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CFP Strategic Memorandum

Center for Freedom and Prosperity Strategic Memorandum

To:   Public Sector and Private Sector Leaders of Low-Tax Jurisdictions

From: Dan Mitchell, Heritage Foundation

Date: May 15, 2001

Re:     OECD Strategy

Treasury Secretary Paul O'Neill's announcement that the Bush Administration would not support the OECD's "harmful tax competition" initiative was a dramatic victory, and a tribute to the effective work of the Center for Freedom and Prosperity.

From the beginning, supporters of tax competition, financial privacy, and fiscal sovereignty worked to achieve this goal because it was our belief that the OECD's proposed tax cartel could not succeed if the world's largest economy refused to participate. More specifically, the threat of financial protectionism is relatively hollow so long as persecuted jurisdictions realize that they have continued access to the US market and, through the US, access to the world.

Yet the battle is not over. Almost surely, the OECD will desperately try to regain the offensive by pressuring jurisdictions to capitulate. Our message is simple: If you had the courage to resist six months ago, when it appeared that the OECD had a near-100 percent chance of winning, then it makes absolutely no sense to surrender now. In addition, we suggest:

  • Coordinate with other jurisdictions. In the beginning, the OECD had some success by isolating regimes and browbeating them (often with help of the closet tax harmonizers in Tony Blair's UK government) into submission. A much better approach, as demonstrated by Barbados Prime Minister Owen Arthur, is to band together. Indeed, it could be that the turning point in this battle occurred at the OECD regional meeting in Barbados. Remember: United we stand, divided we fall.
  • Seize the moral high ground. The OECD enjoyed some early success by characterizing low-tax nations and territories as some sort of fiscal parasites that created special laws to "poach" the tax bases of other nations. Lawmakers and private sector leaders should not accept this ridiculous characterization. Point out that OECD nations are bullies who are threatening smaller jurisdictions in the hopes of imposing their oppressive tax laws (usually for the purpose of double-taxing income that is saved and invested) on income earned outside their borders. Point out that they are threatening to violate international trade accords and that they want to suspend common-law legal protections such as the presumption of innocence and the right to privacy.
  • Cooperate in the fight against real crime. The OECD almost surely will try to smear the reputation of low-tax jurisdictions by increasing the level of money-laundering demagoguery. On the theoretical level, persecuted regimes should fight back. Point out that the vast majority of criminal funds are obtained and laundered in OECD nations. On a practical level, it would be a tragic mistake for a jurisdiction to drag its feet in the battle against genuine criminal behavior. This does not mean, of course, that civil liberties should be trampled or that constitutional freedoms should be ignored. But it does mean that jurisdictions should take special pains to assist in the prosecution of drug dealers, terrorists, and other international crooks.
  • Those that surrender will lose business. If defending core principles is not a sufficient reason to resist the OECD, remember that jurisdictions that agree to become vassal tax collectors almost certainly will lose business to jurisdictions that defend the principles of tax competition, financial privacy, and fiscal sovereignty.
  • The OECD facade is crumbling. The US announcement is huge news, but do not overlook the dramatic impact of the change of government in Italy. The new Prime Minister already has stated that he supports tax competition, which means that there now are two G7 nations that have broken ranks with the bureaucrats in Paris. And if our continued conversations with other nations are any indication, there are many other nations that are looking for a graceful way of distancing themselves from the OECD mess.
  • There will be no let-up in the pressure on US policy makers. The Center for Freedom and Prosperity will continue to lead the battle inside the United States. This relentless determination will ensure that career bureaucrats at the IRS and elsewhere are not able to help the OECD behind closed doors. Indeed, the Center already is working hard to educate lawmakers on the benefits of shifting to a territorial system. And once that battle is won, it is highly unlikely that a US government would ever again support an effort to destroy tax competition, financial privacy, and fiscal sovereignty.

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