April 24, 2001
The Honorable Mark A. Weinberger
Assistant Secretary for Tax Policy
Department of the Treasury
1500 Pennsylvania Ave., NW, Room 1334
Washington, DC 20220
Fax (202) 622-0605 Via fax: 4 pages
Dear Secretary Weinberger:
Thank you for your willingness to meet with members of the Coalition to discuss the OECD "harmful tax competition" initiative. We are particularly concerned that the effort to force nations into a
global system requiring the exchange of private financial information is bad economic policy and a fundamental violation of civil liberties and the right to privacy.
Since there is not adequate time to carefully consider and work with members of the Coalition before the OECD meeting in May, we respectfully request that the Treasury Department issue a public
statement along the following lines.
"The U.S. Treasury has decided to further evaluate the potential consequences of the OECD's harmful tax competition and information sharing initiative, and thus is not prepared to support the initiative at this time." Such a statement would allow all of us to have the time necessary to work through this series of very complex and sensitive issues.
The following is a list of some, but not all, of our concerns:
1. Tax competition among governmental units is necessary to keep government operating with at least some minimal degree of economic efficiency, and is a discipline on government which is necessary
for the preservation of basic liberty. Would not the acceptance of the OECD proposals destroy this minimal discipline?
2. Article I of the OECD Convention requires the OECD to promote growth-enhancing policies. Would not the absence of tax competition do just the opposite?
3. As a member of the World Trade Organization (WTO), the U.S. has made certain commitments with respect to national treatment and most favored nation status, which the OECD initiative
almost certainly violates because it is targeted at 41 listed countries and will not be applied against the U.S., U.K., Switzerland, and other OECD countries that engage in the same actions as the targeted
countries. Is it the position of the U.S. government that its WTO obligations need not be met in this case, or that the U.S. will amend its domestic law to comply with the OECD requirements?
Complying with the OECD requirements would, among other things, require repeal of the portfolio interest exception (§871(h)) and substantial reductions in U.S. taxpayer privacy rights (§ 6103).
4. Respected legal scholars believe that the information sharing provisions could be violations of the 4th and 5th Amendments of the U.S. Constitution. Has Treasury fully evaluated such arguments?
5. In your letter to Senator Nickles you posit that the U.S. is committed to full tax information exchange with our bilateral tax treaties. In fact, is it true that none of our
tax treaties require anywhere near the information exchange required by the OECD MOU and that, in each treaty, signatories have incorporated their domestic financial privacy protections and privileges, including
the common law right to bank secrecy?
6. A number of OECD countries, such as Turkey, have engaged in significant human rights violations at various times. How can Treasury be sure that information that is exchanged
will not be used to persecute innocent individuals by their governments?
7. Several OECD countries have communist party members in their governments.
How can Treasury be sure that these individuals will not pass such information to communist officials of non-OECD governments who might misuse such information against both individuals and the best interests of the United States?
8. A number of OECD nations, such as France, share information with their former colonies and other countries with which they have close relationships. Some of these countries
have little regard for human rights and have engaged in religious and other types of persecution, including actions against U.S. missionaries. How can Treasury be sure that these countries will neither
acquire the information we share, nor use it against their own or our citizens?
9. Some OECD countries, such as Greece, have been unable to rid their governments of terrorist collaborators (as confirmed by U.S. government officials). Two U.S. Navy Captains and our
CIA station chief have been assassinated in Greece, and the Greek government has not been able to do anything about it.
How can Treasury be sure that information that we share with the Greek government, and other governments in similar situations, will not be used against their own or our citizens?
10. What is the basis of the Treasury Department's legal and moral authority to violate fundamental privacy rights of U.S. and foreign citizens, who have neither been charged with, nor
convicted of any crime?
11. Once information sharing has become routine between the 30 OECD countries and the 41 targeted jurisdictions, it is highly likely that other governments (many with egregious human
rights records) will insist on becoming part of the global financial information network. On what basis would these countries be told they are not entitled to the information?
12. The OECD and the U.S. would be demanding that the targeted countries routinely disclose confidential tax and financial information.
Is it the policy of the U.S. government that U.S. taxpayer and financial information will be shared as freely with OECD member countries and targeted countries? If not, why should the U.S. be exempt from the rules being applied against low tax countries?
13. A number of OECD nations share information with their own and non-OECD foreign intelligence services. Some of these countries have little regard for human rights and have
engaged in various types of persecution. How can Treasury be sure that these intelligence services will not use this information against their own or our citizens?
The economic damage of trampling on privacy rights without consideration of the consequences is apparent in the actions of the Treasury Department before your arrival. Specifically, the foreign
reporting requirements (i.e., Qualified Intermediary (QI) and bank deposit interest reporting) proposed and implemented under the last Administration at the beginning of this year, already appear to have had the
result of the withdrawal of many foreign investors from the U.S. markets. This has further depressed our stock markets, impeded U.S. capital formation, and job growth.
Should not these regulations be suspended and/or withdrawn until a full dynamic cost-benefit analysis of the regulations, including the impact on financial privacy, be made? If not, why not?
You have indicated that Treasury might accept information sharing for the purpose of trying to reduce tax evasion. However, history clearly shows us that the fundamental dangers to both our
liberties and economic well being come from the actions of despotic and corrupt governments and corrupt individuals within any government. We know that well more than one hundred million people were killed by
their own governments during the last century.
The ability of governments to inflict such carnage on their own and other countries' citizens was facilitated by the gathering of information on people far in excess of what is needed for the operation of a civil society. Is the apprehension of a few more tax evaders worth such dangers and the costs of loss of privacy and economic growth?
These questions are particularly relevant considering that almost all of the tax evasion that occurs would disappear if the United States implemented long-overdue tax reforms, such as shifting to a
territorial tax system and eliminating the double-taxation on income that is saved and invested. In other words, why sacrifice essential human liberties to help enforce bad tax law when the alleged problem can
be solved by tax policy changes that you have long supported?
We look forward to a continued dialogue on these issues, and again urge the Treasury Department not to sign onto the OECD initiative until all of these very legitimate concerns are resolved.
Again, we thank you for your willingness to discuss these critically important issues. Please contact any of the following members of the Coalition with any questions you may have:
Dan Mitchell -- tel. (202) 608-6224;
Richard Rahn -- tel. (202) 659-3200;
David Burton -- tel. (703) 548-5868;
Andy Quinlan -- tel. (202) 285-0244.
DAN MITCHELL RICHARD W. RAHN
THE HERITAGE FOUNDATION DISCOVERY INSTITUTE
DAVID BURTON ANDY QUINLAN
THE PROSPERITY INSTITUTE CENTER FOR FREEDOM AND PROSPERITY
Cc: Coalition for Tax Competition Members