Proposed OECD tax rules threaten U.S.
sovereignty and privacy
By Andrew Quinlan
February 4, 2014
Tax reform was a
popular topic among politicians and members of the media in 2013.
Americans suffering in the still weak economy and feeling beleaguered
by recent tax hikes were no doubt disappointed that it remained just
that - talk. Given the recent history of our government this should
come as little surprise, but it's nevertheless disappointing that
they've thus far proven inc
apable of
amending our destructive tax code and instituting much needed
pro-growth reforms.
At the same time
as reform has stalled domestically, unelected international bureaucrats
have made significant strides in their own quest to rewrite global tax
rules. The bad news is that their desired policies will inevitably lead
to higher taxes, reduced economic growth, bigger governments and lower
prosperity throughout the world.
In a recent op-ed for the Huffington Post, Organization for
Economic Cooperation and Development (OECD) tax policy head Pascal
Saint-Amans declared it a "watershed moment for international tax
policy." He asserts a need to "even the playing field and
ensure predictability and fairness." Sounds benign, perhaps, but
his words are belied by the radical agenda and anti-American policies
of his organization. Specifically, they seek to weed out instances of
"double non-taxation," which is tax collector-speak for
keeping jurisdictions from deciding on their own what kind of taxes
they wish to impose or not, whether they be on businesses or
individuals. Their further desire for new rules establishing a global
system of automatic exchange of taxpayer information between nations is
a major threat to tax competition, economic prosperity, and taxpayer
privacy.
For more than
fifteen years the OECD has pursued an agenda aimed at limiting tax competition between nations, which occurs when
jurisdictions compete for jobs and investment by offering better tax
systems and lower rates than other nations. Competition benefits
taxpayers by putting pressure on governments to - at the very least -
not raise tax rates so high as to cause taxpayers and businesses to
flee their jurisdiction. This is why economists tend to be among the
strongest supporters of competition between different jurisdictions. To
put it simply, tax competition encourages nations to adopt good tax
policy, even when politicians would prefer to adopt class-warfare
policies that can appeal to poorly informed voters.
Automatic
exchange of taxpayer information threatens the foundations of tax
competition by making it possible for all nations to tax income no
matter where it is earned, a destructive practice currently that, among
developed nations, is only used by the United States. Politicians in
other nations are just as greedy as those in the U.S., but many lack
the same means as the IRS to track their citizens all over the globe.
By enlisting other tax agencies to help spy on their citizens
throughout the world, this new system would make it much easier for the
rest of the world's governments to also adopt the practice. Making it
harder for citizens to take advantage of jurisdictions with better tax
rates through widespread adoption of worldwide taxation would lessen
incentives on politicians to adopt competitive rates. The inevitable
result is higher taxes and a weaker global economy.
Though the U.S.
has lost its competitive edge in recent years - falling from 5th
overall in 2007 in the Fraser Institute's Economic Freedom of the World Report to 17th in
2011, their most recent year analyzed - it nevertheless remains the top
destination for foreign indirect investment. There is more than $25
trillion in foreign indirect investment in the U.S. today, making the
U.S. the world's largest so-called tax haven. The steady flow of
investment dollars into the U.S. helps provide capital to serve as the
lifeblood of the economy, boosting employment and prosperity.
Yet due to the
efforts of international bureaucrats and tax collectors, tax
competition and all its benefits for the United States may soon come to
an end.
Last year the
G20 announced that it was committed to presenting "a new single
global standard for automatic exchange of information" by 2014.
Once officially unveiled and eventually implemented, this standard will
require nations to transmit bulk taxpayer data to foreign governments,
even if that means collecting information for which the host nation has
no need, or sending it to corrupt or untrustworthy regimes. Unlike the
current standard of information exchange upon request, no evidence of
wrongdoing is required from the destination government. It is simply
presumed that they have a right to all information regarding anyone who
might owe them taxes!
The new standard
raises serious concerns regarding data integrity, the potential for
identity theft or misuse of information, and human rights abuses.
American citizens who invest overseas will likewise see their
information pass through multiple hands before reaching the IRS, which
has itself proven an untrustworthy steward of private taxpayer data.
Non-Americans will likely have it much worse, as the likes of
Venezuela, Egypt and other oppressive regimes are more easily able to
comb through the financial records of their citizens. And it would also
mean significant costs imposed on the low-tax jurisdictions forced into
serving as their deputy tax collectors.
Global tax
bureaucrats have long seen the automatic exchange of taxpayer
information between governments as a sort of Holy Grail - strongly
desired by tax collectors but perpetually out of reach politically.
They know that eliminating tax competition and keeping businesses and
individuals captive will make it easier to impose exorbitant tax rates.
Facing massive debts from their own profligate spending, they are more
desperate than ever to divert more money from the productive sector of
the economy to government coffers. And thanks to the growing success of
political efforts to scapegoat certain taxpayers for the ill effects of
excessive taxing and spending, they see an opportunity to establish a
radical new global tax regime.
The rhetoric
used to advance the agenda of global tax bureaucrats is designed to
both inflame popular passions and obscure the true purpose of reforms.
Contrary to the claims of Mr. Saint-Amans, without tax competition
there is no playing field at all, much less a level one. The new push
by bureaucrats at the OECD and the G20 for global automatic information
exchange is intended instead to rig the game in favor of politicians -
and against taxpayers.
Milton Friedman
argued that, "Competition among national governments in the
public services they provide and in the taxes they impose is every bit
as productive as competition among individuals or enterprises in the
goods and services they offer for sale and the prices at which they
offer them."
We should no
more accept ending tax competition in order to "even the playing
field" than we would ending market competition through price
controls and central planning.
Like all
bureaucracies, the OECD is ultimately composed of self-interested
members. They are currently emboldened by global economic circumstances
- and the Obama administration's sympathetic views to high taxes and
big government - to more directly advance an agenda that is against
fundamental American interests and would cripple the U.S. economy.
But they can be
stopped. American taxpayers bear the largest burden in funding the
(ironically) tax-free salaries of OECD bureaucrats. If Congress would
stand up and join the fight by taking an active role in protecting the
interests of American taxpayers by ending funding for organizations
working against U.S. interest, the OECD will rethink its latest assault
on tax competition.
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