EDITORIAL • April 26, 2001
Taxation without representation
In the world of multilateral institutions, the Organization for Economic Cooperation and Development (OECD) is hardly high-profile. While massive demonstrations against the
International Monetary Fund and the World Trade Organization have been televised around the world, the OECD isn´t a household name. And yet the 30 industrialized economies which comprise the Paris-based OECD,
otherwise known as the rich men´s club, are poised to level a worrisome assault on national sovereignty.
In essence, the OECD is trying to force countries to share information to crack down on tax evaders. The argument is that cracking down on evasion will boost tax receipts and
embolden taxpayers to call for lower taxes for everyone. Greater compliance could lead to welcomed fiscal reform. Well, it´s a theory at least.
However, because the OECD would enforce cooperation through trade sanctions rather than through the free will of the governments involved, its proposal smacks of imperial
overreach. Of all the measures that might merit retaliation as extreme as trade sanctions, bank secrecy and low taxes hardly seem to qualify.
The OECD has put together a black list of all the countries that it considers to be tax havens. The list has caught the attention of the Black Caucus, since it singles out many
predominantly-black Caribbean nations but not the European countries famous for bank secrecy, such as Switzerland and Luxembourg. This, the OECD says, is because the organization has a separate "preferential
tax regimes" list of its own members who have to improve their banking disclosure requirements and fiscal policies. By June, these countries could similarly be subject to sanctions by other OECD members. The
United States is on the preferential tax regimes list.
In order to get off its black list, the OECD dictates that countries must "achieve transparency and effective exchange of information" and "eliminate any regimes
that attract business without substantial business activity." The OECD goes on to tell other countries how they should conduct fiscal policy: "Each Party will ensure that there are no non-transparent
features of its tax systems, such as rules that depart from accepted laws and practices, secret rulings, or the ability of investors to 'elect´ or 'negotiate´ the rate of tax to be applied."
The OECD´s proposal was unsurprisingly embraced by the Clinton administration. The Bush White House, however, should know better. If the United States refuses to sign
on, the OECD proposal will be as ineffective as the Kyoto treaty. Treasury Secretary Paul O´Neill is on record as having reservations about it, and he ought to act on those instincts. The world, emerging economies
especially, should beware the OECD´s imperialistic ambitions.