CF&P Foundation Prosperitas Series of Studies
(Summary of Each Study Below)
29) October 2009, Vol. IX, Issue II, Government-Run Health Care Means Higher Deficits and Debt: Realistic Assumptions Show 10-Year
Deficits Easily Could Exceed $600 Billion, by Dan Mitchell
28) October 2009, Vol. IX, Issue I, The Health Care Choice Act: Restoring Competition in the Individual Insurance Market, by Sven
27) February 2008, Vol. VIII, Issue I, The Global Flat Tax Revolution: Lessons for Policy Makers, by Dan Mitchell
26) September 2007, Vol. VII, Issue VI, Labour Supply and Marginal Tax Rates: A case study of Belgium, France, Italy, the Netherlands, the
United Kingdom and the United States of America, by Bram de Bruin
25) August 2007, Vol. VII, Issue V, The Iceland Tax System: Key features and lessons for Policy Makers, by Hannes Gissurarson and Daniel J.
24) May 2007, Vol VII, Vol. IV, Tax Havens: Myth Versus Reality," by Dan Mitchell
23) April 2007, Vol. VII, Issue III, "The Economic Case for Limited Government," by Sven R Larson
22) March 2007, Vol. VII, Issue II, "The Hong Kong Tax System -- Key Features and Lessons for Policy Makers,"
by Michael Littlewood
21) February 2007, Vol. VII, Issue I "The Swiss Tax System: Key Features and Lessons for Policy Makers," by Pierre Bessard
20) September 2006, Vol. VI, Issue VI, "The Slovakian Tax System: Key Features and Lessons for Policy Makers," by Martin Chren
19) June 2006, Vol. VI, Issue V, "Making Section 911 Universal is Good Economic Policy and Good Tax Policy, " by Yesim Yilmaz
18) June 2006, Prosperitas Volume VI, Issue IV, "The Health Care Choice Act: Restoring Competition in the
Individual Insurance Market," by Sven Larson
17) June 2006, Prosperitas Volume VI, Issue III, "Tax Havens, Tax Competition and Economic Performance," by
16) June 2006, Prosperitas Volume VI, Issue II, "The Swedish Tax System -- Key Features and Lessons for
Policy Makers," by Sven Larson
15) The Paris-Based Organization for Economic Cooperation and Development: Pushing Anti-U.S. Policies with American Tax
Dollars (Vol. VI, Issue I)
14) The OECD's Anti-Tax Competition Campaign: An Update on the Paris-Based Bureaucracy's Hypocritical Effort to Prop Up Big
Government (Vol. V, Issue II)
13) May 2005, Territorial Taxation for Overseas Americans: Section 911 Should Be Unlimited, Not Curtailed, (Vol. V, Issue I)
12) August 2004, The Threat to Global Shipping from Unions and High-Tax Politicians: Restrictions on Open
Registries Would Increase Consumer Prices and Boost Cost of Government, by Dan Mitchell, (Vol. IV, Issue II)
11) June 2004, The OECD's Dishonest Campaign Against Tax Competition: A Regress Report, by Dan Mitchell,
(Vol. IV, Issue I)
10) October 2003, The Level Playing Field: Misguided and Non-Existent, by Dan Mitchell, (Vol. III, Issue IV)
9) July 2003, How the IRS Interest-Reporting Regulation Will Undermine the Fight Against Dirty Money, by Dan
Mitchell (Vol. III, Issue III)
8) April 2003, Markets, Morality, and Corporate Governance: A Look Behind
the Scandals, by Daniel J. Mitchell (Volume III, Issue II)
7) February 10, 2003, Who Writes the Law: Congress or the IRS?," by Daniel J. Mitchell (Volume III, Issue I)
6) April 2002, Prosperitas, The Case for International Tax Competition: A Caribbean Perspective, by
Carlyle Rogers (Volume II, Issue II)
5) January 2002, Prosperitas, U.S. Government Agencies Confirm That Low-Tax Jurisdictions Are Not
Money Laundering Havens, By Daniel J. Mitchell (Volume II, Issue I)
4) November 2001, Prosperitas, The Adverse Impact of Tax Harmonization and Information
Exchange on the U.S. Economy, by Daniel Mitchell (Volume I, Issue IV)
3) October 2001, Prosperitas, Money Laundering Legislation Would Discourage International Cooperation in the
Fight Against Crime, By Andrew F. Quinlan (Volume I, Issue III)
2) August 2001, Prosperitas, United Nations Seeks Global Tax Authority , by Daniel J. Mitchell
(Volume I, Issue II)
1) August 2001, Prosperitas, Oxfam's Shoddy Attack on Low-Tax Jurisdictions, by Daniel Mitchell
(Volume I, Issue I)
29) October 2009, Vol. IX, Issue II,
Government-Run Health Care Means Higher Deficits and Debt: Realistic Assumptions Show 10-Year Deficits Easily Could Exceed $600 Billion, by Dan Mitchell
Government restrictions are artificially boosting costs and making it more difficult for families to get health insurance. More specifically, regulatory intervention by state governments is a
significant problem, particularly protectionist barriers preventing consumers from buying insurance policies issued in other states. Combined with expensive mandates that states impose on health plans –
for everything from chiropractors to breast reduction, the results are less competition and higher premiums. Congressman John Shadegg (R-AZ) has introduced the Health Care Choice Act (H.R. 3217) to
restore unfettered interstate commerce and let consumers shop for health insurance plans in a national market. According to one estimate, freedom to purchase insurance policies issued in other states
could save some families as much as 30 percent on their health policies. Unleashing the Constitution's promise of unfettered interstate commerce is the most effective way of breaking up the inefficient
oligopolies created by state politicians.
28) October 2009, Vol. IX, Issue I, The Health
Care Choice Act: Restoring Competition in the Individual Insurance Market, by Sven Larson
The healthcare proposals in the House and Senate
are bad news for taxpayers and would permanently damage the American economy with more spending, taxes, and debt. While the details differ, both plans add about $1 trillion to the burden of federal
spending over the next 10 years according to congressional estimates. Some of this spending is financed with higher taxes, and both plans also promise to finance a portion of the new spending by
curtailing the growth of other programs, particularly Medicare.
Supporters of a government take over of health care argue this approach is fiscally responsible because the higher taxes and
promises of future spending restraint supposedly exceed the amount of proposed new spending. Making government bigger, however, is not fiscally prudent – especially when the estimates put together by the
congressional forecasters are deeply flawed.
In reality, the proposals on Capitol Hill will make government more expensive and increase deficits. Government programs almost always cost more than
the preliminary estimates, and projections for healthcare spending have been notoriously inaccurate. Moreover, tax increases will not collect as much revenue as politicians want because of "Laffer
Curve" effects. Last but not least, the promised spending restraint is a farce. If congressional forecasts are modified to be more realistic, deficits and debt will climb by at least $600 billion –
and perhaps more than $850 billion – over the next 10 years.
27) February 2008, Vol. VIII, Issue I, The Global
Flat Tax Revolution: Lessons for Policy Makers, by Dan Mitchell
Thanks largely to tax competition, governments are dramatically improving
tax policy. Over the past 30 years, tax rates on productive activity have been sharply reduced. Personal and corporate income tax rates have been slashed. Capital gains tax rates, wealth taxes, and death
taxes have been lowered or eliminated. These pro-growth reforms have boosted the global economy, lowered poverty, and improved living standards.
Perhaps the most exciting development, though, is
the flat tax revolution. The number will probably be higher by the time you are reading this, but as this article went to press, 24 nations have adopted some form of single-rate tax regime. These reforms
have generated impressive results, including faster growth, more jobs, and increased competitiveness. While politicians generally are most concerned about losing tax revenue, they should not worry. Flat
tax systems oftentimes generate higher tax revenues because of more income and better compliance.
The economic consequences of tax reform are positive, but the political implications also are
profound. Governments are deciding - in part because labor and capital can cross national borders to escape punitive tax rates - that it no longer makes sense to discriminate against highly-productive
taxpayers. Thanks to tax competition, expect the number of flat tax countries to continue to grow.
26) September 2007, Vol. VII, Issue VI, Labour Supply and
Marginal Tax Rates: A case study of Belgium, France, Italy, the Netherlands, the United Kingdom and the United States of America, by Bram de Bruin
The Prosperitas study by Bram de Bruin (Erasmus University, Rotterdam), originally prepared as a masters' thesis and with assistance from the European Independent Institute (The Hague, The
Netherlands) investigates the effect of labour income taxes on the supply of paid labour for several Western countries over the last two decades.
This report reviews and expands the recent discussions about the relationship between labour income tax rates and weekly worked hours. An important stimulus is the work of
Prescott (2004), who argues that the average marginal tax rate on labour income is the most important explanation for the differences in the number of working hours between the United States of America
and (continental) Europe.
This report contains the following contributions. First, we construct the average marginal tax rate on labour income, and we investigate whether this tax rate is a variable
which explains the number of worked hours. Second, we investigate whether other economic variables that might influence the number of worked hours have additional explaining power. We construct a
statistically and economically meaningful model to explain the number of worked hours by the average marginal tax on labour income and the tax on consumption. Our analysis also shows that other
variables, which are named in the literature, do not play a significant role. This supports earlier claims that the level of taxes has its influence on the labour market and, therefore, on society.
25) August 2007, Vol. VII, Issue V, The Iceland Tax
System: Key features and lessons for Policy Makers, by Hannes Gissurarson and Daniel J. Mitchell
Iceland's economic renaissance is an impressive
story. With lower tax rates leading the way, significant reforms have liberalized the economy, spurring growth and improving competitiveness. The shift in policy is noteworthy since Iceland experienced a
period of misguided government policy. During the 1980s, the country suffered from an unstable currency, with the inflation rate routinely and consistently running at double-digit levels - and, for a few
months, exceeding 100 percent on an annual basis. The aggregate tax burden rose steadily, climbing from 26.2 percent of GDP in 1965 to about 40 percent today. A value-added tax was adopted without the
concomitant elimination of other taxes.
Market-oriented tax policy has played a key role in Iceland's rebirth. Major tax reforms include slashing the corporate tax rate from 50 percent to 18
percent, abolition of the wealth tax, a low-rate 10 percent flat tax on capital income, and an intermediate-rate 36 percent flat tax on labor income. These supply-side reforms, along with policies such
as privatization and deregulation, have yielded predictable results. Incomes are rising, unemployment is almost nonexistent, and the government is collecting more revenue from a larger tax base
24) May 2007, Vol VII, Vol. IV, Tax Havens: Myth Versus Reality," by Dan Mitchell
So-called tax havens are routinely vilified, largely because they are perceived as a threat by politicians, leftist organizations, and other
advocates of bigger government and high tax rates. In almost all cases, however, attacks on these low-tax jurisdictions are either baseless or distorted.
Surprisingly, anti-tax haven demagogues
generally are unable to even correctly identify the characteristics that make a jurisdiction a "haven." Is it low taxes? Zero taxes? Financial privacy laws? Incorporation laws that do not require
ownership information? The existence of bearer shares? And even the critics that use a more carefully tailored definition – i.e., a jurisdiction that exercises its sovereign right to not enforce the tax
laws of another nation – often engage in discrimination when listing the world's tax havens.
The United States, for instance, is a tax haven. Foreigners can – and do – put money in the U.S. and
earn interest and capital gains without any obligation to pay tax to the IRS and without being reported to their governments. Many states allow foreigners to set up corporations without disclosing
ownership information. Some even allow bearer shares. These policies have helped attract trillions of dollars to the U.S. economy, yet critics of tax havens fail – perhaps deliberately – to note how any
campaign against tax havens unambiguously can boomerang against America's self interest.
Critics also ignore how tax havens provide confidentiality to ethnic, religious, racial, sexual, and
political minorities, a critical role since the majority of the world's population lives in nations have less-than-stellar attitudes toward human rights. Likewise, tax havens also are a refuge for people
in nations suffering from crime, extortion, and corruption.
Tax haven opponents routinely rely on shoddy numbers, ignore academic evidence, and engage in smear campaigns. Public policy, however,
should not be based in mistruths and stereotypes fostered in novels and movies. And public policy certainly should not be based on politicians in high-tax nations persecuting nations trying to prop up
their inefficient welfare states by engaging in anti-globalization policies.
23) April 2007, Vol. VII, Issue III, "The Economic Case
for Limited Government," by Sven R Larson
The burden of government spending in the United States has grown considerably since 2000, but this
is just the calm before the storm. Thanks to unchecked entitlement programs, America is at risk of becoming an uncompetitive European-style welfare state. Total government spending already consumes about
one-third of national economic output, with the federal government spending $2 for every $1 spent by state and local governments. If left unchecked, however, the federal government's budget will
metastasize, growing from about 21 percent of GDP today to more than 30 percent of national economic output after the baby-boom generation retires.
Instead of allowing government to grow, policy
makers should focus on how best to shrink the public sector. Academic research clearly shows that government spending – once it reaches above the level needed to finance core responsibilities such as the
rule of law – hinders economic growth by misallocating labor and capital. Indeed, there is even a well-established relationship, illustrated by the Rahn Curve, showing how larger levels of government
spending are associated with slower growth and economic stagnation. Researchers do not agree on the precise number, but there is general agreement that the growth maximizing level of government is
between 15 percent of GDP and 25 percent of GDP, far below current levels.
Most federal spending is unjustified. To cite just a few examples, the Departments of Energy, Education, Commerce,
Housing and Urban Development, and Agriculture engage in activities that are not legitimate functions of the federal government. They should be shut down. A substantial share of federal spending is
consumed by entitlement programs such as Social Security and Medicare. These programs should be shifted to the private sector. The transition may be lengthy, but the ultimate objective is more freedom
and greater prosperity. This requires smaller government.
22) March 2007, Vol. VII, Issue II,
"The Hong Kong Tax System -- Key Features and Lessons for Policy Makers," by Michael Littlewood
Hong Kong has been one the
world's fastest-growing jurisdictions, rising from poverty at the end of World War II to a beacon of prosperity in the 21st century. Formerly a British colony and now a "Special Administrative
Region" of the People's Republic of China, Hong Kong is ranked as the world's freest economy according to both Economic Freedom of the World and the Index of Economic Freedom. A key reason for Hong
Kong's success is an optional flat tax system. Tax rates are low by global standards and there is very little double-taxation of income that is saved and invested. Combined with a modest burden of
government, Hong Kong is well-positioned to continue its rapid growth. With globalization making it increasingly easy for jobs and investment to cross national borders, other jurisdictions would be wise
to follow Hong Kong's model of limited government and non-discriminatory taxation.
21) February 2007, Vol. VII, Issue I "The
Swiss Tax System: Key Features and Lessons for Policy Makers," by Pierre Bessard
Relatively low tax rates, respect for financial
privacy, and attractive business tax laws have given Switzerland a reputation as a tax haven. But Switzerland is only a low-tax nation compared to its European neighbors. Tax revenues consume nearly 30
percent of gross domestic product, which is higher than the U.S. tax burden. Set up as a federal system like the U.S., the 26 Swiss cantons are largely independent in setting their own taxes. But unlike
the U.S., where the federal government now plays a dominant role in fiscal policy, the Swiss central government accounts for less than one-third of total taxes and spending. This decentralization is a
key feature of the Swiss tax system. Effective tax levels may vary by as much as 300 percent from one canton to another. Tax levels may also differ significantly among municipalities, which are free to
set their own rates. In recent years this highly decentralized setup has played an increasing role in keeping tax levels in check and introducing innovative tax reforms (in part because tax increases
almost always require approval by voters), such as degressive marginal tax rates on higher income brackets. Although Switzerland has not been immune from public policy mistakes, the country has remained
one of the richest in Europe since the late 19th century. Today it enjoys the greatest accumulated wealth per capita in the world, and unemployment, at around three percent, is low. This would seem to
indicate that some of the features of the Swiss system - in particular radical decentralization and the ensuing tax competition - play some part in enhancing prosperity, in particular by providing
taxpayers with more choice and better protection of their property rights.
20) September 2006, Vol. VI, Issue
VI, "The Slovakian Tax System: Key Features and Lessons for Policy Makers," by Martin Chren
Born after the peaceful 1993 dissolution of
Czechoslovakia, Slovakia is a small country of 5.5 million people that has captured the attention of economists, entrepreneurs, and politicians from around the world thanks to a 19 percent flat tax
enacted in October 2003 and implemented in January 2004.
The Slovak tax reform is a real step towards a tax system that is better and fairer for taxpayers. Marginal tax rates on work, saving, and
investment were reduced, while the elimination of special preferences reduced the likelihood that decisions would be made for tax reasons rather than economic reasons. This is a key reason why the
country is enjoying strong growth of about 6 percent per annum. As noted by the US State Department, "Since 1998, Slovakia's once troubled economy has been transformed into a business friendly state
that leads the region in economic growth."
Growth has averaged nearly 6 percent annually since the flat tax was adopted and the unemployment rate has dropped according to the International
Monetary Fund. Income tax revenues have exceeded forecasts. Combined with fiscal restraint, this has significantly lowered government borrowing.
However, a key question for investors and
entrepreneurs is whether Slovakia will take a step backwards following elections in June 2006. The new government is comprised of parties with a populist tint and seems intent on policies that would
penalize the nation's most productive citizens – a move that would send a negative sign to global investors.
19) June 2006, Vol. VI,
Issue V, "Making Section 911 Universal is Good Economic Policy and Good Tax Policy, " by Yesim Yilmaz
America is one otf the few nations
to tax citizens who live and work abroad. Indeed, no other industrialized nation imposes a second layer of tax on its expatriates. Senator Jim DeMint (R-SC) has introduced legislation, the Working
American Competitiveness Act (S. 3496), to eliminate the worldwide reach of the IRS. By creating a territorial system for labor income, the DeMint legislation will put American workers and U.S.-based
multinationals on a level playing field with competitors from other nations. This is a welcome move, particularly since American expatriates were just hit with a tax hike.
18) June 2006, Prosperitas Volume VI, Issue IV,
"The Health Care Choice Act: Restoring Competition in the Individual Insurance Market," by Sven Larson.
America's health care system has
state-of-the-art technology, highly skilled medical professionals and access to cutting edge medical research. However, government regulations and restrictions are artificially boosting premiums and
making it more difficult for families to get health insurance. Regulatory intervention by state governments is the problem, particularly protectionist barriers preventing consumers from buying insurance
policies issued in other states. Combined with expensive coverage mandates that states impose on health plans offered within their jurisdiction, the results are less competition and higher premium costs.
The problem presented by uninsured families is alarming -- and largely the result of state coverage mandates.
Congressman John Shadegg (R-AZ) has introduced a bill, the Health Care Choice Act
(H.R. 2355), that would help reduce the uninsured problem. The idea is to restore unfettered interstate commerce and let insurance buyers shop for a plan on a national market. According to one estimate,
freedom to purchase insurance policies issued in other states could save some families as much as 30 percent on their health policies. Restoring the Constitution's promise of unlimited interstate
commerce is the most effective way of breaking up these inefficient oligopolistic structures.
17) June 2006, Prosperitas Volume VI, Issue III,
"Tax Havens, Tax Competition and Economic Performance," by Yesim Yilmaz.
Low-tax jurisdictions play a valuable role in the global economy.
Economic research indicates that so-called tax havens provide a tax-efficient platform for cross-border investments, help boost saving and investment, and thus increase global economic growth. Tax havens
also encourage good policy in non-haven countries. In part because of jurisdictional competition, maximum tax rates on personal income have fallen by about 23 percentage points since 1980 and top
tax rates on corporate income have fallen by almost 20 percentage points. These policies have boosted growth and job creation.
The United States is the world's largest beneficiary of tax
havens and tax competition, both because the U.S. is a tax haven for foreigners and because tax havens facilitate the flow of capital to the American economy. Foreigners have more than $11 trillion
invested in the U.S. economy, including more than $7 trillion invested in America's financial markets. Nearly $1.3 trillion is placed in the U.S. financial system by Caribbean institutions. This money
helps finance America's economic growth.
16) June 2006, Prosperitas Volume VI, Issue II, "The
Swedish Tax System -- Key Features and Lessons for Policy Makers," by Sven Larson.
Sweden has a worldwide reputation as a high-tax welfare
state. Moreover, unlike Denmark - its main competitor for the dubious honor of the world's highest tax burden - there are thus far no signs of tax weariness at the ballot box in Sweden. On the contrary,
Sweden's dominant social democratic party has won national as well as local elections proposing higher taxes in recent years.
Is Sweden a success? Should the Scandinavian country be a role model
or a bad example? In general, nations should not emulate the Swedish tax system. High tax rates and a heavy burden of government have combined to stunt economic performance and lower living standards.
This is an unfortunate development for a nation that used to be among the world's richest - particularly since Sweden managed to avoid World War II and was well-positioned to prosper in the post-war
But the news is not all grim. Despite its reputation as a high-tax welfare state, Sweden has implemented a handful of pro-growth reforms. The comprehensive tax reform that was
implemented in 1991, for instance, lowered marginal tax rates and reduced the tax burden on saving and investment. Many of these positive changes have eroded, but Sweden continues to have a very
competitive corporate tax regime.
15) The Paris-Based Organization for Economic
Cooperation and Development: Pushing Anti-U.S. Policies with American Tax Dollars (Vol. VI, Issue I)
After decades of gathering statistics
and publishing innocuous studies, the Organization for Economic Cooperation and Development (OECD) has entered the realm of policy-making. Unfortunately, even though it is heavily subsidized by American
taxpayers, the OECD generally promotes policies that are contrary to U.S. economic interests. This is particularly true in the field of fiscal policy, where the international bureaucracy endorses higher
taxes, more spending, and tax harmonization. These policies may be in the short-term interest of the high-tax nations that dominate OECD decision-making, but they surely are not in the interests of the
United States. The OECD's statist approach to policy is particularly disturbing since American taxpayers pay more than $70 million annually for the putative privilege of belonging to the Paris-based
14) The OECD's Anti-Tax Competition
Campaign: An Update on the Paris-Based Bureaucracy's Hypocritical Effort to Prop Up Big Government (Vol. V, Issue II)
Acting at the behest of uncompetitive nations like
France and Germany, the Organization for Economic Cooperation and Development continues to pressure low-tax jurisdictions in an attempt to hinder the flight of jobs and capital from high-tax countries.
The Paris-based bureaucracy has been largely unsuccessful – even though it created a blacklist of so-called tax havens and threatened them with financial protectionism. The OECD's failure is partly
because of the growing recognition that tax competition is a vital factor in the adoption of much-needed economic reforms. And since nations that lower tax rates and reform their tax systems are so
clearly out-performing high-tax countries, the OECD has lost a considerable amount of credibility by seeking to reward failure and punish success. The anti-tax competition scheme also is foundering
because the OECD has been unable to deal with the "level playing field" issue. More specifically, member nations such as the United States, Austria, and Luxembourg refuse to agree to the bad policies
that the OECD wants to force on blacklisted nations. Moreover, there are many other jurisdictions that also are "tax havens" according to the OECD's definition, but they were not blacklisted because the
bureaucrats chose to target only relatively small and powerless nations and territories. The OECD deserves harsh criticism for its anti-tax competition project. Low-tax jurisdictions should refuse to
emasculate their pro-growth policies. And policy makers from non-blacklisted nations should withhold and/or withdraw any support from the OECD's statist campaign to prop up high-tax welfare states.
13) May 2005, Territorial Taxation for Overseas Americans:
Section 911 Should Be Unlimited, Not Curtailed, (Vol. V, Issue I)
The United States is among the tiny handful of nations that imposes
double-taxation on the labor income that individuals earn in other nations – even if the U.S. citizen is a full-time resident of the foreign jurisdiction. Yet since the "foreign-source" income of U.S.
citizens already is subject to all applicable taxes that exist in other jurisdictions, an additional layer of U.S. tax is double-taxation – thus violating one of the most important principles of good tax
policy. Almost every other country in the world taxes only income earned inside national borders – the common-sense principle of "territorial taxation." American legislators have tried to mitigate the
adverse impact of worldwide taxation by allowing workers to protect annual earnings up to $80,000 from double-taxation. This policy, known as the Section 911 exclusion, is a small step in the right
direction. Ideally, the U.S. government should not be taxing any income earned abroad – just as foreign governments should not be taxing any income earned in America. If policy makers created a level
playing field by making Section 911 universal, more Americans could find jobs in the global economy, U.S. companies would become more internationally competitive, and U.S. exports would substantially
12) August 2004, The Threat to Global Shipping from Unions
and High-Tax Politicians: Restrictions on Open Registries Would Increase Consumer Prices and Boost Cost of Government, by Dan Mitchell, (Vol. IV, Issue II)
registries" for shipping have a beneficial impact on the global economy by competing to offer shipowners the best tax and regulatory environment combined with efficient service. This process of
jurisdictional competition among ship registries has helped reduce costs in the shipping industry - with consumers reaping the lion's share of the benefit. Notwithstanding the benefits they generate for
the global economy, open registries are being attacked on two fronts. The first attack comes from the Organization for Economic Cooperation and Development (OECD), acting on behalf of high-tax
governments that maintain monopolistic "national registries." These registries tend to be much more expensive and much less efficient, so shipowners over time have been abandoning national
registries to escape burdensome red tape and onerous taxation. The second attack comes from seafarer unions, coordinated and represented by the International Transport Workers' Federation (ITF). Unions
wielded enormous power prior to the advent of open registries, in large part because they used their political muscle to persuade politicians to set rules for national registries that increased union
leverage. The U.S. government has wisely resisted the anti-competitive agenda of the OECD and ITF. As the Maritime Administrator at the Department of Transportation correctly noted, "...it is not
the policy of the United States to dictate where ship owners invest their money or register their ships."1 Advocates of economic liberalization should support open registries. Free trade and free
markets are good for the United States and good for the world economy.
11) June 2004, The OECD's Dishonest
Campaign Against Tax Competition: A Regress Report, by Dan Mitchell, (Vol. IV, Issue I)
The Organization for Economic Cooperation and Development has a campaign against
tax competition – largely targeting so-called tax havens. After being threatened with financial protectionism by the OECD, many low-tax jurisdictions made "commitments" to weaken their
attractive tax and privacy laws. But these nations and territories also stated that their commitments would be valid only if all OECD nations agreed to the same flawed rules. Fortunately, this
"level playing field" requirement does not exist. In its original form, the European Union's Savings Tax Directive might have satisfied that condition, but the EU failed to convince nations
like Switzerland, Luxembourg, and the United States to share confidential information about nonresident investors with foreign tax authorities. Nonetheless, the OECD is still using threats and extortion
in an effort to bully low-tax jurisdictions into helping high-tax nations enforce their bad tax laws. In so doing, OECD officials are acting in a dishonorable fashion. They failed to live up to their end
of the bargain, but they still want low-tax jurisdictions to surrender their fiscal sovereignty and compromise their economic futures. Moreover, the OECD also is proposing discriminatory sanctions
against blacklisted jurisdictions, a policy that is completely inconsistent with previous commitments to impose uniform sanctions on all nations and territories with market-based tax laws. The OECD's
anti-tax competition project has always been fundamentally flawed, but it has degenerated into a sordid and discriminatory campaign to inhibit the development of poor nations to serve the narrow
interests of rich countries.
10) October 2003, The Level Playing Field: Misguided and
Non-Existent, by Dan Mitchell, (Vol. III, Issue IV)
For all intents and purposes, the Organization for Economic Cooperation and Development's attempt to undermine tax
competition has collapsed. Many low-tax jurisdictions had made "commitments" to weaken their attractive tax and privacy laws after being threatened by the OECD with financial
protectionism - but explicitly stated that those commitments were binding only if all OECD nations agreed to the same flawed rules (the famous "level playing field" requirement). The
European Union's Savings Tax Directive might have satisfied that condition, but that tax harmonization scheme collapsed when the United States, the United Kingdom, Switzerland, and Luxembourg refused to
agree to share confidential information about nonresident investors with foreign tax authorities. This is a positive development for the world economy. Tax competition is a liberalizing force in the
world economy. Fiscal rivalry helps lower tax rates and helps reduce discriminatory taxes on income that is saved and invested, and even OECD economists have widely written that lower tax rates and
neutral treatment of capital are important contributors to economic growth.
9) July 2003, How the IRS Interest-Reporting Regulation Will
Undermine the Fight Against Dirty Money (Vol. III, Issue III)
On January 17, 2001, as part of a blizzard of rulemaking during the final days of the Clinton
Administration, the IRS proposed a regulation to compel U.S. financial institutions to report bank deposit interest paid to nonresident aliens – even though this information is not needed to enforce U.S.
law. The Bush Administration withdrew most of the controversial "midnight regulations" proposed by the previous Administration, but officials in the Office of Tax Policy at the Treasury Department
inexplicably have fought to keep the IRS's interest-reporting regulation alive. The latest argument used by these officials is that the regulation will help the fight against dirty money. Like every
other assertion made by Treasury Department personnel, this claim is demonstrably false. Indeed, the regulation will make it harder for U.S. law enforcement officials to investigate and prosecute
criminals and terrorists by driving funds to foreign banks. Treasury Secretary Snow should withdraw the regulation and fire department employees who put the interests of foreign governments before the
interests of the U.S. economy.
8) April 2003, Markets, Morality, and Corporate
Governance: A Look Behind the Scandals, by Daniel J. Mitchell (Volume III, Issue II)
High-profile bankruptcies, financial scandals, and accusations of tax-dodging
have given Corporate America a black eye. Some of this damage is self-inflicted since some executives – presumably a small minority – are willing to cut corners and engage in unethical behavior. But
government policy also has a big impact on corporate governance. Many of the problems afflicting corporate America are the result – at least in part – of misguided government policies. This paper reviews
how bankruptcy law, tax law, contracting law, and takeover law can influence corporate behavior. The paper also explains why companies should not use government power as a competitive weapon. Businesses
can – and should – engage in spirited rivalry. But the battle should be fought in the private arena, with companies seeking to win the hearts and minds (and dollars) of consumers.
7) February 10, 2003, Who Writes the Law: Congress or the IRS?," by
Daniel J. Mitchell (Volume III, Issue I)
The Internal Revenue Service has proposed a regulation (133254-02) that would require U.S. financial institutions to report bank
deposit interest paid to certain nonresident aliens. The IRS admits that the information is not needed to enforce U.S. tax law, and instead seeks to collect the information so it can be provided to the
tax authorities of 15 specified nations. But since nonresident alien depositors easily can shift their funds to other jurisdictions if they wish to protect their privacy, the regulation has attracted
considerable opposition. Critics fear the regulation would drive capital from the U.S. economy and undermine the competitiveness of American financial institutions. These are very legitimate concerns,
but they are overshadowing another important issue: Is the IRS overstepping its authority and abusing the regulatory process by proposing a regulation that is fundamentally inconsistent with the law? The
answer is yes. Congress clearly wanted to attract capital to the U.S. economy when it chose not to tax bank deposit interest paid to nonresident aliens. Helping other nations tax that income – which is
the explicit goal of the IRS regulation – unambiguously would thwart this goal and therefore undermine congressional intent. To help protect the rule-of-law, the regulation should be withdrawn.
6) April 2002, Prosperitas,
The Case for International Tax Competition: A Caribbean Perspective, by Carlyle Rogers (Volume II, Issue II)
One voice is missing in the tax competition/tax
harmonization debate. That is the voice of the persecuted jurisdictions, especially the ones targeted by the Organization for Economic Cooperation and Development's proposal to eliminate so-called
Harmful Tax Competition.1 This paper gives voice to the views of those jurisdictions negatively affected by the OECD's fiscal imperialism and discusses the moral, economic, and development implications of tax harmonization proposals such as "information exchange.
5) January 2002, Prosperitas, U.S. Government
Agencies Confirm That Low-Tax Jurisdictions Are Not Money Laundering Havens, By Daniel J. Mitchell (Volume II, Issue I)
The State Department, Central Intelligence
Agency, and Internal Revenue Service each independently assess whether countries are money laundering centers and/or have systems that make them vulnerable to dirty money. All of these government
agencies - as well as the OECD's Financial Action Task Force - conclude that tax havens do not attract a disproportionate share of the world's criminal loot. Indeed, the reports indicate that dirty money
is far more likely to be laundered in high-tax nations.
4) November 2001, Prosperitas, The Adverse Impact of Tax Harmonization and Information Exchange on the U.S. Economy, by Daniel Mitchell (Volume I, Issue IV)
The United States is the world's biggest beneficiary of jurisdictional tax competition. A modest tax burden, combined with advantageous tax and privacy laws for nonresident aliens, has helped
attract more than $9 trillion of foreign investment to the U.S. economy. This translates into more jobs and higher incomes for American workers. European-sponsored tax harmonization initiatives would
undermine this competitive advantage. At the behest of uncompetitive nations like France, international bureaucracies want to give high-tax governments the power to tax income earned in low-tax
jurisdictions. This is a direct threat to America's economic interests. Tax harmonization proposals such as "information exchange" would make America much less attractive to the world's
investors and likely would result in a significant loss of capital.
3) October 2001, Prosperitas, Money
Laundering Legislation Would Discourage International Cooperation in the Fight Against Crime, By Andrew F. Quinlan (Volume I, Issue III)
Since September 11, the
President and Congress have been waging a war on terrorism. Besides a military campaign, lawmakers are seeking ways to track down the money used to fund the attacks on America, both to help to identify
the guilty and to stop the funding of any new terrorist strikes. Two potential solutions have emerged. On one side are those who believe lawmakers should expand the network of mutual legal assistance
treaties (MLATs) and other international agreements to fight crime. These MLATs have proven to be successful, and could be even more beneficial if new procedures are developed to ensure prompt and
effective action in the case of serious offenses like terrorism. The other approach is to expand money laundering laws and "know-your-customer" regulations and apply them on an extraterritorial
basis. Senator Carl Levin (D-MI) and Senator John Kerry (D-MA) are leading supporters of this approach. This analysis finds that there is little evidence that domestic money laundering laws have helped
law enforcement in the U.S. and that this approach would be similarly ineffective on a global basis. The cost of such an approach far exceeds the benefits and would make U.S. banks and financial
institutions less competitive. American policy should seek to make other nations allies in the war against crime and terrorism, not hinder the U.S. financial services industry.
2) August 2001, Prosperitas, United
Nations Seeks Global Tax Authority , by Daniel J. Mitchell (Volume I, Issue II)
The United Nations (UN) recently issued a report attacking tax competition and fiscal
sovereignty. There are four main recommendations in the report - an international tax organization, global taxes, emigrant taxation, and a back-door form of tax harmonization (information exchange).
Every one of these initiatives would undermine individual liberty and encourage statist economic policy. Like the Organization for Economic Cooperation and Development (OECD) and the European Union (EU),
both of which are pursuing similar agendas, the UN seeks to prop up inefficient welfare states by making it difficult for taxpayers to escape oppressive tax systems. Leaders of all low-tax nations,
particularly the United States, should block the UN's radical scheme.
1) August 2001, Prosperitas, Oxfam's
Shoddy Attack on Low-Tax Jurisdictions, by Daniel Mitchell (Volume I, Issue I)
Oxfam, a U.K.-based charity, published a study last year claiming that so-called tax
havens deprive developing nations of $50 billion of tax revenue each year. Supporters of the anti-tax competition initiative of the Organization for Economic Cooperation and Development (OECD) frequently
cite this figure in hopes of creating a schism among developing nations. Yet the study is grossly flawed, which explains why even the OECD refuses to endorse its methodology. A large share of supposed
foregone revenue - 70 percent, or $35 billion - comes from a calculation of multinational tax revenues in which Oxfam makes up figures for both corporate profits and corporate tax rates. Foregone taxes
on individual savings are claimed to "cost" governments about $15 billion, but this figure also is based on make-believe tax rates. At no point does Oxfam recognize the pro-growth impact of
lower tax rates.