Is U.S. Embracing a Global Tax Scheme?

<?xml:namespace prefix = st1 ns = “urn:schemas-microsoft-com:office:smarttags” />Melbourne, Australia—This week, a good number of liberal activists—when not engaged in trying to stop the Supreme Court nomination of Samuel Alito or celebrating what they consider a big loss for President Bush in the Virginia and New Jersey election defeats—will likely be focused on an obscure conference here in the second largest city in Australia. The outcome of the conference could do much to further the objective of worldwide big government<?xml:namespace prefix = o ns = “urn:schemas-microsoft-com:office:office” />

The continent may seem an odd venue for this. The left hasn’t spoken much of Australia in recent years—and with good reason. To bring up Australia would give lie to the myth that the rest of the world is against the foreign and domestic policies of the United States. A staunch ally of the U.S. in the Iraq War, Australian Prime Minister John Howard handsomely won re-election in 2004, with his party picking up even more seats in Australia’s parliament. Howard is courageously taking on the labor unions that have controlled entry into jobs for decades. Like the U.S., Australia has refused to ratify the costly and scientifically unjustified Kyoto Protocol on global warming. And although the country’s tax rates are still relatively high—the top rate are almost 50%—Australia is ahead of the U.S. in setting up private accounts for retirement through its superannuation program that even the left-wing party supports.

But the free-market policies of the U.S. and Australia could be put at risk by the organization Melbourne is playing host to this week—the Organization for Economic Cooperation and Development. Although the U.S. and Australia are members, the Paris-based OECD is dominated by the nations of Old Europe.

Founded in the 1960s as an academic group that primarily researched economic development, the body has transformed itself in the past few years into a sort of booster organization for the high-tax high-regulation policies of European Union nations. As Dan Mitchell, economist and senior fellow at the Heritage Foundation has said, OECD seeks to “create an OPEC for politicians” by hindering countries from lowering their taxes and regulatory barriers.

Mitchell and Andrew Quinlan, president of the Center for Freedom and Prosperity, have called attention to an OECD initiative seeking to prevent countries from engaging in what it calls “harmful tax competition.” Although OECD denied it was pushing harmonization with Europe’s high tax rates, statements Mitchell and Quinlan have dug up from the group’s officials suggested otherwise. An OECD official complained a few years ago that tax competition “may hamper the application of progressive tax rates and the achievement of redistributive goals.” The Clinton Administration was ready to sign on to the OECD’s agenda of financial “blacklists” of low-tax countries, but Bush reversed the U.S. policy shortly after he was elected, and the OECD was briefly stymied.

But nearly five years later, there are storm clouds on the horizon. Liberal former Republican Rep. Connie Morella of Maryland is Bush’s new ambassador to the OECD. The OECD’s 2005 Economic Survey of the United States urged that the U.S. adopt a European-style value-added tax (VAT), in which taxation is takes place at various stages from production and is hidden from consumers when they purchase the final goods.

Like the VAT, the OECD itself now operates with an incredible lack of transparency. In Melbourne, the OECD’s conference meetings are closed to media, and very little about the conference is posted on its website.

As for its new agenda, not only is the OECD trying again with taxes, it is branching out to attempt to micromanage other areas of national policy for countries like the U.S. Many interest groups on the left are also trying to use the OECD to advance their various agendas. Eco-groups such as Friends of the Earth want the OECD to declare that dam-building for flood control and electric power is not acceptable as “sustainable” energy.  Angela Logomasini of the Competitive Enterprise Institute warns that the European Union is now urging the OECD to help implement its draconian proposed REACH (Registration Evaluation, and Authorization of Chemicals) system, which would ban thousands of chemicals without scientific justification.

And in 2004, the OECD had the audacity to promulgate a statement of “Principles of Corporate Governance,” setting a one-size-fits-all template of how publicly traded companies should conduct their internal functions. Recommendations range from destructive to overly broad to vague.

For instance, the statement frowns on stock options, which have helped entrepreneurial American companies such as Microsoft and Home Depot dominate their fields and give U.S. companies a leg up over the European Union. Of course, European countries could always change their laws to make stock options more available there, but that’s not in line with the statist thinking of many of their leaders. The OECD document dismisses options as “equity-based schemes” with “potential to dilute shareholders’ capital,” without noting the effect that options have in attracting top-flight employees and giving them incentives to add value to the company. It recommends shareholder approval of options plans, which may be a good idea, but one that should up to the individual company or at least the country where it is based. Shareholders can always choose not to buy a particular stock if they don’t like the options plan.

Ironically, after prattling on about the international rights of shareholders, the OECD statement than says companies must pay attention to “stakeholders,” a vague catch-all term that often means left-wing interest groups such as Big Labor and environmentalists. After bashing options, the statement seemingly contradicts itself with this assertion: “Performance-enhancing mechanisms for employee participation should be permitted to develop.” Then, after criticizing American-style stock options as conflicting with shareholders’ interests, the OECD specifically blesses “employee representation” on corporate boards as practiced in Germany. Under that system, union board members unapologetically vote for labor interests even when they conflict with those of shareholders.

Just as consumers benefit from competition in business, U.S. and the world’s citizens benefit from competition in domestic policies. When Ronald Reagan and Britain’s Margaret Thatcher lowered taxes in the ’80s, even the countries of Old Europe were forced to follow suit to some degree. Groups like the OECD attempt to short-circuit this competition through a process that now-United Nations Ambassador John Bolton referred to as a “worldwide cartelization of governments and interest groups.” Writing in the Chicago Journal of International Law in 2000, Bolton asserted that “the costs to the United States” in “reduced constitutional autonomy … and limitations on our domestic and foreign policy options and solutions are far too great … to be acceptable.”  After fighting so hard to place Bolton to look after U.S. interests at the U.N., Bush shouldn’t allow U.S. lawmaking sovereignty to be undermined through the back door of the OECD.