The Washington Post had a story Friday about the Center for Freedom and Prosperity and its almost two-decade long fight against tax harmonization. In 2000, I co-founded the Center with Dan Mitchell and Andrew Quinlan.
This looks like yet another story attempting to expose some sort of scandalous behavior on the part of those of us who believe in tax competition and financial privacy, and as such are defending the right of low-tax nations to not become enforcers of other countries’ bad tax laws. But as you can read, the story falls flat due to the lack of, well, the lack of scandal, the lack of illegal behavior on our part, and the need to acknowledge that in the vast majority of cases investing one’s money in a tax haven isn’t illegal either.
Interestingly, and in spite of a very misleading title, I think the piece ends up doing a good job of showing how a very small group with a tiny budget and only one paid employee has been fighting tooth and nail to protect us all against international bureaucracies and high-tax nations in their fight to grab as much of our tax dollars as they can.
A little background here is necessary. Tax competition may be our best tool against governments’ attempts to tax people more and more to pay for their overspending. Tax competition means that taxpayers can shop around for the best place to invest money based on a variety of factors, including the tax treatment of their investment. As a result, capital will most likely flow out of high-tax nations to go to a low-tax environment. And that’s a good thing. Not surprisingly, high-tax nations do not like the constraint placed on them by competition.
As a result, since 1998, acting on behalf of European high-tax nations the Organization for Economic Cooperation and Development has been seeking to undermine tax competition to create an international tax cartel. In order to achieve its goal, the OECD bullied low-tax nations into acting as deptuy tax collectors for high-tax nations with threats of severe sanctions imposed by OECD member countries. As explained in the article, thanks to the work by the Center for Freedom and Prosperity, these efforts failed when officials in the United States expressed resistance and skepticism to measures that would visibly infringe on national sovereignty and the right of each country to have the tax regime of its choice — and to pay the consequence or to get rewarded for this choice.
It forced the OECD to change its approach and move to harmonize taxes indirectly via so-called information exchange. A party attempting to force everyone into higher tax rates wouldn’t be complete without the European Union — so soon thereafter the EU joined in. That meant more bullying and even some blacklisting of low-tax nations. Finally, the United Nations joined the movement calling for the creation of an International Tax Organization (ITO), global taxes, and tax harmonization.
These are the efforts the Center for Freedom and Prosperity has been fighting against for years. Yet you wouldn’t know it when you read some of the quotes in the article by former senator Carl Levin (D., Mich.), a staunch opponent of tax competition and other countries’ sovereignty. In fact, he even equates defending tax competition to “trading with the enemy.” See for yourself:
Former senator Carl Levin (D-Mich.)…said in a recent interview that the center’s activities run counter to America’s values and undermine the nation’s ability to raise revenue. ‘It’s like trading with the enemy,’ said Levin, whose staff on a powerful panel investigating tax havens regularly faced public challenges from the center. ‘I consider tax havens the enemy. They’re the enemy of American taxpayers and the things we try to do with our revenues — infrastructure, roads, bridges, education, defense. They help to starve us of resources that we need for all the things we do. And this center is out there helping them to accomplish that.’
Oh boy, where do I start? First, high-tax nations and big-spending lawmakers are the enemy of American taxpayers, not tax competition or countries who have the good sense to keep their tax rates low.
Second, since when has the United States been starved of resources? As Dan Mitchell wrote on Friday:
He [Levin] was in office from 1979-2015. During that time, federal tax receipts soared from $463 billion to $3.2 trillion. Even if you only count the time the Center for Freedom and Prosperity has existed (created in late 2000), tax revenues have jumped from $2 trillion to $3.2 trillion.
At the risk of understatement, Senator Levin has never been on a fiscal diet. And he wasn’t bashful about spending all that revenue. He received an ‘F’ rating from the National Taxpayers Union every single year starting in 1993.
Third, how does fighting for tax competition, and hence for putting healthy constraints on the fiscal power of governments at home and around the world, “run counter to America’s values”? It is my understanding as someone who was born in France, that America’s Founding Fathers were fighting precisely for their sovereignty and against the extra-territorial bullying tax and regulatory powers of — to borrow from the words of Alexander Hamilton in the musical Hamilton— “a tiny island across the sea.”
It seems to me that fighting for tax competition, which makes it more difficult for politicians to extract ever-more revenue from the private sector, is very much in the spirit of American values. As Mitchell adds:
In reality, this is a fight over whether there should be any limits on the fiscal power of governments. On one side are high-tax governments and international bureaucracies like the OECD, along with their ideological allies. They want to impose a one-size-fits-all model based on the extra-territorial double-taxation of income that is saved and invested, even if it means blacklisting and threatening low-tax jurisdictions (the so-called tax havens).
On the other side are proponents of good tax policy (including many Nobel Prize-winning economists), who believe that income should not be taxed more than one time and that the power to tax should be constrained by national borders.
And, yes, that means we sometimes side with Switzerland or Panama rather than the Treasury Department. Our patriotism is to the ideals of the Founding Fathers, not to the bad tax policy of the U.S. government.
Unfortunately, after years of abuses and bullying, high-tax nations have been making progress. For example, all targeted jurisdictions have agreed to sign tax-information-exchange agreements, hence weakening their human-rights laws on financial privacy. The OECD’s campaign to weaken financial privacy and undermine tax competition has been so successful largely because the Obama administration joined with high-tax European nations to push for bad policy using the G-20.