February 22, 2001
U.S. Could Abandon Initiative To Crack Down on Tax Havens
By Michael M. Phillips
Staff Reporter of THE WALL STREET JOURNAL
WASHINGTON -- The Bush administration is considering backing away from an international campaign to crack down on tax havens such as Panama, Monaco and the Bahamas.
In internal discussions, Treasury Secretary Paul O'Neill has expressed skepticism about the Organization for Economic Cooperation and Development's three-year-old campaign to
blacklist uncooperative tax-haven countries and territories -- currently 35 of them. Conservative lawmakers have been pushing to rein in the effort for some time.
Last weekend, at a meeting in Italy of the top economic officials of the Group of Seven major industrial powers, the U.S. warned privately that it intends to review the Clinton
administration's decision to support the OECD initiative. And publicly, Mr. O'Neill sent up a cautionary flag about the effort to bring foreign tax laws in line with international standards. "It is critical to
clarify that this project is not about dictating to any country what should be the appropriate level of tax rates," Mr. O'Neill said in a statement issued after the G-7 meeting.
Former Treasury Secretary Lawrence Summers viewed the anti-tax-haven effort as an important tool for combating tax evasion, particularly by U.S. companies that shift profits to
secretive low-tax jurisdictions to cut their tax bills back home.
Mr. O'Neill hasn't yet decided whether he wants to abandon the effort. "He will respect the sovereignty of the various tax systems -- that's very important," a senior
Treasury official said Wednesday. At the same time, this official said, Mr. O'Neill feels that tax rules should be clear and that foreign officials should share information.
The OECD, a grouping of the U.S., Britain, Japan and 27 other wealthy nations, aims to ensure that governments world-wide cut no secret tax deals with foreign individuals or
corporations. In addition, the OECD has been pressing governments to treat foreign and local depositors the same, and to cooperate with foreign investigators in tax-evasion cases. Robert S. McIntyre, director of
Citizens for Tax Justice, a nonpartisan Washington research group, estimates that the Treasury loses tens of billions of dollars a year because American companies report profits as coming from low-tax jurisdictions.
"It would be a shame if the Bush Treasury were to decide that they're in league with the people who want to manipulate the tax laws," said Mr. McIntyre, whose group receives funding from labor unions.
The OECD says its efforts aren't intended to force countries to adopt a particular tax rate or method. But some conservatives like House Majority Leader Richard Armey (R., Texas)
say the OECD stifles free-market competition by pushing up tax rates and forcing disclosure of private information. In a blunt letter last September, Mr. Armey told Mr. Summers that tax competition from overseas
helps strengthen the case for tax cuts at home, and he asserted that the OECD wants to infringe on privacy rights.
"You really cannot dictate what a country's policies should be," said Joshua Sears, the Bahamian ambassador in Washington. Bahamian Prime Minister Hubert Ingram, whose
nation is on the OECD list, wrote Mr. O'Neill recently asking him to reconsider the anti-tax-haven campaign.
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