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

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

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

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

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

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

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

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

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

What’s the bottom line?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

So who was right? Click here to find out.

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

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

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

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

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

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

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

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

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

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

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

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

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

Here’s the chart looking at GDP.

And here’s the chart looking at employment.

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

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

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

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

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

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

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

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

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

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

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

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

And who want to have “fallen behind”?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

And they used our money!

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Why are so many people upset that the Obama White House keeps arbitrarily changing parts of Obamacare – even when bad provisions are being suspended or certain groups are being exempted from bad policy?

Well, some of them may simply dislike Obama or government-run healthcare, and there’s nothing wrong with being against a politician or rejecting bigger government.

But the most important reason to be upset is that the White House is making a mockery of the rule of law.

But what exactly is the rule of law? Why, for instance, does it have such a large impact on a nation’s grade in the Economic Freedom of the World Index?

This Learn Liberty video explains that the rule of law is critical because it creates a framework for honest exchange and it limits the power of politicians and government.

As Professor Bell states, the rule of law provides “a necessary framework for civil society” and enables “tolerance, liberty, and free trade.”

I also like that the video highlights the importance of having laws that are easy to understand, which means that Byzantine schemes like Obamacare are contrary to the rule of law – even if they are administered honestly.

Which explains why the tax code also is an affront to the rule of law, whether we’re looking at incomprehensible policy, illegal regulations, or extraterritorial application.

And the corrupt TARP bailout obviously is contrary to the rule of law as well.

Let’s now step back and take a big-picture look at the issue. Perhaps the best example of the rule of law is the United States Constitution. That sacred document was written precisely to limit the power of the state in hopes or preventing the capricious rule of men.

This Thomas Jefferson quote gets to the heart of the matter.

It’s embarrassing that the United States only ranks #19 in an international comparison of the rule of law. Particularly when the presence of the rule of law is the biggest factor that separates advanced nations from the developing world.

P.S. It’s discouraging that the Constitution’s protections of individual liberty have eroded, so let’s share a bit of good news.

I’ve written before about the threat posed by international bureaucrats who want to cartelize business taxation in order to enable higher tax rates.

Well, at least some American lawmakers are not on board with this scheme, as reported by Reuters.

Republican tax law writers in the U.S. Congress and multinational businesses on Monday said international talks aimed at preventing companies from moving profits to low-tax countries could hurt the United States. Representative Dave Camp and Senator Orrin Hatch of Utah warned of the effect on U.S. taxpayers from the Organisation for Economic Co-operation and Development’s (OECD) work to develop multilateral tax rules. Known as the Base Erosion and Profit Shifting (BEPS) project, the OECD effort calls for revising tax treaties, tightening rules and more government tax information sharing.

The Wall Street Journal also has criticized the OECD’s “global revenue grab.”

Let’s hope this is a sign that this leftist campaign for higher taxes has hit a brick wall.

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