April 11, 2001

The Honorable Paul O'Neill
Secretary of the Treasury
Department of Treasury
1500 Pennsylvania Avenue, N.W.
Washington, DC 20220

Dear Secretary O'Neill: 

     As a long-time supporter of pro-growth tax policy and fundamental tax reform, I am writing in opposition to the Organization for Economic Cooperation and Development's so-called "harmful tax competition" proposal. This OECD initiative, which had the support of the Clinton Administration, is both philosophically troubling and economically misguided. 

     Nations should be free to adopt pro-growth tax policies and, if this makes them more attractive to the world's investors and entrepreneurs, that is a well-earned reward. Likewise, high-tax nations also should bear the consequences of their policies. If they have high tax rates and an oppressive tax system, they should understand that capital would flow to environments that welcome private-sector wealth creation. 

     Unfortunately, high-tax nations want to have their cake and eat it, too. Using the OECD as their vehicle, they want to change the rules of international taxation by forcing low-tax nations to help high-tax countries collect taxes on worldwide income. More specifically, the OECD is using the threat of financial protectionism to compel low-tax nations to repeal financial privacy laws so that foreign tax collectors can rummage through private financial data in search for more tax revenue. Adding insult to injury, this effort is being pursued largely so that high-tax nations can double-tax income that is saved and invested.

     This assault on the sovereign right of other nations to determine their own domestic policies is something that every supporter of freedom should reject. Tax competition, financial privacy and fiscal sovereignty should be celebrated rather than persecuted. 

     In addition to these philosophical concerns, I also have two specific problems with the OECD's proposed tax cartel. First, the initiative is contrary to America's national interests. We are a low- tax nation compared to the rest of the OECD, and our tax and privacy laws for overseas investors make us the worlds biggest tax haven. These policies have helped attract $7 trillion -- $10 trillion of foreign capital to our shores. These funds boost our markets and make American workers more productive. Needless to say, it makes no sense for the U.S. to participate in a project that will substantially undermine this competitive advantage. 

     My second concern is that the OECD initiative would greatly hinder fundamental tax reform. Regardless of whether one supports a national sales tax, a flat tax or some other proposal, all the major tax reform plans share certain common features, such as the elimination of all double taxation and the elimination of worldwide taxation. These vital elements of a fair and pro-growth tax system will be virtually impossible to enact, however, if the OECD is successful. 

     Let me also take a moment to address the major argument that you will hear in favor of the OECD policy. In all likelihood, you already have been told by some that America should support the initiative since the information-exchange regime will enable us to catch some Americans hiding money offshore. 

     I'm sure this assertion is true, but it is only compelling if one believes that America should retain our current worldwide tax regime and that we should continue to double-tax income that is saved and invested. If we fix these undesirable features of our current tax system, however, there is no benefit to America from creating, in the words of the House Majority Leader, "a global network of tax police." 

     Moreover, we also should weigh the costs and benefits of this approach. The benefit of information exchange is that we would have better enforcement of bad laws. The cost is that America then will be compelled to act as an informer on the millions of foreign investors who have put their money to work in America. Call me a skeptic, but I do not think we should risk scaring trillions of dollars away from our economy, particularly when we know that a few long-overdue tax reforms automatically will solve the problem.

     I ask you to reject the OECD's anti-tax competition initiative and to use American influence to have the proposal withdrawn. Our tax policy should be based on what is best for America, not what is best for Europe's welfare states.

Sincerely,

Bill Archer
PriceWaterhouseCoopers
Washington, D.C.

Return Home