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Bureau of National Affairs

Tuesday March 20, 2001

International Taxes
Armey Supports Territorial Tax System,
Opposes Harmful Tax Competition Initiative

     House Majority Leader Richard Armey (R-Texas) March 16 sent a second letter to the Treasury Secretary expressing his opposition to the Organization for Economic Cooperation and Development initiative against countries identified as tax havens.

     Armey was the first member of Congress to oppose the OECD's harmful tax competition initiative by writing to then-Treasury Secretary Lawrence Summers in September 2000. 

     At the time, Armey said OECD practices were creating a "tax cartel" that put the United States at risk for higher taxes and a weakened economy "while developing nations will be hamstrung in their attempts to promote economic growth."

     Armey's most recent letter applauds Treasury Secretary Paul O'Neill's reevaluation of the U.S. position. "Recent news reports indicate that you are wisely reevaluating the United States involvement in the OECD's 'harmful tax competition' initiative," the letter said. 

     During the Group of Seven conference held Feb. 15 in Palermo, Italy, O'Neill was noncommittal when asked about the administration's position on OECD's effort to force low-tax jurisdictions to change their tax regimes (33 DTR G-4, 2/16/01.)

     The Clinton administration supported the initiative, but Armey's letter called it "fatally flawed and contrary to America's national interests."

     Territorial Tax System

     Armey recommended that the United States shift to a territorial tax system that only taxes income earned within the country's borders. 

     Armey said the approach would eliminate double taxation of income and the incentive for tax evasion.

     He added that a territorial system and proper tax treatment of savings and investments would stimulate business domestically and abroad. 

     Armey also said countries targeted for sanction by the OECD would have no incentive to cooperate in efforts to prosecute drug dealers, terrorists, and other international criminals.

     On the contrary, Armey said that OECD's efforts could result in people seeking illegal income "to offset the legitimate income lost as a result of the OECD's attack against tax competition." 

     Text of Armey's letter is in BNA TaxCore.

By Myrna Zelaya-Quesada

Copyright © 2001 by The Bureau of National Affairs, Inc., Washington D.C.


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