Who will Decide for America: President Bush or IRS and European Bureaucrats?

The European Union is pressuring the Bush Administration to support a cartel to prop up welfare states like France and Germany – even though the proposal will undermine America’s competitive advantage in the global economy.

We need your help. Career bureaucrats at the IRS and Treasury Department want President Bush to participate in the European Union “savings tax directive,” even though this misguided scheme would allow foreign governments to tax income earned in America. We hope that you will contact the White House and your Member of Congress. Please urge them to oppose this EU proposal for higher taxes and bigger government. And we hope you will act right away since the bureaucrats at the European Union are hoping that the United States will capitulate in the next week.

Background information can be found below and the following link is to CFP’s dedicated page to defeat the European Union “savings tax directive.” http://www.freedomandprosperity.org/eu/eu.shtml

Andrew Quinlan President Center for Freedom and Prosperity 202-285-0244 www.freedomandprosperity.org

This scheme would require U.S. financial institutions to become tax collectors for Europe’s welfare states. Specifically, American banks, mutual funds, and other financial institutions would be required to compromise the privacy of their clients by automatically reporting all the money that foreigners have invested in the U.S. economy. This is an attempt by Europe to keep income and investments from fleeing their high tax regimes.

The EU proposal is probably the greatest single threat we face to long-term global prosperity. Once it is possible for governments to prop up high-rate, anti-capital tax systems, the pressure for tax reform and supply-side rate reductions will fall dramatically.

The United States is the world’s biggest beneficiary of jurisdictional tax competition. A modest tax burden, combined with advantageous tax and privacy laws for nonresident aliens, has helped attract more than $5 trillion of financial capital to the U.S. economy. This money – deposits in U.S. banks and investments in U.S. companies – translates into more jobs and higher incomes for American workers. European-sponsored tax harmonization initiatives like the Savings Tax Directive would undermine this competitive advantage. At the behest of uncompetitive nations like France, international bureaucracies want to give high-tax governments the power to tax income earned in low-tax jurisdictions. This is a direct threat to America’s economic interests. Tax harmonization proposals such as “information exchange” would make America much less attractive to the world’s investors and likely would result in a significant loss of capital.

October 1, 2001, Competitive Enterprise Institute, by Stephen Entin, "New Threats To Foreign Investment: The U.S. Treasury And Information-Sharing" http://www.cei.org/MonoReader.asp?ID=1673

Tax harmonization can be achieved in two different ways. Explicit tax harmonization occurs when nations agree to set minimum tax rates or even decide to tax at the same rate. In the European Union, for instance, member nations must have a value-added tax (VAT) of at least 15 percent. If tax rates in all countries are explicitly harmonized, a taxpayer's only option is the underground economy--which already accounts for one-fourth to one-third of GDP in many of Europe's welfare states.

The other way to stop tax competition is implicit harmonization. This occurs when nations are able to tax their residents on the basis of worldwide income so that it becomes impossible to reduce taxes by shifting activity to a lower-tax jurisdiction. In order to tax worldwide income, however, a country's tax collectors must find out how much income residents earn in other nations. This is why "information exchange" is such an important part of the OECD agenda.

Either type of tax harmonization would have grave consequences, including higher taxes, slower growth, less privacy, and destabilization of low-tax regimes in the Caribbean and Latin America. Tax harmonization also would undermine tax reform, threaten national sovereignty, and hinder the free flow of capital.

July 20, 2001, Backgrounder # 1460, by Dan Mitchell, A Tax Competition Primer: Why Tax Harmonization and Information Exchange Undermine America's Competitive Advantage in the Global Economy: http://www.heritage.org/library/backgrounder/bg1460.html

The following link allows you review dozens of letters sent to Secretary Paul O’Neill by Senators and Congressman in favor of tax competition and opposed to tax harmonization schemes by the Organization for Economic Cooperation and Development (OECD), the European Union (EU), and the United Nations (UN). http://www.freedomandprosperity.org/congress/congress.shtml

Specifically, American banks, mutual funds, and other financial institutions would be required to compromise the privacy of their clients by automatically reporting all the money that foreigners have invested in the U.S. economy.
American banks, mutual funds, and other financial institutions compromise the privacy of their American clients all of the time. Why should the Europeans be any different?
Shouldn't we work to end it for us first before extending it to others?

Oh yeah, I keep forgetting that we sign those banking contracts, which usually require disclosure, voluntarily without really knowing what it is we're signing. Stupid me...
It's a good thing I don't do that any more.

For Immediate Release
Wednesday, July 24, 2002
202-285-0244
www.freedomandprosperity.org

CFP Hails Death of EU Savings Tax Directive
Bush Administration Rejects Tax Cartel

Washington, DC (July 24, 2002) -- The Center for Freedom and Prosperity was told Tuesday by several senior Bush Administration sources that the United States has rejected any participation in the European Union (EU) "savings tax directive."

According to one highly placed White House official, "We are not signing the European Union's 'savings tax directive.' There is ZERO support in the Administration for signing."

This is the death blow to the EU's proposal since it is based on unanimous participation of 21 targeted nations.

"I am very pleased that the hard work of the Center for Freedom and Prosperity has yielded dividends for the world's taxpayers," said Andrew F. Quinlan, President of the Washington, DC based Center for Freedom and Prosperity. "CFP has been lobbying against tax cartels since October 2000, and defeat of the EU savings tax directive was our number one priority." Quinlan added, "This decision is a victory for tax competition, financial privacy and fiscal sovereignty."

The European Union "savings tax directive" would have required financial institutions in low-tax nations to report private financial information about nonresident investors so high-tax nations could tax income earned in other jurisdictions. In addition to the 15 EU nations, six non-EU nations were being asked to participate – including the United States and Switzerland.

Daniel Mitchell, Senior Fellow at the Heritage Foundation said, "This is a huge victory for pro-growth tax policy and the Bush Administration's economic team should be applauded. The EU tax cartel would have undermined America's competitive advantage in the global economy and weakened US financial markets."

Veronique de Rugy, Fiscal Policy Analyst at the Cato Institute said, "The EU wanted to create an 'OPEC for politicians' and export bad tax policy to other nations. With the defeat of the EU 'savings tax directive,' high-tax nations hopefully will now choose to lower tax rates and reform anti-growth tax codes. This is the way to improve growth and reduce tax evasion."

For additional comments:
Andrew Quinlan can be reached at 202-285-0244, quinlan@freedomandprosperity.org
Dan Mitchell can be reached at 202-608-6224, dan.mitchell@heritage.org
Veronique de Rugy can be reached at 202-218-4601, vderugy@cato.org

See CFP's dedicated web page on defeating the EU "savings tax directive" for additional information:
http://www.freedomandprosperity.org/eu/eu.shtml

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