The Tax-Cartel Crowd Now Wants a Global Wealth Tax

When I give speeches about the global fight between tax competition and tax harmonization, especially when speaking in jurisdictions with good tax policy, I usually point out that that compromise is a bad idea.

To be sure, politicians from high-tax nations can put a lot of pressure on low-tax jurisdictions. Especially the threat of financial protectionism.

But I explain that capitulation is a no-win strategy.

That’s because any victory for the left will simply set the stage for future demands.

My usual analogy is that you don’t turn an alligator into a vegetarian by feeding him your arm. All that happens is that he then gets hungry for his next meal and brings a friend.

That’s what happened when the Paris-based OECD launched its initial attack on tax competition.

So-called tax havens were told that they needed to be deputy tax collectors for high-tax nations, but this would only involve complying with occasional requests for information about specific taxpayers suspected of evasion.

Low-tax jurisdictions agreed, but then the OECD moved the goal posts.

And when the dust settled, we wound up with a global system of automatic sharing of personal financial information – including even nations like Russia and China.

And since politicians are now less worried about flight capital, they are raising tax rates.

Now the same thing – moving goal posts – is happening in the field of global minimum taxes.

Politicians from uncompetitive nations have been pushing to harmonize corporate taxes, including a global minimum rate of 15 percent.

The ink isn’t even dry on that scheme, yet the pro-tax crowd is already agitating for its next meal.

Here are some excerpts from an article by Richard Partington for the U.K.-based Guardian.

The G20 group of the world’s most powerful countries is exploring plans for a global minimum tax… Leaders gathering in São Paulo for a key G20 meeting of finance ministers and central bank governors are preparing to discuss an internationally agreed backstop… Aiming to build on the cooperation that resulted in a 15% global minimum tax on multinational companies, which came into effect in January, the plan is being promoted under Brazil’s presidency of the G20… Brazil’s finance minister, Fernando Haddad, under the leftwing government of the president, Luiz Inácio Lula da Silva, is pushing for the adoption of the policy. France’s finance minister, Bruno Le Maire, also gave his backing this week, saying Europe should take it forward. …Zucman said the G20 talks would mark “the beginning of a conversation”. Various details would need to be hammered out between countries.

This sounds crazy. And it is crazy.

Wealth taxes arguably are the most destructive way for governments to grab revenue. Yet some politicians, motivated by greed and class warfare, want to make that tax universal.

I hope this idea gets shot down, but keep in mind that even semi-rational politicians are going to be susceptible to bad proposals because so many nations are facing massive long-run fiscal problems.

P.S. Readers who want to learn why tax competition is a good idea should click here, here, and here.

P.P.S. This issue is personal to me for reasons you will understand if you read this, this, and this.

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Promote U.S. Prosperity by Rejecting the OECD Tax Cartel

I support tax competition because it is our best hope of avoiding “goldfish government.”

As such, I’m very opposed to tax harmonization schemes, all of which are designed to make it easier for politicians to impose higher tax burdens. .

That’s why I’m so hostile to the Organization for Economic Cooperation and Development. Politicians from high-tax nations have co-0pted that Paris-based bureaucracy and are using it to push for a global tax cartel.

Adam Michel of the Cato Institute recently wrote an in-depth study on the OECD’s proposed business tax cartel and explained why the United States should not participate.

I recommend that people read that report. But for those who have limited time, I’m going to share some excerpts from his new column for National Review, which addresses the same topic.

To protect their businesses from facing competition, the European Union and the Organization for Economic Co-operation and Development (OECD) have concocted an international tax cartel to weaken America’s most successful international businesses. The new tax rules discourage international investment by imposing tens of billions of dollars in compliance and economic costs. …Instead of endorsing the European plan, Congress should double down on America’s successful tax cuts by further cutting business rates and simplifying other tax rules. A low enough corporate-tax rate would break the OECD’s tax cartel, benefit domestic workers, and attract new businesses. …Republicans have raised concerns about the OECD plan and proposed retaliatory measures in response to the OECD taxes. But, as is too often the case, they are being too timid. …Supporters of the OECD plan will argue that the new world-order tax cartel is here to stay, so it’s time for the United States to get on board. They dubiously claim that United States will benefit from new tax revenue… Fortunately, the agreement is more fragile than they let on. Cartels are inherently unstable. Instead of ceding tax sovereignty and encouraging businesses to conduct their activity elsewhere, Congress should increase the attractiveness of the United States as an investment destination and reject the OECD’s tax tyranny.

Amen.

Tax competition is the right approach, not tax harmonization.

The simple – and accurate – way of summarizing the OECD’s plan is that some governments win and almost everyone else loses.

Note that only some governments win.

Countries with very sensible business tax systems (Ireland, Estonia, etc) will lose, as will jurisdictions with good overall tax policy (Bermuda, Cayman Islands, etc).

Workers and businesses lose everywhere, of course.

I’ll close with some bad news. The Biden Administration enthusiastically supports the OECD scheme, even though it largely targets American companies.

P.S. November’s election may not make a difference. The Trump Administration was bad on tax competition issues between 2017-2020, so it would be putting hope over experience to expect good policy if Trump wins a second term.

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Debunking the Global Corporate Tax Cartel, Part I

Early in the Biden years, I wrote a three-part series (here, here, and here) to explain why a global minimum tax on companies is a bad idea.

As I told the BBC back in 2021, this proposed tax cartel is a scheme to increase the tax burden and will be very bad news for workers, consumers, and shareholders.

Folks on the left, however, like the idea of politicians having more power and money. So they defend the cartel, which was organized by the bureaucrats at the Paris-based Organization for Economic Cooperation and Development.

In a column for the Washington Post, Natasha Sarin and Kimberly Clausing try to defend the OECD’s tax harmonization scheme.

Republican lawmakers…are attacking…the global minimum tax. …We both worked at Treasury when the agreement was forged, and we believe strongly that it represents an important step forward. …the deal brings together more than 135 jurisdictions, representing about 95 percent of the world economy, to stem the damaging race-to-the-bottom competition that allows the world’s largest multinational companies to shift income offshore rather than pay their fair share at home. The key mechanism is a 15 percent minimum tax — hence the name — and the agreement should be applauded, not pilloried.

The column lists five claims supposedly made by congressional Republicans and the authors then give their response.

For purposes of today’s column, I’ll show their response and then give my response. Sort of a debunking of the debunking, except my main argument is that they are being evasive rather than dishonest.

1st Republican claim: “The agreement threatens U.S. tax sovereignty.”

Here’s how Sarin and Clausing respond.

In the past, some lawmakers have cautioned that we can’t afford to tax mobile corporate income because that income can simply be shifted to countries that offer lower rates. But with a universal 15 percent minimum rate, Congress’s options widen, giving policymakers the freedom to choose rates that align with the nation’s fiscal priorities.

The truth: The authors make it seem like this is a semantic issue –  i.e., is a tax cartel a surrender of sovereignty or an expression of sovereignty. But that’s not important. What matters is whether it is good policy for governments to conspire against taxpayers. The answer unambiguously is no.

2nd Republican claim: “The agreement is an unconstitutional giveaway to foreign governments.”

Here is their response.

Here’s what the deal actually does: Say France implements the minimum tax, but a U.S. multinational with a French subsidiary retains the abileity to move income from France to a low- or no-tax jurisdiction to avoid it. France could then impose a tax topping up the effective rate to 15 percent.

The truth: I have no idea about the legality or constitutionality of the tax cartel, but the authors once again dodge the real issue, which is whether it is a good idea to to divert more money from the productive sector of the economy so that politicians (regardless of their location) can spend more.

3rd Republican claim: “The agreement harms the competitiveness of U.S. businesses.”

Their response:

By raising the “bottom” from zero to 15 percent, and in a way that affects companies regardless of the location of their headquarters, the agreement is a giant step toward a more level playing field, so U.S. businesses don’t end up at a competitive disadvantage.

The truth: Politicians (and the authors!) openly brag about how a global tax cartel will enable governments to grab ever-larger shares of business income. Of course this will harm American companies.

4th Republican claim: “The agreement hurts workers by harming the companies they work for.”

Their response:

A global minimum tax will help the U.S. government create a more balanced system that taxes the most profitable companies in the world at rates that are closer to what middle-class families pay. This means workers will shoulder less of the tax burden themselves.

The truth: As every public finance economist knows, only people pay taxes. Any tax on a business is really a tax on workers, consumers and shareholders. To make matters worse, the higher business tax burdens will reduce investment, which will lower productivity, and thus translate into lower wages for workers.

5th Republican claim: “The agreement harms U.S. government revenue.”

Their response:

Republican lawmakers have argued that the federal government will lose revenue once foreign governments are emboldened to tax U.S. companies. But…the global agreement makes the corporate tax base less porous by reducing profit-shifting to low-tax havens. …The whole point of the agreement was to ensure that countries that want to use the corporate tax to generate revenue can do so. Indeed, the Biden administration has proposed hundreds of billions in new corporate tax revenue

The truth: Since I want to reduce revenue for Washington, I have mixed feelings about this final point. I’ll simply note that the OECD’s own data shows that the global shift to lower tax rates has not led to lower revenues. Heck, the OECD has also produced research confirming there’s a strong Laffer Curve for corporate taxes.

The bottom line is that Sarin and Clausing believe in higher taxes and bigger government.

So it is understandable that they support global tax cartels. Unfortunately, they never explain in their column why a bigger burden of government is desirable.

I suspect their evasiveness is because the evidence (even from left-leaning international bureaucracies) is not on their side.

So let’s hope this global tax cartel falls apart and we can have a new era of tax competition.

P.S. Joe Biden deserves criticism for supporting the OECD’s proposed tax cartel, but let’s not forget that Donald Trump also was very bad on the issue.

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OECD Bureaucrats Criticize USA for Absence of Parental Leave Mandate

Usually with regard to government-run health care, folks on the left commonly criticize the United States for being the “only country” that does not  provide this or that handout from the government.

That should not be a persuasive argument without first looking at whether the United States is doing better or worse than other nations.

And based on comparative living standards, the United States is far ahead.

So why copy the policies of countries where people are way behind?

But that doesn’t seem to matter to proponents of bigger government such as the bureaucrats at the Paris-based Organization for Economic Cooperation and Development.

Here are some excerpts from an OECD publication about paid parental leave, authored by Jason Fluchtmann.

Except for the United States, all OECD countries have national statutory rights that entitle mothers to (de facto) paid maternity leave around childbirth. …these entitlements are designed to protect infants and mothers around childbirth, to give both parents the necessary time to provide childcare during the early stages of life of a new-born, and ensure that fathers and mothers are financially supported during their time on leave… Across the OECD, statutory rights to paid maternity leave are provided with an average length of 18.5 weeks as of April 2022…, ranging from 43 weeks in Greece (the longest entitlement) to none in the United States – the only OECD member with no national provision of paid maternity leave.

Here is an accompanying chart showing the United States compared to other OECD nations (needless to say, the article never addresses the issue of whether Greece should be a role model).

To hammer home the point, the OECD article concludes with advice for governments.

One thing you may notice is that the OECD report, for all intents and purposes, only looks at supposed benefits and ignores very real costs.

That’s incredibly sloppy. Such policies have very substantial costs.

Here’s some of what Veronique de Rugy wrote a few years ago for Reason.

…calls are intensifying for the federal government to implement paid leave, which may unwittingly hurt those whom the program claims to help. …women would like to get paid to stay home after the birth of their children, yet that’s no more evidence of a market failure than is my not driving a Tesla, even though I’d like to drive one if it were free. This isn’t a reason for government to mandate paid leave (or Teslas) for all workers. …Because paid leave is costly, when firms provide this benefit, they change the composition of their employees’ total compensation by reducing the value of workers’ take-home pay to offset the cost of providing paid leave. While some workers prefer this mix in their pay packages, others don’t. In particular, mandated leave would be a hard trade-off for many lower-paid women who would prefer as much of their income as possible in the form of take-home pay. In fact, polls show that when women learn of the trade-offs inherent in any government-mandated paid-leave policy, their support for such a policy collapses.

As is always the case, Veronique is right. Paid parental leave is not a freebie. If politicians force employers to incur certain costs, workers will bear the burden.

P.S. Parental leave was one of many issues where Trump was in favor of big government rather than economic liberty.

P.P.S. I’m not surprised that OECD bureaucrats push statist policies. They get tax-free salaries (subsidized by American taxpayers!) and thus are insulated from the real-world impact of their dirigiste agenda.

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Time to (Finally) Defund the OECD?

Nearly 13 years ago, I narrated this video about the Organization for Economic Cooperation and Development, a Paris-based international bureaucracy that uses American tax dollars to advocate for bigger government and higher taxes.

Everything I said in that video is still true, except now the federal budget is far bigger and the OECD has had about a dozen more years to push for dirigiste policies.

It is particularly disgusting (and hypocritical) that the OECD is a big cheerleader for higher taxes, yet its bureaucrats get tax-free salaries.

Not only does the OECD urge higher taxes in countries all around the world (even poor countries!), it also lobbies to undermine tax competition by advocating for policies such as Joe Biden’s corporate tax cartel.

And it adds insult to injury that American taxpayers are subsidizing this nonsense.

But maybe that will come to an end. Reporting for Bloomberg Tax, Samantha Handler and Chris Cioffi explain that Republicans are threatening to end U.S. subsidies for the Paris-based bureaucracy.

Republicans are plotting ways to push back on the landmark global tax deal agreed to by nearly 140 countries, including by calling to pull US funding for the OECD that’s leading the negotiations. …“There’s concerns about the work product of the OECD,” said Rep. Adrian Smith (R-Neb.), the Ways and Means trade subcommittee chairman. …The US currently funds 19.1% of Part I of the OECD’s budget, according to the letter addressed to House Appropriations State, Foreign Operations, and Related Programs Chairman Mario Diaz-Balart (R-Fla.) and ranking member Rep. Barbara Lee (D-Calif.). …Chairman Jason Smith (R-Mo.) sent a letterlast month to the OECD Secretary-General Mathias Cormann, urging him to reject all proposals that would affect US jobs and tax revenue. Jason Smith called Pillar Two’s undertaxed profits rule “fundamentally flawed.”

Needless to say, Republicans should defund the OECD. Giving American tax dollars to the bureaucrats in Paris is a subsidy for the left.

For all intents and purposes, this is an IQ test for Republicans. Presumably, they are smart enough to understand that they should not send money to the Democratic National Committee or MSNBC. You would think they would also be smart enough not to subsidize a bureaucracy that advocates for the DNC/MSNBC agenda.

Unfortunately, Republicans have a well-deserved reputation for being the “stupid party.”

• They had total control of Washington from 2002-2006 during the Bush year. Did they defund the OECD? No.
• They had todal control of Washington from 2017-2018 during the Trump years. Did they defund the OECD? No.

To make matters worse, Republicans are sometimes so stupid that they actively help the OECD push for bad policy. Here’s another blurb from the article.

Momentum started building on the global tax talks under the Trump administration, with the US participating actively in the negotiations.

To be fair, the Trump Administration sort of proposed to defund the OECD back in 2017, but there was zero follow-through (hardly a surprise since Trump wound up being a big spender).

Instead, his dilettante Treasury Secretary actively supported the OECD.

The bottom line is that I’m happy that some Republicans are threatening to defund the OECD but I’m not overflowing with confidence that they will have the intelligence and diligence to make it happen. Even if they wind up back in power after the 2024 election.

P.S. There is at least one Republican who is very principled on the issue of the OECD.

P.P.S. The OECD sometimes resorts to grotesque dishonesty while pushing for bigger government.

P.P.P.S. I’ve been accused of “trading with the enemy” because I argue against the OECD. Heck, the bureaucrats even threatened to throw me in a Mexican jail.

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Another Poverty Huckster

There are some policy fights that focus on technical disagreements (for instance, how much do deadweight losses increase when tax rates go up?) and other policy fights that involve moral disagreements (for instance, should drugs be legalized when that may lead some people to harm themselves?).

Other policy fights, however, involve dishonesty.

Poverty hucksters might be the most irritating example. These are the people who push an utterly dishonest definition of poverty, which I first wrote about back in 2010. But this article from 2019 has the best summary.

…folks on the left have decided to use an artificial and misleading definition of poverty. One that depends on the distribution of income rather than any specific measure of poverty. Which is insanely dishonest. It means that everyone’s income could double and the supposed rate of poverty would stay the same. Or a country could execute all the rich people and the alleged rate of poverty would decline. No wonder the practitioners of this approach often produce absurd data, such as the OECD’s assertion that there’s more poverty in the United States than in basket case economies such as Greece and Italy.

Sadly, the many complaints from me and others have not stopped the poverty hucksters.

Here’s a chart I just downloaded from the Organization for Economic Cooperation and Development, one of the organizations pushing the dishonest measure of poverty.

As you can see, they want people to believe that there’s more poverty in the United States than in nations such as Turkey, Italy, and Greece.

Heck, they also want people to think the wealthy nations of Luxembourg and Switzerland have more poverty than Hungary.

I’m sharing this information because it’s time to add a new member to our collection of poverty hucksters.

Timothy Noah of the New Republic has a column in the Washington Post that utilizes the OECD’s inaccurate definition of poverty. Here are some excerpts from his article.

How can the richest nation on Earth have so much poverty? …The Bible tells us that the poor are always with us. But devout resignation can’t explain why the United States, with the world’s largest economy (gross domestic product: $26.15 trillion) should house more poverty than many much poorer countries. In 2021, the Organization for Economic Cooperation and Development ranked 37 member nations by poverty rate. Costa Rica had the highest rate, followed by Bulgaria, but way up there at No. 10 was the United States. …We may not have the means to eliminate poverty. But we can certainly do better than Estonia.

If you read Noah’s entire article, you’ll quickly see why he uses the OECD’s dishonest data.

Like Biden, he wants a massive expansion of class-warfare taxation and a big increase in the welfare state, so it is in his interest to portray America as a dystopian hellscape of suffering and deprivation.

It would be nice, however, if he relied on accurate data. Then again, accurate data would backfire on him.

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European Fiscal Policy Week, Part III: A Continent-Wide Spending Problem

I discussed Italy’s looming fiscal crisis on Monday and then argued against a potential bailout on Tuesday.

Today, let’s focus on the rest of Europe.

I gave a presentation yesterday in Brussels about “Public Finances in the Eurozone” and used the opportunity to explain that governments are too big in Europe and to warn that demographic changes were going to lead to an even-bigger burden of government in the future.

My assessment is very mainstream, at least with regards to what will happen to national budgets in European nations.

A study from the Organization for Economic Cooperation and Development, authored by Yvan Guillemette and David Turner, examines the long-run fiscal position of member nations.

It warns that government debt levels will increase dramatically if they don’t change current policies.

… secular trends such as population ageing and the rising relative price of services will keep adding pressure on government budgets. Without policy changes, maintaining current public service standards and benefits while keeping public debt ratios stable at current levels would increase fiscal pressure in the median OECD country by nearly 8 percentage points of GDP between 2021 and 2060, and much more in some countries. …governments will need to re-assess long-run fiscal sustainability in the context of higher initial government debt levels…when considering expenditure pressures associated with ageing…, the OECD structural primary balance would deteriorate rapidly and net government debt would more than double as a share of GDP by 2050 (Figure 12).

Here is the aforementioned Figure 12. As you can see, both deficits (left chart) and debt (right chart) are driven by the cost of age-related entitlement programs.

The report also explains that the increase in red ink is being caused by a bigger burden of government spending.

Under a ‘business-as-usual’ hypothesis, in which no major reforms to government programmes are undertaken, public expenditure is projected to rise substantially in most countries… Public health and long-term care expenditure is projected to increase by 2.2 percentage points of GDP in the median country between 2021 and 2060… Public pension expenditure is projected to increase by 2.8 percentage points of GDP in the median country between 2021 and 2060… Other primary expenditures are projected to rise by 1½ percentage points of GDP in the median country between 2021 and 2060 (Figure 13, Panel A). This projection excludes potential new sources of expenditure pressure, such as climate change adaptation.

Here’s Figure 13, mentioned above. Notice the projected increases in spending in most European nations.

So what’s the best response to this slow-motion fiscal disaster?

Since more government spending is the problem, you might think the OECD would recommend ways to restrain budgetary expansion.

But that would be a mistake. As is so often the case, OECD bureaucrats think giving politicians more money is the best approach.

The present study…uses an indicator of long-run fiscal pressure that is premised on the idea that governments would seek to stabilise public debt ratios at projected 2022 levels by adjusting structural primary revenue from 2023 onward. … all OECD governments would need to raise taxes in this scenario to prevent gross government debt ratios from rising over time… The median country would need to increase structural primary revenue by nearly 8 percentage points of GDP between 2021 and 2060, but the effort would exceed 10 percentage points in 11 countries.

To be fair, the authors acknowledge that there might be some complications.

Raising taxes…appears feasible in some countries…, in other countries it may present a substantial challenge. In Belgium, Denmark, Finland and France, for instance, structural primary revenue is already around 50% of GDP… Pushing mainstream taxes on incomes or consumption further up, even by only a few percentage points of GDP, may be politically difficult and fiscally counter-productive if it means reaching the downward-sloping segment of the Laffer curve… Lundberg…identifies five OECD countries where top effective marginal tax rates (accounting for income, payroll and consumption taxes) are already beyond revenue-maximizing levels (Austria, Belgium, Denmark, Finland and Sweden). Thus, if taxes are to rise, it might be necessary to look to other bases, such as housing, capital gains, inheritance or wealth. Recent international efforts to establish a minimum global corporate tax could also enable more revenue to be raised from corporate taxes.

I’m happy that the study acknowledges the Laffer Curve, though that is not much of a concession since even Paul Krugman agrees that it exists.

And even when OECD bureaucrats admit that it may be unwise to increase some taxes, their response is to suggest that other taxes can be increased.

Sigh.

Now you understand why I’ve argued that the OECD may be the world’s worst international bureaucracy. Especially since OECD bureaucrats get tax-free salaries while urging higher taxes on the rest of us.

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What Can We Learn by Comparing Relative Living Standards in OECD Nations?

Because of my libertarian proclivities, I don’t like when people assert that the United States should have European-sized government.

But this is not merely a question of ideology.

I’ve repeatedly pointed out that there is a relationship between national prosperity and economic liberty. And I’ve shared plenty of data showing that ordinary Americans have significantly higher living standards that their counterparts on the other side of the Atlantic Ocean.

So why “catch up” with countries that are lagging behind?

One of my favorite ways of illustrating the gap is the “actual individual consumption” data from the Paris-based Organization for Economic Cooperation and Development.

Here are the latest numbers, with show that the United States is more than 50 percent above the average for OECD nations.

I’m not surprised that Luxembourg ranks second since it is a tax haven. And it’s also not surprising that oil-rich Norway is in third place or that market-friendly Switzerland is in fourth place.

But notice that Europe’s most famous welfare states, France (102.5) and Sweden (104.7), are barely above average.

More important, notice that the United States is nearly 50 percent higher than those supposedly more enlightened nations.

Seems like there’s a lesson to be learned about what type of economic policy delivers the best results for ordinary people.

P.S. The United States has been at the top of these rankings for as long as I’ve been sharing the OECD’s AIC data, but other countries have suffered big falls or enjoyed big increases.

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International Bureaucracies Push for More Poverty in Latin America

Even though they ostensibly exist to promote economic growth, the International Monetary Fund (IMF) and Organization for Economic Cooperation and Development (OECD) have an unfortunate track record of promoting higher taxes and bigger government.

Not that we should be surprised. IMF and OECD officials get very comfortable (and tax-free!) salaries, so they have a “public choice” incentive to reflect the wishes of the politicians who control their purse strings.

But understanding the incentives of international bureaucrats definitely does not mean we should give them a free pass when they push bad policy.

And that’s exactly what the IMF and OECD are doing in Latin America.

Consider, for instance, the new IMF report on “Tax Policy for Inclusive Growth in Latin America and the Caribbean.” The authors (Santiago Acosta-Ormaechea, Samuel Pienknagura, and Carlo Pizzinelli) apparently think those struggling nations will grow faster if there is a bigger burden of government.

…fiscal policy…is not progressive enough… This paper presents a detailed assessment of tax structures in LAC and outlines reform options to improve collection… Specific tax design features are then assessed, inspecting how the taxation of capital and labor can be improved…to both increase revenue and provide a more equitable tax structure… Evidence for LA7 countries shows that better PIT design could bring significant gains in collection and equity. … Potentially adverse growth impacts could be mitigated by providing well-targeted incentives to labor force participation of low-wage earners through an earned income tax credit… Increasing the tax burden on certain non-labor income sources (e.g., capital gains) would also raise PIT revenue and improve equity… Other untapped revenue sources should be considered more forcefully, including the taxation of immovable property, inheritance taxes, and environmental taxes.

As illustrated by Figure 1 from the report, one of the clear messages is that Latin American countries should be more like high-tax countries in Western Europe.

What the authors overlook, however, is that the (relatively) rich countries in Western Europe became rich when the burden of government was very small.

There’s never been a nation, anywhere in the world, or at any point in world history, that became rich by adopting big government.

Now let’s look at what the OECD recommends, as part of “Latin American Economic Outlook 2021: Working Together for a Better Recovery.”

The LEO 2021 provides tailored policy messages to help stakeholders take action and build forward better. …it highlights the need to learn from the pandemic and mainstream some of the social policy innovations adopted throughout the crisis to strengthen social protection systems and improve quality and accessibility of public services. …a set of tax policy options could increase revenues… there needs to be greater resource mobilisation…in most LAC countries, which in turn implies greater progressivity of the taxation system… the average tax-to-GDP ratio in the LAC region was 22.9% in 2019, considerably below the OECD average of 33.8%… Countries may need to consider additional ways of raising revenues… PIT is the principal factor behind the tax gap between LAC and the OECD, limiting not only potential revenues but also the redistributive power of the tax system… taxation of immovable property…and of individuals’ capital gains, should contribute to increasing revenues to finance the recovery and improve the progressivity of the taxation system. Other measures include wealth and inheritance taxes.

Table 1 from the report summarizes the “new social contract” that the OECD is advocating.

All you need to understand is that “strengthening social protection systems and public services” is bureaucrat-speak for more government spending and “developing fairer and stronger tax systems” is bureaucrat-speak for higher taxes and class warfare.

I’ll close by calling your attention to this video explaining the ideal fiscal policy for nations in the developing world.

But remember that fiscal policy is just one piece of the puzzle, so I also recommend this video and this video if you want a full understanding of the policies that are needed to create broadly shared prosperity.

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Which Nation Will Be the Next to Go Bankrupt?

Last month, I shared a chart from a study published by the European Central Bank.

It showed which European nations were in the unfortunate position of facing big future spending increases (the vertical axis) combined with already-high levels of government debt (the horizontal axis).

The bottom line is that Italy, Portugal, France and Belgium face a very difficult fiscal future.

And Estonia (at least relatively speaking) is in the best shape.

Today we are going to augment those ECB numbers by looking at some data from the OECD’s recent report on Estonia.

Here’s a chart showing how the burden of government spending is going to increase in various nations between now and 2060.

Slovakia, Spain, Norway, and the Czech Republic have the biggest problem.

Lithuania is in the best shape, surprisingly followed by Greece (I assume because that nation already hit rock bottom, not because of good policy).

I also highlight the United States, which will have to face the challenge of above-average spending increases.

But if you want to know which nation will be the next to suffer fiscal collapse, you also need to know whether (or the degree to which) it has the capacity – or “fiscal space” – to endure a bigger burden of government spending.

James Capretta addressed that topic in an article for the Bulwark.

Which governments have exercised budgetary restraint in recent years, even while confronting sequential global crises? Which have been more profligate? And what do the differences portend for their differing abilities to handle an era when servicing debt may be more expensive than it has been in many years? …Accuracy…requires assessing both assets and liabilities. …The Organization for Economic Cooperation and Development…’s most comprehensive measure of fiscal resilience is the “financial net worth” of the reporting countries, which includes the main sources of accumulated liabilities (especially public debt) along with financial assets owned by governments.

And here’s a chart showing how developed nations (with the exception of oil-rich Norway) have been spending themselves into a fiscal ditch.

Here are some of Capretta’s observations.

Among the twenty-seven OECD countries that reported data every year from 1995 to 2020, the average deterioration in their net financial position, weighted by population size, was equal to 48 percent of GDP. …Several countries stand out for the steepness of their declines. Japan’s net financial position was -20 percent of GDP in 1995, and in 2020 it was -129 percent of GDP—in other words, in just 25 years it worsened by over 100 percent of the country’s annual GDP. Similarly, the United Kingdom experienced a serious deterioration, with a net financial position in 2020 equal to -109 percent of GDP. In 1995, it was -26 percent. …France, Greece, Italy, and Spain are regularly criticized for their uneven approaches to fiscal discipline. The OECD data showing a substantial deterioration of their net financial positions over the last quarter century provides more evidence that each of these countries needs to take further steps to lower the risk of a fiscal crisis in future years.

The United States obviously is not in good shape, though I think the OECD’s methodology is imperfect.

Yes, America will have to deal with a fiscal crisis if we don’t figure out a way of controlling spending, but I suspect many other countries will reach that point before the U.S. (with Italy quite likely being the next to go belly up).

P.S. At the risk of repeating advice from previous columns, genuine entitlement reform is the only solution to America’s long-run spending problem, ideally enforced by a Swiss-style, TABOR-style spending cap.

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The OECD’s Despicably Dishonest Campaign for Redistribution

The past two days have featured columns about Estonia, with the first one focusing on the nation’s impressive rebound after decades of communist enslavement and the second one criticizing the Organization for Economic Cooperation and Development (OECD) for suggesting tax-and-spend policies that would undermine the country’s prosperity.

Both columns used data from a recent OECD report. Today, I’m going to write a third column using data from that report, but I won’t be focusing on Estonia. Instead, I want to address the OECD’s ongoing efforts to promote redistribution by lying about poverty.

Here’s a chart that ostensibly shows poverty rates in various member nations.

Any sentient person should immediately recognize that the chart is garbage. Notice, for instance, that that United States supposedly has the second-highest poverty rate among OECD nations.

Yet does any rational person actually think poverty is a bigger problem in America than it is in Mexico or Turkey? Or Italy, Hungary, or Greece?

Of course not. Heck, poor people in the United States often have incomes that are equal to or higher than average incomes in other nations.

So what’s going on?

Well, if you read the fine print, you’ll find that the chart doesn’t actually measure poverty. At all.

Instead, it’s a measure of income distribution. The OECD’s bureaucrats have decided that anybody who makes less than 60 percent of a nation’s average income is poor.

This is an absurd approach.

Heck, the OECD’s dishonest approach would show that there’s almost no poverty in the world’s poorest nations, such as North Korea, Haiti, Cuba, and Congo. After all, if almost everyone is equally destitute, then almost nobody will be below 60 percent of the median.

Here’s another example that exposes the OECD’s scam. Imagine that everyone in the United Sates suddenly had three times as much income as today. That would seem like great news, especially for lower-income Americans. Yet based on the OECD’s dishonest approach, the poverty rate would not change.

So why is the OECD publishing nonsensical and dishonest numbers?

I answered that question back in 2012.

The main thing to understand, though, is that this new approach is part of an ideological campaign to promote bigger government and more redistribution. Which is very much consistent with the OECD’s overall agenda.

The fact that this type of agenda hurts poor people doesn’t seem to bother our friends on the left. So long as rich people are hurt even more, that’s a good thing from their perspective.

Remember, they are motivated by equality of outcomes.

Good people, by contrast, seek policies that enable poor people to improve their lives (as captured by the Eighth Theorem of Government).

P.S. Here’s my collection of other hucksters that peddle dishonest poverty data.

P.P.S. Here’s a story from Sweden about what happens when the ideology of equality produces very bizarre outcomes.

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OECD Bureaucrats Advocate Statist Policies that Would Weaken Estonia

I wrote yesterday about how pro-market policies in Estonia are helping that nation catch up (converge) with other European nations.

Indeed, Estonia arguably is the most successful country to emerge from the economic wreckage of Soviet socialism.

Above-average growth has been especially beneficial for the less fortunate (and socialism meant a lot of people were in this category).

As you can see from the chart I shared yesterday, the share of people suffering from serious poverty has plummeted.

Based on this data, one might think that Estonia would win universal praise from right and left. The former would applaud the pro-market policies and the latter would applaud how so many people have been lifted out of poverty.

Unfortunately, the bureaucrats at the Organization for Economic Cooperation and Development (OECD) don’t seem to be happy about Estonia’s economic renaissance.

And what’s really remarkable is that the data I cited yesterday came from an OECD report. Yet that same report advocates policies that would be harmful to that nation’s economy.

For instance, the report notes (accurately) that demographic changes are going to create fiscal pressure in Estonia, but the OECD bureaucrats then state that the problem is insufficient tax revenue.

To make matters worse, the bureaucrats from the OECD want the Estonian government to weaken or reverse some of the country’s best policies.

Such as the top-ranked business tax system and the pro-growth flat tax.

There are other recommendations in the OECD report that would hurt Estonia’s economy, such as a higher minimum wage and more regulation of labor markets (an area where Estonia already has problems).

To be fair, the report does suggest lower tax rates for low-wage workers, so not every recommendation is anti-growth.

But one good suggestion doesn’t excuse a dozen proposals to increase the burden of government. This report on Estonia is further evidence that the OECD arguably is the world’s worst bureaucracy (which is quite an achievement considering the many shortcomings of the IMF).

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Deconstructing Biden’s Corporate Tax Cartel, Part III

As part of my continuing efforts to derail Biden’s global minimum tax on businesses (here’s Part I and Part II), I explain the downsides of the president’s plan in this clip from a recent interview.

If you don’t want to spend three minutes to watch the above video, my views are summarized by this excerpt from an interview with the BBC.

Simply stated, politicians want to grab more money from businesses.

But let’s not forget that taxes on companies are actually paid by workers, consumers, and shareholders.

We do have some good news. Hungary is stopping, at least temporarily, the European Union from embracing its version of a minimum tax.

In a column for the Wall Street Journal, a member of that nation’s parliament explains his government’s position.

Adopting the European Commission’s minimum-tax directive now would be a profound mistake. …The EU directive, proposed by the European Commission in December 2021, aims to introduce a 15% minimum tax rate, effective Jan. 1, 2023…the current proposal would increase the tax burden on European manufacturers, which drive economic growth. The directive would need to be unanimously agreed by 27 EU member states to take effect. Hungary can’t support a proposal that would hurt the weakened European economy… Adopting the directive would hit Central European economies the hardest by damaging their favorable tax systems, a key competitive advantage over their Western European counterparts. …Hungary’s ability to set its own fiscal policies in this crisis is indispensable. To protect our competitiveness and sovereignty, the Hungarian National Assembly passed a resolution prohibiting the government from agreeing to implement a global minimum tax.

Let’s be thankful that Hungary said no.

But I’m still very worried, for two reasons.

• First, the column focuses on why it would be a very bad idea to impose a global tax cartel during the current period of economic turmoil. That’s true, but it implies that it might be acceptable to impose a global minimum tax at some other point. That’s definitely not the case.
• Second, it’s bad news that other nations – such as Ireland, Estonia, and Luxembourg – didn’t side with Hungary (Ireland’s capitulation is particularly disappointing).

Since we’re discussing the merits (or lack thereof) of a global minimum tax, let’s look at what others have written about the idea.

Aharon Friedman and Joshua Rauh opined against the concept of a global minimum corporate tax in an article for Fox News.

…the administration is conspiring at the OECD to stifle tax competition across the globe by effectively requiring all countries to impose similarly high tax rates. …teaming up with the OECD to be the world’s tax policeman would be disastrous for many reasons. …a global minimum tax would have to feature very detailed rules over every aspect of taxation, from cost recovery, losses, and interest deductibility, to tax incentives such as R&D and what kinds of businesses must be subject to the tax in the first place. The scheme would shift enormous power to the OECD Secretariat, which would start to look like the world’s IRS Commissioner. This would also be a backdoor through which to further strip tax lawmaking from Congress and place it in the hands of Treasury and its foreign counterparts. …The Biden administration is trying force countries across the world to adopt its own preference for high taxes on corporate income regardless of the effect on employment and wages.

The Wall Street Journal editorialized against this scheme last year.

Ignore the back-slapping about revenues and “fairness.” This deal is bad news for economies recovering from the pandemic, and especially the U.S. …Officials and progressive activists say they’re halting a global “race to the bottom” on corporate taxes. We’re glad they finally concede that tax rates matter to decisions about investment and job creation, since the left has denied this for decades. But the real action has been on tax policy competition, which has been instrumental to economic growth, innovation and job creation since the 1980s. The OECD plan will throttle that competition. That’s because, while the G-7 agreement focuses on the headline rate for the new minimum tax, the OECD plan comes with reams of harmonized fine print… Suppressing tax competition is the main reason the Biden Administration broke with Washington’s long, bipartisan tradition of opposing a global minimum tax. …American workers, consumers and shareholders will pay the price.

Writing for CapX, Kai Weiss warns that a global minimum tax is a cartel to benefit governments with uncompetitive tax systems.

…there’s a real danger that these proposals will damage the prosperity of competitiveness of the world’s major economies, while trampling on nation states’ freedom and sovereignty. …The likes of France and Germany have long taken umbrage that smaller member states like Ireland and Luxembourg have used low corporate tax rates… Rather than reconsider their own counterproductive policies, the EU’s two biggest economies have simply decided to try forcing everyone else to play by their rules. …It’s hard to avoid the conclusion that this is another bout of protectionism from countries such as Germany, France, and Italy which have long pursued counter-productive, draconian tax policies. The big difference now is that they have a willing ally in the shape of Joe Biden. …there’s a word for this kind of behaviour. If businesses were following such a strategy instead of governments “we would call this a cartel”.

Last year, Thomas Duesterberg wrote critically about the implications for national sovereignty in a column for the Wall Street Journal.

Treasury Secretary Janet Yellen has a grand idea: a global tax regime. …Together with the Biden administration’s plan to raise the U.S. corporate tax rate to 28% and eliminate preferences, it would return the U.S. to its pre-2017 status as a high-tax jurisdiction, discouraging domestic capital investment and production. More insidious, it would cede authority over taxation, one of the pillars of democratic governance… This approach would transfer significant national sovereignty over corporate taxation, key to overall economic policy, to some yet-to-be-defined international regime under the guidance of the OECD… The Biden team should understand the road it is heading down. …Ceding corporate-taxation authority to an undefined international authority that will inevitably be controlled by an unelected technocratic elite would erode Madisonian principles even further. It would move America closer to the EU model of governance.

Needless to say, the EU model of governance (centralization, harmonization, and bureaucratization) is not a good idea.

I’m not optimistic, but my fingers are crossed that this awful idea of a global minimum tax will fall apart.

If the politicians prevail, the rest of us will lose. We’ll have a system that produces ever-higher tax burdens.

P.S. If you want to understand the case for tax competition, click here, here, and here.

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The OECD’s Preposterous Fiscal Advice for Mexico

I’ve been writing a series of columns about the failure of Bidenomics (see here, here, and here), but let’s switch gears today and focus on some remarkably bad behavior by the bureaucrats at the Organization for Economic Cooperation and Development (OECD).

Regular readers know that I’m not a big fan of this Paris-based international bureaucracy. Yes, there are some economists at the OECD who do solid research, but the organization routinely advocates for higher taxes and bigger government, often by using dishonest data.

But even I was surprised to receive this email from the OECD, which explicitly urged a giant tax increase on the relatively impoverished people of Mexico.

And “giant” is not a throwaway adjective.

Joe Biden wants a massive tax increase for the United States, but his proposal to increases tax revenue by 1.3 percent of GDP makes him seem like a rabid libertarian compared to the OECD’s plan to increase taxes by nearly three times as much in Mexico.

What’s especially amazing is that the OECD is urging this huge tax increase in a report that supposedly shares “recommendations for improving medium-term growth prospects.”

While I’m shocked by the size of the OECD’s proposed tax increase, I’m not surprised that the bureaucrats are claiming that higher taxes and bigger government are good for growth.

They’ve done it before and I’m sure they’ll do it again.

In China. In Africa. Everywhere.

So at least they are consistent, albeit in a very bad way.

I’ll close by noting that Mexico actually is in desperate need of “recommendations for improving medium-term growth prospects.”

But if you peruse the data for Mexico in the most-recent edition of the Fraser Institute’s Economic Freedom of the World, you’ll see that the country’s economy is being hampered by bad scores for rule of law, monetary policy, trade, and regulation.

So it’s baffling that the OECD’s bureaucrats somehow decided to focus on pushing for bad fiscal policy.

P.S. For those who want more information, you can click here to access the OECD’s report, along with other accompanying materials.

P.P.S. Incidentally, OECD bureaucrats are exempt from paying tax on the very lavish salaries they receive.

P.P.P.S. Adding insult to injury, American taxpayers finance the largest share of the OECD’s budget.

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The OECD’s Narrow (and Warped) Perspective on Taxation

More than 11 years ago, the Center for Freedom and Prosperity released this video about the OECD, a Paris-based bureaucracy subsidized by American taxpayers.

As outlined in the video, there are many reasons to dislike the Organization for Economic Cooperation and Development.

As a fan of tax competition, I don’t like the OECD because the bureaucrats persecute jurisdictions with low tax burdens.

But the bureaucracy’s pro-tax harmonization campaign is a symptom of a broader problem, which is that the OECD relentlessly advocates for higher taxes.

Consider the recent publication entitled “Fighting Tax Crime – The Ten Global Principles.” As you can see, nine of those ten principles involve more power and authority for government.

Since I’m not an anarcho-capitalist, I realize some taxation is necessary (ideally only the amount needed to finance genuine public goods).

As such, I don’t necessarily condemn enforcement policies.

But I am irked by a big sin of omission. If the bureaucrats at the OECD should have added an 11th principle about modest tax rates.

Why?

Because the academic literature very clearly shows that low tax rates are correlated with better tax compliance.

And those low tax rates also are better for prosperity, which is something that should be of interest to a bureaucracy with the words “economic” and “development” as part of its name.

Heck, some OECD economists have written about these benefits of low tax rates.

But none of that now matters. The bureaucrats today are totally fixated on carrying water for the world’s uncompetitive, high-tax governments.

Which is why I’m a big fan of defunding the OECD.

P.S. I suppose we should be happy that the bureaucrats acknowledge that taxpayers should have rights.

P.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 and expenditure limits.

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More Nonsense from the OECD’s Poverty Hucksters

I created the Eighth Theorem of Government to illustrate the difference between well-meaning people (who want to help the poor) and zero-sum people (who seem to think some people are poor because other people are rich).

This raises the interesting question of whether folks in the latter group are misguided or malicious?

For what it’s worth, I assume most people who fixate on inequality simply don’t understand the issue.

I like to think that they would change their minds if – for instance – they were shown Scott Winship’s devastating, slam-dunk response to Gabriel Zucman.

But there are others (like Zucman) who almost certainly know better, yet they push the inequality narrative for political or ideological reasons.

The bureaucrats at the Organization for Economic Cooperation and Development definitely also belong in the malicious category.

I first exposed the OECD’s disingenuous approach back in 2012, noting that the Paris-based bureaucrats used an utterly dishonest definition of poverty to make the laughably inaccurate claim that there was more poverty in the United States than in nations such as Greece, Hungary, Turkey, and Portugal.

Well, the OECD is still being dishonest. Here’s a look at the bureaucracy’s latest “poverty” measurement.

For those of us who actually pay attention to details, the data in the above chart have nothing to do with poverty.

Instead, the OECD is showing a particular way of measuring how income is distributed (in this case, the share of the population with less than half of the average income).

To see why it is profoundly absurd to measure poverty by looking at the distribution of income, consider these two examples.

1. Haiti is a wretchedly poor nation, with per-capita yearly income of $1729. But since almost everyone (other than the political elite) in the country is equally destitute, Haiti would have almost no poverty according to the OECD’s perverse definition.
2. Poor people in the United States have income equal to (or greater than) than middle class people in other developed nations, yet OECD bureaucrats want people to think poverty is a bigger problem in America than in a backward economy like Mexico’s.

I’ll close by pointing out the greatest absurdity of all.

If something miraculous happened and everyone in the United States somehow wound up with ten times as much income next year, guess what would happen to America’s poverty rate, as measured by the OECD? How much would it decrease?

Give yourself a gold star if you correctly answered that it would not change. At all.

What a crock of you-know-what.

P.S. The OECD is not the only guilty party when it comes to lying about poverty. Others who (willingly or unwittingly) misrepresent distribution data as poverty data include:

• The United Nations
• The New York Times
• The Equal Welfare Association
• Eduardo Porter of the New York Times
• Germany’s Institute of Labor Economics
• The Obama Administration
• The European Commission
• Professor Noah Smith
• The Economist

P.P.S. It’s also worth noting that poor nations aren’t poor because rich nations are rich.

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The OECD’s Tax-Free Bureaucrats Urge Higher Death Taxes

Back in 2015, I joked that my life would be simpler if I had an “automatic fill-in-the-blanks system” for columns dealing with the Organization for Economic Cooperation and Development.

Here’s what I proposed.

We can use this shortcut today because the OECD has just churned out a report embracing the death tax. So all we need to do is fill in the blanks and we have an appropriate intro:

The bureaucrats at the Paris-based OECD, working in cooperation with greedy politicians, have released a new study urging more power for governments in order to increase death taxes.

But the purpose of this column is not to mock the OECD, even though its reflexive statism makes it an easy target. Let’s actually dig into this new report and explain why it is so misguided.

This paragraph is a summary of the bureaucracy’s main argument, which is basically an envy-driven cry for more tax revenue.

The report explores the role that inheritance taxation could play in raising revenues, addressing inequalities and improving efficiency in the future. …taxes on wealth transfers – including inheritance, estate, and gift taxes – are levied in 24 of the 36 OECD countries… In 2018, only 0.5% of total tax revenues were sourced from those taxes on average across the countries that levied them. …Overall, the report finds that there is a good case for making greater use of well-designed inheritance and gift taxation… There are strong equity arguments in favour of inheritance taxation..

Here’s some more of the OECD’s dirigiste analaysis.

The report finds that well-designed inheritance taxes can raise revenue and enhance equity… There are strong equity arguments in favour of inheritance taxation… From an equality of opportunity perspective, inheritances and gifts can create a divide between the opportunities that people face. Wealth transfers might give recipients a head start… By breaking down the concentration of wealth…, inheritance and gift taxation can contribute to levelling the playing field… ‘The recent progress made on international tax transparency…is greatly increasing countries’ ability to tax capital… Progressive tax rates have several advantages compared to flat tax rates. …Taxing unrealised gains at death may be the most efficient and equitable approach.

As you can see, the OECD’s argument revolves around class warfare. They think it’s unfair that some parents want to help their children.

By contrast, the argument against the OECD revolves around economics. More specifically, the death tax is a terrible idea because it directly and unambiguously reduces private savings and investment, thus undermining productivity and putting a damper on wages.

Interestingly, the OECD admits this happens. Here’s Figure 2.4 from the OECD report, showing how death taxes (combined with annual income taxes) reduce saving and investment over five generations.

And the above charts don’t even show the true impact because there’s no line showing how much saving and investment would exist with no death tax and no double taxation.

For what it’s worth, the OECD report does acknowledge some practical and economic problems with death taxes.

An inheritance tax directly reduces wealth accumulation over generations. …inheritance taxes may also affect wealth accumulation prior to being levied by encouraging changes in donors’ behaviours. …Susceptibility to tax planning is one of the most common criticisms levelled against inheritance taxes. …There is evidence of widespread inheritance tax planning… Inheritance taxes might lower entrepreneurship by heirs… Inheritance taxes may also jeopardise existing businesses when they are transferred if business owners do not have enough liquid assets to pay the tax. …Double taxation is a popular objection to inheritance taxes…wage earnings, savings, or personal business income…will have in many cases already been taxed. …There might be challenges associated with estimating fair market value for some assets.

If you wade through the report, you’ll notice that the OECD doesn’t have good answers for these problems.

Instead, the basic message is, “yeah, there are a bunch of downsides, but we want to finance bigger government and we resent successful people.”

The only good news is that the report gives us a list of nations that have eliminated (or never adopted) death taxes.

Among the OECD countries that do not levy inheritance or estate taxes, nine have abolished them since the early 1970s. …Austria, Czech Republic, Norway, Slovak Republic, ans Sweden have abolished their inheritance or estate taxes since 2000. Israel and New Zealand abolished these taxes between 1980 and 2000. Australia, Canada, and Mexico abolished these taxes before 1980, and Estonia and Latvia have never levied inheritance or estate taxes. …This is consistent with evidence that inheritance and estate taxes tend to be unpopular.

Here’s the part of Table 3.1 that shows when these taxes were implemented and when they were repealed.

Needless to say, I’d like to see the United States on this list at some point (we were there for one year!).

The OECD closed with some cheerleading and strategizing on how to overcome popular opposition.

…this section considers ways in which governments may enhance the public acceptability of inheritance tax reform… Reframing reforms aiming to raise more revenue.around notions of equality of opportunity and inequality reduction may help increase their public acceptability. …packaging may also be helpful. …If the introduction of an inheritance tax or an increase in existing inheritance or estate taxes…goes hand-in-hand with a decrease in other taxes, especially in labour taxes, which a majority of people are subject to, it may be more acceptable politically.

I can’t resist pointing out that it’s utter nonsense to think that governments would use revenue from a death tax to lower other taxes.

The goal of politicians is always to finance bigger government. That’s true with the death tax. It’s true with the carbon tax. It’s true with the value-added tax. It’s true with the financial transactions tax.

Which is why I wrote four years ago that, “Some people say the most important rule to remember is to never feed gremlins after midnight, but I think it’s even more important not to give politicians a new source of revenue.”

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Biden and the OECD Pushing “Global Minimum Tax” to Increase Business Tax Burdens

For the past couple of decades, I’ve been warning (over and over and over and over again) that politicians want to curtail tax competition so that it will be easier for them to increase tax burdens.

They’ve even been using an international bureaucracy – the Paris-based Organization for Economic Cooperation and Development – in an effort to create a global high-tax cartel. Sort of an “OPEC for politicians.”

All of which would lead to “goldfish government.” Though “predatory government” also would be an accurate term.

The Obama Administration did not have a good track record on this issue, and neither did the Trump Administration.

Now the Biden Administration wants to be even worse. Especially if Treasury Secretary Janet Yellen continues to play a major role.

Here are some excerpts from a story in today’s Washington Post by Jeff Stein.

Treasury Secretary Janet Yellen is working with her counterparts worldwide to forge an agreement on a global minimum tax on multinational corporations, as the White House looks for revenue… A key source of new revenue probably will be corporate taxes… Biden has said he would aim to raise potentially hundreds of billions more in revenue from big businesses. …tax experts…say raising the rate could damage U.S. competitiveness. …Yellen is working…through an effort at the Organization for Economic Cooperation and Development in which more than 140 countries are participating. The goal is for countries to agree in principle to a minimum corporate tax rate… “A global minimum tax could stop the destructive global race to the bottom…,” Yellen told U.S. senators during her confirmation process. …The impact of the falling international tax rate has hit the United States as well, constraining lawmakers’ ambitions to approve new domestic programs.

Needless to say, any type of tax harmonization is a bad idea, and it is an especially bad idea to impose a minimum rate on a tax that does so much economic damage.

Here are four points that deserve attention.

1. Higher corporate tax burdens will be bad news for workers, consumers, and investors.
2. Regarding the so-called race to the bottom, even the IMF and OECD have admitted that lower corporate tax rates have not led to lower corporate tax revenue.
3. Once politicians impose a global agreement for a minimum corporate tax rate, they will then start increasing the rate.
4. Politicians also will then seek agreements for minimum tax rates on personal income, capital gains, and dividends.

I also want to cite one more passage from the article because it shows why the business community will probably lose this battle.

The U.S. Chamber of Commerce says it supports a “multilateral” approach to the problem but is “extremely concerned”.

I don’t mean to be impolite, but the lobbyists at the Chamber of Commerce must be morons to support the OECD’s multilateral approach. It was obvious from the beginning that the goal was to grab more revenue from companies.

I’m tempted to say the companies that belong to the Chamber of Commerce deserve to pay higher taxes, but the rest of us would suffer collateral damage. Instead, maybe we can come up with a special personal tax on business lobbyists and the CEOs that hire them?

Let’s wrap this up. The Wall Street Journal opined on the issue this morning.

As you might expect, the editors have a jaundiced view.

Handing out money is always popular, especially when there appear to be no costs. Enjoy the moment because the costs will soon arrive in the form of tax increases. Treasury Secretary Janet Yellen put that looming prospect on the table… The Treasury Secretary is also floating a global minimum tax on corporations, which would reduce the tax competition among countries that is a rare discipline on political tax appetites.

Amen. The WSJ understands that tax competition is a vital and necessary constraint on the greed of politicians.

P.S. Even OECD economists have acknowledged that tax competition helps to curtail excessive government.

P.P.S. Though an occasional bit of good research does not change the fact that the OECD is a counterproductive international bureaucracy that advocates for statist policy.

P.P.P.S. To add insult to injury, American taxpayers finance the biggest portion of the OECD’s budget.

P.P.P.P.S. To add insult upon insult, OECD bureaucrats get tax-free salaries while pushing for higher taxes on everyone else.

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Even the OECD Finds that Class-Warfare Taxes Lead to Lower Incomes

I’m not a big fan of the Organization for Economic Cooperation and Development. Simply stated, the Paris-based international bureaucracy represents the interests of governments, and that means the OECD often pushes policies that serve the interests of politicians at the expense of taxpayers and consumers.

I’m particularly irked that OECD bureaucrats spend so much time and effort persecuting low-tax jurisdictions. And some of their work on issues such as poverty and inequality is grotesquely dishonest and sloppy.

But there are some good economists at the OECD. They’re apparently not allowed to have any role in policy, much to my dismay, but they occasionally produce very good research studies.

Such as the 2016 study that showed how many European welfare states would enjoy big increases in prosperity if they reduced the burden of government spending.

And the pair of studies that concluded spending caps were the most effective rule for sensible fiscal policy.

Or the study admitting that competition between governments leads to better tax policy.

Today, let’s look at another example of sensible analysis by OECD economists.

In a study published in late 2017, Oguzhan Akgun, Boris Cournède and Jean-Marc Fournier examined how different types of taxes impacted economic performance.

Lo and behold, they found that it’s good to have lower tax rates on businesses and it’s good to have lower tax rates on workers.

The present paper looks at the long-term effects of tax shifts on inequality and output for an unchanged size of government. …This study uses econometric analysis to provide estimates of distributional and output effects that can be expected based on the track record in OECD countries. …The main findings emerging from the analysis are: …Higher marginal effective rates of corporate income taxation are linked with significantly lower long-term output levels. …Greater progressivity in the upper half of the income distribution, in the form of higher tax wedges on above average income earners, is linked with lower long-term output. …taxes on net wealth are found to be associated with lower output levels, in line with the literature on their distortive effects.

These finding are not a surprise, particularly for people who read the Tax Foundation’s research back in 2016.

Here’s the key visual from the OECD study. The top half shows how many nations could enjoy significant gains in disposable income if tax rates were lowered on workers with above-average incomes. The lower half shows how many nations also could enjoy gains in disposable income

The obvious takeaway is that the study shows that Biden’s class-warfare tax agenda will be bad for American competitiveness and American prosperity.

There are many other findings in the study, not all of which I like, and not all of which make sense.

For instance, the authors want us to believe that death taxes may actually have a positive impact on the economy.

Greater reliance on inheritance and gift taxes…appears to be output-enhancing by comparison with other revenue sources.

I realize the study is only claiming that such taxes are less damaging than other taxes, but it still doesn’t make sense since death taxes directly drain capital out of the economy’s productive sector.

The study also look at the impact of various tax changes on “inequality,” leading the authors to give a negative assessment to some tax cuts even if those reforms would increase the well-being of those with lower incomes (thus confirming Margaret Thatcher’s warning that some folks on the left are willing to hurt the poor if the rich are hurt by a greater amount).

I’ll close with two other findings from the study, both of which are more to my liking.

First, we find that consumption taxes (such as the value-added tax) hurt the economy, but not as much as income taxes.

Consumption taxes entail some disincentive effects, which are generally found to be weaker than those of income taxes.

Second, green taxes hurt the poor more than they hurt the rich.

…environmental taxes can increase inequality.

Given all the rich hypocrites on this issue, this doesn’t surprise me. They know they won’t be the main victims.

For what it’s worth, the OECD nonetheless wants a big energy tax on American families (thus confirming once again that there’s a disconnect between the left-leaning political types who are in charge and the professional economists who do real research).

P.S. Even if some OECD economists do good work, American taxpayers should not be subsidizing the group.

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Reckless Keynesian Advice from the OECD

For supporters of sensible policy, 2008 was not a good year. The economy suffered a big drop thanks to bad government policies (easy-money from the Federal Reserve and corrupt housing subsidies from Fannie Mae and Freddie Mac).

So what did politicians do?

Sadly, they gave us another tragic example of Mitchell’s Law. In response the damage caused by one set of bad policies, they adopted another set of bad government policies (in this case, the TARP bailout and Keynesian “stimulus” schemes).

Quite predictably, bailouts and bigger government didn’t work. Either in the United States or elsewhere in the world.

But proponents of Keynesian economics never learn from their mistakes. They simply assert that their policies somehow would have worked if the government spent even more money and maintained profligacy over a longer period of time.

You may think I’m joking, but here’s another example of this phenomenon. According to a recent news report, a senior bureaucrat at the Organization for Economic Cooperation and Development says we can have more prosperity if politicians make government bigger – both today and tomorrow.

The chief economist of the OECD has urged governments not to rush to cut public spending deficits… Laurence Boone – who runs the Organisation for Economic Cooperation and Development’s Economics Department – also said that political leaders should use fiscal policy to revive their economies… Boone said that governments had been correct to invest in stimulus packages during 2009: “The mistake came later in 2010, 2011 and so on, and that was true on both sides of the Atlantic,” she commented.

Needless to say, her analysis is wrong. If the answer is lots of spending over a long period of time, then why did the U.S. economy languish for an entire decade under the Keynesian policies of Hoover and FDR? And why has the Japanese economy languished for several decades when politicians on that side of the Pacific Ocean have imposed Keynesian policies?

Before pushing for another orgy of government spending, shouldn’t advocates of Keynesian economics be required to show us at least one success story for their approach, in any country and at any point in history?

Don’t hold your breath waiting for an answer.

By the way, before getting her sinecure at the OECD, Ms. Boone was an economic advisor to French President Francois Hollande.

That should have been a black mark. Hollande was the socialist who imposed confiscatory tax rates (resulting in effective tax rates above 100 percent for thousands of people) and drove entrepreneurs to flee the nation. Also, I can’t resist noting that Hollande copied Biden with the absurd assertion that higher taxes are “patriotic.”

Though, to be fair, Hollande eventually decided to be merciful and limit any taxpayer’s overall burden to 80 percent. How merciful!

Anyhow, you would think anyone associated with Hollande’s disastrous tenure would have a hard time getting another job.

But to the statists in charge of hiring at the OECD, Boone’s association with failed socialists policies apparently made her the most attractive candidate.

P.S. Returning to the article cited above, Ms. Boone did make one sensible observation, noting that Keynesian easy-money policies push up asset prices, which mostly benefits the rich.

…governments propped up growth with monetary policy – slashing interest rates and pumping liquidity into the banking system. But Boone argued that monetary policy “has distributional impacts” – it can for example drive up asset prices, favouring the wealthy.

Very true.

It’s great when people become rich by providing goods and services to the rest of us. It’s nauseating when people become rich because of bad government policy.

P.P.S. If governments follow Ms. Boone’s and expand the burden of government spending, it will be just a matter of time before they also impose higher taxes. But Ms. Boone won’t have to worry about that since OECD bureaucrats (like their counterparts at other international bureaucracies) get tax-free salaries.

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The OECD Urges a Big Energy Tax on American Families

It’s not easy to identify the worst international bureaucracy.

• The United Nations embraces some terrible ideas on a range of policies, though it is usually too incompetent to actually move policy in the wrong direction.
• The International Monetary Fund relentlessly pushes for higher taxes and even uses the lure of bailout cash to coerce nations into adopting bad policy.
• The Organization for Economic Cooperation and Development also has a reflexive pro-tax bias and often uses blatantly dishonest arguments when pushing its statist agenda on nations around the world.

As you can see, it’s hard to figure out which bureaucracy is the worst.

I’ve solved this dilemma by allowing a rotation. Today, the OECD is at the top of my list.

That’s because the top tax official at that Paris-based bureaucracy, Pascal Saint-Amans, has a new article about goals for future tax policy.

…policy flexibility and agility may be what is needed to help restore confidence. …Governments should seize the opportunity to build a greener, more inclusive and more resilient economy. Rather than simply returning to business as usual, the goal should be to “build back better” and address some of the structural weaknesses that the crisis has laid bare.

So how do we get a “more resilient economy” with less “structural weakness”?

According to the bureaucrats at the OECD, we achieve that goal with higher taxes. I’m not joking. Here are some additional excerpts.

Today, taxes on polluting fuels are nowhere near the levels needed… Seventy percent of energy-related CO2 emissions from advanced and emerging economies are entirely untaxed.

Here’s a chart from the article showing how nations supposedly are under-taxing energy use.

But it’s not just energy taxes.

The OECD wants a bunch of other tax increases, including a digital tax deal that specifically targets America’s high-tech firms.

It’s also disturbing that the bureaucrats want higher taxes on “personal capital income,” particularly since even economists at the OECD have specifically warned that those types of taxes are particularly harmful to prosperity.

Fair burden sharing will also be central going forward. …consideration should be given to strengthening…social protection in the longer run. …Governments will need to find alternative sources of revenues. The taxation of property and personal capital income will have an important role to play… Rising pressure on public finances as well as increased demands for fair burden sharing should provide new impetus for reaching an agreement on digital taxation.

By the way, “social protection” is OECD-speak for redistribution spending. In other words, “fair burden sharing” means a bigger welfare state financed by ever-higher taxes.

The bureaucrats apparently think we should all be like Greece and Italy.

I want to close by revisiting the topic of environmental taxation. If you peruse the above chart, you’ll see that the OECD wants all nations to impose (at a minimum) a €30-per-ton tax on carbon.

What would that imply for American taxpayers? Well, if we extrapolate from estimates by the Tax Policy Center and Tax Foundation, that would be a tax increase of more than $400-per-year for every man, woman, and child in the United States. That’s $1600 of additional tax for each family of four.

P.S. The OECD has traditionally tailored its analysis to favor Democrats, but even I am surprised that Saint-Amans used the Biden campaign slogan of “build back better” in his column. I’m sure that was no accident. The bureaucrats at the OECD must be quite confident that Biden will win. Or they must feel confident that Republicans will be too stupid to exact any revenge if Trump prevails (probably a safe assumption since Republicans gave the bureaucracy lots of American tax dollars even after a top OECD official compared Trump to Hitler).

P.P.S. To add insult to injury, OECD bureaucrats get tax-free salaries, so they have a special exemption from the bad policies they want for the rest of us.

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Israel’s Shift to Private Social Security

What’s the best economic news of the past 40 years?

• Was it Reaganomics, which restored America’s economic vitality?
• Was it the collapse of the Soviet Empire, which freed many nations from communist tyranny and allowed at least some of them to successfully shift to markets?
• Was it partial economic liberalization in China, which lifted hundreds of millions of people out of severe poverty?

Those are all good choices, but let’s not overlook Israel.

This chart from Economic Freedom of the World shows that economic freedom dramatically expanded in that nation between 1980 and 2000 (and has since gradually risen).

Israel’s shift away from the voluntary socialism of the kibbutz has paid big dividends. The nation has become far more prosperous.

I’ve already written how Israel benefited from supply-side reduction in tax rates.

Today, let’s learn about the country’s shift to private social security.

To find out what happened, let’s look at some excerpts from an article in Economics and Business Review. Authored by Moshe Manor and Joanna Ratajczak, it starts by observing there’s been a global shift to private social security systems.

The first paradigmatic shift towards a private pension system was performed in Chile in 1981 and had its followers in Latin America… The Chilean example inspired the World Bank to propose that such a shift should become a key element of the pension reform for postsocialist countries… The shift towards private pension schemes was assumed to meet demographic challenges and the secondary goals of the pension system, especially economic growth accomplished thanks to an acceleration of domestic savings.

This has been a very positive development for the countries that made the shift, by the way.

But let’s focus specifically on the reform in Israel. Here’s some of what the authors wrote.

Israel…abandoned a controlled economy and introduced the market economy only in the last three decades. …In the last 30 years Israel has faced many reforms of the pension system as part of broader economic reforms. …the stabilization programme allowed the Ministry of Finance (MOF) to start a series of structural changes, including pension reforms… The reasons for the reforms were not strictly economic but they also were based on neoliberal economic beliefs, political motives and international relations. …The USA feared Israel’s possible economic collapse and requested that the Israelis execute reforms designed according to Milton Friedman’s neoliberal principles in order to gain American economic support.

For what it’s worth, I’m in favor of “neoliberalism” when it’s defined as pro-market (which seems to be the case in many parts of the world).

Here’s a description of how the reform moved the country from a defined benefit model (often unfunded) to a funded defined contribution model.

The pension reforms were intended to stabilize the system and prepare it for the future difficulties such as ageing and poverty relief; they were also meant to develop the capital market and reduce the burden on the state budget. The main steps included introduction of the mandatory private pension pillar.. The reforms also eliminated PAYG for new joiners and turned the system from actuarially imbalanced, DB…to actuarially balanced, DC, privately managed and invested in capital markets. …The comparison of the reforms in Israel and those in Chile…shows a large similarity: shutting down the PAYG system to new joiners; a shift to funds which are privately managed, DC type, invested in capital markets system; a mandatory pension in the second pillar; development of the local capital markets using the pension accumulation; reduction of government involvement in pensions and of the burden on the state budget.. The main differences encompass low contribution rates in Chile that led to low net replacement rates, while in Israel the contribution rates and net replacement rates are high.

Oddly, the article never states how much of a worker’s paycheck goes to mandatory savings (i.e., the contribution rate).

So here’s a blurb from a recent report by the Organization for Economic Cooperation and Development.

Since January 2008, mandatory contributions have applied to earnings up to the national average wage for all employees… Initially the rates were modest with a total contribution of 2.5% but increased to 15% (5% from employees and 10% from employers) by 2013. In 2014 the contribution rate increased further to 17.5% (5.5% from employees and 12% from employers)and since January 2018 increased to 18.5% (6% from employees and 12.5% from employers). Six percentage points out of the employers’ contribution provides severance insurance which, if utilised, diminishes the pension.

That is a significantly higher level of mandated private savings when compared to countries such as Australia and Chile.

Sadly, the United States isn’t part of that conversation since we’re still stuck with our actuarially bankrupt Social Security scheme.

P.S. While researching this column, I read the OECD’s recent Survey about Israel’s economy. The bureaucrats in Paris groused that there’s a lot of inequality and poverty in that country.

This set of data perfectly illustrates why the OECD is an untrustworthy and biased bureaucracy.

As noted by my Eighth Theorem of Government, it should focus on economic growth to reduce poverty rather than fixating on whether some people are getting richer faster than others are getting richer.

Speaking of which, the supposed poverty data doesn’t actually measure poverty. Instead, “relative poverty” is simply the share of people are below “50% of median household income,” which the OECD then dishonestly characterizes as a measure of poverty (this is how the OECD came up with the absurd claim that there’s more poverty in the United States than in comparatively poor countries such as Turkey and Portugal).

Ironically, the same OECD report admits that Israel is out-performing other developed nations.

Israel is growing faster, as you can see, while also reducing government debt at a time when it’s going up in other countries (I’m sure coronavirus has since wreaked havoc with the Israeli economy, but that’s also true for other OECD countries).

Yet the OECD can’t resist grousing about inequality and lying about poverty.

P.P.S. Shifting back to social security reform, here are some of the other nations (beside Israel, Chile, and Australia) that now benefit from private savings instead of empty political promises: Denmark, Switzerland, Hong Kong, Netherlands, Faroe Islands, and Sweden.

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Tax Havens Are Good for Growth, Part I

As part of my presentation earlier this month to IES Europe, I discussed topics such as comparative economics and federalism.

I also had a chance to explain why tax havens are good for global prosperity.

Many of the points I made will be familiar to regular readers.

1. Because politicians have been worried that the “geese with the golden eggs” can escape – thanks to tax havens and tax competition – governments around the world reluctantly have lowered tax rates and reduced discriminatory taxes on saving and investment.

2. The Paris-based Organization for Economic Cooperation and Development (heavily subsidized by American taxpayers) is a bureaucracy that is controlled by high-tax governments and it seeks to undermine tax competition and tax havens by creating a global tax cartel – sort of an “OPEC for politicians.”

3. When tax competition is weakened, politicians respond by increasing tax rates.

4. There is an economic theory that is used to justify tax harmonization. It’s called “capital export neutrality” and I shared a slide in the presentation to show why CEN doesn’t make sense. Here’s a new version of the slide, which I’ve augmented to help people understand why tax havens and tax competition are good for prosperity.

The bottom line is that we should fight to protect tax havens and tax competition. The alternative is “stationary bandits” and “Goldfish Government.”

P.S. My work on this issue has been…umm…interesting, resulting in everything from a front-page attack by the Washington Post to the possibility of getting tossed in a Mexican jail.

P.S.S. This column has four videos on the issue of tax competition, and this column has five videos on the issue of tax havens.

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The OECD’s Recipe for Continuing Poverty in Africa

Free markets and limited government are a tried-and-true recipe for growth and prosperity.

Indeed, it’s the only way for a poor nation to become a rich nation. Those are the policies that helpd North America and Western Europe become rich in the 1800s and it’s how East Asia became rich in the second half of the 1900s.

By contrast, there’s no poor country that has implemented statist policies and then become rich (which is why none of my left-wing friends have ever come up with a good answer to my two-question challenge).

But that doesn’t stop some international bureaucracies from pushing bad policies on poor nations.

I wrote last year about the International Monetary Fund’s pernicious efforts to impose higher tax burdens in Africa.

Now the Organization for Economic Cooperation and Development is seeking to perpetuate poverty in the world’s poorest continent. The Paris-based bureaucracy actually is arguing that “urgent action” is need to impose higher taxes.

The average tax-to-GDP ratio for the 26 countries participating in the new edition of Revenue Statistics in Africa was…17.2% for the third consecutive year in 2017. …underlining the need for urgent action to enhance domestic revenue mobilisation in Africa. …Overall, the tax structure across participating countries has evolved over the past decade, with VAT and personal income tax (PIT) accounting for a higher proportion of revenue generation in 2017 relative to 2008, on average. However, PIT (15.4% of total tax revenues) and social security contributions (8.1% of total tax revenues) remain low in Africa. Reforms to broaden the personal tax base…and expand social insurance coverage can assist in domestic resource mobilisation efforts while contributing to inclusive growth. …Property taxes are shown to be much lower in Africa than in LAC and in the OECD but have the potential to play a key role.

Before explaining why the OECD’s analysis is wrong, here are a couple of charts for those who want some country-specific details.

Here’s a look at the aggregate tax burdens in various nations.

I’m not surprised that South Africa’snumbers are so bad.

And here’s a look at how tax burdens have changed over the past 10 years.

Kudos to Botswana.

The big question to consider, of course, is why the OECD is pushing for higher taxes in poor nations.

The real reason is that the OECD represents the interest of governments and politicians instinctively want more revenue.

The official reason, though, is that the bureaucrats want people to believe – notwithstanding reams of evidence – that higher taxes are good for prosperity. And it’s not just the OECD pushing this bizarre theory. It’s now routine for international bureaucracies to push this upside-down analysis, based on the anti-empirical notion that economies will prosper if governments can finance more spending.

P.S. Africa’s big economic challenge is not bad fiscal policy. If you peruse the data from Economic Freedom of the World, the continent has huge problems with excessive regulation and poor quality of governance. What’s tragic, though, is that the OECD doesn’t push for good reforms in those area. Instead, it wants to make fiscal policy worse.

P.P.S. To be fair, the OECD doesn’t discriminate. The bureaucrats also advocate higher taxes in other poor regions, such as Latin America and Asia.

July 29, 2021 Addendum: If the OECD actually wanted to help, they would send Africa politicians this chart showing how Botswana more market-oriented approach has paid big dividends.

In the interest of good health, don’t hold your breath waiting for that to happen.

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The Paris-Based OECD’s Ongoing Effort to Replace Tax Competition with Tax Harmonization

Ever since the bureaucrats at the Organization for Economic Cooperation and Development launched their attack on so-called harmful tax competition back in the 1990s, I’ve warned that the goal has been to create a global tax cartel.

Sort of an “OPEC for politicians.”

Supporters of the initiative said I was exaggerating, and that the OECD, acting on behalf of the high-tax nations that dominate its membership, simply wanted to reduce tax evasion. Indeed, some advocates even said that the effort could lead to lower tax rates.

That was a nonsensical claim. I actually read the various reports issued by the Paris-based bureaucracy. It was abundantly clear that the effort was based on a pro-tax harmonization theory known as “capital export neutrality.”

And, as I documented in my first study on the topic back in 2000, the OECD basically admitted the goal of the project was to enable higher taxes and bigger government.

• Low-tax policies “unfairly erode the tax bases of other countries and distort the location of capital and services.”
• Tax competition is “re-shaping the desired level and mix of taxes and public spending.”
• Tax competition “may hamper the application of progressive tax rates and the achievement of redistributive goals.”

The OECD’s agenda was so radical that it even threatened low-tax jurisdiction with financial protectionism if they didn’t agree to help welfare states enforce their punitive tax laws.

At first, there was an effort to push back against the OECD’s tax imperialism – thanks in large part to the creation of the pro-competition Center for Freedom and Prosperity, which helped low-tax jurisdictions fight back (I almost got thrown in a Mexican jail as part of the fight!).

But then Obama got to the White House and sided with Europe’s big welfare states. Lacking the ability to resist the world’s most powerful nations, low-tax jurisdictions around the world were forced to weaken their human rights laws on privacy so it would be easier for high-tax countries to track and tax flight capital.

Once that happened, was the OECD satisfied?

Hardly. Any victory for statism merely serves as a springboard for the next campaign to weaken tax competition and prop up big government.

Indeed, the bureaucrats are now trying to impose minimum corporate tax rates. Let’s look at some excerpts from a report in the U.K.-based Financial Times.

…large multinationals could soon face a global minimum level of corporate taxation under new proposals from the OECD… The Paris-based organization called…for the introduction of a safety net to enable home countries to ensure their multinationals cannot escape taxation, even if other countries have offered them extremely low tax rates. …The proposals would…reduce incentives for countries to lower their tax rates… The OECD said: “A minimum tax rate on all income reduces the incentive for…tax competition among jurisdictions.”

Sadly, the Trump Administration is not fighting this pernicious effort.

Indeed, Trump’s Treasury Department is largely siding with the OECD, ostensibly because a one-size-fits-all approach is less bad than the tax increases that would be imposed by individual governments (but also because the U.S. has a bad worldwide tax system and our tax collectors also want to reach across borders to grab more money).

In any event, we can safely (and sadly) assume that this effort will lead to a net increase in the tax burden on businesses.

And that means bad news for workers, consumers, and shareholders.

Moreover, if this effort succeeds, then the OECD will move the goalposts once again and push for further forms of tax harmonization.

I’ll conclude by recycling a couple of videos produced by the Center for Freedom and Prosperity. Here’s my analysis of the OECD.

By the way, the OECD bureaucrats, who relentlessly push for higher taxes on you and me, get tax-free salaries!

And here’s my explanation of why tax competition should be celebrated rather than persecuted.

I also recommend this short speech that I delivered earlier this year in Europe, as well as this 2017 TV interview.

Last but not least, here are two visuals that help to explain why the OECD’s project is economically misguided.

First, here’s the sensible way to think about the wonky issue of “capital export neutrality.”

Yes, it would be nice if people could make economic decisions without having to worry about taxes. And sometimes people make inefficient decisions that only make sense because they don’t want governments to grab too much of their money.

But the potential inefficiencies associated with tax planning are trivial compared to the economic damage caused by higher tax rates, more double taxation, and a bigger burden of government spending.

Now let’s consider marginal tax rates. Good policy says they should be low. The OECD says they should be high.

Needless to say, people will be less prosperous if the OECD succeeds.

That’s why I fight on this issue, notwithstanding personal attacks.

P.S. Senator Rand Paul is one of the few lawmakers in Washington fighting on the right side of this issue.

P.P.S. If you want even more information, about 10 years ago, I narrated a three-part video series on tax havens, and even a video debunking some of Obama’s demagoguery on the topic.

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Yes to Globalization, No to Global Governance

I’m a big fan of globalization, so does that make me a globalist?

That depends on what is meant by that term. If it means free trade and peaceful interaction with other nations, the answer is yes.

But if it means global governance by anti-market bureaucracies such as the United Nations, International Monetary Fund, and Organization for Economic Cooperation and Development, the answer is a resounding no.

So I have mixed feelings about this video from Dalibor Rohac of the American Enterprise Institute.

I can’t resist nit-picking on some of his points.

• Brexit was unquestionably a vote about the merits of membership in the European Union. The 2016 presidential election was about a lot of issues (trade, immigration, Hillary Clinton, etc). The United Nations was an asterisk at most.
• A nation can import flags (or anything else) while retaining sovereignty. A nation can also make a sovereign choice to abide by a certain set of trade rules, such as the World Trade Organization.
• In reference to the Hanseatic League and the Holy Roman Empire, trade pacts and military alliances also can be seen as expressions of sovereignty.

While I have disagreements with Dalibor, that definitely doesn’t put me in the same camp as Donald Trump.

The President is an incoherent mix. He combines odious protectionism with mostly-empty rhetoric about globalism. And he does all that without understanding issues – and, in some cases, his actions are contrary to his rhetoric.

Dan Henninger wrote about these issues two days ago for the Wall Street Journal.

He wisely warns that failures by national governments (most notably unaffordable welfare states and incompetent administrative states) are creating openings for unpalatable alternatives.

Global governance is one distressing possibility. Henninger worries about Chinese-style administrative authoritarianism.

President Trump at the United Nations this week elaborated on his long-running antagonism toward globalism. …There is merit to these concerns, but I think the critics of “globalism,” including most prominently Mr. Trump, underestimate the near-term danger of the serious difficulties appearing today in national democratic governance. Democracies maintain their legitimacy in the public’s eye only if they demonstrate a reasonable capacity to address society’s inevitably complex challenges. …it’s clear that many of the 21st century’s independent nations are having a remarkably difficult time executing their sovereign responsibilities. …Mr. Trump’s concerns about undemocratic governance by remote international bureaucracies are plausible, but the greater threat is more imminent. If the expansion of an increasingly dysfunctional administrative state inside the world’s sovereign democracies is inexorable and unreformable, the future will belong to China’s brand of administrative authoritarianism. …Elizabeth Warren and her multiple plans—heavily dependent on criminal prosecutions and intense oversight—is flirting with a milder version of this future.

Henninger is certainly correct that nations mostly get in trouble because of their own mistakes.

For instance, I’ve pointed out that the fiscal crisis in Europe should not be blamed on the euro.

That being said, global governance often creates moral hazard, which tends to exacerbate and encourage bad policy by national governments.

Let’s now look at an interesting column that John Bolton (Trump’s former National Security Advisor) wrote on global governance for the U.K.-based Times back in 2016. Here are some of the key passages.

He makes the should-be-obvious point that not all international bureaucracies are alike.

…international organisations sometimes act as if they are governments rather than associations of governments and sprout bureaucracies with pretensions beyond those of cosseted elites in national capitals. …International bodies take many different forms, and it serves no analytical purpose to treat them interchangeably. Nato, for example, is not equivalent to the United Nations. Neither is equivalent to the European Union. Each has different objectives, and different implications for constitutional and democratic sovereignty. …Nato is America’s kind of international partnership: a classic politico-military alliance of nation states. It has never purported to assume sovereign functions, and is as distant as is imaginable from the EU paradigm.

He explains that some of them – most notably the IMF – are counterproductive and should be shut down.

Proposals to reform the UN and its affiliated bodies such as the World Bank and the IMF are almost endless. The real question is whether serious, sweeping reform of these organisations…is ever possible. …In 1998, during the Asian financial crisis, the former secretaries of the Treasury William Simon and George Shultz, and Walter Wriston, a former chairman of Citibank, wrote in The Wall Street Journal: “The IMF is ineffective, unnecessary, and obsolete. We do not need another IMF, as Mr. [George] Soros recommends. Once the Asian crisis is over, we should abolish the one we have.” …We should consider privatising all the development banks… We should ask why US taxpayers are compelled to provide subsidised interest rates for loans by international development banks.

Amen.

He also opines about Brexit.

…the Brexit referendum was, above all else, a reassertion of British sovereignty, a declaration of independence from would-be rulers who, while geographically close, were remote from the peasantry they sought to rule. …The Brexit decision was deplored by British and American elites alike… It does not surprise Americans that British elites have not reconciled themselves to losing… London and Washington can fashion a new economic relationship, perhaps involving Canada, with the potential for significant economic growth. Let the EU wallow in strangling economic regulation, and the euro albatross that Britain wisely never joined.

He’s right, especially the final sentence of that excerpt.

I’ll conclude by reiterating my observation that we should distinguish between good globalization and bad globalization.

The good kind involves trade, peaceful interaction, and jurisdictional competition, all of which are consistent with sovereignty.

The bad kind of globalism involves international bureaucracies acting as supranational governments – almost always (as Nobel laureate Edward Prescott observed) with the goal of enabling and facilitating a larger burden of government.

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A Primer on Tax Competition and the OECD

Speaking in Europe earlier this year, I tried to explain the entire issue of tax competition is less than nine minutes.

To some degree, those remarks were an updated version of a video I narrated back in 2010.

You’ll notice that I criticized the Organization for Economic Cooperation and Development in both videos.

And with good reason. The Paris-based OECD has been trying to curtail tax competition in hopes of propping up Europe’s uncompetitive welfare states (i.e., enabling “goldfish government“).

As I stated in the second video, the bureaucrats sometimes admit this is their goal. In recent years, though, OECD officials have tried to be more clever, even claiming that they’re pushing for higher taxes because that approach somehow is a recipe for higher growth.

Let’s look at a new example of OECD malfeasance.

We’ll start with something that appears to be innocuous. Or even good news. A report from the OECD points out that corporate tax rates are falling.

Countries have used recent tax reforms to lower taxes on businesses… Across countries, the report highlights the continuation of a trend toward corporate income tax rate cuts, which has been largely driven by significant reforms in a number of large countries with traditionally high corporate tax rates. The average corporate income tax rate across the OECD has dropped from 32.5% in 2000 to 23.9% in 2018. …the declining trend in the average OECD corporate tax rate has gained renewed momentum in recent years.

Sounds good, right?

From the OECD’s warped perspective, however, good news for the private sector is bad news for governments.

As a result, the bureaucrats are pushing for policies that would penalize jurisdictions with low tax rates.

The Organisation for Economic Co-operation and Development is going to propose a global minimum tax that would apply country by country before the next meeting of G‑20 finance ministers and central bankers set for 17 Oct. in Washington, DC. …The OECD’s head of tax policy, Pascal Saint-Amans, said a political push was needed to relaunch the discussions and used the case of the Cayman Islands to explain the proposal. “The idea is if a company operates abroad, and this activity is taxed in a country with a rate below the minimum, the country where the firm is based could recover the difference.” …While this framework is based on an average global rate, Saint-Amans said the OECD is working on a country-by-country basis. Critics of the proposal have said that this would infringe on the fiscal sovereignty of countries.

And as I’ve already noted, the U.S. Treasury Department is not sound on this issue.

This would work in a similar way to the new category of foreign income, global intangible low-tax income (GILTI), introduced for US multinationals by the 2017 US tax reform. GILTI effectively sets a floor of between 10.5% and 13.125% on the average foreign tax rate paid by US multinationals.

There are two aspects of this new OECD effort that are especially disturbing.

• First, there’s already an ongoing OECD project to increase the tax burden on the business community.
• Second, even the OECD’s own research shows that lower corporate rates haven’t resulted in less tax revenue.

In a perverse way, I admire the OECD’s aggressiveness.

Whatever is happening, the bureaucrats turn it into a reason why tax burdens should increase.

The inescapable conclusion, as explained by Dominik Feusi of Switzerland, is that the OECD is trying to create a tax cartel.

Under the pretext of taxing the big Internet companies, a working group of the OECD on behalf of the G-20 and circumventing the elected parliamentarians of the member countries to a completely new company taxation. …The competition for a good framework for the economy, including low corporate taxes, will not be abolished, but it will be useless. However, if countries no longer have to take good care of the environment, because they are all equally bad, then they will increase taxes together. …This has consequences, because wages, wealth, infrastructure and social security in Western countries are based on economic growth. Less growth means lower wages. The state can only spend what was first earned in a free economy… The OECD was…once a platform for sharing good economic policy for the common good. This has become today a power cartel of the politicians… They behave as a world government – but without democratic mission and legitimacy.

Veronique de Rugy of the Mercatus Center examined the OECD and decided that American taxpayers should stop subsidizing the Paris-based bureaucracy.

Taxpayers are spending millions of dollars every year funding an army of bureaucrats who advocate higher taxes and bigger government around the globe. Last year, the United States sent $77 million to the Organization for Economic Cooperation and Development, the largest single contribution and fully 21 percent of the Paris-based bureaucracy’s $370 million annual budget. Add to that several million dollars in additional expenses for special projects and the U.S. mission to the OECD. …despite the OECD’s heavy reliance on American taxpayer funds, the organization persistently works against U.S. interests, arguing for international tax cartels, the end of privacy, redistribution schemes and other big-government fantasies. Take its campaign for tax harmonization, begun as a way to protect high-tax nations from bleeding more capital to lower-tax jurisdictions. …The OECD may recognize competition is good in the private sector, but promotes cartelization policies to protect politicians. …The bureaucrats, abetted by the European Union and the United Nations, even started clamoring for the creation of some kind of international tax organization, for global taxation and more explicit forms of tax harmonization.

These articles are spot on.

As you can see from this interview, I’ve repeatedly explained why the OECD’s anti-market agenda is bad news for America.

Which is why, as I argue in this video, American taxpayers should no longer subsidize the OECD.

It’s an older video, but the core issues haven’t changed.

Acting on behalf of Europe’s uncompetitive welfare states, the OECD relentlessly promotes a statist agenda.

That’s a threat to the United States. It’s a threat to Europe. And it’s a threat to every other part of the globe.

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.

P.P.S. If you’re not already sick of seeing me on the screen, I also have a three-part video series on tax havens and even a video debunking some of Obama’s demagoguery on the topic.

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A George Orwell Award for Most Absurd Rhetoric about Taxation?

Proponents of bigger government sometimes make jaw-dropping statements.

I even have collections of bizarre assertions by both Hillary Clinton and Barack Obama.

What’s especially shocking is when statists twist language, such as when they claim all income is the “rightful property” of government and that people who are allowed to keep any of their earnings are getting “government handouts.”

A form of “spending in the tax code,” as they sometimes claim.

Maybe we should have an “Orwell Award” for the most perverse misuse of language on tax issues.

And if we do, I have two potential winners.

The governor of Illinois actually asserted that higher income taxes are needed to stop people from leaving the state.

Gov. J.B. Pritzker…blamed the state’s flat income tax for Illinois’ declining population. …“The people who have been leaving the state are actually the people who have had the regressive flat income tax imposed upon them, working-class, middle-class families,” Pritzker said. Pritzker successfully got the Democrat-controlled state legislature to pass a ballot question asking voters on the November 2020 ballot if Illinois’ flat income tax should be changed to a structure with higher rates for higher earners. …Pritzker said he’s set to sign budget and infrastructure bills that include a variety of tax increases, including a doubling of the state’s gas tax, increased vehicle registration fees, higher tobacco taxes, gambling taxes and other tax increases

I’ve written many times about the fight to replace the flat tax with a discriminatory graduated tax in Illinois, so no need to revisit that issue.

Instead, I’ll simply note that Pritzker’s absurd statement about who is escaping the state not only doesn’t pass the laugh test, but it also is explicitly contradicted by IRS data.

In reality, the geese with the golden eggs already are voting with their feet against Illinois. And the exodus will accelerate if Pritzker succeeds in killing the state’s flat tax.

Another potential winner is Martin Kreienbaum from the German Finance Ministry. As reported by Law360.com, he asserted that jurisdictions have the sovereign right to have low taxes, but only if the rules are rigged so they can’t benefit.

A new global minimum tax from the Organization for Economic Cooperation and Development is not meant to infringe on state sovereignty…, an official from the German Federal Ministry of Finance said Monday. The OECD’s work plan…includes a goal of establishing a single global rate for taxation… While not mandating that countries match or exceed it in their national tax rates, the new OECD rules would allow countries to tax the foreign income of their home companies if it is taxed below that rate. …”We respect the sovereignty for states to completely, freely set their tax rates,” said Martin Kreienbaum, director general for international taxation at the German Federal Ministry of Finance. “And we restore sovereignty of other countries to react to low-tax situations.” …”we also believe that the race to the bottom is a situation we would not like to accept in the future.”

Tax harmonization is another issue that I’ve addressed on many occasions.

Suffice to say that I find it outrageous and disgusting that bureaucrats at the OECD (who get tax-free salaries!) are tying to create a global tax cartel for the benefit of uncompetitive nations.

What I want to focus on today, however, is how the principle of sovereignty is being turned upside down.

From the perspective of a German tax collector, a low-tax jurisdiction is allowed to have fiscal sovereignty, but only on paper.

So if a place like the Cayman Islands has a zero-income tax, it then gets hit with tax protectionism and financial protectionism.

Sort of like having the right to own a house, but with neighbors who have the right to set it on fire.

P.S. Trump’s Treasury Secretary actually sides with the French and supports this perverse form of tax harmonization.

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Separate the Baby from the Bathwater to Defend the Rules-Based Postwar Order

Donald Trump and other populist leaders frequently are condemned for undermining the “rules-based system” that is the basis of the “postwar order.”

What exactly is meant by this criticism? In the case of Trump, is it disapproval of his protectionism?

Yes, but that’s just the tip of the iceberg.

The broader accusation is that Trump and the others are insufficiently supportive of the so-called “international architecture” of treaties and organizations (the United Nations, International Monetary Fund, World Trade Organization, World Bank, G-7, Organization for Economic Cooperation and Development, NATO, etc) that western nations created after World War II.

And the critics are right, in my humble opinion.

But that’s besides the point. What’s really needed is a case-by-case analysis to determine whether the aforementioned treaties and organizations are making the world a better place.

To help understand this topic, let’s look at some excerpts from an anonymously authored article in  the latest issue of Cayman Financial Review.

What is the oft-cited “postwar order” that ostensibly is being threatened by populism? …begin with some history. There have been three major attempts to create an international architecture in hopes of discouraging war and encouraging peaceful commerce among world’s countries. The first occurred after the Napoleonic wars, the second occurred after World War I, and the third occurred after World War II.

The article explains that first postwar order was a big success, with 100 years of relative peace and prosperity between 1815 and 1914.

But the second postwar order, which followed World War I, was a miserable failure.

…the urgent economic problems that World War I had created – the need for demobilization, the restoration of the gold standard, the resumption of international trade flows, and the reconstruction of war-ravaged areas. Reparations burdened Germany and contributed to hyperinflation. …Germany depended on American loans to make its reparations payments to France and the United Kingdom. In turn, France and the United Kingdom depended on German reparations to repay their wartime loans from the United States. This financial merry-go-round was inherently unstable. …In the 1930s, many countries tried economic nationalism to escape from the Great Depression. Abandonment of the interwar gold standard, high tariffs to discourage imports, and competitive devaluations to boost exports became widespread. However, these “beggar-thy-neighbor” failed economically, caused the collapse of international trade, and contributed to rising international tensions.

And this grim experience was in the minds of policymakers as they sought to restore a system based on peace and open commerce.

…neither Churchill nor Roosevelt wanted to punish ordinary Germans, Italians or Japanese. Instead of the postwar harshness of Clemenceau, Churchill and Roosevelt favored the postwar magnanimity of Metternich, in which Germany, Italy, and Japan would be reconstructed as democratic capitalist countries. …both Churchill and Roosevelt thought that other new international organizations would be needed to help finance postwar reconstruction, provide stable exchange rates, and promote the progressive liberalization of international trade. …At the risk of oversimplifying, there are four major pieces of what is now loosely though of as the postwar order.

1. The United Nations and other multilateral bodies
2. The International Monetary Fund and World Bank
3. The World Trade Organization and affiliated trade pacts
4. NATO and other military/security alliances

The article is filled with details on how these various institutions evolved.

But for our purposes, let’s focus on ostensible threats to this order. Here’s what “Hamilton” wrote.

All four components of the current international architecture have critics, but they should be examined separately.

1. The United Nations is routinely condemned for being ineffective, wasteful and anti-Western. However, the UN part of the post-war order is not under serious threat. However, the OECD is subject to considerable attacks because of its statist policy agenda.
2. The IMF and World Bank are routinely condemned for being wasteful and anti-market. The IMF also is singled out for bailout policies that are said to encourage profligacy in developing nation and to reward sloppy lending practices by big western banks. Notwithstanding the instability than many say is caused by the IMF, this part of the postwar order is not under serious threat.
3. The WTO and regional FTAs are under threat from a populist backlash in the United States and Europe, driven in large part by angst over financial prospects for lower-skilled workers. This part of the postwar order is under serious threat, especially because U.S. laws give the president significant unilateral powers over trade policy.
4. NATO and other security arrangements are being questioned for both cost and changing geopolitical factors (e.g., the rise of China, Islamic terrorism). While unlikely at this point, dramatic policy changes from the United States could substantially alter the structure and/or operation of these military alliances.

How depressing. The part I like is the part that is under assault.

Here are the key points from the article’s conclusion.

The so-called postwar order is not a monolithic entity. …Some have been very successful. Consider, for instance, the sweeping reduction in trade barriers and the concomitant rise in cross-border commerce. …But other parts of the post-war order do not have very strong track records. Bureaucracies such as the IMF and OECD arguably deserve some hostile attention because of their support for anti-market policies. Policymakers who want to preserve the best parts of the post-war order may want to consider whether it is time to jettison or reform the harmful parts.

This is spot on.

Parts of the “postwar order” should be preserved. The World Trade Organization definitely belongs on that list. And presumably nobody wants to disrupt or eliminate the parts of the “international architecture” that facilitate things such as cross-border air travel, international shipping, and global telecommunications.

But the helpful work of those entities doesn’t change the fact that other entities engage in activities that are counterproductive. A “rules-based order” is only good, after all, if it advancing good rules.

• Is it helpful for the OECD to push for rules hindering tax competition?
• Is it helpful for the IMF to push for rules exacerbating moral hazard?
• Is it helpful for the EU to push for rules requiring tax harmonization?
• Is it helpful for the UN to push for rules undermining civil liberties?’
• Is it helpful for the Basel folks to push for rules increasing systemic risk?

Needless to say, the answer to all of these questions is no.

Which brings to mind the old saying about “Don’t throw the baby out with the bathwater.”

As “Hamilton” wrote, the bad parts of the postwar order should be jettisoned to preserve the good parts.

For those interested in this topic, Adam Tooze of Columbia University has a very interesting article on the same topic.

Published in Foreign Policy, his article basically applies a “public choice” description of how the current postwar order evolved. And he says it initially was not very successful

For true liberals in both the United States and Europe, who hankered after the golden age of globalization in the late 19th century, the resulting Cold War economic order was a profound disappointment. The U.S. Treasury and the first generation of neoliberals in Europe fretted against the U.S. State Department and its interventionist economic tendencies. Mavericks such as the young Milton Friedman—true advocates of free markets in the way we take for granted today—demanded a bonfire of all regulations. …The reality of the liberal order that supposedly came into existence in the postwar moment was the more or less haphazard continuation of wartime controls. It would take until 1958 before the Bretton Woods vision was finally implemented. Even then it was not a “liberal” order by the standard of the gilded age of the 19th century or in the sense that Davos understands it today. International mobility of capital for anything other than long-term investment was strictly limited.

Tooze argues that genuine liberalism (i.e., open markets and trade) didn’t really take hold until the 1980s, with the market-based revolution of Thatcher and Reagan, the “Washington Consensus,” and the collapse of communism.

The stakeholders in the 1970s were obstreperous trade unions, and that kind of consultation was precisely the bad habit that the neoliberal revolutionaries set out to break. …the global victory of the liberal order required a more far-reaching struggle. …the market revolution of the 1980s…  the aftermath of the Cold War, the moment of Western triumph. …the defeat of inflation, this was the age of the Washington Consensus.

For those not familiar with this particular piece of jargon, the “Washington Consensus” refers to the 1980s-era acceptance of free markets as the ideal route for economic development.

And “neoliberal” refers to classical liberalism, not the modern dirigiste version of liberalism found in the United States.

I’ll close by recycling this visual, which attempts to distinguish between good globalism and bad globalism.

The image uses the example of trade and jurisdictional competition, so I don’t pretend is captures all the issues and controversies that we discussed today.

But it reinforces why it is wrong to blindly accept and support the anti-market components of the postwar order simply because there are other parts that deserve our support. The goal is more global prosperity, not less.

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The OECD Wants to Impose Higher Taxes and Bigger Government on Poor Nations

When I ask friends on the left to answer my two-question challenge about prosperity and the size of government, they sometimes will flip the script and demand that I answer their version of the same question.

Name a jurisdiction that became rich with small government, they ask!

I’ve always viewed that as a grossly ineffective debating tactic because I have so many good responses. For instance, I often point to Hong Kong and Singapore as modern-era examples of poor places that became rich places thanks to free markets and small government.

But my favorite examples are from North America and Western Europe. If you look at the historical data, nations in the western world evolved from agricultural poverty to middle-class prosperity in the 1800s and early 1900s when the burden of the public sector was minuscule.

It’s true that all of those nations, after they became prosperous, then chose to adopt welfare states of various sizes. That was an unfortunate development (though somewhat offset by trade liberalization and other pro-market policies), but at least they got rich before making that mistake.

After providing all these examples, I then tell my friends that it is their turn. Please, I ask, give me just one example of a nation that adopted big government and then became rich?

I’ve never received a good answer.

And this is why I’m so disappointed (but not surprised) that the Organization for Economic Cooperation and Development has a project to increase the fiscal burden in poor nations.

The Paris-based OECD actually asserts that higher taxes and more spending will lead to more prosperity. I’m not joking.

The OECD has a unique role to play in supporting developing countries to generate domestic revenues to finance their sustainable development. …While the ratio of tax to Gross Domestic Product (GDP) in OECD countries averaged 33% in 2008, in developing countries it was only around half this level, indicating that there was great potential yet to be exploited. …a growing focus on taxation as a development priority…as it is clearly the primary source of financing for development. …to unlock the potential of countries…the design and delivery of “modernised, progressive tax systems, improved tax policy and more efficient tax collection” were high on the list of must-dos.

I’m sure that poor people in developing nations will be delighted to learn that their politicians are conspiring with the OECD to “exploit” them with “progressive” and “efficient” tax regimes.

And I’m both amused and disgusted that the OECD report has creative euphemisms for higher taxes, such as “domestic resource mobilization” and “capacity building.”

But the section on how taxes supposedly are good for growth is downright unbelievable.

Taxation enables governments to invest in development, relieve poverty and deliver public services to underpin long-term growth. Strong tax systems not only raise crucial revenues: they also promote inclusiveness… Above and beyond the direct benefits to developing countries themselves, international co-operation in the area of taxation is essential in today’s globalised world. …Such actions can realise the potential of taxation to help drive development on a global scale.

You won’t be surprised to learn that the OECD does not provide any empirical evidence to back up this rhetoric.

The bureaucrats don’t even provide a single anecdote or example. Nothing. Zilch. Nada.

Instead, we’re supposed to believe that there’s a mysterious alchemy that somehow leads transforms higher taxes and bigger government into greater prosperity.

By the way, the OECD isn’t the only international bureaucracy pushing this message. I had the surreal experience of being a credentialed observer at a United Nations conference where seemingly every other participant was on the other side. And the International Monetary Fund is also guilty of this peculiar form of economic malpractice.

This video from the Center for Freedom and Prosperity examines whether big government is the right way to boost prosperity in poor nations.

P.S. I don’t know whether to characterize this as irony or hypocrisy, but OECD bureaucrats don’t pay tax on their lavish remuneration. Perhaps this explains why they are so oblivious to the real-world consequences of higher tax burdens.

P.P.S. I feel sorry for the professional economists at the OECD, who often produce very good studies. It must be embarrassing for them when the political appointees push bad policies.

P.P.P.S. Needless to say, I’m not happy that American taxpayers are financing the OECD’s statist agenda.

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