Archive for the ‘Organization for Economic Cooperation and Development’ Category

I’m not a big fan of the Paris-based Organization for Economic Cooperation and Development.

That international bureaucracy is controlled by high-tax nations that want to export bad policy to the rest of the world. As such, the OECD frequently advocates policies that are contrary to sound economic principles.

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

With a list like that, you can understand why I’m so upset that American taxpayers subsidize this pernicious bureaucracy. Heck, I’m so opposed to the OECD that I was almost thrown in a Mexican jail for fighting against their anti-tax competition project.

But the point of today’s column isn’t to bash the OECD. The above list is simply to make clear that nobody could accuse the Paris-based bureaucracy of being in favor of small government and free markets.

So if the OECD actually admits that the spending cap in the Swiss Debt Brake is a very effective fiscal rule, that’s a remarkable development. Sort of like criminals admitting that a certain alarm system is effective.

And that’s exactly the message in a report on The State of Public Finances 2015, which was just released by the OECD. Here are some key findings from the preface.

It is understandable that citizens ask why public financial management processes did not guard, in a more effective way, against the vagaries of the economic cycle…the OECD’s recent Recommendation on Budgetary Governance…spells out a number of simple, clear yet ambitious principles for how countries should manage their budgets and fiscal policy processes. …the most salient lesson…is not to seek to avoid altogether the fiscal shocks and cyclical downturns, to which our economies are subject from time to time. The real challenge is to build resilience into our national framework…to mitigate these fiscal shocks. …As to fiscal resilience, this report underpins the wisdom of…fiscal rules.

But what fiscal rules actually work?

This is where the OECD bureaucrats deserve credit for acknowledging an approach with a proven track record, even though the organization often advocates for bigger government. Here are some excerpts from the report’s executive summary.

The European Union’s Stability and Growth Pact…proved largely ineffective in protecting countries from the effects of the fiscal crisis. …Simple and clear fiscal anchors – e.g., the Swiss and German debt brake rules – appear to have been more effective in influencing effective fiscal management.

And here is some additional analysis from the body of the report.

Switzerland’s “debt brake” constitutional rule has proven a model for some OECD countries, notably Germany. …Germany adopted a debt brake rule in 2009… In addition, the United Kingdom recently announced (June 2015) its plan… Furthermore,…it is preferable to combine a budget balance rule with an expenditure rule.

And here are some of the findings from a separate OECD study published earlier this year. Switzerland’s debt brake isn’t explicitly mentioned, but the key feature of the Swiss approach – a spending cap – is warmly embraced.

A combination of a budget balance rule and an expenditure rule seems to suit most countries well. …well-designed expenditure rules appear decisive to ensure the effectiveness of a budget balance rule and can foster long-term growth. …Spending rules entail no trade-off between minimising recession risks and minimising debt uncertainties. They can boost potential growth and hence reduce the recession risk without any adverse effect on debt. Indeed, estimations show that public spending restraint is associated with higher potential growth.

Let me now add my two cents. The research from the OECD on spending caps is good, but incomplete. The main omission is that both the report and the study don’t explain that spending caps primarily are effective because they prevent excessive spending increases when the economy is strong.

As I’ve explained before, citing examples such as Greece, Alberta, Puerto Rico, California, and Alaska, politicians have a compulsive tendency to create new spending commitments during periods when a robust economy is generating lots of tax revenue. But when the economy stumbles and revenues go flat, these spending commitments become unsustainable.

And, all too often, politicians respond with higher taxes.

Speaking of which, the more recent OECD report also has some interesting data on how countries have dealt with fiscal policy in recent years.

Here are two charts showing fiscal changes from 2012-2014 and projected fiscal changes from 2015-2017.

I’m not sure why the United States isn’t on the list. After all, we actually had some very good changes in 2012-2014 period (though we’ve recently regressed).

But let’s look at some of the other nations (keeping in mind “expenditure reductions” are mostly just reductions in planned increases, just like in the U.S.).

Kudos to New Zealand (NZL), Switzerland (CHE), and the United Kingdom (GBR), all of which took steps to constrain spending over the past three years and all of which intend to be similarly prudent over the next three years.

Cautious applause to France (FRA), Spain (ESP), Denmark (DNK), and Sweden (SWE), all of which at least claim they’ll be prudent in the future.

And jeers to Mexico (MEX) for bad policy in the past and Turkey (TUR) for bad policy in the future, while both the Czech Republic (CZE) and Finland (FIN) deserve scorn for pursuing lots of tax increases in both periods.

Let’s take a moment to elaborate on the nations that have made responsible choices. I’ve already written about fiscal restraint in Switzerland, and I’ve also noted that the United Kingdom has moved in the right direction (even though the current government made some tax mistakes that led me to be very pessimistic when it first took control).

So let’s focus on New Zealand, which is yet another case study showing the value of Mitchell’s Golden Rule.

During the 2012-2014 period, government spending grew by less than 1 percent annually according to IMF data. The government doesn’t intend to be as prudent for the 2015-2017 period, which spending projected to grow by 3 percent annually. But in both cases, nominal spending is growing slower than nominal GDP, and that’s the key to fiscal progress.

Indeed, if you check the OECD data on the overall burden of government spending, the public sector in New Zealand today is consuming 40.5 percent of economic output, which is far too high, but still lower than 44.7 percent of GDP, which was the amount of GDP consumed by government in 2011.

And don’t forget that New Zealand has the world’s freest economy for non-fiscal factors, ranking even above Hong Kong and Singapore.

Let’s conclude by circling back to the issue of spending caps.

It is a noteworthy development that even the OECD has embraced expenditure limits. Especially since the IMF also has endorsed spending caps.

And since spending caps also have widespread support among fiscal experts from think thanks, maybe, just maybe, there’s a chance for real reform.

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Most normal Americans have never heard of the “Base Erosion and Profit Shifting” project being pushed by the tax-loving bureaucrats at the Paris-based Organization for Economic Cooperation and Development.

But in the world of tax policy, BEPS is suddenly attracting a lot of attention, mostly because the business community has figured out it’s a scheme that would require them to pay more money to greedy governments.

I’m happy that BEPS is finally getting some hostile attention, but I wonder why it took so long. I started criticizing the project from the moment it was announced. Given the OECD’s dismal track record of promoting statist policy, there was zero chance that this project would result in good policy proposals.

Though I will say that the Wall Street Journal quickly recognized that the BEPS scheme was a ruse for tax increases on the business community.

And the editors of the paper have continued their criticisms as BEPS has morphed from bad concept to specific policy. Here are some passages from an editorial earlier this week.

…the Organization for Economic Cooperation and Development this week released its final proposals for combatting “base erosion and profit shifting,” or BEPS. …The OECD claims governments lose anywhere between $100 billion and $240 billion in revenue each year to such legal strategies, and it has spent two years concocting complex rules and new compliance burdens to stop it. Perhaps the worst of the OECD’s ideas is…country-by-country reports to every jurisdiction in which a company operates would detail operations in that area, and where it has paid tax on any relevant profits.

The WSJ is particularly concerned about proposals to require sharing of information with irresponsible and corrupt governments.

Ostensibly this…data would be kept confidential. Fat chance about that, especially if a high-taxing government thinks it has spotted an opportunity to grab more revenue or indulge some political grandstanding. A related proposal would require companies to hand over their so-called master files to governments. Those files, which detail global operations and intra-company transfers, are essentially guides to proprietary business strategies. Passing them to the authorities, and especially governments that run state-owned enterprises competing with multinational firms, is an invitation to mischief.

The OECD’s proposals also will mean higher compliance costs.

Companies could also be forced to spend years in courts and arbitration challenging potential new instances of the double taxation the current global tax system was developed to avoid. …Underlying all of this is the belief that the fiscal problems of the world result from insufficient tax collection, when the real culprit is anemic growth.

The final point in the above passage deserves special attention. Economic growth in many industrialized nations is relatively anemic because of bad government policy. And since people are earning less income and businesses are earning fewer profits, this means less revenue for government.

But rather than fix the policies that are causing sub-par growth, the politicians want to impose higher tax rates.

Needless to say, this will simply lead to less taxable income, making it even harder to collect revenue (this is the core insight of the Laffer Curve).

It’s also worth citing what the Wall Street Journal wrote over the summer on the BEPS issue. The editors started with an important observation about companies being able to invest in high-tax nations because they can protect some of their profits.

The global war on low tax rates entered a new stage… Hang onto your wallets—and your proprietary corporate data. …Governments have noticed that companies try to protect themselves from rapacious tax policies. …This is all legal for now, and a good thing too. Shielding profits from growth-killing taxes helps make investment and job creation in high-tax jurisdictions more economical.

And the editorial also warns about the dangers of giving dodgy governments access to more information, particularly when some of them will be incapable of protecting data from hackers.

The compliance burden these rules would impose counts as a new tax in itself. Despite some attempts to allow companies to file only one global disclosure in the jurisdiction of the corporate headquarters, in practice firms are likely to have to submit multiple, overlapping documents around the world. Sensitive corporate financial information would then be shared among global tax collectors. If you believe the OECD’s claim that all this will be kept confidential, have a chat with any of the millions of federal employees whose personnel files Uncle Sam allowed China to hack.

By the way, I don’t doubt for one second that companies push the envelope as they try to protect their shareholders’ money from government.

But less money for government is a good outcome. Particularly when politicians are imposing taxes – like the corporate income tax – that hurt workers by impeding capital investment.

The main thing to understand, at least from an American perspective, is that businesses have a big incentive to shift money out of the United States because politicians have saddled our economy with the world’s highest corporate tax rate, combined with the globe’s most punitive worldwide tax system.

Dealing with those problems is the right approach, not some money grab from an international bureaucracy. I shared these ideas in this brief presentation I made to an audience on Capitol Hill.

For what it’s worth, the chart I shared is all the evidence you could ever want that governments aren’t suffering from a lack of corporate tax revenue.

Moreover, while I don’t like OECD schemes to enable higher tax burdens, the BEPS project won’t equally affect all businesses.

Let’s look at how the project specifically disadvantages American companies (above and beyond the self-imposed damage from Washington).

Aparna Mathur of the American Enterprise Institute explains how BEPS will make a bad system even worse for US-based multinationals.

The U.S. has much to lose from a shift to this system. …the U.S. today has the highest corporate tax rate in the OECD. Under BEPS, this would affect the real decisions of firms to locate jobs and capital investment in the U.S.. In a recent report Michael Mandel points out that the BEPS principles will give multinationals a strong incentive to move high-paying creative and research jobs out of the U.S. since that is the easiest way to take advantage of low tax rates. …The current U.S. system of corporate taxation has many flaws. …the changes envisaged under the OECD’s BEPS project would make matters even worse.

This doesn’t sound good.

Some people have complained about corporate inversions, but it doesn’t hurt America when a company technically redomiciles in a nation with better tax law. After all, the jobs, factories, and headquarters generally remain in the United States.

But the way BEPS is structured, companies will have to move economic activity out of America.

Last but not least, Veronique de Rugy of the Mercatus Center identifies some major systematic flaws in the BEPS project. She starts by pointing out what the OECD wants.

Europe’s largest welfare states…are leading the charge through the Organisation for Economic Co-operation and Development to raise corporate tax rates globally. …The underlying assumption behind the base erosion and profit shifting, or BEPS, project is that governments aren’t seizing enough revenue from multinational companies. …Its solution is to force those companies that wisely structured their operations to benefit from low-tax jurisdictions to declare more income in high-tax nations.

And then she explains what will be the inevitable result of higher tax burdens.

Far from filling government coffers in order to continue funding massive redistributive welfare regimes, BEPS will strangle global economic output and erode tax bases even further. …Corporations provide an easy political target for tax-hungry politicians, but the burden of corporate taxes falls on ordinary citizens. Employees, shareholders, and investors will bear the brunt of the OECD’s corporate tax grab, all because European politicians refuse to accept responsibility for building bigger governments than their economies can sustain.

So what is the Obama White House doing to protect American companies from this global tax grab?

The good news is that some folks from the Treasury Department have complained that the project is targeting U.S. multinationals.

The bad news is that the minor grousing from the United States hasn’t had an impact. Not that we should be surprised. Because of a shared belief in statism, the Obama Administration has worked to expand the OECD’s power to push bad tax policy around the world.

P.S. Since today’s topic is arcane yet important international tax issues, allow me to share an update on the horribly misguided FATCA law. As is so often the case, the op-ed page of the Wall Street Journal is the source of great wisdom.

Or, in this case, maybe it would be best to write “the source of great sadness and frustration.”

America is the only country that taxes citizens on their global earnings, and in 2010 Washington exacerbated that by passing the Foreign Account Tax Compliance Act, or Fatca. As this law comes into force, it is doing immense harm to…the 8.7 million U.S. citizens living abroad, who have essentially been declared guilty of financial crimes unless they can prove otherwise. …American leadership overseas, from volunteer organizations to the business world, has diminished. No one wants an American involved when their citizenship attracts a maze of rules, regulations, potential fines and criminal penalties. …It’s painful to witness the anguish of patriotic Americans as they contemplate giving up their U.S. citizenship, as record numbers have been doing. In 2014, 3,417 renounced their citizenship, a 266% increase over 2012, before Fatca came fully into effect.

Interestingly, the way to solve the FATCA problem is the same way to deal with the corporate inversion issue.

Simply shift to a territorial system.

The best solution is for the U.S. to join the rest of the world in taxing based on residency rather than citizenship. …Doing so would advance American fairness, mobility and economic competitiveness.

Sadly, only a handful of lawmakers, most notably Senator Rand Paul, are making noise on this issue.

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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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