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Investor's Business Daily

March 27, 2001

The Taxing OECD: A Congressman's
Salient Questions Receive No Answer 

By Daniel J. Mitchell

Seems like the folks at the Organization for Economic Cooperation and Development could use a refresher course in human relations.

The OECD is trying to force so-called tax havens to change their tax and privacy laws so that Europe's welfare states can tax the worldwide income and assets of taxpayers more easily. But if they want this effort to succeed, it seems unwise to brush off an official request from a U.S. congressman for information.

The Paris-based bureaucracy has been trying for months to create a cartel for the benefit of high-tax nations - a sort of OPEC for politicians.

Six Questions

 This bothers Congressman Sam Johnson, R-Texas, who aired his concerns in a letter to OECD's secretary-general in January. He asked six questions:

    1. Does the OECD believe there are "harmfully high levels of tax burdens" in the developed world? If so, why hasn't the OECD focused on this issue?

    2. The OECD is demanding that low-tax regimes make certain changes to their tax laws. Could you reconcile these demands with international traditions of fiscal sovereignty?

    3. Many tax havens are in developing nations. If they lose their financial services industry, significant economic dislocation will probably result. Has the OECD estimated the economic impact of this loss, or analyzed whether it could result in increased emigration and crime?

    4. Several OECD nations seem to satisfy the criteria you use to define tax havens. With this in mind, why were no OECD nations listed as tax havens?

    5. The OECD is calling for financial protectionism against "uncooperative" low-tax regimes. Have you determined whether these steps would violate World Trade Organization obligations?

    6. Financial privacy is a concern of many Americans. Why has the OECD embraced information exchange, which would hinder privacy, and not viewed withholding as an option?

So how did the OECD respond to the congressman? With a letter that represents a masterpiece of evasion.

Even a cursory reading shows that OECD Secretary-General Donald Johnston didn't answer a single question. Heck, he didn't even try. (Both letters are reprinted in their entirety on the Center for Freedom and Prosperity's Web site, www.freedomand-prosperity.org.)

Slap In The Face

 What makes this so shocking is that Rep. Johnson is a senior member of the House Ways and Means Committee. To blatantly duck his request for information is a slap in the face to the country that is the OECD's single largest financial supporter.

This raises an obvious question. Why would the OECD treat an important lawmaker so dismissively?

There are a couple of possibilities. The first is that the letter was drafted by a low-level bureaucrat who simply didn't want to take the time to answer the questions.

But this seems unlikely. With the Clinton administration out of power and Larry Summers no longer Treasury secretary, the OECD has lost its highest-profile U.S. ally.

Therefore, one would think the OECD would want to be very careful in crafting a response, especially since the organization now is seeking to bamboozle Republicans into supporting an initiative that runs counter to America's economic interests.

The other possible explanation is that the OECD did take Congressman Johnson's letter seriously but was unable to come up with satisfactory answers.

In other words, the OECD knows that its attack on low-tax countries and territorial tax systems is a hypocritical exercise that will emasculate financial privacy and undermine fiscal sovereignty, but doesn't want to admit it.

So the OECD's only alternative may have been to craft a letter that dodged real issues and instead contained a lot of demagoguery about tax evasion and money laundering. While that approach showed considerable disrespect for a member of Congress, OECD officials may have decided this was less risky than actually responding to questions for which there are no acceptable answers.

Impoverishing Agenda

In the final analysis, of course, it doesn't matter why the OECD responded this way. What matters is that the organization is pursuing an agenda that will impoverish less-developed nations and hamstring America's competitive advantage in the world economy.

Fortunately, President Bush can pull the plug on this misguided initiative simply by telling high-tax European nations that America will not impose financial protectionism against low-tax countries.

If that happens, the OECD's tax cartel will unravel and tax competition will remain a liberalizing force in the world economy.

__________________
Daniel J. Mitchell is the McKenna senior fellow in political economy at The Heritage Foundation. 

 

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