Three More US Congressional Voices Raised Against The OECD

Mike Godfrey, Tax-News.com, New York

13 March 2001

While the US Treasury Department under its new head, Secretary Paul O'Neill, continues to ponder its attitude towards the OECD's 'harmful tax competition' offensive, news has emerged that three further high-profile Congressmen have added their weight to the battle on the side of those opposed to the new fiscal colonialism.

First is Senator Jesse Helms, Chairman of the Senate Foreign Relations Committee. Senator Helms' committee authorizes US spending for international organizations like the IMF, the UN and the OECD. Below is a copy of Senator Helms' letter:

February 14, 2001

The Honorable Paul H. O'Neill
U.S. Secretary of the Treasury
Department of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington, D.C. 20220

Dear Mr. Secretary:

[1] In as much as the State Department authorization legislation includes appropriations to the Organization for Economic Cooperation and Development (OECD), the Senate Foreign Relations Committee therefore has an interest in what the OECD accomplishes and in the efficient functioning of this international organization.

[2] However, I have great concern that the OECD may be seeking to undermine the ability of nations to adopt market-based tax regimes.

[3] With the encouragement of your predecessor, Secretary Summers, the OECD has been pursuing a project to fight allegedly "harmful tax competition." This project produced, for example, the perverse January 26, 2000, report "Toward World Tax Cooperation," strongly critical of so-called "tax havens."

[4] But, Mr. Secretary, I find troubling that the OECD threatens many low-tax countries simply because they are luring investment away from high-tax nations. I believe this to be economically unwise and morally questionable.

[5] I am especially troubled by the foreign policy implications of the OECD's campaign (e.g., that the U.S. has supported an international effort to stigmatize low taxes). I am confident that you share my view that nations should have the right to choose the tax and the privacy laws that are most likely to promote economic development.

[6] If high-tax countries are worried that they are losing their tax base, the proper response is their lowering their tax burdens rather than trying to force low-tax nations to raise tax rates or to serve as vassal tax collectors.

[7] Most importantly, lower tax rates and pro-growth tax reforms are key determinants of a developing economy's performance. A modest tax burden obviously rewards entrepreneurial initiative and attracts investment, leading to rising income levels and broadly-shared prosperity.

[8] Such economic policies lead to growth in developing nations (and they can become less reliant on foreign aid).

[9] I hope you will address this misguided OECD policy, perhaps including at upcoming international meetings. In any event, America should not be bound by misguided decisions of the previous administration to allow such wrongheaded OECD initiative's to continue.

[10] Kindest regards!

Sincerely, JESSE HELMS
United States Senate
Washington, D.C.

Then comes Senator Judd Gregg, Chairman of the Commerce, Justice, State, and the Judiciary Subcommittee of the Senate Appropriations Committee. Senator Gregg's subcommittee controls the purse strings for international organizations like the IMF, the UN and the OECD.
Senator Gregg's letter is as follows:

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

Dear Secretary O'Neill:

I am writing to express my concern about the Organization for Economic Cooperation and Development's (OECD) so-called "harmful tax competition" initiative. This initiative would force low-tax countries to dismantle their tax systems or face financial protectionism from the OECD countries. The Clinton Administration supported this policy.

America has a modest tax burden compared to other industrialized nations and our favorable tax treatment of foreign investors has made the U.S. a magnet for foreign investment. As such, any effort to restrict or undermine financial competition between nations will undermine our competitive advantage,

I am also troubled by the OECD's assault against low-tax countries. To threaten sovereign nations with financial protectionism simply because they have tax laws that make them attractive to the world's investors is both economically misguided and morally bankrupt. Indeed, we should be encouraging more nations to adopt market-oriented policies as a development strategy.

Perhaps most importantly, the OECD's project is contrary to sound tax policy. An important long-run component of our tax reduction/tax reform agenda is the shift to a territorial tax system. Such an approach will improve our competitiveness and simplify the tax code. Yet the OECD initiative seeks to promote worldwide tax regimes, an approach that has adverse implications for competition, privacy, and sovereignty.

As you know, the OECD has done good work in the past in promoting market liberalization. But this "harmful tax competition" initiative is clearly a wrong approach. I ask you to review the OECD's initiative and withdraw America's support for this tax policy. I took forward to hearing from you.

Sincerely,

Judd Gregg
United States Senator
UNITED STATES SENATE
WASHINGTON, DC 20510-2904
(202) 224-3324
February 27, 2001

Finally, Congressman Thomas Reynolds added his name to the roster of powerful Congress leaders to attack the OECD. Representative Thomas Reynolds is a member of the House Rules Committee. All legislation must go through the Rules Committee before it can be voted on by the full House. Mr. Reynolds also is a member of the House's tax writing committee, but is on leave from the Ways and Means Committee until he finishes his tour on the Rules committee.

Congressman Reynolds' letter:

February 27, 2001

The Honorable Paul H. O'Neill
U.S. Department of Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220

Dear Secretary O'Neill,

The United States has an interest in helping other nations enact market-based reforms that promote private-sector wealth creation. As we know from our own history, tax competition, lower tax rates and a pro-growth tax code are key determinants of an economy's performance. A modest tax burden rewards entrepreneurial initiative and attracts investment. This, of course, leads to rising income levels and broadly shared prosperity.

Unfortunately, the Organization for Economic Cooperation and Development (OECD) is threatening this successful formula. Two years ago the OECD launched a project to stop so-called harmful tax competition. This misguided initiative, which attracted support from your predecessor, is fundamentally inconsistent with the market-based principles that we both share.

In fact, tax competition is a positive force in the global economy. It pressures lawmakers to reduce tax rates and make long-overdue budgetary reforms. But this issue involves much more than fiscal policy. It has important implications for individual freedom and national sovereignty.

America should not take part in any multi-lateral effort that seeks to penalize nations with low tax burdens. We also should be careful about supporting an endeavor that could be used against us in the future. As you know, the United States is a "tax haven" compared to many other nations. This low-tax status has allowed us to attract trillions of dollars of wealth to our economy, all of which has boosted job creation and economic performance. I am concerned that some of our high-tax competitors eventually would use the OECD's attack on low-tax nations as a precedent to pressure us to eliminate our favorable tax and privacy laws.

I urge you to address this issue. Economic freedom and prosperity in the United States and abroad is in danger.

Sincerely,

THOMAS M. REYNOLDS
Member of Congress

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