trade incentives last year for the Caribbean region, said the Black Caucus opposes the OECD crackdown because it harms countries whose economies are struggling.

     ``The whole idea is to create economic opportunity for these developing countries in the Caribbean,'' Rangel said. ``And while they have attempted to get involved in alternative types of businesses to get away from the bananas and the agricultural ventures, they have gotten involved in making problems for us in the direction of taxes.''

     ``Before we just go in and remove the havens and shelters that we should provide incentives and alternatives to make certain that these countries have some income,'' Rangel said.

     Several Caribbean countries are among those on a June 2000 blacklist of 35 states whose tax systems met the ``technical criteria for being tax havens.'' They include Aruba, the Bahamas, Barbados, Belize, Grenada, Montserrat as well as the U.S. Virgin Islands.

     The Treasury Department is ``currently reviewing our role in that project,'' the Treasury Department's top tax aide, Mark Weinberger, told a gathering of corporate tax officials today. He told the Tax Executives Institute that there are ``many worthy elements'' to the OECD plan, such as encouraging transparency of tax systems.

     Still, Weinberger said, ``we want to make sure there are no unintended consequences'' from the project, such as imposing tax laws or tax rates on other countries.

     --Ryan J. Donmoyer in Washington


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