Taxpayers' Union Director Attacks EU Information-Sharing Regime

by Mike Godfrey, Tax-News.com, New York

12 August 2002

Writing recently in the National Review, Eric V. Schlecht, director of congressional relations for the National Taxpayers Union, explains that while on a visit to Panama it was brought home to him how important tax competition is for such emerging economies.

' During that trip,' says Schlecht, 'I learned that, while excessive government taxation and regulation of the financial markets may be burdensome to the U.S. economy, it can be downright deadly to an emerging economy like Panama's.

'A large section of Panama's economy is reliant upon its ability to compete in the international financial markets. Nobody needs to remind the Panamanians of this, however. Panama's appreciation for tax competition and financial privacy stem largely from the fact that international government bureaucracies like the Organization for Economic Cooperation and Development (OECD) and the European Union (EU) are attempting to punish Panama for its competitive markets by imposing onerous reporting requirements on its banking industry — all in an effort to make the small country less attractive to investors from Europe.

Mr Schlecht is referring to the EU's attempt to impose an information-sharing regime for interest payable on savings deposits on banks in its member states and other major banking centres worldwide.

'As the late, great economist Peter Bauer made clear during his lifetime of scholarship,' he continues, 'the key to economic success for developing countries is not centralized planning dictated by foreign bureaucracies (combined with an endless steam of foreign aid), as is often thought. Instead, the keys are open markets, foreign trade, and free enterprise. It is the free market that makes developing countries richer, not the paternalistic patronization of international organizations with their regulations and handouts.

'That is why it is imperative that the U.S. — as the most powerful potential defender of free markets and tax competition in the world — stand up to the OECD and EU, by rejecting tax "harmonization" and promoting tax competition throughout the globe.'

Mr Schlecht gives the example of US state Michigan, where free-market Governor John Engler cut taxes 30 times in the 1990s, reducing unemployment from 11% to 4.5% between 1990 and 1996, and taking the state budget from a deficit of $2 billion in 1990 to a $1.1 billion surplus in 1996 — the third largest in the country.

The ten states that significantly cut taxes during the '90s, says Schecht, grew their economies nearly 25% faster than tax-raising states.

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