Tag: organization for economic cooperation and development

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.

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.

U.S. Corporate Tax Rate the Highest

Japan has announced that it will cut its corporate tax rate by five percentage points. Japan and the United States had been the global laggards on corporate tax reform, so this leaves America with the highest corporate rate among the 34 wealthy nations of the Organization for Economic Cooperation and Development.

That is not a good position for us to be in. Most of the competition faced by U.S. businesses comes from businesses headquartered in other OECD countries. America also competes with other OECD nations as a location for investment. Our high corporate tax rate scares away investment in new factories, makes it difficult for U.S. companies to compete in foreign markets, and provides strong incentives for corporations to avoid and evade taxes.

The chart shows KPMG data on statutory corporate tax rates in the OECD for 2010, but I’ve also put in the new lower rate for Japan. With the Japanese reform, the average rate in the OECD will be 25.6 percent. That means that the 40 percent U.S. rate is 56 percent higher than the wealthy-nation average.

Most fiscal experts agree that cutting the U.S. corporate tax rate is a high priority, and President Obama’s fiscal commission endorsed the idea. If the president wants to get the economy firing on all cylinders–and generate a new pragmatic and centrist image for himself–he should lead the charge to drop the corporate rate to at least 20 percent.

With state-level taxes on top, a federal corporate rate of 20 percent would put America at about the OECD average, and give all those corporations sitting on piles of cash a great reason to start investing again.

Dan Mitchell’s comments are here.

Buy Global Tax Revolution here.

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”).

Subsidizing the OECD Is a Bad Investment for American Taxpayers

The federal government is capable of enormous waste, which obviously is bad news, but the worst forms of government spending are those that actually leverage bad things. Paying exorbitant salaries to federal bureaucrats is bad, for instance, but it’s even worse if they take their jobs seriously and promulgate new regulations and otherwise harass people in the productive sector of the economy. In a previous video on the economics of government spending, I called this the “negative multiplier” effect.

One of the worst examples of a negative multiplier effect is the $100 million that taxpayers spend each year to subsidize the Paris-based Organization for Economic Cooperation and Development, which is an international bureaucracy that publishes lots of innocuous statistics but also advocates bigger government and higher taxes in America. This video has the unsavory details, including evidence of the OECD’s efforts to push a value-added tax, Al Gore-style carbon taxes, and Obamacare-type policies.

The OECD’s relentless advocacy of higher taxes (as well as its anti-tax competition agenda) is especially galling since the bureaucrats receive tax-free salaries. Maybe they would be more reasonable if they were not so insulated from the real-world consequences of big government.

Now International Curriculum Standards?

Mark Schneider, a former National Center for Education Statistics commissioner and current American Enterprise Institute scholar, has put together a very insightful – and disturbing – four-part blog series on the oft-cited Programme for International Student Assessment (PISA) and its creator, the Organization for Economic Cooperation and Development. Basically, Schneider writes, the much-hyped PISA figures very prominently in the “international benchmarking” of coming national curriculum standards – which the Obama Administration is coercing states to adopt – despite the paucity of meaningful evidence that doing well on PISA actually translates into desirable educational outcomes.

Now, Schneider throws out some debatable stuff himself. For instance, he emphasizes early-grade progress on the federal, National Asessessment of Educational Progress while ignoring utterly flat results for 17-year-olds. He also reiterates several things that I have already pointed out in “Behind the Curtain: Assessing the Case for National Curiculum Standards.” Still, his points overall are generally very fresh, and very important.  It is also heartening to see growing critiques, even if somewhat oblique, of the national standards that many on the left and right are hoping to impose on us in the coming months.

Finally, a Pro-Trade Proposal on Climate Change

One of the main recommendations in my recent paper on climate change and trade was to reduce trade barriers on “environmental goods and services.” Trade liberalization in this area is slated for special attention in the Doha round of multilateral trade negotiations, but progress there is decidedly unimpressive.

I’m under no illusion that this development had anything to do with my recommendations, but it seems that the 30 member countries of the Organization for Economic Cooperation and Development are attempting a trade deal amongst themselves and China to expedite tariff reductions in “climate friendly” goods (more here).  Apparently it is designed to be an incentive to get Beijing on board for a global climate deal, but of course American consumers and businesses would gain from cheaper and better access to green technology, too.

I would, of course, prefer that U.S. lawmakers see the value in reducing tariffs on all goods without waiting for the other OECD members to catch on, but surely this development is better than the alternative.