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Posts Tagged ‘International bureaucracy’

The United Nations is not nearly as bad as other international bureaucracies such as the Organization for Economic Cooperation and Development or the International Monetary Fund.

But that’s because the U.N. tends to be completely ineffective. So even when the bureaucrats push for bad policy, they don’t have much ability to move the ball in the wrong direction.

But just like a blind squirrel occasionally finds an acorn, the United Nations periodically does something that genuinely would expand the power and burden of government.

And that’s what happening this week in Moscow. Under the “leadership” of the U.N.’s World Health Organization, hundreds of bureaucrats have descended on the city for the “Conference of the Parties (COP6) to the WHO Framework Convention on Tobacco Control (WHO FCTC).”

But this isn’t the usual junket. The bureaucrats are pushing to create “guidelines” for tobacco taxation. Most notably, they want excise taxes to be at least 70 percent of the cost of a pack of cigarettes.

I’m not a smoker and never have been, but this is offensive for several reasons.

1. Enabling bigger government.

If there were five gas stations in your town and the owners all met behind closed doors to discuss pricing, would the result be higher prices or lower prices? Needless to say, the owners would want higher prices. After all, the consumer benefits when there is competition but the owners of the gas stations benefit if there’s a cartel. The same is true with government officials. They don’t like tax competition and would prefer that a tax cartel instead. And when tax rates get harmonized, they always go up and never go down. Which is what you might expect when you create an “OPEC for politicians.”   In their minds, if all governments agree that excise taxes must be 70 percent of the cost of cigarettes, they think they’ll got a lot more tax revenue that can be used to buy votes and expand government.

2. Promoting criminal activity.

In the previous paragraph, I deliberately wrote that politicians “think they’ll get” rather than “will get” a lot more tax revenue. That’s because, in the real world, there’s a Laffer Curve. We have lots of evidence that higher tobacco taxes don’t generate revenue and instead are a boon for smugglers, criminal gangs, and others that are willing to go underground and provide cigarettes in the black market. We saw this in Bulgaria and Romania.  We saw in in Quebec and Michigan. And we saw it in Ireland and Washington, DC. As I explained a couple of years ago, “In many countries, a substantial share of cigarettes are black market or counterfeit. They put it in a Marlboro packet, but it’s not a Marlboro cigarette. Obviously it’s a big thing for organized crime.” And if the WHO succeeds, the problem will get far worse.

3. Eroding national sovereignty.

 Or maybe this section should be called eroding democratic accountability and control. In any event, the issue is that international bureaucracies should not be in the position of seeking to impose one-size-fits-all policies on the world. Particularly when you get perverse results, such as bureaucrats from health ministries and departments supplanting the role of finance ministries and treasury departments. Or when the result is earmarked taxes, which even the IMF warns is problematical since, “Earmarking creates pots of money that can invite corruption and, unchecked, it can lead to a plethora of small nuisance taxes.” And keep in mind the WHO operates in a non-transparent and corrupt fashion.

For more information, Brian Garst of the Center for Freedom and Prosperity has a thorough analysis of the dangers of global taxation.

By the way, the health community will argue that globally coerced tobacco tax hikes are a good idea since the money can be used to fund programs that discourage tobacco use.

Yet we have some experience in this area. Many years ago, state politicians bullied tobacco companies into a giant cash settlement, accompanied by promises that much of the money would be used to fight tobacco use.

But, as NPR reports, politicians couldn’t resist squandering the money in other areas.

So far tobacco companies have paid more than $100 billion to state governments as part of the 25-year, $246 billion settlement. …all across the country hundreds of millions of dollars have gone to states, and the states have made choices not to spend the money on public health and tobacco prevention. …Myron Levin covered the tobacco industry for the Los Angeles Times for many years and is also the founder of the health and safety news site Fair Warning. He says talking states into spending settlement money on tobacco prevention is a tough sell.

Even when the politicians are asked to spend only a tiny fraction of the money on anti-smoking programs.

To help guide state governments, in 2007 the Centers for Disease Control and Prevention recommended that states reinvest 14 percent of the money from the settlement and tobacco taxes in anti-smoking programs. But most state governments have decided to prioritize other things.

Needless to say, governments around the world will behave like state governments in America. Any additional tax revenue will be used to expand the burden of government spending.

Let’s close with some big-picture analysis. Bureaucracies inevitably seem drawn to mission creep, which occurs when agencies and departments get involved in more and more areas in order to get more staffing and bigger budgets.

But when that happens, the core mission tends to get less attention. For many bureaucracies, that probably doesn’t matter since the core mission probably doesn’t have any value (HUD, anyone?).

But presumably there is a legitimate government role in preventing something like infectious diseases. So why isn’t WHO focused solely on things such as Ebola and SARS rather than engaging in ideological campaigns to expand the size and scope of government?

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I’m not a big fan of international bureaucracies.

Regular readers know that the Organization for Economic Cooperation and Development is the worst institution from my perspective, followed by the International Monetary Fund.

Some folks ask why the United Nations isn’t higher on the list?

My answer is simple. The UN has a very statist orientation and it routinely advocates bad policy, but it is too incompetent to do much damage.

The OECD and IMF, by contrast, have some capacity to undermine global growth by encouraging more statism.

That being said, the UN occasionally does something that is so obnoxious that I can’t resist commenting. Especially since my tax dollars pay a big share of that bureaucracy’s bloated budget.

What has me irked is that the United Nations Conference on Trade and Development just released its annual Trade and Development Report.

You would think an institution that focuses on trade and development would be advocating free markets and small government.

But UNCTAD takes the opposite approach.

Here’s how the bureaucrats frame the issue in the report. Keep in mind that “market liberalism” is their term for free markets (in other words, classical liberalism).

Back in 1964, the international community recognized that “If privilege, extremes of wealth and poverty, and social injustice persist, then the goal of development is lost”. Yet, almost everywhere in recent years, the spread of market liberalism has coincided with highly unequal patterns of income and wealth distribution. A world where its 85 wealthiest citizens own more than its bottom three and a half billion was not the one envisaged 50 years ago. …the past three decades have demonstrated that delivery is unlikely with a one-size-fits-all approach to economic policy that cedes more and more space to the profitable ambitions of global firms and market forces. …the moment is right to propose another international “New Deal” that can realize the promise of “prosperity for all”.

But not only does UNCTAD utilize class-warfare rhetoric, they also try to support their ideological agenda with historical illiteracy.

I’ve pointed out that the western world became rich when government was very small and markets were liberated.

But the statists at the UN want us to think that big government deserves the credit.

None of today’s developed countries depended on market forces for their structural transformation and its attendant higher levels of employment, productivity and per capita incomes. Rather, they adopted country-specific measures to manage those forces, harnessing their creative side to build productive capacities and provide opportunities for dynamic firms and entrepreneurs, while guiding them in a more socially desired direction. They also used different forms of government action to mitigate the destructive tendencies of those same market forces. This approach of managing the market, not idolizing it, was repeated by the most rapidly growing emerging market economies − from the small social democratic economies of Northern Europe to the giant economies of East Asia − in the decades following the end of the Second World War.

Wow. They even want us to think big government deserves the credit for prosperity in Hong Kong and Singapore.

So you know the bureaucrats are either very stupid or very dishonest. I suspect the latter, but it doesn’t matter. All we need to know is that they are willing to make very preposterous claims to advance their agenda.

And what is their agenda? Well, a major theme is that politicians in developing nations need “policy space” to enable bigger government.

For instance, UNCTAD doesn’t like free trade but does like industrial policy (aka, crony capitalism).

Policy space is…reduced by free trade agreements… Along with the proliferation of trade agreements and their expansion into trade-related areas, there has been a global revival of interest in industrial policy.

But a big focus of the report is that tax competition is a threat to the “policy space” of politicians.

Fiscal space goes hand in hand with policy space. …strengthening government revenues is key. …This…allows for higher growth-enhancing public spending… The need for reclaiming and expanding fiscal space faces particular challenges in an increasingly globalizing economy. …A major problem is that globalization has affected the ability of governments to mobilize domestic revenues. …the increased mobility of capital and its greater use of fiscal havens have considerably altered the conditions for taxing income − both personal and corporate − and wealth. The dominant agenda of market liberalism has led to a globalized economy that encourages tax competition among countries, at times pushing them to a “race to the bottom”.

Gasp, how horrible! Politicians don’t have as much “policy space” to impose punitive taxes.

That’s the best advertisement for tax competition I’ve ever read, even if it is unintentional.

So what do the UN bureaucrats want to solve this supposed problem? Simple, just destroy financial privacy and fiscal sovereignty so that politicians have carte blanche to expand taxes.

…a number of developments aimed at improving transparency and exchange of information for tax purposes have taken place. They include a declaration by G20 leaders to promote information sharing… an OECD Action Plan on base erosion and Profit Shifting (BEPS), increased monitoring by several national tax authorities…and numerous bilateral tax treaties (BTTs) and tax information exchange agreements (TIEAs). …these initiatives are steps in the right direction.

With BEPS, indiscriminate information sharing, and more power for national tax police, UNCTAD has put together a trifecta of bad policies.

And to add insult to injury, all the bureaucrats at the UN get tax-free salaries while they concoct schemes to enable higher taxes on the rest of us.

Geesh, no wonder I sometimes have perverse fantasies about them.

And I’m very grateful that Senator Rand Paul is leading the fight against their evil ideas.

P.S. On a more pleasant topic, the “Beltway Bandits” just played in the softball world series in Las Vegas. We competed in the 55+ grouping and finished with three wins and two losses.

Not bad, but not good enough to win any trophies. But we got to play in replica Major League stadiums, which was a fun experience.

I can now say I’ve hit home runs in Dodger Stadium and Wrigley Field, and also doubled off the Green Monster at Fenway. Sounds impressive so long as nobody asks any follow-up questions!

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P.P.S. Here’s something else that I found amusing.

Bill Clinton not only understands the inversion issue, but he’s also willing to publicly explain why Obama is wrong.

During an interview with CNBC on Tuesday, former President Bill Clinton called to cut corporate taxes and give companies a break on money stashed overseas, dinging President Barack Obama’s latest effort to combat corporate tax-dodging. When asked what should be done about corporate inversion transactions, Clinton responded with a host of GOP talking points about the tax burden on big business. “America has to face the fact that we have not reformed our corporate tax laws,” Clinton told CNBC, according to a transcript. “We have the highest overall corporate tax rates in the world. And we are now the only OECD country that also taxes overseas earnings on the difference between what the companies pay overseas and what they pay in America.”

But I guess we shouldn’t be surprised. This isn’t the first time he’s had sensible things to say on the issue of corporate taxation.

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People pay every single penny of tax that politicians impose on corporations.

The investors that own companies obviously pay (more than one time!) when governments tax profits.

The workers employed by companies obviously pay, both directly and indirectly, because of corporate income tax.

And consumers also bear a burden thanks to business taxes that lead to higher prices and reduced output.

Keep these points in mind as we discuss BEPS (“base erosion and profit shifting”), which is a plan to increase business tax  burdens being advanced by the Organization for Economic Cooperation and Development (OECD), a left-leaning international bureaucracy based in Paris.

Working on behalf of the high-tax nations that fund its activities, the OECD wants to rig the rules of international taxation so that companies can’t engage in legal tax planning.

The Wall Street Journal’s editorial page is not impressed by this campaign for higher taxes on employers.

The Organization for Economic Cooperation and Development last week released its latest proposals to combat “base erosion and profit shifting,” or the monster known as BEPS. The OECD and its masters at the G-20 are alarmed that large companies are able to use entirely legal accounting and corporate-organization strategies to shield themselves from the highest tax rates governments try to impose. …The OECD’s solution to this “problem” boils down to suggesting that governments tax the profits arising from operations in their jurisdiction, regardless of where the business unit that earned those profits is legally headquartered. The OECD also proposes that companies be required to report to each government on the geographic breakdown of profits, the better to catch earnings some other country might not have taxed enough.

What’s the bottom line?

This is a recipe for investment-stifling compliance burdens and regulatory uncertainty…the result of implementing the OECD’s recommendations would be lower tax revenues and fewer jobs.

By the way, I particularly appreciate the WSJ’s observation that tax competition and tax planning are good for high-tax nations since they enable economic activity that otherwise wouldn’t tax place (just as I explained in my video on the economics of tax havens).

Existing tax rules have been a counterintuitive boon to high-tax countries because companies can shield themselves from the worst excesses of the tax man while still running R&D centers, corporate offices and the like—and hiring workers to staff them—in places like the U.S. and France.

The editorial also suggests the BEPS campaign against multinational firms may be a boon for low-tax Ireland.

All of which is great news for Ireland, the poster child for a low corporate tax rate.

The Ireland-based Independent, however, reports that the Irish government is worried that the OECD’s anti-tax competition scheme will slash its corporate tax revenue because other governments will get the right to tax income earned in Ireland.

The country’s corporation tax is under scrutiny due to the multinational companies locating here and availing of our low 12.5pc tax rate – or much lower rates in some cases. US politicians have accused Ireland of being a “tax haven”… The OECD, a body made up of 34 western economies, is drawing up plans to restrict the ability of multinationals to move their income around to minimise their tax bill. …a draft Oireachtas Finance Committee report on global taxation, seen by the Irish Independent, contains warnings that Ireland’s corporation tax revenues, which amount to €4bn every year, will be halved under the new system. …Tax expert Brian Keegan is quoted in the report as saying: “Some of the OECD proposals would undoubtedly, result in that €4bn being reduced to €3bn or €2bn. That is the threat.”

So which newspaper is right? After all, Ireland presumably can’t be a winner and a loser.

But both are correct. The Irish Committee report is correct since the BEPS rules, applied to companies as they are currently structured, would be very disadvantageous to Ireland. But the Wall Street Journal thinks that Ireland ultimately would benefit because companies would move more or their operations to the Emerald Isle in order to escape some of the onerous provisions contained in the BEPS proposals.

That being said, I think Ireland and other low-tax jurisdictions ultimately would be losers for the simple reason that the current BEPS plan is just the beginning.

The high-tax nations will move the goal posts every year or two in hopes of grabbing more revenue.

The end goal is to create a system based on “formula apportionment.”

Here’s what I wrote last year about such a scheme.

…the OECD hints at its intended outcome when it says that the effort “will require some ‘out of the box’ thinking” and that business activity could be “identified through elements such as sales, workforce, payroll, and fixed assets.” That language suggests that the OECD intends to push global formula apportionment, which means that governments would have the power to reallocate corporate income regardless of where it is actually earned. Formula apportionment is attractive to governments that have punitive tax regimes, and it would be a blow to nations with more sensible low-tax systems. …business income currently earned in tax-friendly countries, such as Ireland and the Netherlands, would be reclassified as French-source income or German-source income based on arbitrary calculations of company sales and other factors. …nations with high tax rates would likely gain revenue, while jurisdictions with pro-growth systems would be losers, including Ireland, Hong Kong, Switzerland, Estonia, Luxembourg, Singapore, and the Netherlands.

Equally important, I also pointed out that formula apportionment would largely cripple tax competition for companies, which means higher tax rates all over the world.

…formula apportionment would be worse than a zero-sum game because it would create a web of regulations that would undermine tax competition and become increasingly onerous over time. Consider that tax competition has spurred OECD governments to cut their corporate tax rates from an average of 48 percent in the early 1980s to 24 percent today. If a formula apportionment system had been in place, the world would have been left with much higher tax rates, and thus less investment and economic growth. …If governments gain the power to define global taxable income, they will have incentives to rig the rules to unfairly gain more revenue. For example, governments could move toward less favorable, anti-investment depreciation schedules, which would harm global growth.

Some people have argued that I’m too pessimistic and paranoid. BEPS, they say, is simply a mechanism for tweaking international rules to stop companies from egregious tax planning.

But I think I’m being realistic.Why? Because I know the ideology of the left and I understand that politicians are always hungry for more tax revenue.

For example, from the moment the OECD first launched its campaign against so-called tax havens, I kept warning that the goal was global information sharing.

The OECD and its lackeys said I was being demagogic and that they simply wanted “upon request” information sharing.

So who was right? Click here to find out.

Not that I deserve any special award for insight. It doesn’t (or shouldn’t) take a genius, after all, to understand the nature of government.

Let’s close with some economic analysis of why the greed of politicians should be constrained by national borders.

P.S. The OECD, with the support of the Obama Administration, wants something akin to a World Tax Organization that would have the power to disallow free-market tax policy.

P.P.S. And the OECD also allied itself with the nutjobs in the Occupy movement in order to push class-warfare taxation.

P.P.P.S. Your tax dollars subsidize the OECD’s left-wing activism.

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I hate to sound like a broken record, but the Organization for Economic Cooperation and Development (OECD) is once again pushing for bigger and more intrusive in the United States. The international bureaucracy’s “Economic Survey” of the United States reads like it was produced by some interns at the Democratic National Committee.

Since the OECD is based in Paris, I suppose it’s not very surprising that it has a statist agenda. But it’s still offensive because American taxpayers finance the biggest portion of the bureaucracy’s budget.

In other words, I’m subsidizing the people who are interfering with America’s domestic policy in hopes of making America more like France!

Moreover, the OECD’s transformation into a pro-statism organization is disappointing since, as I wrote back in 2011 when reviewing some academic analysis of the organization’s left-wing drift, “the OECD initially was designed to be a relatively innocuous bureaucracy that focused on statistics. Indeed, it was even viewed as a free-market counterpart to the Soviet Bloc’s Council for Mutual Economic Assistance.”

Yet today, the OECD behaves as if the West lost the Cold War.

But enough complaining on my part. Let’s look at what the OECD recommended in its Economic Survey.

We’ll start with the (sort of) good news. The bureaucrats actually recognize that America’s economy is suffering from a very anemic recovery and expansion (some of us have been making this point for years).

Here are a couple of charts from the report looking at economic output and employment. As you can see, even bureaucrats from Paris acknowledge that Obamanomics has generated dismal results.

Here’s the chart looking at GDP.

And here’s the chart looking at employment.

So did the bureaucrats look at these grim numbers and conclude that bigger government isn’t working?

Nope. They basically suggested that America should double down on statism.

I’m not joking. Here are some of the specific suggestions from the report.

The OECD suggested that the United States should “Cut the marginal corporate income statutory tax rate.” You might think that’s a pro-growth recommendation, but the bureaucracy simultaneously recommended that politicians “broaden the tax base, notably by phasing out tax allowances” and also advised them to “take measures to prevent base erosion and profit shifting.” In other words, the OECD embraced Obama’s rearrange-the-deck-chairs-on-the-Titanic proposal.

The OECD urged that politicians “Make the personal tax system more redistributive.” This is an astounding proposal given that the United States already has the most “progressive” tax system of all developed nations (primarily because we have much lower taxes on poor and middle-income taxpayers). The only silver lining to this black cloud is that the OECD wants to further penalize the rich “by restricting regressive income tax expenditures” rather than by raising tax rates. Maybe Francois Hollande gave them some advice on being merciful?

The OECD is a big fan of redistribution, so it’s not surprising to read that the bureaucracy suggests “expanding the ETIC,” regardless of all the fraud. But I confess that I’m surprised that the organization also endorsed “a higher minimum wage.” I understand that the organization see its role as being supportive of Obama, but you would think that the economists at the OECD would have enough self respect and human decency to block a proposal to harm poor people.

The OECD not only wants to make it hard for low-skilled people to get jobs, it also wants to encourage discrimination against younger women. At least that’s the only logical conclusion after reading that the bureaucrats embraced the White House’s scheme for “paid family leave nationally.” As you might imagine, businesses respond to incentives and will be less likely to higher women of childbearing age if the law makes them liable for paying workers who aren’t on the job.

The OECD unsurprisingly reiterates its support for Obama’s global-warming agenda, suggesting that U.S. politicians should be “putting a price on greenhouse gas emissions.” Translated from jargon, this would mean a big tax on energy consumption. And speaking of energy taxes, the bureaucrats also say that government in America should be “capturing some of the resource rent” of energy production. That’s another jargon-laden way of saying that politicians should make it more expensive for people to drive their cars and heat their homes (makes you wonder if they hacked the IMF computers to come up with those bad ideas).

The OECD also thinks the federal government should be more involved in raising kids. The report recommends “Expanding effective targeted interventions – such as Head Start, Early Head Start.” Apparently we’re supposed to applaud good intentions and ignore the fact that even government-sponsored research finds that these programs don’t benefit kids.

There are more bad policies, but this is getting repetitive, so let’s close with some additional charts from the report.

I think you’ll agree that the selection of material and the presentation of the charts (particularly the headings) make it obvious that the OECD is endorsing more statism.

After all, nobody likes their country to be “low” when compared to other nations.

And who want to have “fallen behind”?

And if “fallen behind” is bad, then “lags behind” may be even worse!

Sigh. In every case, the clear implication is that government should spend more and intervene more.

Gee, I guess I’m supposed to be embarrassed that the United States is “behind” all the wonderful and socially conscious European nations.

Except we’re not behind, at least when it comes to the data that really matter. Just click here, here, and here before deciding whether Americans should listen to the OECD and copy Europe’s welfare states.

P.S. Don’t forget that the OECD’s misguided analysis and recommendations were developed with your tax dollars. Sort of makes you wonder why GOPers don’t eliminate the handouts that facilitate such nonsense.

P.P.S. Just in case you wonder whether this report is an anomaly, here are a few other examples of OECD work.

*It has allied itself with the nutjobs from the so-called Occupy movement to push for bigger government and higher taxes in the United States.

*The bureaucrats are advocating higher business tax burdens, which would aggravate America’s competitive disadvantage.

*The OECD is pushing a “Multilateral Convention” that is designed to become something akin to a World Tax Organization, with the power to persecute nations with free-market tax policy.

*It supports Obama’s class-warfare agenda, publishing documents endorsing “higher marginal tax rates” so that the so-called rich “contribute their fair share.”

*The OECD advocates the value-added tax based on the absurd notion that increasing the burden of government is good for growth and employment.

*It even concocts dishonest poverty numbers to advocate more redistribution in the United States.

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Since I’m an economist, I generally support competition.

But it’s time to admit that competition isn’t always a good idea. Particularly when international bureaucracies compete to see which one can promote the most-destructive pro-tax policies.

For instance, I noted early last year that the bureaucrats at the Organization for Economic Cooperation and Development (OECD) were pushing a new scheme to increase the global tax burden on the business community.

Then I wrote later in the year that the International Monetary Fund was even more aggressive about pushing tax hikes, earning it the label of being the Dr. Kevorkian of the world economy.

That must have created some jealousy at the OECD, so those bureaucrats earlier this year had a taxpalooza party and endorsed a plethora of class-warfare tax hikes.

Now the IMF has responded to the challenge and is pushing additional tax increases all over the world.

For example, the bureaucrats want much higher taxes on energy use, both in the United States and all around the world.

This chart from the IMF shows how much the bureaucracy thinks that the tax should be increased just on coal consumption.

The chart doesn’t make much sense, particularly if you don’t know anything about “gigajoules.” Fortunately, Ronald Bailey of Reason translates the jargon and tells us how this will impact the average American household.

The National Journal reports that the tax rate would be $8 per gigajoule of coal and a bit over $3 per gigajoule of natural gas. Roughly speaking a ton of coal contains somewhere around 25 gigajoules of energy, which implies a tax rate of $200 per ton. …The average American household uses about 11,000 kilowatt hours annually, implying a hike in electric rates of about $1,100 per year due to the new carbon tax. Since the average monthly electric bill is about $107, the IMF’s proposed tax hike on coal would approximately double how much Americans pay for coal-fired electricity. A thousand cubic feet (mcf) of natural gas contains about 1 gigajoule of energy. The average American household burns about 75 mcf of natural gas annually so that implies a total tax burden of $225 per residential customer.

To be fair, the IMF crowd asserts that all these new taxes can be – at least in theory – offset by lower taxes elsewhere.

…we are generally talking about smarter taxes rather than higher taxes. This means re-calibrating tax systems to achieve fiscal objectives more efficiently, most obviously by using the proceeds to lower other burdensome taxes. The revenue from energy taxes could of course also be used to pay down public debt.

Needless to say, I strongly suspect that politicians would use any new revenue to finance a larger burden of government spending. That’s what happened when the income tax was enacted. That’s what happened when the payroll tax was enacted. That’s what happened when the value-added tax was enacted.

If you think something different would happen following the implementation of an energy tax, you win the grand prize for gullibility.

But let’s give the IMF credit. The bureaucrats are equal opportunity tax hikers. They don’t just want higher taxes in the United States. They give the same message everywhere in the world.

Here are some excerpts from an editorial about Spanish fiscal policy in the Wall Street Journal.

Madrid last month cut corporate and personal tax rates, simplified Spain’s personal-income tax system and vowed to close loopholes. That’s good news… So leave it to the austerity scolds at the International Monetary Fund to call for tax increases. …Specifically, the Fund wants Spain to raise value-added taxes, alcohol and tobacco excise taxes, tourism taxes, and various environmental and energy levies: “It will be critical to protect the most vulnerable by increasing the support system for them via the transfer and tax system.”

Gee, I suppose that we should be happy the IMF didn’t endorse higher income taxes as well.

The good news is that the Spanish government may have learned from previous mistakes that tax hikes don’t work.

Rather than heed this bad advice, Prime Minister Mariano Rajoy and Finance Minister Cristobal Montoro are cutting government spending and eliminating wasteful programs to reduce pressure on the public fisc. Public spending amounted to 44.8% of GDP in 2013, which is still too high but down from 46.3% in 2010. The government projects it will fall to 40% by 2017.Madrid has also made clear that it believes private growth is the real answer to its fiscal woes. …In other words, economic growth spurred by low taxes and less state intervention yields more revenue over time. If Mr. Montoro can pursue the logic of that insight, there’s hope for Spain’s beleaguered economy.

I’m not overly confident about Spain’s future, but it is worth noting that, according to IMF data, government spending has basically been flat since 2010 (after rising by an average of about 10 percent annually in the previous three decades).

So if the politicians can maintain fiscal discipline by following my Golden Rule, maybe Spain can undo decades of profligacy and become the success story of the Mediterranean.

Let’s hope so. In any event, we know some Spanish taxpayers have decided that they’re tired of being fleeced.

We have one final example of the IMF’s compulsive tax-aholic instincts.

Allister Heath explains that the bureaucracy is pushing for a plethora of new taxes on the U.K. economy.

The IMF wants an increase in the VAT burden.

…the IMF wants to get rid or significantly reduce the zero-rated exemption on VAT, which covers food, children’s clothes and the rest. While it is true that the exemptions reduce economic efficiency, ditching them would necessitate a big hike in benefits and a major uplift in the minimum wage, which would be far more damaging to the economy’s performance and ability to create jobs for the low-skilled. It’s a stupid idea and one which would destroy any government that sought to implement it, with zero real net benefit. It would be a horrendous waste of precious political capital that ought instead to be invested in real reform of the public sector.

And an increase in energy taxes.

The report also calls for a greater reliance on so-called Pigouvian taxes, which are supposed to discourage externalities and behaviour which inflicts costs on others. It mentions higher taxes on carbon and on congestion as examples. But what this really means is that the IMF is advocating a massive tax increase on motorists, even though there is robust evidence which suggests that they already pay much more, in the aggregate, than any sensible measure of the combined cost of road upkeep and development, pollution and congestion.

And higher property taxes.

It gets worse: these days, one cannot read a document from an international body that doesn’t call for greater taxes on property. This war on homeowners is based on the faulty notion that taxing people who own their homes doesn’t affect their behaviour, which is clearly ridiculous. This latest missive from the IMF doesn’t disappoint on this front: it calls for the revaluation of property for tax purposes, which is code for a massive increase in council tax for millions of homes, especially in London and the home counties.

Understandably, Allister is not thrilled by the IMF’s proposed tax orgy.

The tax burden is already too high; increasing it further would be a terrible mistake. The problem is that spending still accounts for an excessively large share of the economy, and the political challenge is to find a way of re-engineering the welfare state to allow the state to shrink and the private sector to expand. The model should be Australia, Switzerland or Singapore, countries that boast low taxes and high quality services.

And I particularly like that Allister correctly pinpoints the main flaw in the IMF’s thinking. The bureaucrats look at deficits and they instinctively think about how to close the gap with tax hikes.

That’s flawed from a practical perspective, both because of the Laffer Curve and because politicians will respond to the expectation of higher revenue by boosting spending.

But it’s also flawed from a theoretical perspective because the real problem is that the public sector is far too large in all developed nations. So replacing debt-financed spending with tax-financed spending doesn’t address the real problem (even if one heroically assumes revenues actually materialize and further assumes politicians didn’t exacerbate the problem with more spending).

Here’s a remedial course for politicians, international bureaucrats, and others who don’t understand fiscal policy.

P.S. Wise people have speculated that international bureaucrats are quick to urge higher taxes because they don’t have to pay taxes on their lavish salaries.

P.P.S. This isn’t the first time the IMF has proposed massive tax hikes on energy consumption.

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It’s a bad idea when governments demand information on your bank accounts and investments so they can impose economically destructive double taxation.

It’s a worse idea when they also demand the right to tax economic activity in other jurisdictions (otherwise known as “worldwide taxation“).

And it’s the worst possible development when governments decide that they should impose a global network of data collection and dissemination as part of a scheme of worldwide double taxation.

Yet that’s exactly what’s happening. High-tax nations, working through the Paris-based Organization for Economic Cooperation and Development, want to impose a one-size-fits-all system of “automatic information exchange” that would necessitate the complete evisceration of financial privacy.

David Burton of the Heritage Foundation explains the new scheme for giving governments more access to peoples’ private financial information.

…the Organization for Economic Cooperation and Development released the full version of the global standard for automatic exchange of information. The Standard for Automatic Exchange of Financial Account Information in Tax Matters calls on governments to obtain detailed account information from their financial institutions and exchange that information automatically with other jurisdictions on an annual basis.

I think this is bad policy, regardless. It is based on imposing and enforcing bad tax policy.

But David goes one step farther. He warns that this global network of tax police includes many unsavory nations.

It is one thing to exchange financial account information with Western countries that generally respect privacy and are allied with the United States. It is an entirely different matter to exchange sensitive financial information about American citizens or corporations with countries that do not respect Western privacy norms, have systematic problems with corruption or are antagonistic to the United States. States that fall into one of these problematic categories but are participating in the OECD automatic exchange of information initiative include Colombia, China and Russia. …The Obama administration enthusiastically supports the OECD initiative.

Moreover, David wisely does not believe we should trust the Obama Administration’s hollow assurances that other nations won’t misuse the data.

…even the administration has realized important privacy issues at are stake. Robert B. Stack, Deputy Assistant Secretary of the Treasury for International Tax Affairs, has testified that “the United States will not enter into an information exchange agreement unless the Treasury Department and the IRS are satisfied that the foreign government has strict confidentiality protections…” Leaving these determinations to a tax agency with little institutional interest in anything other than raising tax revenue is dangerous. There is little doubt sensitive financial information about American citizens and businesses can and will be used by some governments for reasons that have nothing to do with tax administration, such as identifying political opponents’ financial resources or industrial espionage. In addition, individuals in corrupt governments may use the information for criminal purposes such as identity theft, to access others’ funds or to identify potential kidnapping victims. It is naïve to think otherwise. …The Senate should not ratify this protocol. The risks to American citizens and American businesses are too great.

David is exactly right, but too restrained and polite in his assessment.

Richard Rahn, my colleague at Cato, is more blunt in his analysis. Here’s some of what he wrote for the Washington Times.

Do you want the Obama administration sharing all of your financial information with the Russian, Chinese and Saudi Arabian governments? You may be thinking, not even President Obama would go that far. Not so… The rationale behind this despicable idea is to more effectively enable governments, such as that of France and the United States, to identify tax evaders. This might sound like a good idea until one realizes that every individual and business will be stripped of all of their financial privacy if this becomes the law of the land… all of the information that financial institutions now report to the U.S. government to try to ensure income-tax compliance, including your account balances, interest, dividends, proceeds from the sale of financial assets — would be shared with foreign governments. This would apply not only for individuals, but also for both financial and nonfinancial businesses, plus trust funds and foundations. 

Richard then explains that we can’t even trust the bureaucrats at the IRS.

The United States and other governments will, of course, claim that your sensitive financial information will remain confidential — and that you can trust the governments. After the recent Internal Revenue Service scandals — which recur every decade or so — why would anyone believe anything the IRS says? Remember, the IRS leaked information on some of Mitt Romney’s donors during the 2012 presidential campaign. It was blatantly illegal, and the IRS (i.e., you the taxpayer) paid a small fine, but no one went to jail. Many U.S. presidents have misused the IRS, starting at least as far back as Franklin Roosevelt, and the American people are always told “never again,” which is the beginning of the new lie.

And he logically concludes it would be even more foolish to trust foreign tax bureaucracies.

Particularly the tax authorities of the many nations that abuse human rights and persecute minorities, as well the tax police in nations that are too incompetent to be trusted with sensitive data.

…just think what is going to happen when all of those corrupt officials in foreign governments get ahold of it. Some will use the information for identity theft and to raid bank accounts, others for industrial espionage, some to identify potential kidnapping victims and some for political purposes. The potential list goes on and on. The U.S. Treasury Department says it will insist on strict confidentiality protections. (Lois Lerner, please call your office.) If you are a Ukrainian-American who donates to Ukrainian free-market and democratic causes, would you really think that Vladimir Putin’s team, having your financial information, would not misuse it? If you are an American Jew who donates to Israeli causes, do you really think that all of those in the Saudi government who now have full access to your confidential financial information are not going to misuse it? The Chinese are well known for using malware against their opponents. Just think of all the mischief they could cause if they had access to all of the sensitive financial information of human rights advocates in America.

Richard draws the appropriate conclusion. Simply stated, there’s no way we should have a global regime of automatic information exchange simply because a handful of high-tax nations want to remake global tax policy so they can prop up their decrepit welfare states.

As Lord Acton famously reminded us, governments are prone to misuse information and power. The instrument behind this information-sharing ploy is the OECD, which started out as a statistical collection and dissemination agency to promote free trade among its members. It has now morphed into an international agency promoting big government and higher taxes, and the destruction of financial freedom — while at the same time, by treaty, its staff salaries are tax-exempt. No hypocrisy there. Thinking Republicans and Democrats should unite around opposition to this terrible treaty and defund the OECD. Those who vote for it will deservedly be easy marks for their political opponents.

And kudos to Richard for urging the defunding of the OECD. It is absurd that American tax dollars are funding a Paris-based bureaucracy that constantly urges policies that would undermine the U.S. economy.

Especially when they’re insulated from the negative effects of the policies they push. Since they’re on the public teat, they don’t suffer when the private economy is battered. And they don’t even have to pay tax on their very generous salaries.

P.S. I’m very glad to report that at least one lawmaker is doing the right thing. Senator Rand Paul is leading the fight to block proposals that would put Americans at risk by requiring the inappropriate collection and sharing of private financial information.

P.P.S. By way of background, the OECD scheme is part of an effort to cripple tax competition so that high-tax nations can impose higher tax rates and finance bigger government. To learn more about tax competition (and tax havens), watch this four-part video series.

P.P.P.S. The OECD scheme is basically a multilateral version of the horrid “FATCA” legislation signed by Obama back in 2010.

P.P.P.P.S. Maybe I’m old-fashioned, but I think a global tax database is even worse than an Obamacare database on our sex lives.

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If some special-interest lobbies give money so that a left-wing group can propose something like a value-added tax to finance bigger government, that’s no surprise.

And if a bunch of subsidy recipients donate money to Barack Obama or some other statist politician because they hope for new programs, that’s also standard procedure in DC.

I’ll fight these initiatives, of course, but I don’t get overly upset when these things happen.

What does drive me crazy, though, is when proponents of big government want to use my money to subsidize left-wing activism.

This is why I’m against taxpayer handouts for groups such as Planned Parenthood and AARP. If they want to endorse bigger government, get voluntary contributions to push that destructive agenda.

All I ask is that you don’t coerce me to subsidize statism.

I get especially upset when international bureaucracies use my money to push for bigger government. And it the past few days, the International Monetary Fund (IMF) and Organization for Economic Cooperation and Development (OECD) have delivered a one-two punch for statism.

And they used our money!

The IMF advocated for more government in their recent survey of the United States.

The recent expansion of Medicaid and the increase in health insurance coverage have been concrete steps whose effect on poverty and health outcomes should become more evident over time. An expansion of the Earned Income Tax Credit—to apply to households without children, to older workers, and to low income youth—would be another effective tool to raise living standards for the very poor. …the minimum wage should be increased. …Action is also needed to achieve a sustained increase in both Federal and State spending on infrastructure paid for by…additional revenues, and an expansion of financing sources… The Federal gas tax should be significantly increased. …Some progress has already been made…through implementation of the Affordable Care Act… Addressing the expected depletion of the social security trust fund will require…increases the ceiling on taxable earnings for social security… In addition, the U.S. should introduce a broad-based carbon tax and move toward the introduction of a Federal-level VAT.

Keep in mind, by the way, that the IMF already has endorsed a giant energy tax on American consumers, as well as a value-added tax.

Though, to be fair, they’re not discriminating against Americans. The IMF has a long track record of pushing for bad policy in other nations.

Meanwhile, the statists at the OECD also are pushing for a wide range of bad policies.

The report encourages close cooperation between businesses and government… The Survey highlights that income inequality is high in the United States. …While this cannot be improved easily, the report praises reforms recently adopted or being considered: health care reform will help vulnerable families access high-quality care; OECD Carbon Obamadealing with mental health will help reduce job loss and disability; preschool education would be a good investment in children’s future and help middle-class parents; and paid maternity leave would help working women. …The OECD recommends introducing an adequate pricing of greenhouse gas emissions and supporting innovation in energy saving and low carbon technology.

Unsurprisingly, the OECD endorses a panoply of tax hikes to enable a bigger and more bloated public sector.

Act toward rapid international agreement and take measures to prevent base erosion and profit shifting… Make the personal tax system more redistributive… The federal government could…develop a social insurance programme for paid leave for all workers funded by a small increase in the payroll tax… Taxing the extraction of non-renewable resources offers the potential to raise revenue… Increase reliance on consumption taxation.

The OECD favors higher taxes for everyone, so it’s not as if they’re targeting Americans.

But it’s nonetheless irritating when a bunch of pampered international bureaucrats take money from American taxpayers and then use those funds to produce “research” calling for even higher tax burdens.

Especially when those bureaucrats are exempt from the income tax!!!

And keep in mind that this isn’t the first time that the OECD has acted as a public relations team for Obama’s statist agenda.

P.S. The one silver lining to the dark cloud of the IMF is that the bureaucrats inadvertently generated some very powerful evidence against the VAT.

P.P.S. And the OECD accidentally produced some data showing the poor results of governments schools in the United States, so that’s a bit of consolation as well.

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