February 22, 2006

February 22, 2006 | Commentary on Taxes

Using tax money to push more taxes

Government bureaucracies are wasteful, sluggish and ineffective, and they impose burdens on the productive sector of the economy. International bureaucracies, not surprisingly, are even worse. The Organization for Economic Cooperation and Development (OECD) is a good example.

OECD is an international bureaucracy comprised mostly of European countries, but with a few other members such as Japan, Australia and the United States. Because it is dominated by nations such as France and Germany, it leans to the left, especially on fiscal policy issues. It often publishes reports calling for higher taxes, and the OECD has become infamous for its antitax competition campaign that seeks to penalize low-tax jurisdictions that attract jobs and capital from Europe's high-tax welfare states.

It's not exactly a big surprise to learn Europeans support higher taxes and bigger government, and a bureaucracy filled with Europeans is almost sure to reflect this statist mindset -- especially a Paris-based bureaucracy. But it is surprising that American taxpayers pay nearly one-fourth of the OECD's budget, to the tune of some $70 million per year. To put it mildly, we don't get much for our investment.

The group used to concentrate on collecting statistics and publishing innocuous studies. None of these activities generated value for American taxpayers, but at least the OECD wasn't doing anything destructive. Today, America gets a lot from the OECD. Unfortunately, almost all of it is bad.

The OECD wants higher taxes in America, including a European-style value-added tax (a form of national sales tax). Other tax increases endorsed by the OECD include energy taxes, Social Security taxes, and even fertilizer and SUV taxes.

The Paris bureaucracy has even urged eliminating deductions for state and local taxes, home mortgage interest, charitable contributions and health care. These would be good suggestions if the money was used to lower tax rates and move toward a flat tax, but the OECD proposes these policies to give politicians more money to spend.

In addition, the OECD has an antitax competition project that would undermine U.S. competitiveness.

America is the world's largest beneficiary of international capital flows. If the OECD succeeds in giving European governments the power to track and tax flight capital, American financial markets will suffer. The U.S. has opposed this scheme for years, but the OECD is still using American tax dollars to fight tax competition. It also has endorsed a 450 percent increase in America's foreign aid budget and even expressed support for a global tax imposed by the United Nations.

The OECD's big government agenda -- especially its antitax competition project -- has generated some concern on Capitol Hill.

A couple of years ago, Sen. Judd Gregg, New Hampshire Republican, fired a shot across the bow by proposing to reduce U.S. subsidies to the group. The OECD ignored this warning, so the Appropriations Committees late last year stated in a Conference Report that, "The conferees remain concerned with proposals by international organizations to interfere with the sovereign right of jurisdictions to pursue low-tax policies and direct the Department of State to consider such behavior when reporting whether continued participation in that international organization serves the interests of the United States."

This strong statement finally got the OECD's attention (the bureaucrats get tax-free salaries, so they have a big incentive to keep the gravy train rolling). But instead of changing policy, the OECD is resorting to dishonesty. Former Rep. Connie Morella, our ambassador to the OECD, did a briefing on Capitol Hill and unambiguously said the OECD does not support a VAT for the United States. Indeed, she claimed the OECD doesn't support higher taxes of any kind in the U.S.

Mrs. Morella doesn't seem to understand what the group is doing. At least 16 documents on the OECD's Web site promote higher taxes. Ten specifically advocate a value-added tax. (All of them can be read also at www.freedomandprosperity.org.)

The federal government squanders a lot of money on a lot of useless programs. The $70 million America sends to the OECD is much worse than normal government waste. When money is spent on pork-barrel projects and paper-pushing American bureaucrats, the damage is limited to the amount misallocated.

Money spent on the OECD, by contrast, has a "negative multiplier" effect. Tax dollars are used to promote policies that could result in higher taxes. As Congress and the Bush administration try to rein in federal spending, the OECD's bloated budget would be a good place to start.

Daniel J. Mitchell is McKenna senior fellow in political economy at The Heritage Foundation.

About the Author

Daniel J. Mitchell, Ph.D. McKenna Senior Fellow in Political Economy

First appeared in the Washington Post