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Archive for the ‘International bureaucracy’ Category

When writing about the Organization for Economic Cooperation and Development, an international bureaucracy based in Paris, my life would be simpler if I created some sort of automatic fill-in-the-blanks system.

Something like this.

The OECD, subsidized by $____ million from American taxpayers, has just produced a new _________ that advocates more power for governments over the _________ sector of the economy.

But this may not be sufficiently descriptive.

So maybe I should create a multiple choice exercise. Sort of like when students take tests and get asked to circle the most appropriate answer.

The bureaucrats at the Paris-based OECD, working in cooperation with union bosses/class-warfare advocates/other tax-free international bureaucrats/politicians, have released a new report/study/paper urging more power/control/authority for governments in order to increase regulation/taxes/spending/redistribution/intervention.

You may think I’m trying to be funny, but this is totally serious.

How else would you describe a bureaucracy that consorts and cooperates with leftist groups like Occupy Wall Street and the AFL-CIO and routinely published propaganda in favor of Obama’s agenda on issues such as global warming, government-run healthcare, so-called stimulus, and class-warfare taxation.

And never forget that American taxpayers finance the biggest chunk of this bureaucracy’s budget.

Adding insult to injury, the bureaucrats at the OECD get tax-free salaries, which makes their relentless support for higher taxes on the rest of us even more obnoxious.

Now we have some new examples of the OECD’s statist mischief.

Here’s some of what the Center for Freedom and Prosperity recently uncovered.

At its sixth annual conference, the George Soros-founded Institute for New Economic Thinking will feature prominent left-wing economists Thomas Piketty, Joseph Stiglitz, and self-described Marxist and Greek Finance Minister, Yanis Varoufakis. By itself that wouldn’t be remarkable, but the meeting will come with the implicit endorsement of the U.S. taxpayer thanks to the sponsorship of the Organization for Economic Cooperation and Development (OECD), which gets over 20 percent of its funding from the United States.

So why is the OECD subsidizing a left-wing gabfest and giving publicity to way-out-of-the-mainstream characters like Piketty?

Part of the answer, one suspects, is that the bureaucracy has a bloated budget.

But the bigger reason is presumably that the bureaucrats want to push a statist ideological agenda.

…tax collectors have hijacked the OECD… Over the last decade and a half, they have threatened and cajoled low-tax jurisdictions into counter-productive reforms that make their economies less attractive to those suffering under the excessive taxes required to fund European welfare states. …They have essentially turned the OECD into a global tax cartel, or an OPEC for politicians.

None of this is a surprise because it’s part of a bigger pattern.

The OECD gets its money from governments. Most of those governments are European welfare states. The bureaucrats at the OECD get very generous tax-free salaries.

So of course they’re going to pump out whatever propaganda is needed to please their political (and pay) masters.

Here are some other recent examples, both of which were disseminated by the OECD’s Washington Center, which mostly exists to make sure that Congress and the White House maintain the gravy train of handouts to Paris.

Our first example of economic malpractice is this nonsense about a so-called gender wage gap. Note that the OECD is forced to admit the numbers are “unadjusted.”

That’s because lots of research shows that the wage gap disappears once you adjust for factors such as hours worked, types of professions, and work history.

By the way, just in case you think I’m only citing pro-market sources, it’s very much worth noting that even one of President Obama’s economic advisers confessed that the left’s gender-gap numbers are bogus.

Now let’s look at another chart.

I’ve previously explained that what matters most for the poor is economic growth.

Yet statists prefer to focus on the rich-v-poor gap because they want to mislead folks into thinking the economy is a fixed pie (as depicted here) and the income of the rich is at the expense of the poor.

And that’s the purpose of this OECD chart.

This very much reminds me of the OECD’s laughably dishonest research on poverty, which purports to show that there is more poverty in the United States than there is in economically distressed nations such as Greece, Turkey, Hungary, and Portugal.

As you can see from this video, statism is now the OECD’s chief product.

Which is why Republicans in Congress, if they actually on the side of taxpayers, should defund this destructive bureaucracy.

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The Organization for Economic Cooperation and Development is a Paris-based international bureaucracy with the self-proclaimed mission to “promote policies that will improve the economic and social well-being of people around the world.”

But if there was a truth-in-advertizing requirement, the OECD would instead say that its mission is to “promote policies that will increase the size, scope and power of government.”

Here are just a few examples of statist policies that are directly contrary to the interests of the American people.

The OECD 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.

And, most recently, the OECD published a report suggesting numerous schemes to increase national tax burdens.

And here’s the insult on top of injury. You’re paying for this nonsense. American taxpayers finance the biggest share of the OECD’s budget.

And I’m sure you’ll be happy to know that the OECD is now pushing for a massive energy tax.

Here are some relevant passages from an article in the OECD Observer.

…it’s prime time to introduce a tax on carbon… “Every government will need to explain how their policy settings are consistent with a pathway to eliminate emissions from fossil fuel combustion in the second half of the century,” says OECD Secretary-General Angel Gurría. This means looking at all policy measures to assess if they are effective in reducing CO2 emissions and in line with governments’ climate change objectives. An OECD report, Climate and Carbon: Aligning Prices and Policies outlines specific actions.

By the way, you can access the Climate and Carbon report by clicking here. But since I assume few if any people will want to read a turgid 57-page paper, let’s stick with excerpts from the short article in the OECD Observer.

All you really need to know is that the OECD (like the IMF) wants governments to boost energy prices, both explicitly and implicitly.

Explicit carbon pricing mechanisms, such as carbon taxes… other policies affect a country’s CO2 emissions and can effectively place an implicit price on carbon. …It’s time for governments to ramp up the development of alternative energies and to nail a price onto every tonne of CO2 emitted.

The article also includes other recommendations that are very worrisome. It suggests other fiscal changes that would boost taxes on the energy sector.

Needless to say, this means higher costs on energy consumers.

…carbon pricing should also include a review of the country’s fiscal policy to ensure that budgetary transfers and tax expenditures do not, directly or indirectly, encourage the production and use of fossil fuels.

By the way, when the OECD talks about “budgetary transfers” and “tax expenditures,” that’s basically bureaucrat-speak for back-door tax hikes such as changes to depreciation rules in order to force companies to overstate their income.

And since we’re deciphering bureaucrat-speak, check out this passage from the article.

…compensatory or other measures to mitigate the regressive impacts of reforms without losing the incentive to reduce emissions.

What the OECD is basically saying is that an energy tax will be very painful for the poor. But rather than conclude that the tax is therefore undesirable, they instead are urging that the new tax be accompanied by new spending.

Maybe this means higher welfare payments to offset increased energy prices. Maybe it means some sort of energy stamp program.

The details aren’t important at this point, particularly since the OECD isn’t making a specific proposal.

But what is important is that the OECD is using our tax dollars to advocate bigger government. So maybe the moral of the story is that we should stop subsidizing the OECD.

P.S. On a related topic, and in the interest of fairness, I have to give the OECD credit for being willing to publish an article on tax competition by my Australian friend, Professor Sinclair Davidson.

Sinclair points out that the OECD’s anti-tax competition campaign is based on the premise that bad things happen if labor and capital have some ability to migrate from high-tax nations to low-tax jurisdictions.

Yet the OECD has never been able to put forth any evidence for this assertion.

High income economies have tended to follow irresponsible fiscal policies over an extended period of time. …governments have been trying to access new sources of revenue. …The OECD has been campaigning on “harmful tax practices” since the late 1990s. …The report itself was a somewhat wordy affair that actually failed to define what ‘harmful tax practices’ constitute.Most damning of all, however, is that the OECD was unable to produce any actual evidence of these dire consequences, arguing instead: “A regime can be harmful even where it is difficult to quantify the adverse economic impact it poses”. The dog had eaten their homework.

What’s really going on, as Sinclair explains, is that politicians want a tax cartel to enable bigger government.

It turns out that governments and politicians, like business, don’t always appreciate having to work at improving themselves and offering a more attractive mix of services and taxation in order to attract business. …It is perfectly understandable why governments would want to establish a tax cartel. …countries, rather than respond to such competition by competing themselves, have chosen instead to engage in fiscal imperialism – bullying and cajoling sovereign nations to change their domestic policies.

Again, kudos to the OECD for allowing a contrary viewpoint.

I guess the bureaucrats are more relaxed now than they were back in 2001, when the OECD threatened to cancel an entire conference simply because I was present, or in 2008, when the OECD threatened to have me thrown in jail for giving advice to low-tax jurisdictions at another conference.

P.P.S. For additional information on why American taxpayers shouldn’t be subsidizing a left-wing bureaucracy in France, here’s my video on the OECD.

Now you can understand why eliminating handouts for the OECD should be a gimme for congressional Republicans.

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I’m a firm believer in climate change. Heck, there have been several ice ages and warming periods, so it’s obvious that temperatures shift over time.

And while I’m not particularly qualified to assess such matters, I’m also willing to believe that human activity has an effect on climate.

Moreover, even though I much prefer warm weather, I’m also open to the idea that global warming might be a bad thing that requires some action.

But here’s the catch. I don’t trust radical environmentalists. Simply stated, too many of these people are nuts.

Then there’s the super-nutty category.

But you know what’s even worse than a nutty environmentalist?

What terrifies me far more are the very serious, very connected, and very powerful non-nutty environmentalists who hold positions of real power. These folks are filled with arrogance and hubris and they have immense power to cause damage.

If you think I’m exaggerating, here’s some of what was contained in a release from the United Nations Regional Information Centre for Western Europe.

By the way, remember that these excerpts are not the unhinged speculation of some crazy conservative or libertarian. These are actually the words – and stated intentions – of the U.N. bureaucracy. They want central planning on steroids.

Christiana Figueres, the Executive Secretary of UNFCCC,  warns that the fight against climate change is a process and that the necessary transformation of the world economy will not be decided at one conference or in one agreement. …”This is the first time in the history of mankind that we are setting ourselves the task of intentionally, within a defined period of time to change the economic development model that has been reigning for at least 150 years, since the industrial revolution. That will not happen overnight and it will not happen at a single conference on climate change, be it COP 15, 21, 40 – you choose the number. It just does not occur like that. It is a process, because of the depth of the transformation.”

Wow. These people want to “intentionally…change the economic development model” that has produced unimagined prosperity.

And they want to replace it with central planning by people who have never demonstrated any ability to generate wealth.

I’m not joking. If you look at Ms. Figueres’ Wikipedia page, you’ll see that she has even less experience in the private sector than President Obama.

Yup, just exactly the kind of pampered (and tax-free) global bureaucrat who should have the power to treat the global economy as some sort of Lego set.

Thomas Sowell has made the very important observation that there’s a giant difference between intelligence and wisdom and Ms. Figueres is a perfect example.

To give you an idea of her cloistered and narrow mindset, she was quoted by Bloomberg as expressing admiration for China’s totalitarian regime over America’s democratic system merely because it ostensibly produces the policies she prefers.

China, the top emitter of greenhouse gases, is also the country that’s “doing it right” when it comes to addressing global warming, the United Nations’ chief climate official said. …China is also able to implement policies because its political system avoids some of the legislative hurdles seen in countries including the U.S., Figueres said. …The political divide in the U.S. Congress has slowed efforts to pass climate legislation and is “very detrimental” to the fight against global warming, she said.

And the icing on the cake, needless to say, is that China’s environment is a catastrophe compared to the much cleaner air and water that exist in the United States!

Though you won’t be surprised to learn that Ms. Figueres is a great admirer of President Obama, even if he does represent a backwards democracy.

The climate chief even held up President Obama as a shining example of steps countries can take to tackle global warming.

Reminds me of a saying about birds of a feather, though I’m not sure how a bird with two left wings can get off the ground.

And don’t even get me started on all the exaggeration and hyperbole that is generated by the radical environmentalists. Though this Jim McKee cartoon is too good not to share.

P.S. Environmentalists are also grotesque hypocrites, as you can see here and here.

P.P.S. But to close on an upbeat note, we have some decent environmental humor here, here, here, and here.

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The International Monetary Fund isn’t my least-favorite international bureaucracy. That special honor belongs to the Organization for Economic Cooperation and Development, largely because of its efforts to undermine tax competition and protect the interests of the political class (it also tried to have me arrested, but I don’t hold that against them).

But the IMF deserves its share of disdain. It’s the Doctor Kevorkian of global economic policy, regularly advocating higher taxes and easy money even though that’s never been a recipe for national prosperity.

And it turns out that the IMF also is schizophrenic. The international bureaucracy’s latest big idea, garnering an entire chapter in the October World Economic Outlook, is that governments should spend more on infrastructure.

Barack Obama’s former chief economist supports the IMF scheme. Here some of what he wrote for the Washington Post.

…the IMF advocates substantially increased public infrastructure investment, and not just in the United States but in much of the world. It further asserts that under circumstances of high unemployment, like those prevailing in much of the industrialized world, the stimulative impact will be greater if this investment is paid for by borrowing… Why does the IMF reach these conclusions? …the infrastructure investment actually makes it possible to reduce burdens on future generations. …the IMF finds that a dollar of investment increases output by nearly $3. …in a time of economic shortfall and inadequate public investment, there is a free lunch to be had — a way that government can strengthen the economy and its own financial position.

Wow, That’s a rather aggressive claim. Governments spend $1 and the economy grows by $3.

Is Summers being accurate? What does the IMF study actually say?

It makes two big points.

The first point, which is reflected in the Summers oped, is that infrastructure spending can boost growth.

The study finds that increased public infrastructure investment raises output in the short term by boosting demand and in the long term by raising the economy’s productive capacity. In a sample of advanced economies, an increase of 1 percentage point of GDP in investment spending raises the level of output by about 0.4 percent in the same year and by 1.5 percent four years after the increase… In addition, the boost to GDP a country gets from increasing public infrastructure investment offsets the rise in debt, so that the public debt-to-GDP ratio does not rise… In other words, public infrastructure investment could pay for itself if done correctly.

But Summers neglected to give much attention to the caveats in the IMF study.

…the report cautions against just increasing infrastructure investment on any project. …The output effects are also bigger in countries with a high degree of public investment efficiency, where additional public investment spending is not wasted and is allocated to projects with high rates of return. …a key priority in economies with relatively low efficiency of public investment should be to raise the quality of infrastructure investment by improving the public investment process through, among others, better project appraisal, selection, execution, and rigorous cost-benefit analysis.

Perhaps the most important caveat, though, is that the study uses a “novel empirical strategy” to generate its results. That should raise a few alarm bells.

So is this why the IMF is schizophrenic?

Nope. Not even close.

If you want evidence of IMF schizophrenia, compare what you read above with the results from a study released by the IMF in August.

And this study focused on low-income countries, where you might expect to find the best results when looking at the impact of infrastructure spending.

So what did the author find?

On average the evidence shows only a weak positive association between investment spending and growth and only in the same year, as lagged impacts are not significant. Furthermore, there is little evidence of long term positive impacts. …The fact that the positive association is largely instantaneous argues for the importance of either reverse causality, as capital spending tends to be cut in slumps and increased in booms… In fact a slump in growth rather than a boom has followed many public capital drives of the past. Case studies indicate that public investment drives tend eventually to be financed by borrowing and have been plagued by poor analytics at the time investment projects were chosen, incentive problems and interest-group-infested investment choices. These observations suggest that the current public investment drives will be more likely to succeed if governments do not behave as in the past.

Wow. Not only is the short-run effect a mirage based on causality, but the long-run impact is negative.

But the real clincher is the conclusion that “public investment” is productive only “if governments do not behave as in the past.”

In other words, we have to assume that politicians, interest groups, and bureaucrats will suddenly stop acting like politicians, interest groups, and bureaucrats.

Yeah, good luck with that.

But it’s not just a cranky libertarian like me who thinks it is foolish to expect good behavior from government.

Charles Lane, an editorial writer who focuses on economic issues for the left-leaning Washington Post, is similarly skeptical.

Writing about the IMF’s October pro-infrastructure study, he thinks it relies on sketchy assumptions.

The story is told of three professors — a chemist, a physicist and an economist — who find themselves shipwrecked with a large supply of canned food but no way to open the cans. The chemist proposes a solvent made from native plant oils. The physicist suggests climbing a tree to just the right height, then dropping the cans on some rocks below. “Guys, you’re making this too hard,” the economist interjects. “Assume we have a can opener.” Keep that old chestnut in mind as you evaluate the International Monetary Fund’s latest recommendation… A careful reading of the IMF report, however, reveals that this happy scenario hinges on at least two big “ifs.”

The first “if” deals with the Keynesian argument that government spending “stimulates” growth, which I don’t think merits serious consideration.

But feel free to click here, here, here, and here if you want to learn more about that issues.

So let’s instead focus on the second “if.”

The second, and more crucial, “if” is the IMF report’s acknowledgment that stimulative effects of infrastructure investment vary according to the efficiency with which borrowed dollars are spent: “If the efficiency of the public investment process is relatively low — so that project selection and execution are poor and only a fraction of the amount invested is converted into productive public capital stock — increased public investment leads to more limited long-term output gains.” That’s a huge caveat. Long-term costs and benefits of major infrastructure projects are devilishly difficult to measure precisely and always have been. …Today we have “bridges to nowhere,” as well as major projects plagued by cost overruns and delays all over the world — and not necessarily in places you think of as corrupt. Germany’s still unfinished Berlin Brandenburg airport is five years behind schedule and billions of dollars over budget, to name one example. Bent Flyvbjerg of Oxford’s Said Business School studied 258 major projects in 20 nations over 70 years and found average cost overruns of 44.7 percent for rail, 33.8 percent for bridges and tunnels and 20.4 percent for roads.

Amen. Governments are notorious for cost overruns and boondoggle spending.

It happens in the United States and it happens overseas.

It’s an inherent part of government, as Lane acknowledges.

In short, an essential condition for the IMF concept’s success — optimally efficient investment — is both difficult to define and, to the extent it can be defined, highly unrealistic. As Flyvbjerg explains, cost overruns and delays are normal, not exceptional, because of perverse incentives — specifically, project promoters have an interest in overstating benefits and understating risks. The better they can make the project look on paper, the more likely their plans are to get approved; yet, once approved, economic and logistical realities kick in, and costs start to mount. Flyvbjerg calls this tendency “survival of the unfittest.” …Governments that invest in infrastructure on the assumption it will pay for itself may find out that they’ve gone a bridge too far.

Or bridge to nowhere, for those who remember the infamous GOP earmark from last decade that would have spent millions of dollars to connect a sparsely inhabited Alaska island with the mainland – even though it already had a very satisfactory ferry service.

Let’s close with two observations.

First, why did the IMF flip-flop in such a short period of time? It does seem bizarre for a bureaucracy to publish an anti-infrastructure spending study in August and then put out a pro-infrastructure spending study two months later.

I don’t know the inside story on this schizophrenic behavior, but I assume that the August study was the result of a long-standing research project by one of the IMF’s professional economists (the IMF publishes dozens of such studies every year). By contrast, I’m guessing the October study was pushed by the political bosses at the IMF, who in turn were responding to pressure from member governments that wanted some sort of justification for more boondoggle spending.

In other words, the first study was apolitical and the second study wasn’t.

Not that this is unusual. I suspect many of the economists working at international bureaucracies are very competent. So when they’re allowed to do honest research, they produce results that pour cold water on big government. Indeed, that even happens at the OECD.

But when the political appointees get involved, they put their thumbs on the scale in order to generate results that will please the governments that underwrite their budgets.

My second observation is that there’s nothing necessarily wrong with the IMF’s theoretical assertions in the August study. Infrastructure spending can be useful and productive.

It’s an empirical question to decide whether a new road will be a net plus or a net minus. Or a new airport runway. Or subway system. Or port facilities.

My view, for what it’s worth, is that we’re far more likely to get the right answers to these empirical questions if infrastructure spending is handled by state and local governments. Or even the private sector.

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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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