Imagine if the government got to pick your pocket every time you engaged in a financial transaction? That nightmare scenario is a distinct possibility now that senior Democrats have joined with European politicians and urged that such a tax be applied on a worldwide based. Reuters has the disturbing details:

Any tax imposed on financial transactions would have to take effect internationally to keep Wall Street jobs and related business from moving overseas, U.S. House of Representatives Speaker Nancy Pelosi said on Thursday.

“It would have to be an international rule, not just a U.S. rule,” Pelosi said at a news conference. “We couldn’t do it alone, we’d have to do it as an international initiative.”

Several House Democrats have proposed a Wall Street tax to pay for job-creating legislation they plan to pass in December. The tax, which could raise $150 billion per year, would tap into widespread public outrage at Wall Street in the wake of the financial crisis.

…The No. 4 Democrat in the House, Representative John Larson, said his proposal to impose a 0.25 percent tax on over-the-counter derivatives transactions would apply internationally. “Part of our proposal would include that it would be international,” Larson told Reuters after meeting with other lawmakers about the jobs package. Democratic Representative Peter DeFazio said his separate proposal, which would tax a wider array of trading activity, would cover all U.S. corporations and individuals no matter where their trades took place.

…Britain urged other governments earlier this month to consider a bank tax as a way to fund future bailouts, and France and Germany have also called for a bank tax. The International Monetary Fund is studying the idea.

This issue reveals the value of tax competition – but also its limitations. Pelosi and other collectivists realize that economic activity will migrate to friendlier jurisdictions if if they unilaterally impose this punitive tax. This externally-imposed discipline is why tax competition is a liberalizing force. But competition can be undermined if governments create a cartel, which is exactly what American and European statists would like to see.

Republicans made many big mistakes when they controlled Washington earlier this decade, so picking the most egregious error would be a challenge. But continued American involvement with the Organization for Economic Cooperation and Development would be high on the list. Instead of withdrawing from the OECD, Republicans actually increased the subsidy from American taxpayers to the Paris-based bureaucracy. So what do taxpayers get in return for shipping $100 million to the bureaucrats in Paris? Another international organization advocating for big government.

The OECD, for example, is infamous for trying to undermine tax competition. It also has recommended higher taxes in America on countless occasions. And now it is suggesting that Iceland impose high tax increases - even though Iceland’s economy is in big trouble and the burden of government spending already is about 50 percent of GDP:

Both tax increases and spending cuts will be needed, although the former are easier to introduce immediately. The starting point for the tax increases should be to reverse tax cuts implemented over the boom years, which Iceland can no longer afford. This would involve increases in the personal income tax… Just undoing the past tax cuts is unlikely to yield enough revenue. In choosing other measures, priority should be given to those that are less harmful to economic growth, such as broadening tax bases, or that promote sustainable development, such as introducing a carbon tax.

A thorough new study of 30 nations from the Institut Constant de Rebecque in Switzerland reveals serious shortcomings in America’s tax system.

The report, entitled “Tax burden and individual rights in the OECD: An International Comparison,” creates a Tax Oppression Index based on three key variables: the overall tax burden, public governance, and taxpayer rights. The good news is that the United States has a comparatively low aggregate tax burden, though America’s score on this measure would be much better in the absence of a punitively high corporate tax rate. The bad news is that corruption and inefficiency in Washington drag down America’s score for public governance. The ugly news is that America has a very low rating for protecting taxpayer rights — largely because politicians have tilted the playing field to favor the IRS, including the fact that taxpayers lose the presumption of innocence provided in the Constitution.

Here is a brief description of the study:

The OECD’s campaign against “harmful tax competition” and “tax havens” has overshadowed the essential issue, namely the important roles that both tax competition and “tax havens” play for capital preservation and formation, leading to higher prosperity and better protection of individual rights throughout the OECD.

The tax oppression index is based on 18 representative criteria measuring fiscal attractiveness, public governance and financial privacy in the 30 member states of the OECD. Switzerland appears as the country with the lowest tax oppression — due to a relatively low tax burden and a more [classical] liberal institutional order, including its citizens’ right to veto legislation, political decentralization, and protection of financial privacy. Germany and France, on the other hand, whose governments have supported the OECD’s efforts, are among the most questionable states in terms of safeguarding their residents’ individual rights.

…The tax oppression index evaluates the 30 OECD member states on three complementary dimensions quantified by 18 representative criteria, on the basis of OECD and World Bank data. The index enables relevant conclusions about the tax burden and individual rights among those countries.

Switzerland earns the top ranking in the report, followed by Luxembourg, Austria, Canada, and Slovakia. Italy and Turkey have the worst systems, followed by Poland, Mexico, and Germany. The United States is tied for 19th, behind the welfare states of Scandinavia. With Obama promising to raise tax rates and increase the power of the IRS, it may just be a matter of time before the United States is competing for the world’s most oppressive tax regime.