OECD Draws Criticism for Tax Positions

Published August 1, 2005

The Center for Freedom and Prosperity Foundation, Coalition for Tax Competition, and tax policy experts condemned the Organization for Economic Cooperation and Development (OECD) for its recent Ministerial Statement that indicated sympathy for global taxation and called for massive increases in foreign aid spending.

The Paris-based OECD issued the statement in May and met again in June in Berlin to discuss the issue.

Policies Called Anti-American

“The OECD has been pushing anti-American economic policies for years,” said Andrew Quinlan, president of the Center for Freedom and Prosperity Foundation, in a May 9 statement. “The international bureaucracy’s anti-tax competition/pro-tax harmonization project is a direct attack on America’s free-market, pro-growth tax policies.”

Quinlan continued, “Now the OECD is expressing sympathy for ‘innovative sources of financing,’ which is a clear reference to schemes for global taxes levied by the United Nations. It is time for the U.S. taxpayers, Congress, and the Bush administration to end financial support for the OECD.”

At the conclusion of its annual ministerial meeting in Paris, the OECD general forum endorsed a United Nations plan for achieving internationally agreed-upon development goals requiring each developed country to transfer 0.7 percent of economic output to Third World countries.

“This would require an increase in U.S. foreign aid spending from about $15 billion to more than $80 billion per year, an increase of 450 percent,” according to a statement by the Center for Freedom and Prosperity.

Experts Oppose Global Taxes

“Foreign aid spending has a terrible track record,” said Daniel Mitchell, senior fellow at The Heritage Foundation. “It generally lines the pockets of the political elite in developing nations and often is a substitute for the pro-market reforms that nations need to boost growth.”

Mitchell continued, “It is disturbing but not surprising that the OECD has endorsed this misguided initiative. What is surprising, by contrast, is the OECD’s expression of support for U.N. global tax schemes, particularly since the U.S. Treasury secretary recently announced opposition to [such] ‘innovative financing measures.’ Apparently, the bureaucrats in Paris feel that they can push anti-American policies without any consequences.”

‘Liberalizing Force’ Cited

“Tax competition is a liberalizing force in the global economy. It has helped and pushed down tax rates and it has encouraged fundamental tax reform,” said Veronique de Rugy, research fellow at the American Enterprise Institute. “This is the pro-growth agenda the OECD should be promoting. Instead, the bureaucracy is peddling the failed policies of the 1960s and 1970s. More foreign aid spending and global taxes are the wrong approach.”

Grover Norquist, president of Americans for Tax Reform, added, “The U.S. spends more than $60 million each year to subsidize the OECD’s budget. This is inexplicable given the bureaucracy’s anti-market agenda. Congress should seize this opportunity to save taxpayers money and send a signal that America has no desire to finance a leftist European agenda.”

High-Taxers Increase Pressure

OECD tax officials met again in Berlin during the final week of June to campaign to pressure low-tax jurisdictions into ending what the high-tax nations see as “harmful” tax practices. But U.S. tax experts believe European Union enlargement has intensified the pressures for tax reform in Europe.

Several of the new member states have relatively low tax rates, and the older, high-tax EU countries are using the OECD as a means of avoiding internal pressures for badly needed economic reforms.

“The OECD’s opposition to tax competition is not only economically misguided, it is unethical,” said Mitchell. “Smaller, less powerful nations are being persecuted by larger nations for adopting the economic growth strategies that America and European countries previously pursued in the nineteenth century.”

OECD Strategy ‘Dangerous’

Julian Morris, economist and director of the International Policy Network in London, argues in the May 9 statement that there are “many ways of creating a level playing field, and the OECD strategy is a dangerous one because it could lead to globally high levels of taxation that would promote corruption and inefficiency and stymie economic growth.”

Morris added, “What use is a level playing field if all the players are hobbled and the referees are in bed with the goalkeepers?”

Slovak economist Martin Chren pointed out that his country recently “introduced a flat income tax of 19 percent as a direct consequence of tax competition.” Slovakia’s flat tax is expected to enhance economic growth and increase tax receipts.

Chren, who represents the Slovak Taxpayers Association, observed, “Slovaks welcome tax competition because it encouraged our leaders to introduce the new flat tax. Competition keeps politicians honest and accountable to voters.”

John W. Skorburg ([email protected]) is a visiting lecturer in economics at the University of Illinois, Chicago and associate editor of Budget & Tax News.

For more information …

Excerpts from the OECD’s Council at Ministerial Level, May 3-4, 2005 Statement can be found online at http://www.olis.oecd.org/olis/2005doc.nsf/43bb6130e5e86e5fc12569fa005d004c/ad127d5da27d6890c1256ff2005fb897/$file/jt00183455.pdf.

The Center for Freedom and Prosperity has released a report by Daniel Mitchell, The OECD’s Dishonest Campaign Against Tax Competition: A Regress Report, available online at http://www.freedomandprosperity.org/Papers/oecd-dishonest/oecd-dishonest.shtml.