Republican Win Positive For Tax Competition, Says Washington's CFP

Tax-News.com, Washington

08 November 2002

Dan Mitchell, Chairman of Washington's Centre for Freedom and Prosperity, says that the Republican victory in mid-term Congressional elections will have very positive consequences for the fight for international tax competition.

Mr Mitchell explains that Republican control of the Senate is important for several reasons. A GOP majority, for instance, means greater control of the political process. Republicans will now run all Senate Committees, including the Senate Banking Committee and the Senate Finance Committee. And while not all Republicans
are firm supporters of tax competition, financial privacy, and fiscal sovereignty, they almost always are better on these issues than the Democrats they replace. Republican control also makes it easier to block bad legislation, either by bottling it up in Committee or by controlling the Senate schedule. Needless to say, the GOP also will have the votes - at least in theory - to win floor fights.

The Republican majority also is important by virtue of the quality of new members. Many of the new Senators are effective and articulate defenders of market-based policy. Lawmakers like Senator-elect John Sununu of New Hampshire and Senator-elect Jim Talent of Missouri will take immediate leadership roles in the campaign to improve America's tax system and defend U.S. economic interests.

Conversely, Democrat Senators will have far less power to promote bad tax policy. Senator Carl Levin of Michigan, for instance, was a Subcommittee Chairman and used that position to demagogue against low-tax jurisdictions. Levin's dishonest efforts doubtlessly will continue, but presumably with less effect. As one tax reform advocate stated, "Levin will now be like fingernails scraping across a blackboard - an irritating nuisance." The tragic death of Senator Wellstone also is a setback for the tax harmonization crowd since the former legislator was a leading advocate for fiscal protectionism against companies that re-chartered in low-tax jurisdictions. Other Democrats will try to grab the issue, to be sure, but it is unlikely that they will be nearly as effective or tenacious.

The Republican Senate majority (and continued majority in the House of Representatives) also will yield indirect benefits. Most importantly, total Republican control of Congress will give the Bush Administration significantly more leeway to support pro-competition policy. A large number of Republicans - both in the Senate and House - have encouraged the White House to resist tax harmonization schemes and instead advocated pro-competitive tax reforms. The influx of new Republicans will strengthen those inside the White House who are working to defend America's national economic interests.

Looking at specific tax competition issues, the Republican victories will have a noteworthy impact on issues requiring legislative action. On issues that depend solely on Administration decision-making, the reverberations will be more muted. In all cases, though, it is important to realize that potential good news depends on continued hard work from the many groups and organizations that are working to defend tax competition.

Mr Mitchell lists the EU Savings Tax Directive, the IRS Interest Reporting Regulation and Anti-Inversion Legislation as particular areas in which good outcomes should be easier to achieve, but singles out International Tax Reform as an issue where the elections may have a major impact. There already was considerable momentum for a shift toward territorial tax treatment of corporate income. Lawmakers increasingly realize that international tax reform is the only pro-growth response to the WTO's multiple decisions against America's tax treatment of export-oriented income. Many member also understand that fixing the flaws in the tax code is the morally just and economically sound way of ending inversions. But it was generally thought that a Democrat-controlled Senate would block any constructive reform of international tax rules. But now that this obstacle is eliminated, the White House and pro-reform lawmakers are likely to be much more aggressive in their efforts to help U.S.-based companies compete on a level playing field.

'In conclusion,' says Mr Mitchell, 'there has been a dramatic shift since mid-2000. At that time, it appeared that tax harmonization and the destruction of financial privacy were inevitable. Bill Clinton was in the White House, and his team was actively supporting the interests of Europe's welfare states. The OECD was on the offensive and there was momentum for the EU Savings Tax Directive. Beginning with the creation of the Center for Freedom and Prosperity in the late 2000, the battle has dramatically changed. Working through the Coalition for Tax Competition, free market groups in America have tirelessly worked to educate U.S. policy makers, and those efforts have had an enormous impact. But it is important to realize that our victories are only temporary. High-tax governments have not given up. They will continue to push for harmonization, and they will continue to use the OECD and EU as their agents. Winning this war will require continued hard work and a relentless commitment to fight for individual liberty.'

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