December 8, 2000

OECD's glass house
Second of two parts

By Daniel J. Mitchell 

     European politicians, upset that investors and entrepreneurs are migrating to friendlier economic climates, are using the Paris-based Organization for Economic Cooperation and Development (OECD) in an effort to force low-tax nations to raise tax rates and eliminate financial privacy. This effort has not been very successful, in large part because low-tax nations are not foolish enough to discard a competitive advantage just so foreign tax collectors will have an easier time collecting revenue. 

     Yesterday's column discussed how the OECD has continuously modified its strategy. At first, the OECD complained that it was unfair for low-tax countries (so-called tax havens) to lure economic activity away from high-tax countries. Then OECD started threatening low-tax countries with financial protectionism. Yet neither of these strategies was successful, so the OECD now has resorted to bribery. 

     More specifically, the OECD has invited the low-tax nations from our hemisphere to a regional conference in Barbados early next year. They also have invited representatives from international bureaucracies such as the United Nations, the World Bank, and the International Monetary Fund. The widespread assumption is that the OECD, with either explicit or implicit support from these multinational institutions, will offer a deal to lawmakers from low-tax countries: Foreign aid money in exchange for letting the OECD dictate tax and privacy laws.

     To give the OECD credit, at least it is honest. In its recent publication, "Towards Global Tax Cooperation," the OECD clearly stated it would steer foreign aid to low-tax regimes that "cooperate." Indeed, one OECD official was honest enough to say, "It would make sense for the bigger countries to buy them off." 

     Yet if the OECD deserves credit for being honest, they also should be condemned for hypocrisy. The OECD has a major project, the entire purpose of which is to reduce bribery of government officials. This is a noble goal, but it should be evenly applied. Therefore, if it is bad for a private company to bribe a government official to get a contract, then it also should be bad for high-tax nations to bribe government officials from low-tax nations in exchange for helping politicians from high-tax nations collect more tax revenue. 

     Upon closer examination, it turns out that hypocrisy is a way of life at the OECD. Ignoring its own pronouncements about bribery is only Hypocrisy No. 1. As the following list illustrates, the OECD clearly does not mind throwing stones in a glass house.

     Hypocrisy No. 2: The OECD complains that low-tax nations distort economic activity, yet they provide tax-free salaries to their own employees - making the OECD a tax haven for bureaucrats.

     Hypocrisy No. 3: The OECD has stated that cartels are bad because "competitors collude rather than compete for customers' business." But what is their anti-tax competition effort other than an effort to create a cartel of high-tax nations, sort of an OPEC for politicians? 

     Hypocrisy No. 4: The OECD argues that low-tax countries must eliminate financial privacy so there will be transparency (i.e., so politicians can spy on people), yet an audit of the OECD discovered that its records were so poorly kept that reaching "an informed opinion as to the organization's financial health, including its liquidity and solvency, is difficult."

     Hypocrisy No. 5: The OECD has stated that, "Liberalization open markets is at the core of the Organization's work and is aimed at facilitating cross-border flows of trade and investment." Yet this rhetoric rings hollow, given the organization's current support for financial protectionism against low-tax competitors.

     Hypocrisy No. 6: The OECD claims it used neutral criteria to define so-called tax havens, but conveniently failed to include Switzerland, Luxembourg, Hong Kong, Ireland, Singapore and Great Britain. They even ignored the biggest tax haven of all - the United States. (Though, to be fair, the OECD surely will try to dictate tax policy in these regimes if they succeed in bullying the less powerful nations on their blacklist.)

     Hypocrisy No. 7: The OECD argues that "tax havens" must abide by internationally accepted standards, but then proposes to dramatically change international norms regarding taxation, sovereignty, and law. Moreover, none of the OECD's work has been subject to peer review. The OECD even refused to allow its own business advisory group to participate in the project. 

     Finally, it is worth noting that the OECD is using their anti-tax competition work to justify a request for a bigger budget. This may not qualify as hypocrisy, but it certainly adds insult to injury. The OECD's bureaucrats get tax-free salaries, but they want to make it easier for politicians to impose higher taxes on everyone else. They get to jet around the world in business class. They even have their own wine cellar.

     Bigger budget? How about a dose of the real world instead. 

     Daniel J. Mitchell is the McKenna senior fellow in political economy at the Heritage Foundation.

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