Tag: oecd

New Paper Explains Why Low-Tax Jurisdictions Should Resist OECD Attacks against Tax Competition and Fiscal Sovereignty

One of the biggest threats against global prosperity is the anti-tax competition project of a Paris-based international bureaucracy known as the Organization for Economic Cooperation and Development. The OECD, acting at the behest of the European welfare states that dominate its membership, wants the power to tell nations (including the United States!) what is acceptable tax policy.

I’ve previously explained why the OECD is a problematic institution - especially since American taxpayers are forced to squander about $100 million per year to support the parasitic bureaucracy.

For all intents and purposes, high-tax nations want to create a global tax cartel, sort of an “OPEC for politicians.” This issue is increasingly important since politicians from those countries realize that all their overspending has created a fiscal crisis and they are desperate to figure out new ways of imposing higher tax rates. I don’t exaggerate when I say that stopping this sinister scheme is absolutely necessary for the future of liberty.

Along with Brian Garst of the Center for Freedom and Prosperity, I just wrote a paper about these issues. The timing is especially important because of an upcoming “Global Forum” where the OECD will try to advance its mission to prop up uncompetitive welfare states. Here’s the executive summary, but I encourage you to peruse the entire paper for lots of additional important info.

The Paris-based Organization for Economic Cooperation and Development has an ongoing anti-tax competition project. This effort is designed to prop up inefficient welfare states in the industrialized world, thus enabling those governments to impose heavier tax burdens without having to fear that labor and capital will migrate to jurisdictions with better tax law. This project received a boost a few years ago when the Obama Administration joined forces with countries such as France and Germany, which resulted in all low-tax jurisdictions agreeing to erode their human rights policies regarding financial privacy. The tide is now turning against high-tax nations – particularly as more people understand that ever-increasing fiscal burdens inevitably lead to Greek-style fiscal collapse. Political changes in the United States further complicate the OECD’s ability to impose bad policy. Because of these developments, low-tax jurisdictions should be especially resistant to new anti-tax competition initiatives at the Bermuda Global Forum.

To understand why this issue is so important, here’s a video I narrated for the Center for Freedom and Prosperity.

 

And here’s a shorter video on the same subject, narrated by Natasha Montague from Americans for Tax Reform.

Last but not least, here’s a video where I explain why the OECD is a big waste of money for American taxpayers.

New Video Explains that Tax Competition Is a Powerful Mechanism to Restrain the Greed of the Political Class

Here’s a new mini-documentary from the Center for Freedom and Prosperity, narrated by Natasha Montague of Americans for Tax Reform, that explains why the process of tax competition is a critical constraint on the propensity of governments to over-tax and over-spend.

The issue is very simple. When labor and capital have the ability to escape bad policy by moving across borders, politicians are more likely to realize that it is foolish to impose high tax rates. And they oftentimes compete for jobs and investment by lowering tax rates. This virtuous form of rivalry helps explain why so many nations in recent years have lowered tax rates and adopted simple and fair flat tax systems.

Another great feature of the video is the series of quotes from winners of the Nobel Prize. These economists all recognize competition between governments is just as desirable as competition between banks, pet stores, and supermarkets.

The video also discusses how politicians are attacking tax competition. It mentions a privacy-eroding scheme concocted by governors to tax out-of-state purchases (how dare consumers buy online and avoid state sales tax!).

And it also discusses a very destructive tax harmonization effort by a Paris-based bureaucracy (the Organization for Economic Cooperation and Development, subsidized with American tax dollars!), which would undermine fiscal sovereignty by punishing jurisdictions that adopt pro-growth tax systems that attract labor and capital.

The issues discussed in this video generally don’t get a lot of attention, but they are critical for the long-run battle to restrain government. Please share widely.

P.S. This speech by Florida’s new Governor is a good example of how tax competition encourages policy makers to do the right thing.

Rep. Hanna’s Corporate Tax Cut

Rep. Richard Hanna is one of the many new members of Congress with a no-nonsense business background. He is determined to move the GOP in the direction of major tax and spending reforms. When I chatted to the congressman, he told me that he had already read my Global Tax Revolution, so he will be well-armed in tackling business tax reform!

Hanna is off to a good start with his “American Competitiveness Act,” which would chop the federal corporate tax rate from 35 percent to 25 percent. He notes that “the average rate in the Organization for Economic Cooperation and Development countries is just over 25 percent, meaning the effective U.S. corporate tax burden, when state and local taxes are considered, can be 50 percent higher than some of our developed competitors, rendering our companies and workers less competitive.”

In his State of the Union address, President Obama said that he is willing to cut the corporate tax rate. So corporate tax reform could be the 2011 version of the Clinton-GOP welfare reforms of 1996. That is, a major pro-market success made possible by a liberal president moving to the pragmatic center.

Upcoming: On February 23, Cato will release new estimates of corporate “effective” tax rates by tax scholars Jack Mintz and Duanjie Chen. The study will shed further light on the dangerous uncompetitiveness of the U.S. corporate tax system.

OECD: ‘Cyberwar’ Overhyped

(HT: Schneier) Here’s a refreshingly careful report on cybersecurity from the Organization for Economic Cooperation and Development’s “Future Global Shocks” project. Notably: “The authors have concluded that very few single cyber-related events have the capacity to cause a global shock.” There will be no cyber-“The Day After.”

Here are a few cherry-picked top lines:

Catastrophic single cyber-related events could include: successful attack on one of the underlying technical protocols upon which the Internet depends, such as the Border Gateway Protocol which determines routing between Internet Service Providers and a very large-scale solar flare which physically destroys key communications components such as satellites, cellular base stations and switches. For the remainder of likely breaches of cybsersecurity such as malware, distributed denial of service, espionage, and the actions of criminals, recreational hackers and hacktivists, most events will be both relatively localised and short-term in impact.

The vast majority of attacks about which concern has been expressed apply only to Internet-connected computers. As a result, systems which are stand-alone or communicate over proprietary networks or are air-gapped from the Internet are safe from these. However these systems are still vulnerable to management carelessness and insider threats.

Analysis of cybsersecurity issues has been weakened by the lack of agreement on terminology and the use of exaggerated language. An “attack” or an “incident” can include anything from an easily-identified “phishing” attempt to obtain password details, a readily detected virus or a failed log-in to a highly sophisticated multi-stranded stealth onslaught. Rolling all these activities into a single statistic leads to grossly misleading conclusions. There is even greater confusion in the ways in which losses are estimated. Cyberespionage is not a “few keystrokes away from cyberwar”, it is one technical method of spying. A true cyberwar is an event with the characteristics of conventional war but fought exclusively in cyberspace.

The hyping of “cyber” threats—bordering on hucksterism—should stop. Many different actors have a good deal of work to do on securing computers, networks, and data. But there is no crisis, and the likelihood of any cybersecurity failure causing a crisis is extremely small.

The OECD Privacy Guidelines at 30

If you blinked, you missed it. Heaven knows, I did. The OECD privacy guidelines celebrated their 30th birthday on Thursday last week. They were introduced as a Recommendation by the Council of the Organization for Economic Cooperation and Development on September 23, 1980, and were meant to harmonize global privacy regulation.

Should we fete the guidelines on their birthday, crediting how they have solved our privacy problems? Not so much. When they came out, people felt insecure about their privacy, and demand for national privacy legislation was rising, risking the creation of tensions among national privacy regimes. Today, people feel insecure about their privacy, and demand for national privacy legislation is rising, risking the creation of tensions among national privacy regimes. Which is to say, not much has been solved.

In 2002—and I’m still at this? Kill me now—I summarized the OECD Guidelines and critiqued them as follows on the “OECD Guidelines” Privacilla page.

The Guidelines, and the concept of “fair information practices” generally, fail to address privacy coherently and completely because they do not recognize a rather fundamental premise: the vast difference in rights, powers, and incentives between governments and the private sector. Governments have heavy incentives to use and sometimes misuse information. They may appropriately be controlled by “fair information practices.”

Private sector entities tend to have a balance of incentives, and they are subject to both legal and market-punishments when they misuse information. Saddling them with additional, top-down regulation in the form of “fair information practices” would raise the cost of goods and services to consumers without materially improving their privacy.

Not much has changed in my thinking, though today I would be more careful to emphasize that many FIPs are good practices. It’s just that they are good in some circumstances and not in others, some FIPs are in tension with other FIPs, and so on.

The OECD Guidelines and the many versions of FIPs are a sort of privacy bible to many people. But nobody actually lives by the book, and we wouldn’t want them to. Happy birthday anyway, OECD guidelines.

Why Are We Paying $100 Million to International Bureaucrats in Paris so They Can Endorse Obama’s Statist Agenda?

There’s a wise old saying about “don’t bite the hand that feeds you.” But perhaps we need a new saying along the lines of “don’t subsidize the foot that kicks you.” Here’s a good example: American taxpayers finance the biggest share of the budget for the Organization for Economic Cooperation and Development, which is an international bureaucracy based in Paris. The OECD is not as costly as the United Nations, but it still soaks up about $100 million of American tax dollars each year. And what do we get in exchange for all this money? Sadly, the answer is lots of bad policy. The bureaucrats (who, by the way, get tax-free salaries) just released their “Economic Survey of the United States, 2010” and it contains a wide range of statist analysis and big-government recommendations.

The Survey endorses Obama’s failed Keynesian spending bill and the Fed’s easy-money policy, stating, “The substantial fiscal and monetary stimulus successfully turned the economy around.” If 9.6 percent unemployment and economic stagnation is the OECD’s idea of success, I’d hate to see what they consider a failure. Then again, the OECD is based in Paris, so even America’s anemic economy may seem vibrant from that perspective.

The Survey also targets some very prominent tax loopholes, asserting that, “The mortgage interest deduction should be reduced or eliminated” and “the government should reduce further this [health care exclusion] tax expenditure.” If the entire tax code was being ripped up and replaced with a simple and fair flat tax, these would be good policies. Unfortunately (but predictably), the OECD supports these policies as a means of increasing the overall tax burden and giving politicians more money to spend.

Speaking of tax increases, the OECD is in love with higher taxes. The Paris-based bureaucrats endorse Obama’s soak-the-rich tax agenda, including higher income tax rates, higher capital gains tax rates, more double taxation of dividends, and a reinstated death tax. Perhaps because they don’t pay tax and are clueless about how the real world operates, the bureaucrats state that “…the Administration’s fiscal plan is ambitious…and should therefore be implemented in full.”

But even that’s not enough. The OECD then puts together a menu of additional taxes and even gives political advice on how to get away with foisting these harsh burdens on innocent American taxpayers. According to the Survey, “A variety of options is available to raise tax revenue, some of which are discussed below. Combined, they have the potential to raise considerably more revenue… The advantage of relying on a package of measures is that the increase in taxation faced by individual groups is more limited than otherwise, reducing incentives to mobilise to oppose the tax increase.”

The biggest kick in the teeth, though, is the OECD’s support for a value-added tax. The bureaucrats wrote that, “Raising consumption taxes, notably by introducing a federal value-added tax (VAT), could therefore be another approach… A national VAT would be easier to enforce than other taxes, as each firm in the production chain pays only a fraction of the tax and must report the sales of other firms.”

But just in case you think the OECD is myopically focused on tax increases, you’ll be happy to know it is a full-service generator of bad ideas. The Paris-based bureaucracy also is a rabid supporter of the global-warming/climate-change/whatever-they’re-calling-it-now agenda. There’s an entire chapter in the survey on the issue, but the key passages is, “The current Administration is endeavouring to establish a comprehensive climate-change policy, the main planks of which are pricing GHG emissions and supporting the development of innovative technologies to reduce GHG emissions. As discussed above and emphasized in the OECD (2009), this is the right approach… Congress should pass comprehensive climate-change legislation.”

You won’t be surprised to learn that the OECD’s reflexive support for higher taxes appears even in this section. The bureaucrats urge that “such regulation should be complemented by increases in gasoline and other fossil-fuel taxes.”

If you’re still not convinced the OECD is a giant waste of money for American taxpayers, I suggest you watch this video released by the Center for Freedom and Prosperity about two months ago. It’s a damning indictment of the OECD’s statist agenda (and this was before the bureaucrats released the horrid new “Economic Survey of the United States”).

Obama’s Plan to Raise Tax Rates

President Obama wants to raise the top two individual income tax rates for 2011. The top rates will rise from 33% to 36% and from 35% to 39.6%, unless the president and Congress agree to extend the current rate structure.

Before taking action on this issue, policymakers should consider the following facts and data. (All information is cited in my related congressional testimony).

  • President Bush cut the top federal tax rate by 5 percentage points, but the average top rate in the 30 OECD nations has also fallen by 5 percentage points since 2000.
  • Unless policymakers extend current tax relief, the combined U.S. federal-state top rate will increase from 41.9% to about 46.5%, based on OECD data. That will give us about the tenth highest rate among the 30 OECD nations.
  • The chart shows that the average top OECD rate fell from 46.7% in 2000 to 41.5% in 2009. If we let the Bush tax cuts expire, we won’t be simply going back to our situation in 2000—the world has changed since then as other countries have adopted more competitive tax rates.

  • President Obama’s proposed top federal rate of 39.6 percent is 41-percent higher than the 28-percent top income rate achieved in the late 1980s after the bipartisan Tax Reform Act of 1986.
  • Higher marginal tax rates will reduce incentives for working, investing, and expanding businesses, and they will increase incentives for tax avoidance and evasion.
  • If income tax rates rise, some high-income workers will work fewer hours and retire earlier. Some spouses in two-earner families will stay out of the workforce. Some angel investors will have less cash to invest in start-up ventures. And some small businesses will decide not to buy new equipment or hire new workers.
  • Higher-income taxpayers often have a lot of flexibility on their working and investing decisions—tax them more and they will reduce their reported income alot. Robert Carroll finds that this effect of raising the top rate from 35% to 40% would offset about 40 percent of the government’s otherwise expected revenue gain.
  • Today’s highest-earners are generally not passive inheritors of wealth, but are usually self-made and entrepreneurial. Glenn Hubbard notes, “when you look at data, you see that people who are rich almost entirely are rich because of entrepreneurial risk taking.”
  • Many people with high incomes are angel investors, who help to fuel small business expansion. If their taxes go up, they will have less money and fewer incentives to invest, and they will park more of their money in tax-free municipal bonds.
  • More than half of all business income in the United States is reported on individual returns, not corporate returns. This income is reported by proprietorships, partnerships, LLCs, and S corporations. If the top two individual income tax rates are increased, it would hit a substantial amount of this business income.
  • Robert Carroll looked at individual tax filers who derived more than half of their income from a business. He found that one-quarter of these taxpayers were in the top two tax rate brackets, and thus would be hit by the proposed tax increases.
  • The Joint Committee on Taxation found that about 25 million individual tax returns will report about $1 trillion of net positive business income in 2011. Of that total, 44 percent is in the top two income tax brackets and thus would be hit by the proposed tax increase.
  • In an empirical study, Glenn Hubbard and William Gentry found that higher marginal tax rates discourage entry into self-employment and business ownership. A study by Donald Bruce and Tami Gurley for the SBA similarly found that marginal tax rates affect entrepreneurship.
  • Once a small business is up and running, empirical research by Robert Carroll, Douglas Holtz-Eakin, Mark Rider, and Harvey Rosen found that higher individual income tax rates negatively affect hiring, investment, and expansion.
     

Those are the facts, and here are my views. It’s very sad that a nation that has been a bastion of free market growth and individual achievement has a tax code that is becoming very hostile to high-earners, entrepreneurs, and businesses.

Let’s keep the Bush tax cuts, cut our corporate tax rate from 40% to 20%, and cut government spending. Rather than the government filling its coffers at the expense of families, that policy would make the economy boom, and fill government coffers as a side effect of rising family incomes.