WASHINGTON -- Sen. Don Nickles, the assistant majority leader, on Feb. 6 wrote Treasury Secretary Paul O'Neill requesting a reversal of Clinton administration support for a global offensive against "harmful tax competition." The answer, some two months later, was less than reassuring.
Nickles had expressed "deep concerns" that the anti-"tax haven" campaign against low-tax small countries" by the Paris-based Organization for Economic Cooperation and Development (OECD) eventually will turn against the United States to "undermine our sovereign right to enact pro-growth tax policies." Signing the letter "Don," the senator added a hand-written note to O'Neill: "Thanks for your attention on this."
O'Neill turned the letter over to Mark Weinberger, a Washington tax lawyer who on March 6 was confirmed as assistant Treasury secretary for Tax Policy. In a March 26 response to Nickles, Weinberger gave lip service to President Bush's low-tax policies but then lapsed into bureaucratese:
"Countries generally should not engage in practices that make it easier for other countries' laws to be broken or frustrated ... (T)hose practices might include bank secrecy rules or an unwillingness to exchange tax information with us that would permit taxpayers more readily to evade our laws."
That sounded like a tentative endorsement of what House Majority Leader Dick Armey has labeled a "global network of tax police." The Bush administration's final judgment will decide which side this country shall take on the OECD's drive to close the world's tax havens.
The more basic question, contends Dan Mitchell of the Center for Freedom and Prosperity (created to fight the OECD initiative), is "whether the administration sides with French tax collectors or American taxpayers." A paper written last year by distinguished Swiss banking experts said "OECD's tax officials adopt views usually advocated by states with a history of strong central power, which do not value highly the respect of their citizens."
Weinberger met over breakfast Tuesday with free market activists and said pretty much what he had written to Nickles. He was pressed by Mitchell and two former chief economists for the U.S. Chamber of Commerce, Richard Rahn and Lawrence Hunter, to deny the OECD the American imprimatur that is needed for the Europeans to succeed.
According to sources present, Weinberger indicated the U.S. has no present intention of joining the international organization and the high-tax Europeans in threatening sanctions against 35 small, low-tax countries, including many in the Caribbean. However, he insisted on joining with the OECD in sharing information.
The Treasury's institutional purpose is to prevent Americans from finding tax shelter in places like the Cayman Islands. But tax information-sharing also would give the French government access to its citizens' investments in the U.S. More ominously, it would hand a West African dictatorship a weapon for repression of its subjects seeking economic freedom in America. The breakfast ended inconclusively, with Weinberger agreeing to further consultation with the free marketers.
The danger posed by the OECD transcends the Cayman Islands. "The assault against so-called tax havens is just the beginning," said a recent paper by the Center for Freedom and Prosperity. "If the OECD had applied its criteria fairly, many larger regimes -- including the United States, Switzerland, Hong Kong, Luxembourg, Ireland, Singapore and the United Kingdom -- would have been classified as 'tax havens.' Almost certainly, the politicians and bureaucrats will begin to target these jurisdictions if their efforts to bully the so-called tax havens succeed."
Surely, activists for financial privacy thought, the OECD would be foiled when George W. Bush replaced Bill Clinton. Lawrence Lindsey, Bush's national economic adviser, who long has been an advocate of financial privacy, recently advised opponents of the OECD campaign to get Secretary O'Neill to deliver a speech on behalf of tax competition.
But in his letter to Nickles, Weinberger claimed he was following O'Neill's closed-door remarks to the G-7 finance ministers at Palermo in February. The secretary had been on the job less than a month at that point and was influenced by Treasury civil servants, who like to bond with their fellow bureaucrats in Paris. Still to be determined is whether the conservative Republican administration will exalt the convenience of the state over the rights of the individual.