Joel Mowbray

The OECD?s effort is also complicated by a rebel band of free market activists. Led by Dan Mitchell of the Heritage Foundation and Andy Quinlan of the Center for Freedom and Prosperity, these two policy wonks are fighting the combined might of the Treasury Departments and Finance Ministries of the industrialized world.  These free marketeers warn that the OECD?s efforts to eliminate ?harmful tax practices? will make it easier for governments to raise tax rates and increase the burden of government.

That?s not a partisan spin: that?s how the OECD itself views the issue. Back in 1998, when the OECD began its fixation on ?harmful tax competition,? it released a paper bemoaning the impact low-tax nations have on European welfare states.  Tax competition, the paper complained, was ?re-shaping the desired level and mix of taxes and public spending.?  In other words, as it also noted, tax competition ?may hamper? the achievement of redistributive goals? and ?reduce global welfare.? 

The initial conflicts at the Berlin conference indicate the OECD is having a hard time dealing with these two problems.  In order to enact a stepping stone to getting worldwide information ?exchanges,? the OECD had hoped that a European Union (EU) scheme known as the savings tax directive would solve their problem.

As originally designed, the measure would create a sort of universal information exchange, whereby EU nations would be able to identify?and tax?all flight capital, completely undermining any tax competition among European nations.  But that effort has been floundering.  The US refused to participate and jurisdictions such as Switzerland and Liechtenstein are holding firm. The EU has given up on the original scheme and is telling nations like Luxembourg and Switzerland that they can maintain their financial privacy laws.  In other words, there will not be a ?level playing field.?

During the Clinton Administration, the U.S. supported the OECD?s tax harmonization campaign.  But the Bush Administration, while not perfect, has been much more sympathetic to tax competition ? largely as a result of the relentless efforts of groups like Heritage and the Center for Freedom and Prosperity. 

White House economists understand that proposals such as information exchange will undermine America?s competitiveness and hinder the global shift to lower tax rates and fundamental tax reform.  Treasury Department officials, however, tend to side with the French and the Germans, and they are the ones participating in the Berlin meeting.

Interestingly, the Berlin conference generated some controversy even before it officially began. OECD officials on Wednesday told low-tax jurisdictions that the United States supported the EU savings tax directive ? even though the Chairman of the President?s National Economic Council and the Chairman of the President?s Council of Economic Advisors both announced US opposition back in 2002.

Mitchell confirmed with White House sources that the US position has not changed, leading participants to wonder whether the OECD was ?mistaken? or simply lying.

In either case, so-called tax havens now have yet another reason to believe that they are fighting a dishonest process designed to hinder their ability to be effective competitors in the global economy.  The first session of the Berlin conference is underway, but the OECD has not allowed the media to observe the proceedings.

Alas, many of the OECD participants gathered for, um, social purposes after the event was finished.  Sadly, it is only on reporting on those conversations?in the follow-up to this piece?that will allow U.S. taxpayers to understand how their $50 million is being spent.

Editor?s note: Part II of this report will examine whether the OECD has made ?progress? in its effort to prop up Europe?s high-tax welfare states.


Joel Mowbray

Joel Mowbray, who got his start with Townhall.com, is an award-winning investigative journalist, nationally-syndicated columnist and author of Dangerous Diplomacy: How the State Department Threatens America's Security.

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