High-Tax Nations Under Increasing Pressure

OECD_logo.svgThe Organization for Economic Co-operation and Development (OECD) was initially established to promote economic progress and world trade. It has now become a front organization committed to protecting the high-tax inefficient elements of the First World Economies from economic competition.

Twenty years ago the OECD took aim at “tax havens” that provide(d) tax-free and private banking for the wealthy businesses and individuals of the world. This effort has largely been successful by dishonestly painting “tax havens” as facilitators of drug cartels and terrorist organizations. As such the ability to freely move your money around the world has been severely curtailed, at least among the members of the OECD nations.

Now the OECD nations have taken it upon themselves to stamp out “tax competition” where ever it may be found. Tax competition is when one jurisdiction competes with another jurisdiction for business by lowering or simplifying the tax rate. For the high-tax rate nations who control the OECD this is a grave danger. They have already taxed their nations into economic stagnation with low growth rates and high unemployment. They have bought off restive populations with expensive social programs that provide cradle to grave security, but give little hope of jobs or economic advancement. Up and coming nations that try to attract industry by creating a lower and more efficient tax climate for business are real threats.

It remains to be seen how successful these efforts will be. Attacking the “tax havens” was a much easier project since most of them were small economically struggling Third World nations trying to us private banking, beneficial legal systems, and liberal financial service regulations to bootstrap themselves out of poverty. Such countries were relatively easy to intimidate into compliance. Even Switzerland was forced to dramatically adjust its age-old banking rules in order to comply with its neighbors.

However, the OECD seems to be having less success in the area of “tax competition”. In Europe, the heart of OECD darkness, countries are modernizing their tax codes in order to provide their own citizens and foreign businesses better opportunities to compete. Ireland, Latvia, Estonia, Hungary, etc. have all established lower flat rate tax systems that have increased the efficiency of the tax system making these countries more attractive for foreign investors. Russia has recently implemented a broad ranging tax reform that lowered the tax rate to a flat 12%. In most cases, as the tax rates go down and the tax codes are simplified, the tax receipts actually go up. Companies spend less money trying to avoid taxes, and instead invest their time and efforts in making more money which in turn creates more tax revenue.

Attacking impoverished Third World countries who tried to become “tax havens” is one thing. “Tax Competition” is a much harder concept to stamp out as is seen even among the OECD nations themselves.