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by Peter Hannaford
It's a safe bet that most American have never heard of the OECD. No, it's not another of those alphabet-soup agencies of our government. It is the Organization for Economic Cooperation and Development, a club of 30 industrialized nations. According to the World Book Encyclopedia, the OECD "works to promote the economic and social welfare of its members and coordinate their efforts to aid developing countries."
Based in Paris, the OECD is staffed by European bureaucrats who have churned out useful reports and projections, but in recent months have been giving that above description a new and perverse definition. They decided to go after countries which had what they called "harmful tax policies." They wanted to "harmonize" their taxes with OECD member countries' policies. Translation: pressure low-tax countries into raising their rates to the levels of high-tax European nations such as France and Germany.
The OECD bureaucrats made up a "black list" of offending countries, 35 in all. Most are small Caribbean and Pacific nations whose economies depend upon offering financial services to foreigners.
Countries with "harmful tax policies," the bureaucrats decided, were those which (1) allowed money laundering of illegal funds; (2) failed to exchange information with other nations, making it difficult to catch money-launderers; and (3) had "ring-fencing." That is, giving favored tax treatment to foreign investors, thus encouraging nationals from OECD members to put their money in these low-tax countries.
Among those listed were Bermuda, whose low-tax rates encourage insurance companies to put offices there; the U.S. Virgin Islands; and Panama, whose recent laws against money laundering caused it to be removed from an international list of countries permitting the practice.
The OECD bureaucrats planned to force the 35 countries on its list to conform to its dicta by having OECD members impose economic sanctions on them by July 31 if they did not.
While no one disagrees that money-laundering should be stopped, once the Bush Administration took over the U.S Government parted company with the OECD bureaucracy on the matter of low taxes.
In a newspaper article published May 11, Secretary of the Treasury Paul O'Neill wrote, "I am troubled by the underlying premise that low tax rates are somehow suspect and by the notion that any country or group of countries should interfere in any other country's decision about how to structure its own tax system. I also am concerned about the potentially unfair treatment of some non-OECD countries. The United States does not support efforts to dictate to any country what its own tax rates or tax system should be; and it will not participate in any initiative to harmonize world tax systems."
In mid-June delegates from member countries met with the OECD's tax policy task force to thrash out these matters. By the end of the month, the bureaucracy had backed off its more draconian schemes. It moved the sanctions date to November 30, but also said they would not be imposed until all member states had complied with its guidelines for transparency of transactions and exchange of information about possible tax evaders. Members have until 2003 to do that.
Most importantly, the OECD agreed to eliminate tax rates as a criterion in deciding if a country should be on its "black list."
That leaves exchange of information about possible tax evaders as the main element in the OECD plan. That fits with what Secretary O'Neill declared in May: "The work of this particular OECD initiative...must be refocused on the core element that is our common goal: the need for countries to be able to obtain specific information from other countries upon request in order to prevent the illegal evasion of their tax laws by the dishonest few."
A number of members of Congress, the Black Congressional Caucus and just about every group in the U.S. that opposes high taxes came out against the OECD's efforts to have its tax police impose high rates on its victims. Of course, if the likes of France and Germany really wanted their citizens to invest more of their money at home, they could lower their tax rates. Meanwhile, it remains for the U.S. to closely examine that "black list" and insist that the OECD drop those countries which don't deserve to be on it.
Peter Hannaford 's column appears every Monday.
(Posted 7/9/01)
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