Tag: oecd

International Data on Living Standards Show that the United States Should Not Become More Like Europe

I’m not a big fan on international bureaucracies, particularly the Paris-based Organization for Economic Cooperation and Development. The OECD, funded by American tax dollars, has become infamous for its support of statist pro-Obama policies.

But I’m a policy wonk, so I’ll admit that I often utilize certain OECD’s statistics. After all, if numbers from a left-wing organization help to advance the cause of liberty, that makes it harder for opponents to counter our arguments.

With that being said, let’s look at some truly remarkable statistics from the OECD website on comparative living standards in industrialized nations. This chart shows average levels of individual consumption (AIC) for 31 OECD countries. There are several possible measures of prosperity, including per-capita GDP. All are useful, but AIC is thought to best capture the well-being of a people.

As you can see from this chart, the United States ranks far ahead of other nations. The only countries that are even close are Norway, which is a special case because of oil wealth, and Luxembourg, which also is an outlier because it is a tiny nation that also serves as a tax haven (a very admirable policy, to be sure).

At the risk of making an understatement, this data screams, “THE U.S. SHOULD NOT BECOME MORE LIKE EUROPE.”

For all intents and purposes, Americans are about 40 percent better off than their European counterparts, in part because we have less government and more economic freedom.

Yet Obama, with his plans to exacerbate class-warfare taxation and further expand the burden of government spending, wants America to be more like nations that have lower living standards.

And don’t forget European living standards will presumably fall even further - relative to the U.S. - as the fiscal crisis in nations such as Greece, Spain, and Italy spreads to other welfare states such as France and Belgium

Here’s another chart that looks at the G-7 nations. Once again, the gap between the U.S. and the rest of the world is remarkable.

Maybe, just maybe, the United States should try to copy nations that are doing better, not ones that are doing worse. Hong Kong and Singapore come to mind.

Getting there is simple. Just reduce the size and scope of government.

The Great Tax Haven Debate, Part II

Back in April, responding to an article written by Ann Hollingshead for the Task Force on Financial Integrity and Economic Development, I wrote a long post defending so-called tax havens.

I went through the trouble of a point-by-point response because her article was quite reasonable and focused on some key moral and philosophical issues (rather than the demagoguery I normally have to deal with when people on the left reflexively condemn low-tax jurisdictions).

She responded to my response, and she raised additional points that deserve to be answered.

So here we go again. Let’s go through Ann’s article and see where we agree and disagree.

A couple of weeks ago, I wrote a blog post criticizing the philosophies of Dan Mitchell, a libertarian scholar from the Cato Institute. I asked for a “thoughtful discussion” and I got it—both from the comments section of our blog and from Dan himself.  On his own blog, Dan replied with a thought-provoking point-by-point critique of my piece.

It has been a polite discussion, which is good because readers get to see that we don’t really disagree on facts. Our differences are a matter of philosophy, as Ann also acknowledges.

Dan made several interesting points in his rebuttal. As much as I’d like to take on the whole post right now, my reply would be far too long and I don’t think our readers would appreciate a blog post that approaches a novella. Rather I’ll focus on a couple of his comments that I find interesting on a philosophical level (there were many) and which demand a continued conversation because, I believe, they are the basis of our differences. We’ll start with a rather offhand remark in which Dan indirectly refers to financial privacy as a human right. This is an argument we’ve heard before. And it is worth some exploration.Unless I am very much mistaken, Dan’s belief that financial privacy is a human right arises out of his fundamental value of freedom. My disagreement with Dan, therefore, does not arise from a difference in the desire to promote human rights (I believe we both do), but rather in the different relative weights we each place on the value of privacy, which Dan (I’m supposing) would call an extension of freedom.

I wouldn’t argue with her outline, though I think it is incomplete. I’m a big fan of privacy as a principle of a civil and just society, but I also specifically support financial privacy as a means to an end of encouraging better tax policy. Simply stated, politicians are much more likely to reduce or eliminate double taxation if they feel such taxes can’t be enforced and simply put a country in a much less competitive position.

Okay, so on to [my] answer of the subject of this post. Privacy—and financial privacy by extension—is important. But is it a human right? That’s a big phrase; one which humanity has no business throwing around, lest it go the way of “[fill in blank]-gate” or “war on [whatever].” And as Dan himself points out, governments have a way of fabricating human rights—apparently some European courts have ruled that free soccer broadcasts and owning a satellite dish are a human rights—so it’s important that we get back to [philosophical] basics and define the term properly. The nearly universally accepted definition of “human rights” was established by the Universal Declaration of Human Rights, which the United Nations adopted in 1948. According to the UN, “human rights” are those “rights inherent to all human beings,” regardless of “nationality, place of residence, sex, national or ethnic origin, colour, religion, language, or any other status.” The Declaration includes 30 Articles which describe each of those rights in detail. “Financial privacy” per se is not explicitly a human right in this document, but “privacy” is, and I think it’s reasonable to include financial privacy by extension. But privacy is defined as a fundamental, not an absolute, human right. Absolute rights are those that there is never any justification for violating. Fundamental freedoms, including privacy and freedom from detention, can be ethically breached by the government, as long as they authorized by law and not arbitrary in practice. The government therefore has the right to regulate fundamental freedoms when necessary.

I’m not sure how to react. There are plenty of admirable provisions in the U.N.’s Universal Declaration of Human Rights, but there are also some nonsensical passages - some of which completely contradict others.

Everyone hopefully agrees with the provisions against slavery and in favor of equality under law, but Article 25 of the U.N. Declaration also includes “the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services.”

That sounds like a blank check for redistributionism, similar to the statism that I experienced when I spoke at the U.N. last month, and it definitely seems inconsistent with the right of property in Article 17.

I guess what I’m trying to say is that I don’t care that the U.N. Universal Declaration of Human Rights includes a “right to privacy” because I don’t view that document as having any legal or moral validity. I don’t know whether it’s as bad as the European Union’s pseudo-constitution, but I do know that my support for privacy is not based on or dependent on a document from the United Nations.

As an aside, I can’t help noting that Articles 13 and 15 of the U.N. Declaration guarantee the right to emigrate and the right to change nationality, somethings leftists should keep in mind when they demonize successful people who want to move to nations with better tax law.

Getting back to Ann’s column, she confirms my point that you can’t protect property rights for some people while simultaneously giving other people a claim on their output.

That’s important because it means, that when it comes to freedom and privacy, we need to make choices. We can’t always have them all at once. To use a hideously crude example that gets back to the issue of tax evasion, in a developing country, a rich person’s right to financial privacy might be at odds with a poor person’s right to “a standard of living adequate for the health and well-being of himself and of his family.”

For those who are not familiar with the type of discussion, it is the difference between “negative rights” promoted by classical liberals, which are designed to protect life, liberty, and property from aggression, and the “positive rights” promoted by the left, which are designed to legitimize the redistributionist state.

Tom Palmer has a good discussion of the topic here, and he notes that “positive rights” create conflict, writing that, “…classical liberal ‘negative’ rights do not conflict with each other, whereas ‘positive’ rights to be provided with things produce many conflicts. If my ‘right to health care’ conflicts with a doctor’s ‘right to liberty,’ which one wins out?”

Continuing with Ann’s article, she says values conflict with one another, though that’s only if true if one believes in positive rights.

I started this post with a discussion of values, because at the core that’s what we’re talking about. Values are relative, individual, and often in conflict with one another. And they define how we rank our choices between human rights. Dan values freedom, perhaps above most else. He might argue that economic freedom would lead to an enrichment of human rights at all levels, but he probably wouldn’t disagree that that thesis remains untested. My views are a little more complicated because I don’t get to enjoy the (albeit appealing and consistent) simplicity of libertarianism.

I’m tempted to say, “C’mon in, Ann, the water’s fine. Libertarianism is lots of fun.” To be a bit more serious, libertarianism is simple, but it’s not simplistic. You get to promote freedom and there’s no pressure to harass, oppress, or pester other people.

As my colleague David Boaz has stated, “You could say that you learn the essence of libertarianism — which is also the essence of civilization –  in kindergarten: don’t hit other people, don’t take their stuff, keep your promises.”

The world would be a lot better if more people rallied to this non-coercive system.

One more point. Dan mentioned he does “fully comply” with the “onerous demands imposed on [him] by the government.” But as Dan insinuates, irrespective of an individual’s personal values, those demands are not optional. In the United States, we have the luxury of electing a group of individuals to represent our collective values. Together those people make a vision for the country that reflects our ideals. And then, we all accept it. If our country got together and decided to value freedom above all else, we would live in a world that looks a lot like Dan’s utopia. But, frankly, it hasn’t. So we respect our tax code out of a respect for the vision of our country. Dan has the right to try to shape that vision, as do I. Neither of us has the right to violate it.

What Ann writes is true, but not persuasive. Libertarians don’t like untrammeled majoritarianism. We don’t think two wolves and a sheep should vote on what’s for lunch.

We like what our Founding Fathers devised, a constitutional republic where certain rights were inalienable and protected by the judicial system, regardless of whether 90 percent of voters want to curtail our freedoms.

Ann, as you can see from her final passage, does not agree.

That, at is heart, is my problem with both tax evasion and tax avoidance. Neither lines up with the spirit of our collective compact; although the latter is not necessarily reflected in the official laws on the books. I’m not saying tax avoiders should be thrown in jail; they’ve done nothing illegal. I’m saying the regulations that confine us should line up with the vision we’ve created and the values we’ve agreed upon. If that vision is Dan’s, I’ll accept it. But I’m glad he’ll (begrudgingly) accept ours too.

I’m not automatically against having a “collective compact.” After all, that’s one way of describing the American Constitution. But I will return to my point about America’s founders setting up that system precisely because they rejected majoritarianism.

So what does all this mean? Probably nothing, other than the less-than-remarkable revelation that Ann and I have different views on the legitimate role(s) of the federal government.

Since I want to restrain the size and scope of government (not only in America, but elsewhere in the world) and avert future Greek-style fiscal nightmares, that means I want tax competition. And, to be truly effective, that means tax havens.

If that appeals to you (or at least seems like a reasonably hypothesis), I invite you to read some writings by Allister Heath of the United Kingdom and Pierre Bessard of Switzerland.

Time for Me to Defend My Work on Tax Havens

A few days ago, I explained why I’m a big fan of tax competition. Simply stated, we need to subject governments to competitive pressure to at least partially offset the tendency of politicians to over-tax and over-spend.

Tax havens play an important role in this liberalizing process, largely because they do not put themselves under any obligation to enforce the bad tax laws of other jurisdictions. They also use privacy laws to protect their sovereign control of what gets taxed inside their borders (this is what separates a “tax haven” from a more conventional low-tax jurisdiction). This means they are fiscal safe zones, particularly for people who want to protect their assets from the pervasive double taxation that exists in so many nations.

Not everybody agrees with my analysis (gee, what a surprise). To cite one example, the petty bureaucrats at the OECD got so agitated at me in 2009 (when I was offering advice to representatives of so-called tax havens while standing in a public lobby of a public hotel) that they threatened to have me thrown in a Mexican jail.

Now I have a new critic, though hopefully someone who would never consider thuggish tactics to suppress dissent. Ann Hollingshead writes for the Task Force on Financial Integrity and Economic Development, which (notwithstanding the name of the organization) seems to favor bigger government.

Anyhow, she wrote an article specifically criticizing my work on tax havens. So I figured it was time for a fisking, which means a point-by-point rebuttal. Here’s how she begins, and I’ll follow up her points with my responses.

Officially Dan Mitchell is a Senior Fellow at the Cato Institute, a conservative public policy research organization, and a researcher on tax reform. Unofficially, he has (perhaps ironically?) called himself the “world’s self-appointed defender of so-called tax havens.”

No irony on my part. As I have openly stated, tax havens are a key part of tax competition, which is a necessary (though sadly not sufficient) process to restrain the greed of the political class.

Oddly enough, Mitchell and I agree on many of the facts about these havens. We both have observed, for example, that there are buildings in Delaware and the Cayman Islands that house thousands of corporations. Mitchell concludes there is nothing wrong with either; I conclude there is something wrong with both. Mitchell also agrees that the United States“could be considered the world’s largest tax haven.” On that topic, he’s even cited my paper on non-resident deposits in secrecy jurisdictions. In his comment, he does not take issue with my methodology or my results, but rather concludes that my finding that the United States is the largest holder of non-resident deposits “makes the case for pro-market policies.” I, on the other hand, have argued that these findings support across the board reform, rather than that limited to traditional offshore financial centers.

Fair enough. We both recognize that the United States is a big tax haven. But we have different conclusions. I think it is unfortunate that only non-resident foreigners can benefit from these policies, while Ann wants to crack down on small low-tax jurisdictions such as Monaco, Bermuda, Liechtenstein, and the Cayman Islands, as well as big nations such as the United States. Sadly, Ann’s side has somewhat prevailed, and many of the havens have agreed to become deputy tax collectors for nations with bad tax law.

So how is it that two (relatively intelligent?) people can draw such different conclusions? I would argue our differences lie not in our facts, or perhaps even our economics, but in our underlying philosophical and theoretical differences.

I guess I should be happy that she holds out the possibility that I’m “relatively intelligent.”

Mitchell implicitly takes the position that tax havens do enable tax evasion and this helps to lower tax rates. He argues “it is largely globalization—not ideology—that has driven [a] ‘race to the bottom’” where global top corporate tax rates now average about 27 percent, down from 67 percent in 1980. Mitchell does not only believe this has occurred, but also maintains it is a positive development. He argues tax competition drives tax policy in the “right direction” (i.e., lower tax rates), has called these developments “positive,” and has even likened policy makers to “thieves” and tax competition to home “alarm systems.”

Ann makes one minor error. Corporate tax rates have dropped from a high of about 48 percent (and are now down to less than 25 percent). Top personal tax rates, by contrast, used to be more than 67 percent (and have now dropped to about 41 percent).

Regarding these developments, I think they are very positive. And I also think that politicians are akin to thieves, though Godfrey Bloom, a British member of the European Parliament, says it with a much better accent.

Mitchell’s argument that lower tax rates are always better and that those who tax others are thieves, makes several implicit assumptions about the relationship of citizens to their government. From his line of reasoning, Mitchell either believes, on a philosophical level, that governments do not have the right to tax their citizens or, on an economic level, that lower tax rates are always better, or both.

I definitely believe that lower tax rates are better than higher tax rates.

Mitchell may believe that taxation is the equivalent of thievery—and therefore that governments do not have the right to tax their citizens, just a thief does not have the right to steal. But he is also (more than likely) not an anarchist, which is the next logical extension of this reasoning, because on a number of occasions he has advocated a flat tax.

Ann makes a good point here. I’ve already admitted, in this post featuring a funny video mocking libertarianism, that I don’t see how to privatize the justice system and national defense, so I’m not an anarcho-capitalist.

Mitchell also argues lower tax rates are universally better, so at what point does the tax rate become acceptable? Clearly he doesn’t believe the tax rate should be zero, because that would get back to the anarchism theory. And he did once offer tepid support for Herman Cain’s 9 percent rate.

Another fair point. If a 50 percent tax is confiscatory and if politicians who impose such a tax are akin to thieves, then why would a 10 percent tax be acceptable? And would politicians imposing low tax rates still be acting like crooks?

Those are tough questions. But at the risk of dodging thorny philosophical issues, I’ll claim it doesn’t really matter. Government is too big right now and taxes are too onerous and unfair. If I somehow manage to bring government down to 10 percent of GDP, as the Rahn Curve suggests if we want to maximize prosperity for the American people, then I’ll have the luxury of worrying about the moral legitimacy of a limited public sector.

Clearly there’s a disconnect. Taxation cannot both be thievery, but also acceptable at a lower level. There is no evidence that, if tax competition through tax evasion is real, it would cease to drive down tax rates at some level that has been deemed acceptable by Dan Mitchell. So at what point does the “race to the bottom” bottom out? And is that a point where the United States can still maintain services that I’m sure Mitchell doesn’t advocate giving up, like police and law courts?

If I understand this passage correctly, I disagree. Tax competition does not drive tax rates to zero. It just encourages better policy. There’s pressure to lower tax rates, and there’s pressure to reduce double taxation of income that is saved and invested. But there’s no reason to think that tax competition and/or tax evasion forces the overall tax burden “to the bottom.”

But I would be remiss not to point out some internal inconsistencies in Mitchell’s arguments, in addition to his logical ones. While he argues tax competition through tax evasion in havens has fostered lower tax rates worldwide, he has also reckoned that “only a tiny minority” of people who keep their money in havens “are escaping onerous tax burdens.” First of all, I would be interested to see where Mitchell got that statistic because no one knows how much money is deposited in havens, let alone its origins. Such information isn’t publicly available. That’s actually the whole point. And secondly, and more importantly, I’m unclear on how such a “tiny minority” of oversees deposits could drive international tax policy to such an extent that the average corporate tax rates have dropped by more than half in thirty years.

Actually, there is considerable data about the amount of money in tax havens. The Bank for International Settlements is a good place for those who like to peruse such information.

But that’s a secondary point. Her main criticism is that I’m inconsistent when I say tax evasion is minor, so allow me to elaborate. Tax competition works by making politicians fearful that jobs and investment will migrate to jurisdiction with better tax law. It works just as well when people engage in legal tax planning and legal tax avoidance as it does with illegal tax evasion.

Places such as the Cayman Islands, for instance, rely on completely legal and transparent lines of business such as hedge funds and captive insurance companies. Places such as Panama have completely legal shipping registries. Places such as the British Virgin Islands specialize in completely legal company formation. Places such as the Channel Islands focus on completely legal trusts. Places such as Bermuda are known for completely legal reinsurance firms.

The “illegal” part of the offshore business does exist (at least as defined by high-tax nations), and it tends to be in the areas of private wealth management and banking. And even then, only in jurisdictions that have very strong human rights laws protecting financial privacy.

To be sure, there’s no way to precisely state how much tax evasion exists, but I can say with total certainty that the left’s claims are absurd. During the 2008 campaign, for instance, then-candidate Obama said that his anti-tax haven policies would generate $100 billion every year. When his law was enacted in 2010, that huge amount of money shrank to only $870 million per year. And even that estimate is a mirage because the President’s FATCA law is discouraging productive investment in the United States.

It is not my intention to demonize Mitchell and I hope you’ll notice that I’ve neither called him, nor implied that he is, a “careless and know-nothing hack.” I also have no interest in taking easy jabs that imply he is personally benefiting from tax evasion through havens or that he is seeking to destabilize theU.S.government by removing its ability to tax its citizens. Such attacks might generate readers, but they don’t generate thoughtful discussion and I’m much more interested in the latter than the former.

You may be wondering why she included the comment about a “careless and know-nothing hack.” It’s because I used that phrase to describe a journalist who wrote a very sloppy article. But I don’t automatically disparage those with different views. I’ll disagree with people and argue with them, but I don’t mock them if they have serious and substantive views.

I suppose I should also say, just for the record, that I fully comply with all the onerous demands imposed on me by the government. Not because I want to, but rather because I worry that my work on public policy sooner or later will attract some discriminatory and politically motivated attention from the IRS. It hasn’t happened yet, so I hope I’m being needlessly paranoid, but suffice to say that I go out of my way to even declare income that I know isn’t reported to the tax police.

So here are my questions, to anyone who will answer. 1) On what philosophical basis, if any, do governments draw the right to tax their citizens?; 2) Do citizens have a moral or philosophical right to evade taxation by using tax havens under any circumstances?; 3) If so, at what level of taxation do those citizens no longer have a moral right to evade tax?; and 4) what is the philosophical reasoning that justifies this level?

Now we’re back to the hard-to-answer questions. When is government too big and when does it impose so many demands that people are justified in evading taxation? I’m not sure, but I’ll fall back on what former Supreme Court Justice Potter Stewart said about pornography: “I know it when I see it.”

Put in context, I don’t blame people from France for evading confiscatory taxation. I don’t blame people in corrupt nations such as Mexico for evading taxation. I don’t blame people in dictatorial nations such as Venezuela for evading taxation.

But I would criticize people in Singapore,Switzerland, Hong Kong, or Estonia for dodging their tax liabilities. They are fortunate to live in nations with reasonable tax rates, low levels of corruption, and good rule of law.

Let me now circle back to the main point. In a world with vigorous tax competition, especially when augmented by the strong human rights laws of tax havens, nations will face some pressure to move their policies closer to Hong Kong and away from France. That’s something worth protecting and promoting, not something to be stamped out by high-tax nations seeking to create a tax cartel—sort of an OPEC for politicians.

Last but not least, if you haven’t yet overdosed on this topic, here’s my speech to a Capitol Hill audience on the valuable role of tax havens in the global economy.

Patriotism, Loyalty, Tax Competition, and ‘Tax Fugitives’

I fight to preserve tax competition, fiscal sovereignty, and financial privacy for the simple reason that politicians are less likely to impose destructive tax policy if they know that labor and capital can escape to jurisdictions with more responsible fiscal climates.

My opponents in this battle are high-tax governments, statist international bureaucracies such as the Organisation for Economic Co-operation and Development (OECD), and left-wing pressure groups, all of which want to impose some sort of global tax cartel—sort of an “OPEC for politicians.”

In my years of fighting this battle, I’ve has some strange experiences, most notably in 2008 when the OECD threatened to have me thrown in a Mexican jail for the supposed crime of standing in a public area of a hotel and advising representatives of low-tax jurisdictions on how best to resist fiscal imperialism.

A few other bizarre episodes occurred in Barbados, back when I was first getting involved in the issue. Here’s a summary of that adventure.

As part of its “harmful tax competition” project, the OECD had called a meeting in 2001 and invited officials from the so-called tax havens to attend in hopes of getting them to surrender their fiscal sovereignty and agree to become deputy tax collectors for uncompetitive welfare states.

Realizing that the small, relatively powerless low-tax nations and territories would be out-gunned and out-manned in such a setting, I organized a delegation of liberty-minded Americans to travel to Barbados and help fight back (as regular readers know, I’m willing to make big sacrifices and go to the Caribbean when it’s winter in Washington).

One of the low-tax nations asked me to provide technical assistance, so they made me part of their delegation. But when I got to the OECD conference, the bureaucrats refused to let me participate. That initial obstacle was overcome, though, when representatives from the low-tax country arrived and they created a stink.

So I got my credentials and went into the conference. But this obviously caused some consternation. Bureaucrats from the OECD and representatives from the Clinton Treasury Department (this was before Bush’s inauguration)  began whispering to each other, followed by some OECD flunky coming over to demand my credentials. I showed my badge, which temporarily stymied the bad guys.

But then a break was called and the OECD announced that the conference couldn’t continue if I was in the room. The fact that the OECD and some of the high-tax nations had technical consultants of their own was immaterial. The conference was supposed to be rigged to generate a certain outcome, and my presence was viewed as a threat.

Given the way things were going, with the OECD on the defensive and low-tax jurisdictions unwilling to capitulate, we decided to let the bureaucrats have a symbolic victory—especially since all that really happened is that I sat outside the conference room and representatives from the low-tax jurisdictions would come out every few minutes and brief me on what was happening. And everything ended well, with the high-tax nations failing in their goal of getting low-tax jurisdictions to surrender by signing “commitment letters” drafted by the OECD.

While the controversy over my participation in the meeting was indicative of the OECD’s unethical and biased behavior, the weirdest part of the Barbados trip occurred at the post-conference reception at the prime minister’s residence.

I was feeling rather happy about the OECD’s failure, so I was enjoying the evening. But not everybody was pleased with the outcome. One of the Clinton Treasury Department officials came up and basically accused me of being disloyal to the United States because I opposed the administration’s policy while on foreign soil.

As you can probably imagine, that was not an effective argument. As this t-shirt indicates, my patriotism is to the ideals of the Founding Fathers, not to the statist actions of the U.S. government. And I also thought it was rather silly for the Treasury Department bureaucrat to make that argument when there was only a week or so left before Clinton was leaving office.

I’m reminded of this bit of personal history because of some recent developments in the area of international taxation.

The federal government recently declared that a Swiss bank is a “fugitive” because it refuses to acquiesce to American tax law and instead is obeying Switzerland’s admirable human rights policy of protecting financial privacy. Here are some details from a report by Reuters.

Wegelin & Co, the oldest Swiss private bank, was declared a fugitive after failing to show up in a U.S. court to answer a criminal charge that it conspired to help wealthy Americans evade taxes. …The indictment of Wegelin, which was founded in 1741, was the first in which the United States accused a foreign bank, rather than individuals, of helping Americans commit tax fraud. …Wegelin issued a statement from Switzerland saying it has not been served with a criminal summons and therefore was not required to appear in court. “The circumstances create a clear dilemma for Wegelin & Co,” it said. “If it were to adhere to current U.S. legal practice aimed at Swiss banks, it would have to breach Swiss law.” …Wegelin has no branches outside Switzerland.

It’s time for me to again be unpatriotic because I’m on the side of the “fugitive.” To be blunt, a Swiss bank operating on Swiss soil has no obligation to enforce bad U.S. tax law.

To understand the principles at stake, let’s turn the tables. What if the Iranian government demanded that the American government extradite Iranian exiles who write articles critical of that country’s leadership? Would the Justice Department agree that the Iranian government had the right to persecute and prosecute people who didn’t break U.S. law? Of course not (at least I hope not!).

Or what if the Chinese government requested the extradition of Tiananmen Square protesters who fled to the United States? Again, I would hope the federal government would say to go jump in a lake because it’s not a crime in America to believe in free speech.

I could provide dozens of additional examples, but I assume you get the point. Nations only cooperate with each other when they share the same laws (and the same values, including due process legal protections).

This is why Wegelin is not cooperating with the United States government, and this is why genuine patriots who believe in the rule of law should be on the side of the “fugitive.”

For further information, here’s a video I narrated on tax competition.

The moral of the story is that “tough on crime” is the right approach, but only when laws are just. At the risk of stating the obvious, the Internal Revenue Code does not meet that test—especially when the IRS is trying to enforce it in a grossly improper extraterritorial fashion.

Acting as the Typhoid Mary of the Global Economy, the OECD Urges Higher Taxes in Latin America

Is it April Fool’s Day? Has somebody in Paris hacked the website at the Organization for Economic Cooperation and Development? Have we been transported to a parallel dimension where up is down and black is white?

Please forgive all these questions. I’m trying to figure out why any organization—even a leftist bureaucracy such as the OECD—would send out a press release entitled, “Rising tax revenues: a key to economic development in Latin American countries.”

Not even Keynesians, after all, think higher taxes are a recipe for growth.

Ah, never mind. I just remembered that the OECD is a hotbed of statism, so the press release makes perfect sense. After all, the U.S.-taxpayer-funded organization has become infamous for reflexively advocating big government.

With this dismal track record, it’s hardly a surprise that the Paris-based bureaucracy is now pushing to undermine prosperity in Latin America. Here’s some of what the OECD said in its release.

Additional tax revenues enable governments to simultaneously improve their competitiveness and promote social cohesion through increased spending on education, infrastructure and innovation. Latin American countries have made great strides over the past two decades in raising tax revenues.

You won’t be surprised when I tell you that the Paris-based bureaucrats do not bother to provide even the tiniest shred of proof to support the silly claim that higher taxes improve competitiveness. But that shouldn’t be surprising since even Keynesians don’t believe something that absurd.

And the claim about social cohesion also is a bit of a stretch given the riots, chaos, and social disarray in many European nations.

The only accurate part of the passage is that Latin American nations have increased tax burdens over the past 20 years. To the tax-free bureaucrats at the OECD, that is making “great strides.”

Let’s see what else the OECD had to say.

Despite these improvements, significant gaps between Latin America and OECD countries remain. The average tax to GDP ratio in OECD countries is much higher than in Latin American countries (33.8% compared to 19.2% in 2009, respectively). As the countries in the region still find themselves in relatively strong economic conditions, now is the time to consider reforms that generate long-term, stable resources for governments to finance development.

Wow. The OECD is implying that Latin American nations should mimic OECD nations. In other words, the bureaucrats in Paris apparently think it makes sense to tell nations to copy the failed high-tax, welfare-state model of countries such as Greece, Italy, and Spain.

Is that really the lesson they think people should learn from recent fiscal history? Are they really so oblivious and/or blinded by ideology that they issued the release as these European nations are in the middle of a fiscal crisis?

To further demonstrate their bias, the folks at the OECD even acknowledged that the Latin American nations, with their less oppressive tax regimes, are enjoying “relatively strong economic conditions.” Normal people would therefore conclude that the failed high-tax European nation should copy Latin America on fiscal policy, not the other way around. But not the geniuses at the OECD.

Now that we’ve addressed the awful policy advice of the OECD, let’s take a moment to look at the real policy challenges facing Latin America.

The Fraser Institute, in cooperation with dozens of other research organizations around the world, produces every year a comprehensive survey measuring Economic Freedom of the World.

The report ranks 141 nations based on dozens of variables that are used to construct scores for five key measures of economic freedom. Of those five categories, the Latin nations have the highest average ranking on…you guessed it…fiscal policy.

Yet the OECD wants policies that will undermine the competitiveness of the Latin nations, hurting them in the area where they are doing a halfway decent job.

If the bureaucrats actually wanted to boost economic performance in Latin America, they would be pressuring those nations to make reforms in the two areas where the burden of government is most severe—legal structure/property rights and regulation.

But that would make sense, which is contrary to the OECD’s mission of promoting statism.

The only semi-positive thing to say about the OECD is that it is consistent. As this video explains, the Paris-based bureaucrats are advocating bigger government in the United States. And to add insult to injury, they’re using American tax dollars to push that agenda.

What a scam. Politicians from various nations send taxpayer money to Paris. The bureaucrats at the OECD then issue reports and studies saying the politicians in those countries should raise taxes and increase the burden of government. Everybody wins…except for taxpayers and the global economy.

Per dollar spent, OECD subsidies may be the most destructively wasteful part of the federal budget. And that says a lot.

Obama Has United the World … in Opposition to Bad U.S. Tax Policy

Last year, I came up with a saying that “Bad Government Policy Begets More Bad Government Policy” and labeled it “Mitchell’s Law” during a bout of narcissism.

There are lots of examples of this phenomenon, such as the misguided War on Drugs being a precursor to intrusive, costly, and ineffective money laundering policies.

Or how about government healthcare subsidies driving up the price of healthcare, which then leads politicians to decide that there should be even more subsidies because healthcare has become more expensive.

But if you want a really stark example of Mitchell’s Law, the Internal Revenue Code is littered with examples.

The politicians created a nightmarishly complex tax system, for instance, and then decided that enforcing the wretched system required the erosion of civil liberties and constitutional freedoms.

The latest example of this process involves the Foreign Account Tax Compliance Act, a piece of legislation that was imposed in 2010 because politicians assumed they could collect lots of tax revenue every single year by getting money from so-called tax havens.

This FATCA law basically imposes a huge regulatory burden on all companies that have international transactions involving the United States, and all foreign financial institutions that want to invest in the United States. It is such a disaster that even the New York Times has taken notice, recently reporting that:

[T]he Foreign Account Tax Compliance Act, or Fatca, as it is known, is now causing alarm among businesses outside the United States that fear they will have to spend billions of dollars a year to meet the greatly increased reporting burdens, starting in 2013. American expatriates also say the new filing demands are daunting and overblown.

…The law demands that virtually every financial firm outside the United States and any foreign company in which Americans are beneficial owners must register with the Internal Revenue Service, check existing accounts in search of Americans and annually declare their compliance. Noncompliance would be punished with a withholding charge of up to 30 percent on any income and capital payments the company gets from the United States.

…The I.R.S., under pressure from angry and confused financial officials abroad, has extended the deadline for registration until June 30, 2013, and is struggling to provide more detailed guidance by the end of this year. But beginning in 2012, many American expatriates — already the only developed-nation citizens subject to double taxation from their home government — must furnish the I.R.S. with detailed personal information on their overseas assets.

It’s worth noting at this point that FATCA only exists because of bad tax law. If the United States had a simple and fair flat tax, there would be no double taxation of income that is saved and invested. As such, the IRS wouldn’t have any reason to care whether Americans had bank accounts and/or investments in places such as London, Hong Kong, and Panama.

But as is so often the case with politicians, they chose not to fix bad policy and instead decided to impose one bad policy on top of another. Hence, the crowd in Washington enacted FATCA and sent the IRS on a jihad.

By the way, the New York Times was late to the party. Many other news outlets already have noticed that the United States is about to suffer a big self-inflicted economic wound.

Indeed, what’s remarkable about Obama’s FATCA policy is that the world in now united. But it’s not united for something big and noble, such as peace, commerce, prosperity, or human rights. Instead, it’s united in opposition to intrusive, misguided, and foolish American tax law.

Let’s look at some examples.

* From the United Kingdom, a Financial Times column warns, “This summer, the senior management of one of Asia’s largest financial groups is quietly mulling a potentially explosive question: could it organise some of its subsidiaries so that they could stop handling all US Treasury bonds? …What is worrying this particular Asian financial group is … a new law called the Foreign Account Tax Compliance Act… [T]he new rules leave some financial officials fuming in places such as Australia, Canada, Germany, Hong Kong and Singapore. Little wonder. Never mind the fact that implementing these measures is likely to be costly. …Hence the fact that some non-US asset managers and banking groups are debating whether they could simply ignore Fatca by creating subsidiaries that never touch US assets at all. “This is complete madness for the US – America needs global investors to buy its bonds,” fumes one bank manager. “But not holding US assets might turn out to be the easiest thing for us to do.”

* From India, the Economic Times reports, “FATCA, or the Foreign Account Tax Compliance Act, will require overseas banks to report U.S. clients to the Internal Revenue Service, but its loose definition of who is a U.S. citizen will create a huge administrative burden and could push non-residents to slash their U.S. exposure, some bankers say. …Bankers say the scheme will be extremely costly to implement, and some say that as the legislation stands, any bank with a client judged to be a U.S. citizen will be also obliged to supply documentation on all other clients. ‘FATCA will cost 10 times to the banks than it will generate for the IRS. It is going to be extremely complicated,’ said Yves Mirabaud, managing partner at Mirabaud & Cie and Swiss Bankers Association board member.”

* Discussing the impact in Canada, Reuters notes, “The new regulation has drawn criticism from the world’s banks and business people about its reach and costs. …’Hundreds of millions of dollars spent on developing compliance processes to target Canadian citizens would not be a useful exercise, and they are, for the most part, people who actually have no tax liabilities because they do not earn income in the United States,’ [Canadian Finance Minister] Flaherty said.”

* A Taiwan news outlet said, “Taiwan’s domestic banks will reportedly reduce holdings of American bonds worth an estimated NT$100 billion (US$3.33 billion) due to the U.S. government’s recent decision to impose 30% tax on foreign-investment income in U.S. securities as bonds. Taiwan’s eight government-linked banks reportedly hold U.S. financial products worth over US$2 billion… On April 8, 2011, the U.S. government issued a notice advising foreign financial institutions to meet certain obligations under the Foreign Account Tax Compliance Act (FATCA), under which foreign financial institutions are subject to complex reporting rules related to their U.S. accounts.”

* From the Persian Gulf, the Bahrain Daily News noted, “A US law … has drawn the criticism of the world’s banks and business people, who dismiss it as imperialist and ‘the neutron bomb of the global financial system.’ The unusually broad regulation, known as FATCA, or the Foreign Account Tax Compliance Act, makes the world’s financial institutions something of an extension of the tax-collecting Internal Revenue Service—something no other country does for its tax regime. …Even the European Commission has objected, and experts say other countries may create their own FATCA-style regimes for US banks or withdraw from US capital markets. In a barrage of letters to the Treasury, IRS and Congress, opponents from Australia to Switzerland to Hong Kong assail FATCA’s application to a broad swath of institutions and entities.”

* A story from Singapore finds, “For many years, thousands of foreign investors have put their money into American shares or other investments. Now, however, a somewhat obscure law called the Foreign Account Tax Compliance Act (FATCA) may make investments in the United States for everyone, from billionaires to the man on the street, here in Singapore far less attractive. …[S]ome banks or investment managers may advise customers not to invest in the US. … ‘[P]rivate bankers are publicly advising their clients to clear their portfolios of all US securities’. A fund manager here told me his company is also advising clients to avoid US investments, and other companies may similarly start telling large clients as well as smaller ones the same story. Investors could then see recommendations not to invest in the US, and they may put their money elsewhere. …As consulting firm PwC said, ‘some institutions could decide that complying with the due diligence and verification provisions may not be cost effective’ so they may stop making investments in the US. Banks or other asset managers may similarly decide it is easier not to offer US investments than to try and comply with the FATCA.”

o From Switzerland, a story “about the backlash from United States expats and the financial sector to the Foreign Account Tax Compliance Act (FATCA)” reports that, “Growing numbers of American expatriates are renouncing their US citizenship over a controversial new tax law and ever more burdensome fiscal and reporting obligations. …[B]anks and business people who are supposed to enforce it on behalf of the US tax man are worried about its costly administrative burden… [I]t’s just too expensive. The consequence will be that they cut out US clients and stop investing in the US. …Three or four years ago no one talked about renouncing nationality – now it’s an open discussion. That’s a major shift in mentality.

o Writing about the reaction from Europe, one columnist noted, “FATCA encourages foreign financial institutions to limit their exposure to U.S. assets. In a joint letter to the Treasury and the IRS, the European Banking Federation and the Institute of International Bankers, which together represent most of the non-U.S. banks and securities firms that would be affected by FATCA, warned that ‘many [foreign financial institutions], particularly smaller ones or those with minimal U.S. investments or U.S. customers, will opt out of U.S. securities rather than enter into a direct contractual agreement with a foreign tax authority (the IRS) that imposes substantial new obligations and the significant reputational, regulatory, and financial risks of potentially failing those obligations.’ A widespread divestment of U.S. securities by institutions seeking to avoid the burdens of FATCA could have real and harmful effects on the U.S. economy.”

These press excerpts help demonstrate the costs of FATCA, but what about the benefits? After all, maybe the law will lead to lots of good results that offset the high regulatory costs and lost investment for the American economy.

Well, the only “benefit” anybody had identified is that FATCA will transfer more money from the productive sector of the economy to the government. Indeed, Obama argued during the 2008 campaign that cracking down on “tax havens” with proposals such as FATCA would give politicians lots of additional money to spend.

But when the legislation was approved in 2010, the Joint Committee on Taxation estimated that the new law would raise only $8.7 billion over 10 years, not the $100 billion that Obama claimed could be collected every single year. This video has some of the damning details.

One final point demands attention:

While it appears that the rest of the world is against FATCA, that’s not completely true. Some international bureaucrats in Paris, funded by American tax dollars, actually want the rest of the world to adopt the same Orwellian system. Here’s a blurb from the New York Times story:

Jeffrey Owens, a tax expert at the Organization for Economic Cooperation and Development, said catching tax evaders was “a concern that many member countries share.” If countries could agree to new global reporting standards for exchanging information, he said, then “maybe there’s a way forward.”

In other words, the pinhead bureaucrats at the OECD think FATCA’s such a swell idea that they want to create a global network of tax police. So not only would America erode the sovereignty of other nations because of our bad tax law, but those other nations would be able to impose their bad tax law on income earned in America!

And just in case you think that’s just irresponsible demagoguery, it’s already beginning to happen. Check out this IRS regulation, proposed by the Obama administration, that would require American banks to put foreign law above American law.

Why Are American Tax Dollars Subsidizing a Paris-Based Bureaucracy so It Can Help the AFL-CIO Push Obama’s Class-Warfare Agenda?

To be blunt, I’m not a big fan of the Organization for Economic Cooperation and Development. But my animosity isn’t because OECD bureaucrats threatened to have me arrested and thrown in a Mexican jail.

Instead, I don’t like the Paris-based bureaucracy because it pushes a statist agenda of bigger government. This Center for Freedom and Prosperity study has all the gory details, revealing that OECD bureaucrats endorsed Obamacare, supported the failed stimulus, and are big advocates of a value-added tax for America.

And I am very upset that the OECD gets a giant $100 million-plus subsidy every year from American taxpayers. For all intents and purposes, we’re paying for a bunch of left-wing bureaucrats so they can recommend that the United States adopt that policies that have caused so much misery in Europe. And to add insult to injury, these socialist pencil pushers receive tax-free salaries.

And now, just when you thought things couldn’t get worse, the OECD has opened a new front in its battle against free markets. The bureaucrats from Paris have climbed into bed with the hard left at the AFL-CIO and are pushing a class-warfare agenda. Next Wednesday, the two organizations will be at the union’s headquarters for a panel on “Divided We Stand - Tackling Growing Inequality Now.”

Co-sponsoring a panel at the AFL-CIO’s offices, it should be noted, doesn’t necessarily make an organization guilty of left-wing activism and misuse of American tax dollars. But when you look at other information on the OECD’s website, it quickly becomes apparent that the Paris-based bureaucracy has launched a new project to promote class-warfare.

For instance, the OECD’s corruption-tainted Secretary-General spoke at the release of a new report on inequality and was favorable not only to higher income tax rates, but also expressed support for punitive and destructive wealth taxes.

Over the last two decades, there was a move away from highly progressive income tax rates and net wealth taxes in many countries. As top earners now have a greater capacity to pay taxes than before, some governments are re-examining their tax systems to ensure that wealthier individuals contribute their fair share of the tax burden. This aim can be achieved in several different ways. They include not only the possibility of raising marginal tax rates on the rich but also…reassessing the role of taxes on all forms of property and wealth.

And here’s some of what the OECD stated in its press release on income differences.

The OECD underlines the need for governments to review their tax systems to ensure that wealthier individuals contribute their fair share of the tax burden. This can be achieved by raising marginal tax rates on the rich.

Like Obama, the folks at the OECD like to talk about “fair share.” These passages sounds like they could have been taken from one of Obama’s hate-and-envy speeches on class warfare.

But the fact that a bunch of Europeans support Obama’s efforts to Europeanize America is not a surprise. The point of this post is that the OECD shouldn’t be using American tax dollars to promote Obama’s class-warfare agenda.

Here’s a video showing some of the other assaults against free markets by the OECD. This is why I’ve written that the $100 million-plus that American taxpayers send to Paris may be - on a per dollar basis - the most destructively wasteful part of the entire federal budget.

One last point is that the video was produced more than one year ago, which was not only before this new class-warfare campaign, but also before the OECD began promoting a global tax organization designed to undermine national sovereignty and promote higher taxes and bigger government.

In other words, the OECD is far more destructive and pernicious than you think.

And remember, all this is happening thanks to your tax dollars being sent to Paris to subsidize these anti-capitalism statists.