Destruction of financial privacy heralds big government
There’s no way we should have a global regime of automatic information exchange simply because a handful of high-tax nations want to remake global tax policy so they can prop up their decrepit welfare states
It’s a worse idea when they also demand the right to tax economic activity in other jurisdictions (otherwise known as “worldwide taxation“).
And it’s the worst possible development when governments decide that they should impose a global network of data collection and dissemination as part of a scheme of worldwide double taxation.
Yet that’s exactly what’s happening. High-tax nations, working through the Paris-based Organization for Economic Cooperation and Development, want to impose a one-size-fits-all system of “automatic information exchange” that would necessitate the complete evisceration of financial privacy.
David Burton of the Heritage Foundation explains the new scheme for giving governments more access to peoples’ private financial information.
"…the Organization for Economic Cooperation and Development released the full version of the global standard for automatic exchange of information. The Standard for Automatic Exchange of Financial Account Information in Tax Matters calls on governments to obtain detailed account information from their financial institutions and exchange that information automatically with other jurisdictions on an annual basis."
I think this is bad policy, regardless. It is based on imposing and enforcing bad tax policy.
But David goes one step farther. He warns that this global network of tax police includes many unsavory nations.
"It is one thing to exchange financial account information with Western countries that generally respect privacy and are allied with the United States. It is an entirely different matter to exchange sensitive financial information about American citizens or corporations with countries that do not respect Western privacy norms, have systematic problems with corruption or are antagonistic to the United States. States that fall into one of these problematic categories but are participating in the OECD automatic exchange of information initiative include Colombia, China and Russia. …The Obama administration enthusiastically supports the OECD initiative."
Moreover, David wisely does not believe we should trust the Obama Administration’s hollow assurances that other nations won’t misuse the data.
"…even the administration has realized important privacy issues at are stake. Robert B. Stack, Deputy Assistant Secretary of the Treasury for International Tax Affairs, has testified that “the United States will not enter into an information exchange agreement unless the Treasury Department and the IRS are satisfied that the foreign government has strict confidentiality protections…” Leaving these determinations to a tax agency with little institutional interest in anything other than raising tax revenue is dangerous. There is little doubt sensitive financial information about American citizens and businesses can and will be used by some governments for reasons that have nothing to do with tax administration, such as identifying political opponents’ financial resources or industrial espionage.
"In addition, individuals in corrupt governments may use the information for criminal purposes such as identity theft, to access others’ funds or to identify potential kidnapping victims. It is naïve to think otherwise. …The Senate should not ratify this protocol. The risks to American citizens and American businesses are too great."
David is exactly right, but too restrained and polite in his assessment.
Richard Rahn, my colleague at Cato, is more blunt in his analysis. Here’s some of what he wrote for the Washington Times.
"Do you want the Obama administration sharing all of your financial information with the Russian, Chinese and Saudi Arabian governments? You may be thinking, not even President Obama would go that far. Not so… The rationale behind this despicable idea is to more effectively enable governments, such as that of France and the United States, to identify tax evaders. This might sound like a good idea until one realizes that every individual and business will be stripped of all of their financial privacy if this becomes the law of the land… all of the information that financial institutions now report to the U.S. government to try to ensure income-tax compliance, including your account balances, interest, dividends, proceeds from the sale of financial assets — would be shared with foreign governments. This would apply not only for individuals, but also for both financial and nonfinancial businesses, plus trust funds and foundations."
Richard then explains that we can’t even trust the bureaucrats at the IRS.
"The United States and other governments will, of course, claim that your sensitive financial information will remain confidential — and that you can trust the governments. After the recent Internal Revenue Service scandals — which recur every decade or so — why would anyone believe anything the IRS says?
"Remember, the IRS leaked information on some of Mitt Romney’s donors during the 2012 presidential campaign. It was blatantly illegal, and the IRS (i.e., you the taxpayer) paid a small fine, but no one went to jail. Many U.S. presidents have misused the IRS, starting at least as far back as Franklin Roosevelt, and the American people are always told “never again,” which is the beginning of the new lie."
And he logically concludes it would be even more foolish to trust foreign tax bureaucracies.
"…just think what is going to happen when all of those corrupt officials in foreign governments get ahold of it. Some will use the information for identity theft and to raid bank accounts, others for industrial espionage, some to identify potential kidnapping victims and some for political purposes. The potential list goes on and on. The U.S. Treasury Department says it will insist on strict confidentiality protections. (Lois Lerner, please call your office.)
"If you are a Ukrainian-American who donates to Ukrainian free-market and democratic causes, would you really think that Vladimir Putin’s team, having your financial information, would not misuse it? If you are an American Jew who donates to Israeli causes, do you really think that all of those in the Saudi government who now have full access to your confidential financial information are not going to misuse it? The Chinese are well known for using malware against their opponents. Just think of all the mischief they could cause if they had access to all of the sensitive financial information of human rights advocates in America."
Richard draws the appropriate conclusion. Simply stated, there’s no way we should have a global regime of automatic information exchange simply because a handful of high-tax nations want to remake global tax policy so they can prop up their decrepit welfare states.
"As Lord Acton famously reminded us, governments are prone to misuse information and power. The instrument behind this information-sharing ploy is the OECD, which started out as a statistical collection and dissemination agency to promote free trade among its members. It has now morphed into an international agency promoting big government and higher taxes, and the destruction of financial freedom — while at the same time, by treaty, its staff salaries are tax-exempt. No hypocrisy there. Thinking Republicans and Democrats should unite around opposition to this terrible treaty and defund the OECD. Those who vote for it will deservedly be easy marks for their political opponents."
And kudos to Richard for urging the defunding of the OECD. It is absurd that American tax dollars are funding a Paris-based bureaucracy that constantly urges policies that would undermine the U.S. economy.
Especially when they’re insulated from the negative effects of the policies they push. Since they’re on the public teat, they don’t suffer when the private economy is battered. And they don’t even have to pay tax on their very generous salaries.
P.S. I’m very glad to report that at least one lawmaker is doing the right thing. Senator Rand Paul is leading the fight to block proposals that would put Americans at risk by requiring the inappropriate collection and sharing of private financial information.
P.P.S. By way of background, the OECD scheme is part of an effort to cripple tax competition so that high-tax nations can impose higher tax rates and finance bigger government. To learn more about tax competition (and tax havens), watch this four-part video series.
P.P.P.S. The OECD scheme is basically a multilateral version of the horrid “FATCA” legislation signed by Obama back in 2010.
P.P.P.P.S. Maybe I’m old-fashioned, but I think a global tax database is even worse than an Obamacare database on our sex lives.
Daniel J. Mitchell, a long standing contributor to The Commentator, is a Senior Fellow at the Cato Institute, the free-market, Washington D.C. think tank. His articles are cross-posted on his blog by agreement
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