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Posts Tagged ‘OECD’

If you live in Illinois or California and you’re sick and tired of high taxes and crummy government, should you have the freedom to move to a state with no income tax, such as Florida or Texas?

The answer is yes (though Walter Williams joked that leftist politicians may start putting up barbed wire fences and watch towers to keep taxpayers imprisoned).

What about if you want to move from one country to another? I’ve written many times that people should have the liberty to leave a country (including the United States) that mistreats them.

But let’s look at the issue from a different perspective.

What about the nations that explicitly seek to attract new residents? Especially new residents that can help boost the economy with new jobs and investment?

The United States uses the EB-5 visa to attract this type of immigrant, and many other nations have similar programs.

Needless to say, politicians from uncompetitive, high-tax nations don’t like this competition for entrepreneurial talent. And neither do politicians from poorly governed nations in the developing world.

They know they’ll suffer a “brain drain” if their most productive citizens can freely move to nations with better governance.

Needless to say, they should fix their bad policies if they’re worried about people leaving.

But instead they’ve decided to attack the countries that roll out the red carpet for newcomers. And they have convinced the statists at the Organization for Economic Cooperation and Development to create a blacklist of nations with attractive “citizenship by investment” and “residence by investment” programs.

Here’s the list of countries that the OECD is condemning.

The bureaucrats at the OECD receive tax-free salaries, so it’s especially galling that one of the conditions for being on this new blacklist is if a nation offers a “low personal income tax rate.”

You may think I’m joking, but that condition is explicitly stated on the OECD site.

And the U.K.-based Guardian says something similar in its report on the OECD’s latest effort to rig global rules so governments can grab more money.

A blacklist of 21 countries whose so-called “golden passport” schemes threaten international efforts to combat tax evasion has been published by…the Organisation for Economic Cooperation and Development. The Paris-based body has raised the alarm about the fast-expanding $3bn (£2.3bn) citizenship by investment industry, which has turned nationality into a marketable commodity. …foreign nationals can become citizens of countries in which they have never lived. …concern is growing among political leaders, law enforcement and intelligence agencies that the schemes are open to abuse… After analysing residence and citizenship schemes operated by 100 countries, the OECD says it is naming those jurisdictions that attract investors by offering low personal tax rates on income from foreign financial assets, while also not requiring an individual to spend a significant amount of time in the country. …The OECD believes the ease with which the wealthiest individuals can obtain another nationality is undermining information sharing. If a UK national declares themselves as Cypriot, for example, information about their offshore bank accounts could be shared with Cyprus instead of Britain’s HM Revenue and Customs.

This blacklist is very similar to the OECD’s attack against so-called tax havens, which started about 20 years ago.

Only that time, the OECD was trying to help high-tax nations that were suffering from an exodus of capital. Now the goal is to prevent an exodus of labor.

By the way, the OECD exempted its own member nations when it launched its attack against tax havens.

So you won’t be surprised to learn that the OECD also didn’t blacklist any of its many member nations that have CBI and RBI programs. And it also let some other nations off the hook as well.

In other words, the OECD is advancing statism and being hypocritical at the same time.

For those of us who closely follow this bureaucracy, this hack behavior is very familiar. For instance, it has used dodgy, dishonest, and misleading data when pushing big-government policies regarding povertypay equityinequality, and comparative economics.

So this new blacklist is simply one more reason why I’m a big advocate of cutting off the flow of American tax dollars to this parasitical bureaucracy.

P.S. To give you an idea why high-tax nations want to choke off migration of taxpayers, check out this poll showing that 52 percent of French citizens would be interested in moving to America.

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When I write about the economics of fiscal policy and need to give people an easy-to-understand explanation on how government spending affects growth, I share my four-part video series.

But. other than a much-too-short primer on growth and taxation from 2016, I don’t have something similar for tax policy. So I have to direct people to various columns about marginal tax rates, double taxation, tax favoritism, tax reform, corporate taxation, and tax competition.

Today’s column isn’t going to be a comprehensive analysis of taxes and growth, but it is going to augment the 2016 primer by taking a close look at how some taxes are more destructive than others.

And what makes today’s column noteworthy is that I’ll be citing the work of left-leaning international bureaucracies.

Let’s look at a study from the OECD.

…taxes…affect the decisions of households to save, supply labour and invest in human capital, the decisions of firms to produce, create jobs, invest and innovate, as well as the choice of savings channels and assets by investors. What matters for these decisions is not only the level of taxes but also the way in which different tax instruments are designed and combined to generate revenues…investigating how tax structures could best be designed to promote economic growth is a key issue for tax policy making. … this study looks at consequences of taxes for both GDP per capita levels and their transitional growth rates.

For all intents and purposes, the economists at the OECD wanted to learn more about how taxes distort the quantity and quality of labor and capital, as illustrated by this flowchart from the report.

Here are the main findings (some of which I cited, in an incidental fashion, back in 2014).

The reviewed evidence and the empirical work suggests a “tax and growth ranking” with recurrent taxes on immovable property being the least distortive tax instrument in terms of reducing long-run GDP per capita, followed by consumption taxes (and other property taxes), personal income taxes and corporate income taxes. …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.”

Here’s how the study presented the findings. I might quibble with some of the conclusions, but it’s worth noting all the minuses in the columns for marginal tax, progressivity, top rates, dividends, capital gains, and corporate tax.

This is all based on data from relatively prosperous countries.

A new study from the International Monetary Fund, which looks at low-income nations rather than high-income nations, reaches the same conclusion.

The average tax to GDP ratio in low-income countries is 15% compared to that of 30% in advanced economies. Meanwhile, these countries are also those that are in most need of fiscal space for sustainable and inclusive growth. In the past two decades, low-income countries have made substantial efforts in strengthening revenue mobilization. …what is the most desirable tax instrument for fiscal consolidation that balances the efficiency and equity concerns. In this paper, we study quantitatively the macroeconomic and distributional impacts of different tax instruments for low-income countries.

It’s galling that the IMF report implies that there’s a “need for fiscal space” and refers to higher tax burdens as “strengthening revenue mobilization.”

But I assume some of that rhetoric was added at the direction of the political types.

The economists who crunched the numbers produced results that confirm some of the essential principles of supply-side economics.

…we conduct steady state comparison across revenue mobilization schemes where an additional tax revenues equal to 2% GDP in the benchmark economy are raised by VAT, PIT, and CIT respectively. Our quantitative results show that across the three taxes, VAT leads to the least output and consumption losses of respectively 1.8% and 4% due to its non-distorting feature… Overall, we find that among the three taxes, VAT incurs the lowest efficiency costs in terms of aggregate output and consumption, but it could be very regressive… CIT, on the other hand, though causes larger efficiency costs, but has considerable better inequality implications. PIT, however, deteriorates both the economic efficiency and equity, thus is the most detrimental instrument.

Here’s the most important chart from the study. It shows that all taxes undermine prosperity, but that personal income taxes (grey bar) and corporate income tax (white bar) do the most damage.

I’ll close with two observations.

First, these two studies are further confirmation of my observation that many – perhaps most – economists at international bureaucracies generate sensible analysis. They must be very frustrated that their advice is so frequently ignored by the political appointees who push for statist policies.

Second, some well-meaning people look at this type of research and conclude that it would be okay if politicians in America imposed a value-added tax. They overlook that a VAT is bad for growth and are naive if they think a VAT somehow will lead to lower income tax burdens.

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Though it gets strong competition from the International Monetary Fund, the Organization for Economic Cooperation and Development wins the prize for being the worst international bureaucracy.

The Paris-based organization is infamous for pushing a statist agenda on a wide range of issues, including class-warfare taxation, energy taxation, business taxation, value-added taxes, Keynesian spendinggreen energy, and government-run healthcare.

And it relies on dodgy, dishonest, and misleading data when pushing big-government policies regarding povertypay equityinequality, and comparative economics.

But what gets me most agitated is the OECD’s attempt, beginning in the late 1990s, to prop up decrepit welfare states by undermining tax competition.

I elaborated on my concerns in this interview last June.

To make matters worse, American taxpayers finance the lion’s share of the OECD’s statist agenda. Eliminating subsidies for the OECD arguably would be the budget cut with the greatest value per dollar saved.

Which is the point of some new research from the Heritage Foundation. James Roberts and Adam Michel make a strong case that the OECD is using handouts from American taxpayers to push policy that are contrary to U.S. interests.

The Organization for Economic Cooperation and Development (OECD)…has transformed itself into a dunning agency for European mega-welfare states that are straining to fund the generous but unsustainable pension, health care, and other government programs they have over-promised to their constituents. One need only undertake a cursory examination of research over the past five years to see that tax-related work by the OECD’s Centre for Tax Policy and Administration and by other OECD directorates (for example, on carbon taxes) has been focused almost entirely on studies that buttress political arguments for higher taxes and implementation of more intrusive ways to collect them. …high-taxing European members of the OECD have pushed the organization toward an almost obsessive research focus on international tax avoidance and evasion. These manifest through its base erosion and profit shifting (BEPS) project, and a proposed protocol amending the Multilateral Convention on Mutual Assistance in Tax Matters. …The BEPS project also complements a disproportionate OECD focus on income inequality…that, in the eyes of OECD’s international civil servants, could be addressed best by international wealth redistribution schemes… The Trump Administration should consider whether U.S. taxpayers should continue to subsidize an organization that increasingly acts contrary to the expressed wishes of a significant number of Americans, who voted into office in 2016 a government with a mandate to cut government spending and reduce taxes. It could decide to withdraw the United States completely from the OECD.

I normally would exclaim “amen” at this point, except the folks at Heritage are being far too nice, writing that the White House “should consider” whether to subsidize the OECD and noting that the U.S. “could” withdraw from the Paris-based bureaucracy.

I’m in no mood for diplomatic niceties when dealing with an organization that is pervasively hostile to economic liberty. The OECD is beyond salvage. If Republicans had any brains (yes, I realize that the GOP is known as “the stupid party” for good reason), handouts would have ended last decade.

I’ll close with an example of the OECD’s perfidy.

From the moment the bureaucracy’s anti-tax competition project began about 20 years ago, I explained that the OECD was seeking to destroy financial privacy so that uncompetitive governments could track capital and impose high tax rates on income that is saved and invested. In effect, the battle over “tax havens” and “tax competition” were a proxy for whether there should be more double taxation and more extra-territorial taxation.

OECD bureaucrats and others scoffed at such assertions and said the project was simply about closing off options for tax evasion so that nations could afford to lower tax rates.

I viewed that explanation as laughably dishonest. After all, did oil-producing nations create OPEC so they could reduce petroleum prices?

Were my suspicions warranted? Well, see what the bureaucrats just wrote.

…opportunities may exist…to increase progressivity in the…taxation of capital income as a result of major changes to the international tax environment. …the recent move towards the automatic exchange of financial account information between tax administrations is likely to make it harder…for taxpayers to evade tax by hiding income and wealth offshore… This may present a particular opportunity for countries that previously moved away from progressive taxation of capital income (due to concerns regarding such tax evasion) to reintroduce a degree of progressivity.

In other words, now that the OECD has succeeded in greatly weakening financial privacy, the bureaucrats openly admit that the real goal was to make it possible for uncompetitive welfare states to impose higher tax burdens on saving and investment. I’m shocked, shocked.

Here’s my video on the OECD. It was released in 2010, but nothing has changed other than there’s even more evidence against the parasitical bureaucracy.

P.S. To add more insult to all the injury, the tax-loving bureaucrats at the OECD get tax-free salaries. Must be nice to be exempt from the bad policies they support.

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The worst-international-bureaucracy contest is heating up.

In recent years, the prize has belonged to the Paris-based Organization for Economic Cooperation and Development for reasons outlined in this interview. Indeed, I’ve even argued that subsidies for the OECD are the worst expenditure in the federal budget, at least when measured on a damage-per-dollar-spent basis.

But the International Monetary Fund stepped up its game in 2017, pushing statism to a much higher level.

  • In June, I wrote about the IMF pushing a theory that higher taxes would improve growth in the developing world.
  • In July, I wrote about the IMF complaining that tax competition between nations is resulting in lower corporate tax rates.
  • In October, I wrote about the IMF asserting that lower living standards are desirable if everyone is more equally poor.
  • Also in October, I wrote about the IMF concocting a measure of “fiscal space” to justify higher taxes across the globe.
  • In November, I wrote about the IMF publishing a study expanding on its claim that equal poverty is better than unequal prosperity.

And the IMF is continuing its jihad against taxpayers in 2018.

The head bureaucrat at the IMF just unleashed a harsh attack on the recent tax reform in the United States, warning that other nations might now feel compelled to make their tax systems less onerous.

IMF Managing Director Christine Lagarde said the Trump administration’s $1.5 trillion tax cut could prompt other nations to follow suit, fueling a “race to the bottom” that risks hemming in public spending. …It also will fuel inflation, she said. “What we are beginning to see already and what is of concern is the beginning of a race to the bottom, where many other policy makers around the world are saying: ‘Well, if you’re going to cut tax and you’re going to have sweet deals with your corporates, I’m going to do the same thing,”’ Lagarde said.

Heaven forbid we have lower tax rates and more growth!

Though the really amazing part of that passage is that Ms. Lagarde apparently believes in the silly notion that tax cuts are inflationary. Leftists made the same argument against the Reagan tax cuts. Fortunately, their opposition we ineffective, Reagan slashed tax rates and inflation dramatically declined.

What’s also noteworthy, as illustrated by this next excerpt, is that Lagarde doesn’t even bother with the usual insincere rhetoric about using new revenues to reduce red ink. Instead, she openly urges more class-warfare taxation to finance ever-bigger government.

The IMF chief’s blunt assessment follows an unusually public disagreement between the fund and President Donald Trump’s administration last fall over an IMF paper arguing that developed nations can share prosperity more evenly, without sacrificing growth, by shifting the income-tax burden onto the rich. Competitive tax cuts risk holding back governments in spending on anything from defense and infrastructure to health and education, Lagarde said.

What makes her statements so absurd is that even IMF economists have found that higher taxes and bigger government depress economic activity. But Ms. Largarde apparently doesn’t care because she’s trying to please the politicians who appointed her.

By the way, keep in mind that Ms. LaGarde’s enormous salary is tax free, as are the munificent compensation packages of all IMF employees. So it takes enormous chutzpah for her to push for higher taxes on the serfs in the economy’s productive sector.

But it’s not just Lagarde. We also have a new publication by two senior IMF bureaucrats that urges more punitive taxes on saving and investment.

Although Thomas Piketty has famously proposed a coordinated global wealth tax of the wealthiest at two percent, there are now very few effective explicit wealth taxes in either developing or advanced economies. Indeed between 1985 and 2007, the number of OECD countries with an active wealth tax fell from twelve to just four. And many of those were, and are, of limited effectiveness. …This hot topic of how tax systems can assist in addressing excessive increases in wealth inequality was discussed at the regular IMF-World Bank session on taxation last October. …some among the very rich recognize some social benefit from being taxed more heavily (for instance, Bill Gates’ father). Perhaps then there is more that can be done to foster that sense of social responsibility… The exchange of tax information between countries is a powerful tool…and perhaps ultimately game-changing approach to the taxation of the wealthy…we do see good cause to be less pessimistic than even a few years ago.

Once again, we can debunk the IMF by….well, by citing the IMF. The professional economists at the bureaucracy have produced research showing that discriminatory taxes on capital are very bad for prosperity.

But the top bureaucrats at the organization are driven by either by statist ideology or by self interest (i.e., currying favor with the governments that decide senior-level slots).

The bottom line is that perhaps the IMF should be renamed the Anti-Empirical Monetary Fund.

And with regards to worst-international-bureaucracy contest, I fully expect the OECD to quickly produce something awful to justify its claim to first place.

P.S. I’m not a fan of the United Nations, but that bureaucracy generally is too ineffective to compete with the IMF and OECD.

P.P.S. The World Bank also does things I don’t like (as well as some good things), but it generally doesn’t push a statist policy agenda, at least compared to the nefarious actions of OECD and IMF.

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Since there’s a big debate about whether there should be tax cuts and tax reform in the United States, let’s see what we can learn from abroad.

And let’s focus specifically on whether changes in tax policy actually produce “revenue feedback” because of the Laffer Curve. In other words, if tax rates change, does that incentive people to alter how much they work, save, and invest, thus changing the amount of taxable income they earn and report?

I’ve written about how the Laffer Curve has impacted revenue in nations such as France, Russia, Ireland, Canada, and the United Kingdom.

Now let’s go to Africa. In a column for BizNis Africa, Kyle Mandy of PwC explicitly warns that South Africa is at the wrong spot on the Laffer Curve.

At the time of the 2017 Budget in February, a number of commentators, including myself, warned National Treasury and Parliament that the tax increases announced in the Budget, particularly on personal income tax, would likely push tax revenues very close to the top of the Laffer curve, i.e. the point at which tax revenues are maximised and beyond which tax rate increases will actually result in a decrease in tax revenues.

Before continuing with the article, I can’t resist making an important point. The author understands that it is a bad idea to be on the downward-sloping part of the Laffer Curve. As he points out, that’s when tax rates are so punitive that “tax rate increases will actually result in a decrease in tax revenues.”

That’s correct, of course, but it’s almost as important to understand that it’s also a very bad idea to be at the “top of the Laffer Curve.” As noted in a study by economists from the Federal Reserve and the University of Chicago, that’s the point where economic damage is so great that a dollar of tax revenue can be associated with $20 of damage to the private sector.

Now that I got that off my chest, let’s look at some of the details in the article about South Africa.

The evidence…suggests that, in the current environment, South Africa has maximised the tax revenues that it can extract from its citizens and has possibly even gone past that point and is now on the downward slope of the curve. Why do I say this? The last few years have seen significant tax increases… These tax increases saw the main budget tax: GDP ratio increase from 24.5% in 2012/13 to 26% in 2015/16, primarily led by increases in personal income tax. However, since then the tax:GDP ratio has stalled at 26% in both 2016/17 and in the revised forecast for 2017/18. It is not unreasonable to expect that the tax:GDP ratio for 2017/18 may fall below 26% in the final outcome. The stalling of the tax:GDP ratio comes despite significant tax increases in each of 2016/17 and 2017/18 which were expected to deliver ZAR18 billion and ZAR28 billion of additional tax revenues respectively.

Once again, I can’t resist the temptation to interject. That final sentence should be changed to read “the stalling of the tax:GDP ratio comes because of significant tax increases.”

Mr. Mandy concludes his column by warning that the current approach is leading to bad results and noting that further tax hikes would make a bad situation even worse.

…the South African Revenue Service has acknowledged that it has seen a decline in levels of compliance. …So what does all of this mean for tax policy and fiscal policy generally? Simply put, National Treasury have been placed in an invidious position. Increasing taxes further in the current environment could be self-defeating and result in a decline in the tax:GDP ratio. This risk is particularly prevalent insofar as further tax increases in the form of personal income tax are concerned. Increasing the corporate tax rate would further dent investor confidence and economic growth.

The good news is that even South Africa’s government seems to realize there is a problem.

Here are some excerpts from a recent story.

Finance minister Malusi Gigaba has received President Jacob Zuma’s stamp of approval for an inquiry into tax administration and governance at the South African Revenue Service (Sars). According to the Medium-Term Budget Policy Statement (MTBPS), tax revenue is expected to fall almost R51 billion short of earlier estimates in the current fiscal year. …The probe also comes amid warnings that further tax hikes could be futile and may even result in a decline in the country’s tax-to-GDP ratio. …National Treasury has introduced various tax hikes over the past few years. The main budget tax-to-GDP ratio increased from 24.5% in 2012/13 to 26% in 2015/16, mainly as a result of higher effective personal income tax rates. But the tax-to-GDP ratio has subsequently stalled at 26% in 2016/17 and in the latest 2017/18 forecast and it is not inconceivable that the final outcome for the current fiscal year could fall below 26%… Gigaba seems to be aware of the dangers of additional tax hikes and warned in his MTBPS that it could be “counterproductive”.

I’m glad that there’s a recognition that higher taxes would backfire, but that’s not going to fix any problems.

The pressure for higher taxes will be relentless unless the South African government begins to control spending. The government should adopt a constitutional spending cap, which would alleviate budget pressures and create some “fiscal space” for lower tax rates.

But I’m not confident that will happen, particularly if the International Monetary Fund gets involved. Desmond Lachman, formerly of the IMF and now with the American Enterprise Institute, writes that the country is in trouble.

South Africa is in trouble. Per capita income has been in decline for several years and its economy is in recession for the second time in eight years. Unemployment remains at over 27%. Meanwhile, the rand is floundering on the foreign exchange market… In view of the favourable global economic environment, the country’s predicament is even more troubling. Interest rates have rarely been lower and capital flows to emerging markets have seldom been stronger. …If South Africa’s economy is performing poorly in this environment, it will probably struggle even more when central banks start to normalise their interest rate policies and when the global economic environment becomes more challenging.

He has the right description of the problem, but I’m worried about his proposed solution.

IMF assistance can hasten restoration of confidence. …An IMF programme would not be popular politically within South Africa but the government does not appear to have any realistic alternative.

Simply stated, the IMF has a very bad track record of pushing for higher taxes.

That doesn’t necessarily mean its bureaucrats will push for bad policy in South Africa, but past performance sometimes is a good predictor of future behavior.

For what it’s worth, the IMF is fully aware that the burden of government has been increasing. Here’s a blurb from the most recent Article IV report on South Africa.

During the past few years, the share of both revenues and expenditures continued its rising trend. The size of general government in South Africa is one of the highest among international peers at a similar level of development. Primary expenditures rose by 1.5 percentage points of GDP between 2012/13 and 2015/16, owing primarily to public enterprise-related transfers (0.8 percent of GDP, including a 0.6 percent of GDP equity injection for Eskom in 2015/2016) as well as relatively generous wage agreements combined with an increase in consolidated government employment (0.3 percent of GDP). In recent years, including the 2017 budget, higher personal income taxation has been the main tax  policy instrument to collect revenue combined with higher excise rates.

And here’s a section of the data table showing the expanding burden of both taxes and spending.

Unfortunately, the IMF never says that this growing fiscal burden is a problem. Instead, the focus is solely on the fact that spending is higher than revenue. In other words, the IMF mistakenly fixates on the symptom of red ink instead of addressing the real problem of excessive government.

So if the bureaucrats do an intervention, it almost certainly will result in bailout money for South Africa’s politicians in exchange for a “balanced” package of spending cuts and tax increases.

But the spending cuts likely will be either phony (reductions in planned increases, just like they do it in Washington) or will quickly evaporate. But the higher taxes will be real and permanent. Just like in most other nations where the IMF has intervened. Lather, rinse, repeat.

Speaking of misguided international bureaucracies, the Organization for Economic Cooperation and Development already has been pushing bad policy on South Africa. The bureaucrats even brag about their impact, as you can see from this Table in the OECD’s recent Economic Survey on South Africa.

The OECD is happy that income tax rates have increased and that there’s more double taxation on dividends, but the bureaucrats are still hoping for a new energy tax, expansion of the value-added tax, and more property taxes.

They must really hate the people of South Africa. No wonder the OECD is known as the world’s worst international bureaucracy.

I’ll close by noting that the country’s problems are not limited to fiscal policy. The country is only ranked #95 by Economic Freedom of the World. And it was as high as #46 in 2000.

Instead of pushing for higher taxes, that’s the problem the OECD and IMF should be trying to fix. But given their track record, that’s about as likely as me playing centerfield next year for the Yankees.

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The great thing about the Economic Freedom of the World is that it’s like the Swiss Army Knife of global policy. No matter where you are or what issue you’re dealing with, EFW will offer insight about how to generate more prosperity.

Since today’s focus is Central America, let’s look at the EFW data.

As you can see, it’s a mixed bag. Some nations are in the top quartile, such as Costa Rica, Guatemala, and Panama, though none of them get high absolute scores. Mexico, by contrast, has a lot of statism and is ranked only #88, which means it is in the third quartile. And Belize is a miserable #122 and stuck in the bottom quartile (where Cuba also would be if that backwards country would be ranked if it produced adequate statistics).

One of the great challenges for development in central America (as well as other parts of the developing world) is figuring out how to get poor and middle-income nations to make the jump to the next level.

Mary Anastasia O’Grady of the Wall Street Journal has a column on how to get more growth in Central America. She focuses on Guatemala, but what she writes is applicable for all neighboring countries.

…faster economic growth is part of what’s needed for the region… To succeed, it will have to break with the State Department’s conventional wisdom that underdevelopment is caused by a paucity of taxes and regulation. It will also have to climb down from its view that trade is a zero-sum game. Policy makers might start by reading a new report on micro, small and medium-sized businesses in Guatemala by the Kirzner Center for Entrepreneurship at Francisco Marroquin University in Guatemala City. It measures—by way of household surveys in 179 municipalities and interviews with industry experts—“attitudes, activities and aspirations of the entrepreneur.” …the GEM study ranks Guatemala No. 1 for its positive view of entrepreneurship as a career choice. Guatemala also ranks high (No. 9) for the percentage of the population engaged in new businesses, defined as less than 3½ years old. And it ranks 12th in terms of the percentage of the population who “are latent entrepreneurs and who intend to start a business within three years.”

She explains that Guatemalan entrepreneurship is hampered by excessive taxation and regulation.

Yet Guatemalan eagerness to run a business has not translated into prosperity for the nation… The country ranks a lowly 59th in entrepreneurs’ expectations that they will create six or more jobs in five years. It also sinks to near the bottom of the pack (62nd) in creating business-service companies. …The World Bank’s 2017 “Doing Business” survey provides many clues about why the informal economy is so large. Guatemala ranks 88th out of 190 countries world-wide for ease of running an enterprise, but in key categories that make up the index it performs much worse. The survey finds that it takes 256 hours to comply with the tax code. The total tax take is 35.2% of profits. It takes almost 20 days to start a legal enterprise and costs 24% of per capita income. To enforce a contract it takes more than 1,400 days and costs more than 26% of the claim.

The good news is that we know the answers that will generate prosperity. The bad news is that Guatemala gets a lot of bad advice.

The obvious solution is an overhaul of the tax, regulatory and legal systems in order to increase economic freedom. A lower tax rate and a simpler code would give companies an incentive to operate legally, thereby broadening the base and improving access to credit. Instead the Guatemalan authorities—encouraged by the State Department and the International Monetary Fund—spend their resources trying to impose a complex, costly system in an economy of mostly informal businesses with a much-smaller number of legal, productive entrepreneurs. Recently the United Nations International Commission against Impunity in Guatemala recommended a new tax to fight “impunity.” This is no way to attract capital or raise revenue.

Speaking of bad advice, let’s now contrast the sensible recommendations of Ms. O’Grady to the knee-jerk statism of the Organization for Economic Cooperation and Development. In a new report on Costa Rica’s tax system, the OECD urged ever-higher fiscal burdens for the country. Including destructive class warfare.

Costa Rica’s tax revenues are…insufficient to finance the country’s current spending needs. …In addition to raising more tax revenue…, Costa Rica needs to…enhance the redistributive role of its tax system. …the role of the personal income tax (PIT) should be strengthened as it currently raises little revenue and does not contribute to reducing inequality. …Collecting greater revenues from the PIT, by lowering the income threshold above which PIT has to be paid as well as by introducing additional PIT brackets and gradually raising the top PIT rate, could contribute to reducing income inequality.

But the OECD doesn’t merely want to hurt successful taxpayers.

The bureaucracy is proposing other taxes that target everyone in the country. Including a pernicious value-added tax.

Costa Rica does not have a modern VAT system in place. …Costa Rica’s priority should be to introduce a well-designed and broad-based VAT system…to be able to generate additional revenues… There is scope to improve the environmental effectiveness of tax policy while also increasing revenue.

So why is the OECD so dogmatically in favor of higher taxes in Costa Rica?

Are revenues less than 5 percent of GDP, indicating that the country is unable to finance genuine public goods such as rule of law?

Is the government so starved of revenue that Costa Rico can’t replicate the formula – a public sector consuming about 10 percent of economic output – that enabled the western world to become rich?

Of course not. The report openly acknowledges that the Costa Rican tax system already consumes more than 23 percent of GDP.

The obvious conclusion if that the burden of government in Costa Rica should be downsized. And that’s true whether you think that the growth-maximizing size of government, based on the experience of the western world, is 5 percent-10 percent of GDP. Or whether you limit yourself to modern data and think the growth-maximizing size of government, based on Hong Kong and Singapore, is 15 percent-20 percent of economic output.

Here’s another amazing part of the report, as in amazingly bad and clueless.

The OECD actually admits that rising levels of government debt are the result of spending increases.

…significant increases in expenditures have not been matched by increases in tax revenues. …Between 2008 and 2013, overall government spending increased as a result of higher public sector remuneration as well as higher government transfers to finance public sector social programmes.

What’s particularly discouraging, as you just read, is that the higher spending wasn’t even in areas, such as infrastructure, where there might arguably be a potential for some long-run economic benefit.

Instead, the government has been squandering money on bureaucrat compensation and the welfare state.

Here’s another remarkable admission in the OECD report.

The high tax burden is a key driver of the informal economy in Costa Rica. The IMF estimated the size of the informal economy in Costa Rica at approximately 42% of GDP in the early 2000s… Past work from the IMF showed that rigidities in the labor market and the high tax burden were the most important drivers of informality.

Yet does the OECD reach the logical conclusion that Costa Rica needs deregulation and lower tax rates? Of course not.

The Paris-based bureaucrats instead want measures to somehow force workers into the tax net.

Bringing more taxpayers within the formal economy should be a key priority. …the tax burden in Costa Rica is borne by a small number of taxpayers. This puts a limit on the amount of tax revenue that can be raised…and puts a limit to the impact of the tax system in reducing inequality.

Ironically, the OECD report actually includes a table showing why the IMF is right in this instance. As you can see, social insurance taxes create an enormous wedge between what it costs to employ a worker and how much after-tax income a worker receives.

In other words, the large size of the underground economy is a predictable consequence of high tax rates.

Let’s conclude with the sad observation that the OECD’s bad advice for Costa Rica is not an anomaly. International bureaucracies are routinely urging higher tax burdens.

Indeed, I joked a few years ago in El Salvador that the nation’s air force should shoot down any planes with IMF bureaucrats in order to protect the country from bad economic advice.

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If I was Captain Ahab in a Herman Melville novel, my Moby Dick would be the Organization for Economic Cooperation and Development. I have spent more than 15 years fighting that Paris-based bureaucracy. Even to the point that the OECD threatened to throw me in a Mexican jail.

So when I had a chance earlier today to comment on the OECD’s statist agenda, I could barely contain myself

Notwithstanding the glitch at the beginning (the perils of a producer talking in my ear), I greatly enjoyed the opportunity to castigate the OECD.

Indeed, returning to my Moby Dick analogy, I’m increasingly hopeful that the harpoons I keep throwing at the OECD may finally draw some blood.

In his budget, President Trump has proposed to cut overall spending for international organizations. And we’re talking about a real budget cut, not the phony kind of cut where spending merely grows at a slightly slower rate.

The budget doesn’t specify funding levels for the various bureaucracies, but various Administration officials have told me that their goal is to completely defund the Paris-based bureaucracy.

To quote Chris Matthews, this definitely sends a thrill up my leg.

But I’m trying not to get too excited. It’s still up to Congress to decide OECD funding, and the bureaucrats in Paris have been very clever about currying favor with the members of the subcommittee that doles out cash for international organizations.

Though as I mentioned in the interview, the OECD didn’t do itself any favors by openly trashing Trump last year. Even if they have their doubts about Trump, I suspect most GOPers in Congress aren’t happy that the bureaucrats in Paris were trying to tilt the election for Hillary Clinton.

Here are some examples.

The OECD’s number-two bureaucrat, Doug Frantz, actually equated America’s president with the former head of Germany’s National Socialist Workers Party.

The Deputy Secretary General of the OECD has described…Donald Trump as a “lunatic” whose political rise mirrors that of Hitler and Mussolini. …Speaking on RTÉ’s This Week, Doug Frantz said…“if you look at the basis ‘us and them’ that Donald Trump sets up, that Hitler set up, that Mussolini set up, then you can begin to at least be concerned and I’m concerned: I think any right-minded person should be concerned…The person who sits in the White House is the most powerful person in the world and if that person is someone who follows every whim and appeals to the most base instincts of a population, then we’re all under real threat”.

And another news report caught the OECD’s Secretary General, Angel Gurria, basically asserting that Trump is racist.

Angel Gurria, secretary general of the Organisation for Economic Cooperation and Development  and former Mexican foreign minister, says the word “racist” can be applied to Donald Trump. …Gurria tells UpFront’s Mehdi Hasan: “I would tend to agree with those who say that this is not only misinformed, but yes, I think the word racist can be applied. I think that because the American public is wise, it will then act in consequence,” Gurria adds.

By the way, I’m making sure to share these partisan statements with lots of people in Congress and the Administration.

In an ideal world, lawmakers would defund the OECD because it is an egregious waste of money. But if they defund the bureaucracy because its top two officials tried to interfere with the US election, I’ll still be happy with the final outcome.

I’ll close by recycling the video on the OECD that I narrated for the Center for Freedom and Prosperity.

P.S. In the interest of fairness, I’ll acknowledge that the OECD occasionally produces good work. I’ve even favorably cited research from the bureaucracy on issues such as government spending, tax policy, and expenditure limits.

But even if the bureaucracy ended its statist advocacy agenda and gave staff economists carte blanche to produce good papers, that still wouldn’t change my view that American tax dollars should not be funding the OECD. Though I confess it would be a much less attractive target if it returned to its original mission of collecting statistics and publishing studies.

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