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Archive for the ‘OECD’ Category

What’s the best way to generate growth and prosperity for the developing world?

Looking at the incredible economic rise of jurisdictions such as Hong Kong and Singapore, it’s easy to answer that question. Simply put in place the rule of law, accompanied by free markets and small government.

But that answer, while unquestionably accurate, would mean less power and control for politicians and bureaucrats.

So you probably won’t be surprised to learn that when politicians and bureaucrats recently met to discuss this question, they decided that development could be best achieved with a policy of higher taxes and bigger government.

I’m not joking.

Reuters has a report on a new cartel-like agreement among governments to extract more money from the economy’s productive sector. Here are some key passages from the story.

Rich and poor countries agreed on Thursday to overhaul global finance for development, unlocking money for an ambitious agenda… The United Nations announced the deal on its website… Development experts estimate that it will cost over $3 trillion each year to finance the 17 new development goals… Central to the agreement is a framework for countries to generate more domestic tax revenues in order to finance their development agenda… Under the agreement, the UN Committee of Experts on International Cooperation in Tax Matters will be strengthened, the press release said.

Though there’s not total agreement within this crooks’ cartel. There’s a fight over which international bureaucracy will have the biggest role. Should it be the Organization for Economic Cooperation and Development, which is perceived as representing the interests of revenue-hungry politicians from the developed world?

Or should it be the United Nations, which is perceived as representing the interests of revenue-hungry politicians from the developing world?

Think of this battle as being somewhat akin to the fight between various socialist sects (Mensheviks, Trotskyites, Stalinists, etc) as the Soviet Union came to power.

Bloomberg has a story on this squabble.

Responsibility for tax standards should be moved to the UN from the Organization for Economic Co-operation and Development, a group of 34 rich countries, according to a position paper endorsed by 142 civil-society groups. …Tove Maria Ryding from the European Network on Debt and Development, [said] “Our global tax decision-making system is anything but democratic, excluding more than half of the world’s nations.”

I’m tempted to laugh about the notion that there’s anything remotely democratic about either the UN or OECD. Both international organizations are filled with unelected (and tax-free) bureaucrats.

But more importantly, it’s bad news for either organization to have any power over the global economy. Both bureaucracies want to replace tax competition with tax harmonization, precisely because of a desire to enable big expansion is the size and power of governments.

This greed for more revenue already has produced some bad policies, including an incredibly risky scheme to collect and share private financial information, as well as a global pact that could be the genesis of a world tax organization.

And there are more troubling developments.

Here are some excerpts from another Bloomberg report.

Step aside, Doctors Without Borders. …A team called Tax Inspectors Without Borders will be…established next week by the United Nations and the Organization for Economic Cooperation and Development. …Tax Inspectors Without Borders would take on projects or audits either by flying in to hold workshops…or embedding themselves full time in a tax agency for several months… “There is a lot of enthusiasm from developing countries” for this initiative, said John Christensen, the U.K.-based director of the nonprofit Tax Justice Network.

Gee, what a surprise. Politicians and bureaucrats have “a lot of enthusiasm” for policies that will increase their power and money.

But at the risk of repeating myself, the more serious point to make is that bigger government in the developing world is not a recipe for economic development.

The western world became rich when government was very small. As noted above, Hong Kong and Singapore more recently became rich with small government.

But can anyone name a country that became rich with big government?

I’ve posed that question over and over again to my leftist friends and they never have a good answer.

If we want the third world to converge with rich nations, they need to follow the policies that enabled rich nations to become rich in the first place.

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What’s the worst international bureaucracy?

But I think the Paris-based Organization for Economic Cooperation and Development has them all beat, particularly if we grade on a per-dollar-spent basis.

Just consider the OECD’s work on inequality. The bureaucrats recently published a study that claimed inequality somehow undermined growth.

In a column for the Wall Street Journal, Matthew Schoenfeld of Dreihaus Capital Management explains why the study is deeply flawed. He starts with a summary of what the OECD would like folks to believe.

The Organization for Economic Cooperation and Development recently published a report, “In It Together: Why Less Inequality Benefits All,” that claimed rising income inequality from 1990-2010 depressed cumulative growth across its member countries by 4.7%. The OECD’s suggested solution: government-led redistribution, funded via tax increases on “wealthier individuals” and “multinational corporations.”

But Schoenfeld explains the OECD’s research is riddled with misleading use of statistics.

From 2011-13, according to the World Bank, the five most unequal countries grew nearly five times faster (3.9% cumulative annual average) than the others (0.84%). By using a 2010 cutoff, the OECD has skewed its findings. Consider Greece. From 1999-2012, its Gini coefficient “improved” by 6% to .34 from .36—more than any other OECD country. …Greece’s redistributive social transfer spending also grew most quickly among OECD peers from 2000-12. But Greece’s economy has shrunk by more than 20% since 2010.

Here’s another example.

…the income-tax rate is a subpar proxy for redistribution policy. …A more representative proxy for redistribution is government expenditure as a percentage of GDP, which encompasses all government spending on the provision of goods, services, subsidies, and social benefits. From 1995-2012, OECD member countries that increased government expenditures as a percentage of GDP grew 30% slower than member countries that trimmed government expenditure as a percentage of the economy over that span—average annual growth of 1.9% compared with 2.5%.

Gee, who would have guessed that bigger government leads to less growth? I’m shocked, shocked.

And who would have guessed that the OECD produces research with dodgy numbers? Knock me over with a feather!

Though I must say that the sloppiness in this inequality study is trivial compared to the junk-riddled methodology of the OECD’s poverty study, which actually purported to show that there’s more deprivation in America than there is in poor nations such as Greece, Turkey, and Portugal.

Which gives me an opening to highlight what I wrote about this OECD study. I suggested that “the bureaucracy’s ‘research’ now is more akin to talking points from the Obama White House” and highlighted some utterly preposterous conclusions of the study.

We’re supposed to believe that Spain, France, and Ireland have enjoyed better growth. I guess France’s stagnation is just a figment of our collective imaginations. And those bailouts for Spain and Ireland must have been a bad dream or something like that.

Some folks may question whether the OECD is really a leftist bureaucracy. Or at least they may wonder whether I go overboard in my criticisms.

For what it’s worth, I do give the crowd in Paris some praise when good research is produced.

But imagine that the OECD is a student who gets a B on one test and fails every other exam. At some point, isn’t it safe to assume we have a remedial pupil?

And here’s some very strong proof. It turns out that the OECD is even further to the left than the Obama Administration.

I’m not joking. Check out these excerpts from an item in Politico’s Morning Tax.

…the U.S. is definitely not on the same page as its allies. The split was apparent at last week’s OECD conference in Washington to discuss the Base Erosion and Profit Shifting (BEPS) plan… Robert Stack, deputy assistant secretary for international affairs at Treasury, suggested that the OECD’s Base Erosion and Profit Shifting (BEPS) project was being driven less by a desire for sound policy than by foreign countries’ domestic politics and a desire for more revenue.

I wrote just last week that the BEPS plan is a naked revenue grab by high-tax nations and I find it remarkable that a senior official at the Obama Treasury Department agrees with me.

P.S. This isn’t the first time the Obama Administration has been to the right of the OECD.

P.P.S. Speaking of remedial students, I wrote back in 2011 that ending the flow of American tax dollars to the OECD (the biggest share of the bureaucracy’s budget comes from the United States) should be a test of whether Republicans are serious about cutting back on wasteful government spending.

At what point do I change the GOP grade from “incomplete” to “F”?

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Citing the work of David Burton and Richard Rahn, I warned last July about the dangerous consequences of allowing governments to create a global tax cartel based on the collection and sharing of sensitive personal financial information.

I was focused on the danger to individuals, but it’s also risky to let governments obtain more data from businesses.

Remarkably, even the World Bank acknowledges the downside of giving more information to governments.

Here are some blurbs from the abstract of a new study looking at what happens when companies divulge more data.

Relying on a data set of more than 70,000 firms in 121 countries, the analysis finds that disclosure can be a double-edged sword. …The findings reveal the dark side of voluntary information disclosure: exposing firms to government expropriation.

And here are some additional details from the full report.

…disclosure has important costs in allowing exposure to government expropriation… We show that accounting information disclosure can be detrimental to firm development… Such disclosure allows corrupt bureaucrats to gain access to firm-level information and use it for endogenous harassment. …once firm information is disclosed, the threat of government expropriation is widespread. Information disclosure thus allows rent-seeking bureaucrats to gain access to the disclosed information and use it to extract bribes. …Our paper offers a vivid illustration that an important hindrance to institutional development—here in the form of adopting information disclosure—is government expropriation. …The results are thus supportive of Acemoglu and Johnson (2005) on the overwhelming importance of constraining government expropriation in facilitating economic development.

Yet this doesn’t seem to bother advocates of bigger government.

Indeed, they’re using a Paris-based international bureaucracy to push a “base erosion and profit shifting” initiative designed to produce global rules that would give governments far greater access to business data.

Their goal is to extract more money openly with tax policy rather than surreptitiously with bribes, but the net effect will be just as bad for the global economy.

A new study from the Center for Freedom and Prosperity has the disturbing details.

Under direction of the G20, the Organization for Economic Cooperation and Development (OECD) began two years ago a major initiative on “base erosion and profit shifting” (BEPS). …Through the BEPS project, the OECD is continuing its war against tax competition.

For all intents and purposes, politicians from high-tax nations are using the G20 and OECD to undermine the liberalizing force of tax competition.

They want to rewrite international tax policy to prop up nations with uncompetitive tax systems.

[BEPS] would…lead to an overall higher tax environment as politicians freed from the pressures of global tax competition inevitably raise rates to levels last seen in the early 1980s, when reforms by Reagan and Thatcher sparked a global reduction in corporate tax rates that has continued to this day. Through tax competition, the average corporate tax rate of OECD nations declined from almost 50% in 1981 to 25% in 2015. …The [BEPS] Action Plan…considers the benefits of tax competition to be the real problem, explaining that “there is a reduction of the overall tax paid by all parties involved as a whole.” The prospect of there being less money to be spent by politicians is perceived as a problem to be solved.

Even though there’s no evidence of a problem, even from the perspective of revenue-hungry politicians.

The OECD’s BEPS Report itself undercuts the argument that there is a pressing need for a global response when it acknowledges that “revenues from corporate income taxes as a share of GDP have increased over time.” Likewise, the Action Plan admits when discussing hybrid mismatch that “it may be difficult to determine which country has in fact lost tax revenue.”

So BEPS isn’t a response to the nonexistent problem of falling revenue. Instead, the real goal is to make it easier to impose higher tax rates and change other rules to raise additional revenue.

Even if the required policies have very troubling implications. As part of this new campaign against tax competition, here’s some of what the OECD is seeking.

Proposed recommendations for transfer-pricing documentation and country-by-country reporting, for instance, feature broad reporting requirements that go far beyond what is required for purposes of tax collection. …Information contained in the local and master files are particularly vulnerable, since it would take a breach in only a single jurisdiction for it to be exposed. The OECD makes assurances for the confidentiality of these reports, but they are empty promises. Such government assurances of privacy protection are contradicted by experience and the long history of leaks of taxpayer information. In the United States alone tax data has frequently been exposed thanks to inadequate safeguards, or even released by officials to attack political opponents. …Even without malicious intent, governments are ill equipped to protect sensitive information from outside access. …As poor as the United States has proven at protecting privacy, there are likely to be nations even more vulnerable. Through the master file and other reporting mechanisms, BEPS will demand of corporations propriety information and other sensitive data that they have every right to keep private.

Requiring more information is just one part of BEPS.

There are many other elements, all of which are designed to facilitate higher tax burdens. Indeed, the Wall Street Journal warned that, “this is an attempt to limit corporate global tax competition and take more cash out of the private economy.”

But as bad as BEPS is now, the study from the Center for Freedom and Prosperity explains it will get worse over time.

Of particular relevance for understanding the BEPS initiative is the pattern demonstrated by the OECD during the course of this campaign. After each recommendation was widely adopted – typically under duress in the case of low-tax jurisdictions – the OECD immediately pushed a new requirement that was more radical and invasive than the last. First was a call to adopt a certain number of Tax Information Exchange Agreements and a standard of information exchange upon request, then a peer-review process whereby tax policies are judged according to the standards of high-tax welfare states. Then, after years of meetings and costly compliance efforts, the old standard for information exchange upon request was replaced with a call for global automatic exchange.

The OECD’s strategy of moving the goalposts is worth noting because the BEPS project almost certainly will evolve in ways that enable ever-higher tax burdens.

I predicted back in 2013 that the end result will be “global formula apportionment,” a system that would enable dramatically higher tax burdens on the business community.

And I’m sticking with that prediction, in part because that’s what would be in the interests of politicians from high-tax nations. If national governments were able to tax on the basis of what companies sold inside their borders, regardless of how much income actually was being earned, there would be very little competitive pressure to keep tax rates reasonable.

Politicians could push corporate tax rates back up to 50 percent, or even higher.

The folks on the left certainly would like that kind of system. Here are some excerpts from a CNN story.

It’s time for a complete overhaul of the global tax system to ensure each company pays their fair share, says Nobel laureate Joseph Stiglitz. …”Multinational corporations act and therefore should be taxed as single and unified firms. It is time for our [political] leaders to be bold,” Stiglitz said. …Stiglitz said that creating a new worldwide tax system is realistic, but all nations would have to work together to agree rules and close loopholes. The group of economists said in a statement that it was critical to “curb tax competition to prevent a race to the bottom.” Developed nations should take the first step by agreeing on a minimum rate of corporate tax, possibly under the auspices of the Organisation for Economic Cooperation and Development. …The economists also suggest establishing an intergovernmental tax body within the United Nations that would combat abusive tax practices.

The bottom line is that politicians and statist interest groups both want to extract more money from the productive sector of the economy.

And OECD bureaucrats have been assigned the task of crafting rules to undermine tax competition so that companies can’t escape those higher burdens.

Developing new rules is actually the easy part. The hard part is when the bureaucrats try to rationalize how higher tax rates and bigger government are somehow good for the global economy.

Particularly since economists who work at the OECD have written that lower tax rates and tax competition result in better economic performance.

P.S. To add insult to injury, American taxpayers provide the biggest share of the OECD’s budget. This means that our tax dollars are being used to generate policies that will result in higher tax burdens. Which is why I’ve argued, on a per-dollar-spent basis, that subsidies to the OECD are the most destructively wasteful part of the federal budget.

P.P.S. And to add insult upon insult, OECD bureaucrats get tax-free salaries, so they are insulated from the negative effects of policies they’re trying to impose on the rest of the world.

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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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While there are plenty of reasons to dislike the World Bank, United Nations, and (especially) the International Monetary Fund, the worst international bureaucracy on a per-dollar spent basis has to be the Paris-based Organization for Economic Cooperation and Development.

The OECD used to be relatively benign by the standards of international bureaucracies, but it has veered sharply to the left in recent years and some of the bureaucracy’s “research” now is more akin to talking points from the Obama White House.

And it getting worse. I wasn’t even aware that the OECD had a Directorate for Employment, Labour, and Social Affairs, but the bureaucrats in this division are – if this is even possible – pushing the Paris-based bureaucracy even further to the left.

At least that’s my conclusion after reading a new study from that Directorate on inequality and growth. You can read the entire 64-page paper if you’re a masochist, but you’ll get the full flavor by perusing the OECD’s three-page summary.

Here are the headline results.

New OECD analysis suggests that income inequality has a negative and statistically significant impact on medium-term growth. Rising inequality by 3 Gini points, that is the average increase recorded in the OECD over the past two decades, would drag down economic growth by 0.35 percentage point per year for 25 years: a cumulated loss in GDP at the end of the period of 8.5 per cent. …Rising inequality is estimated to have knocked more than 10 percentage points off growth in Mexico and New Zealand, nearly 9 points in the United Kingdom, Finland and Norway and between 6 and 7 points in the United States, Italy and Sweden. On the other hand, greater equality prior to the crisis helped increase GDP per capita in Spain, France and Ireland.

Yes, you read correctly. We’re supposed to believe that Spain, France, and Ireland have enjoyed better growth.

I guess France’s stagnation is just a figment of our collective imaginations. And those bailouts for Spain and Ireland must have been a bad dream or something like that.

By the way, I’m not arguing inequality is good for growth. Indeed, it can even be bad for growth if the rich are using government to line their pockets with growth-stifling bailouts, handouts, subsidies, protectionism, and other forms of cronyism.

So is that what this study is arguing?

Hardly. Let’s move from absurdity to ideology by reviewing the OECD’s supposed solutions, which sound like something you would get if you created some sort of statist Frankenstein by mixing DNA from Francois Hollande and Elizabeth Warren in a blender.

The most direct policy tool to reduce inequality is redistribution through taxes and benefits. The analysis shows that redistribution per se does not lower economic growth. …previous work by the OECD has clearly shown that the benefits of growth do not automatically trickle down across society… Policies that help to limit or reverse inequality may not only make societies less unfair, but also wealthier. …Anti-poverty programmes will not be enough. Not only cash transfers but also increasing access to public services, such as high-quality education, training and healthcare, constitute long-term social investment to create greater equality of opportunities in the long run.

I’m almost at a loss for words.

Part of me wants to make snarky comments about the absence of credible evidence. After all, if Spain, Ireland, and France are the success stories, the opportunities for satire are limitless.

But perhaps I should be more mature and simply note the real world contradicts this supposed research. Why is it, after all, that the countries that are most fixated on coercive redistribution tend to have the weakest economies?

Though the most remarkable thing about this study is that it is contradicted by other OECD research from the Economics Department, which is home to a more sensible crowd that periodically finds that larger governments and redistributive tax policies undermine economic performance.

A 1997 study by the Economics Department found that “a cut in the tax-to-GDP ratio by 10 percentage points of GDP (accompanied by a deficit-neutral cut in transfers) may increase annual growth by ½ to 1 percentage points.”

A 2001 study by the Economics Department found that “An increase of about one percentage point in the tax pressure (or, equivalently one half of a percentage point in government consumption, taken as a proxy for government size) – e.g. two-thirds of what was observed over the past two decades in the OECD sample – could be associated with a direct reduction of about 0.3 per cent in output per capita. If the investment effect is taken into account, the overall reduction would be about 0.6-0.7 per cent.”

Another 2001 study by the Economics Department found that “The overall tax burden is found to have a negative impact on output per capita.24 Furthermore, controlling for the overall tax burden, there is an additional negative effect coming from an extensive reliance of direct taxes.”

A 2008 study by the Economics Department found that “…relying less on corporate income relative to personal income taxes could increase efficiency. …Focusing on personal income taxation, there is also evidence that flattening the tax schedule could be beneficial for GDP per capita, notably by favouring entrepreneurship. …Estimates in this study point to adverse effects of highly progressive income tax schedules on GDP per capita through both lower labour utilisation and lower productivity… a reduction in the top marginal tax rate is found to raise productivity in industries with potentially high rates of enterprise creation. …Corporate income taxes appear to have a particularly negative impact on GDP per capita.”

A 2013 study by the Economics Department found that “personal income tax also discourages entrepreneurial activity and investment… tax autonomy may lead to a smaller and more efficient public sector, helping to limit the tax burden and improve tax compliance. …Progressive corporate income taxes harm incentives for businesses to grow.”

Let’s return to the study from the Employment, Labour, and Social Affairs Directorate. Like most logical people, you may be wondering what sort of rationale the OECD offers for this agenda of bigger government and higher taxes.

Apparently it’s all based on the notion that poor people won’t acquire skills (human capital accumulation) if rich people have a lot of money. I’m not joking.

The evidence is strongly in favour of one particular theory for how inequality affects growth: by hindering human capital accumulation income inequality undermines education opportunities for disadvantaged individuals, lowering social mobility and hampering skills development.

We’re not given any plausible reason for why this happens. Nor are we given any explanation of why poor people will want to acquire skills if the government makes dependency more attractive with expanded redistribution.

In other words, it appears this is yet another example of the OECD engaging in statistical and analytical gymnastics in order to produce something that will justify the bad policies of member nations.

But you have to give the bureaucrats credit. This new “research” is having the desired effect, leading to news reports that will be very pleasing to advocates of bigger government. Consider these excerpts from a story in the EU Observer.

The report, published on Tuesday (9 December) by the Paris-based OECD, refutes the concept of ‘trickle-down economics’… “Income inequality has a sizeable and statistically significant negative impact on growth,” the report says, adding that “redistributive policies achieving greater equality in disposable income has no adverse growth consequences.” …In response, the OECD urges governments to hike property taxes on property and wealth and scrap tax breaks that disproportionately benefit higher earners, alongside greater support for the bottom 40 percent of earners to make sure that they are not left further behind. “As top earners now have a greater capacity to pay taxes than ever before, governments may consider re jigging their tax systems,” argues the report, adding that governments should also increase access to education, healthcare and training. “Anti poverty programmes will not be enough,” it states.

Writing for Forbes, Tim Worstall also notes that this sloppy OECD report is being used by statists to advance an ideological agenda.

We’re not surprised that The Guardian has leapt on this little report out from the OECD concerning inequality and GDP growth over the past 30 years. It conforms to every prejudice that that newspaper is every going to have about the subject. However, it should be pointed out that this report from the OECD is in fact howlingly bad. It manages to entirely ignore the OECD’s own research on exactly the same subject: the impact of inequality and attempts to reduce it on GDP growth.

The bottom line is that the OECD is working to advance the interests of the political class, not the interests of poor people. If the bureaucrats genuinely wanted to help the less fortunate, they would be pushing pro-growth policies.

Instead, they promote a bigger burden of government.

If you want to know more about the OECD’s economic malpractice, here’s the video I narrated for the Center for Freedom and Prosperity.

But if you don’t want to listen to me, here are some examples of statist policies that are directly contrary to American interests.

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 don’t forget that you’re paying for this nonsense. American taxpayers finance the biggest share of the OECD’s budget.

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Tax competition is a very important tool for constraining the greed of the political class. Simply stated, politicians are less likely to impose bad tax policy if they are afraid that jobs and investment (and accompanying tax revenue) will move to jurisdictions with better tax policy.

This works to limit revenue grabs by politicians at the state level and it works to control the craving for money on the part of politicians at the national level.

But this doesn’t mean all forms of tax competition are equally desirable.

If a country lowers overall tax rates on personal income or corporate income in hopes of attracting business activity, that’s great for prosperity. If a jurisdiction seeks faster growth by reducing double taxation – such as lowering the tax rate on capital gains or abolishing the death tax, that’s also very beneficial.

Some politicians, however, try to entice businesses with special one-off deals, which means one politically well-connected company gets a tax break while the overall fiscal regime for other companies stays the same (or even gets worse).

That’s corrupt cronyism, not proper tax competition.

With this in mind, let’s consider the growing controversy about tax planning by multinational companies. There’s lot of controversy, both in the United States and in Europe, about whether companies are gaming the system.

The most recent kerfuffle deals with Luxembourg, which is accused of having a very friendly regime for business taxation.

Syed Kamall, a Tory member of the European Parliament, has a column in the Wall Street Journal Europe about the right kind of corporate tax competition.

It seems to have come as a great shock to many in the European Parliament that Luxembourg may have encouraged multinational companies to domicile there to pay lower taxes. I’m not sure where these members of parliament have been living for the past 20 years.

What worries Syed is that many European politicians want to use the news from Luxembourg as an excuse to push tax harmonization.

…an agenda of EU-wide tax harmonization…is rapidly gaining popularity in some quarters despite being exactly the wrong prescription for Europe. …tax harmonization…would hang the “Closed for Business” sign at Europe’s border. Tax competition across the single market helps keep tax rates competitive and drives inward investment. The Organization for Economic Co-operation and Development has said that “the ability [of companies] to choose the location of economic activity offsets shortcomings in government budgeting processes, limiting a tendency to spend and tax excessively.”

By the way, the OECD is a big proponent of tax harmonization, so it’s especially noteworthy that even those bureaucrats admitted that tax competition constrains greedy government.

You can click here for further examples of OECD economists admitting that tax competition is necessary and desirable, notwithstanding the anti-market policies being advocated by the political appointees who run the institution.

And since we’re discussing the merits of tax competition, we should point out that Mr. Kamall also mentioned those benefits.

The clearest example of that came with the tax reductions enacted by Margaret Thatcher and Ronald Reagan in the 1980s. Those tax-rate cuts in the U.K. and U.S. forced other industrialized nations to cut their average top marginal rate for personal income to 42% today from more than 67% in 1980 simply to remain competitive, according to the Adam Smith Institute. Tax competition has driven down the average top rate for corporate income in the developed world to less than 27% today from 48% in 1980. Tax competition in Europe encouraged many EU members from the former Soviet bloc to enact flat taxes, which have benefitted them substantially. …it’s important for leaders to keep making the case that tax-policy competition within the single market has been good for Europe.

And he correctly warns that tax harmonization would be a vehicle for higher tax burdens.

Imposing uniform rates under a harmonized system would turn the EU into a convoy that can move only as fast as the slowest ship. Europe’s tax rate would be only as low as the highest-taxing member. …A harmonized tax system would encourage companies and investors to seek new solutions outside the EU in order to avoid paying what would inevitably be higher, French-style levels of European taxation.

And if you don’t believe Mr. Kamall, just look at what’s happened over the past couple of years in Europe.

Last but not least, Syed points out that there is a pro-growth way of improving tax compliance.

The best way to cut down on tax avoidance is to cut tax rates and simplify tax codes. That way people and companies would be willing and able to pay their money to Europe’s exchequers, rather than paying accountants to find loopholes.

But that would require politicians to be responsible, so don’t hold your breath.

So what’s the bottom line? Is there a good way of identifying the desirable forms of tax competition that should be defended.

The simple answer is that it’s always a good idea to compete with lower tax rates that apply to all taxpayers. That’s true for tax rates on companies and households.

The more complex (but equally important) answer is that it’s also good to compete by having a properly designed tax system. On the business side, that means expensing instead of depreciation and territorial taxation rather than worldwide taxation. For households, it means having the proper definition of income so that there’s no longer pernicious discrimination against saving and investment.

Misguided tax competition, by contrast, exists when there are very narrow preferences that apply to a small handful of powerful taxpayers.

For more information on the general topic, here’s my video on the virtues of tax competition.

P.S. My support for tax competition is so intense that I even try to bring the message to unfriendly audiences, such as Capitol Hill and the New York Times.

P.P.S. Heck, my support for tax competition is so intense that I almost got tossed in a third-world jail. That’s true dedication!

P.P.P.S. In you admire hypocrisy, you’ll be very impressed that many rich statists utilize tax havens to protect their money even though they want you to give more of your income to government.

P.P.P.P.S. Speaking of hypocrisy, the main anti-tax competition international organization gives its bureaucrats tax-free salaries.

P.P.P.P.P.S. Since I just mentioned the OECD, I should note that it has a project to curtail business tax competition. They claim that their intention is to go after misguided forms of tax competition, but I’m not surprised that the real goal is to simply extract more money from companies.

P.P.P.P.P.P.S. I’m not sure how to classify this final bit of information, but it’s surely worth mentioning that Bill Clinton defends corporate tax competition. As does Bono.

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