Malo periculosam, libertatem quam quietam servitutem.



July 2014



Government Moves to Shake Down FedEx Because They Don’t Spy on Packages

Written by , Posted in Big Government, The Courts, Criminal Justice & Tort

You would think that enforcement of terrible US drug laws would be the responsibility of the myriad government agencies lavishly funded to harass American citizens based solely on what they put in their own bodies. But according to the government, enforcement is apparently actually the responsibility of FedEx.

FedEx Corp. was indicted for delivering prescription pain pills, sedatives, anti-anxiety drugs and other controlled substances for illegal Internet pharmacies.

The operator of the world’s largest cargo airline was charged by the U.S. with 15 counts of conspiracy to distribute controlled substances and misbranded drugs and drug trafficking that carry a potential fine of twice the gains from the conduct, alleged to be at least $820 million for it and co-conspirators. The company, while denying the allegations, said today in a regulatory filing that conviction could be “material.”

…The criminal case is an unprecedented escalation of a federal crackdown on organizations and individuals to combat prescription drug abuse, said Larry Cote, an attorney and ex-associate chief counsel at the U.S. Drug Enforcement Administration.

“Targeting a company that’s two, three steps removed from the actual doctor-patient, pharmacy-patient relationship is unprecedented,” said Cote, who advises companies in the drug supply chain on compliance matters.

Note that we’re not talking about delivering cocaine for the cartel here, but rather medicines that government artificially restricts and keeps from patients and those who need them. Nevertheless, the government insists not only that selling medicine is a no good, horrible bad thing, but that it furthermore is the responsibility of FedEx to know what is in every package they deliver to ensure that that no one is daring to deliver cheap medicine.

The whole thing is, in other words, typical government thuggery at its ugliest:

As it turns out, the feds say that “as early as 2004, DEA, FDA and members of Congress” told the delivery company that willing buyers and sellers were engaging in transactions that make politicians very, very sad. FedEx apparently established internal systems for tracking online pharmacies, but shipments still got through. This makes the feds even sadder, and they insist FedEx has been “conspiring” to let the packages through.

FedEx says this is all bullshit. The company insists that, in response to the government’s crusade to keep Uncle Bob from buying his little blue pills at a discount, it’s asked the feds for a list of suppliers it shouldn’t service. The feds haven’t gone beyond the bitching phase to offer anything helpful.

…So, what do the feds want FedEx to do? The indictment isn’t specific, but FedEx hints that the government wants the company to paw through everything it ships and block the stuff that officials don’t think people should be allowed to send from place to place.




July 2014



Moore Says Conservatives Losing Their Way on Taxes

Written by , Posted in Economics & the Economy, Taxes

Stephen Moore alleges that conservatives are losing their way on taxes:

A new economic plan is circulating called “Room to Grow,” and one of its premises seems to be that tax rates aren’t important for the middle class. One of its key proposals is to increase tax credits to families with children and even possibly raise tax rates on others to pay for it.

The idea here is that middle-class families with kids are facing a financial squeeze and need relief.

It’s well-meaning, but a classic misdiagnosis of the problem at hand. “This is anti–supply side policy,” fumes Larry Kudlow of CNBC. “It’s just awful growth policy.”

He’s right, and here’s why: Giving every family an extra tax break, as opposed to incentivizing businesses to invest and expand and workers to work, does nothing to grow the economy. This is pure redistribution to families with children. It is better to give a man a fish rather than to teach him to fish, in other words.

This completely misunderstands the source of the economic anxiety facing families today. For most middle-class families, the central problem is not that taxes are too high. It’s that before-tax wages and salaries are not rising — they’re even falling for many income groups — thanks to Obamanomics. On average, the median household has lost about $3,000 of purchasing power since the recession began in 2008. Half of Americans think we are still in recession. The middle class is getting squeezed because the recovery is so feeble and jobs are so scarce, not because of tax increases.

Moore is exactly right. I haven’t looked through all the other policy proposals in YG Network’s “Room to Grow” – though as John Tamny points out in another eloquent take-down of its shortcomings, David Brooks loves it so presumably I will not – but on the question of taxes and economic growth they have failed to diagnose the problem for the reasons Moore mentions. This malady in conservative tax thought can even be traced back to the Bush administration, where Keynesian assumptions were embraced in 2001 with “tax rebates” that failed just as thoroughly to “stimulate” the economy as Obama’s spending. There were, in a second attempt in 2003, better tax cuts under Bush that were more oriented toward supply-side growth, but the point is that conservatives sometimes buy into their own form of erroneous economic populism.

The point is not that taxes are not part of the problem – they certainly are – but rather that the problems caused by the tax code are its numerous disincentives for work, savings and investment. It is suppressing economic growth by punishing productive behavior. Those incentives need to be corrected, and that’s not done through gimmick handouts and a further narrowing of the tax base.



June 2014



Another Industry In the Obama Administration’s Sites

Written by , Posted in Education, Government Meddling

The private sector is under assault from the Obama administration. We’ve seen it most famously with the war on coal, but as this post from Center for Freedom & Prosperity President Andrew Quinlan demonstrates, we can add for-profit higher education to the list. And once again, it is unelected regulators usurping legislative powers in order to eradicate entire industries:

Now, the Department of Education is targeting private-sector colleges through so-called “Gainful Employment” regulations. The rules not only punish an entire business model for the wrongdoings of a small few schools, but by closing one of the best avenues for working class adults to improve their education and increase employability, they also threaten jobs and the economy.

The proposed rules would cut off federal loan and financial-aid eligibility for programs that fail to meet certain federal standards, such as graduates with high student-loan debt relative to their earnings in the first few years after graduation. This is a deeply flawed approach for reasons both practical and philosophical.

While there is a strong case to be made for ending or severely reducing government financial support for higher education, allowing government to distort the market by picking winners and losers would be even worse than the current system of heavy subsidies. The “Gainful Employment” regulations amount to a thumb on the scale, which unsurprisingly would benefit government-run institutions at the expense of the private sector.

The so-called “Gainful Employment” rule will limit loans and financial aid on the basis of high student loan debt relative to post-graduate earnings, among other things. Problems with the rule are numerous. First and foremost, if it is truly needed to protect students, why are public and private non-profit universities excluded? For-profit schools only serve about 20% of all higher education students, and yet are the exclusive target of the regulation.

Second, the rule fails to account for the market being served. For-profit schools provide opportunities for a lower economic class of students that is often closed out of the prestige-conscious university system. Any rule that punishes schools whose students have relatively lower post-graduate earnings is going to in effect punish schools that take on students who start with lower earnings potential. The rule is thus a perverse attack on economic opportunity at a time when opportunities are already few and far between.

Like much of the Obama agenda, the effort has already run into legal trouble. A prior version of the rule was thrown out by a federal judge for being “arbitrary,” but that hasn’t stopped anti-market ideologues from coming back for another bite at the apple. Quinlan quotes industry expert Donald Graham’s scathing letter in opposition to the rule, which includes an account of the true objectives of the rule’s chief architect:

Why is Mr. Shireman still relevant? Because it is he who decided there should be a gainful employment regulation in the first place.

…With his speech last week at the Center for American Progress, Mr. Shireman lets the cat out of the bag: he simply does not believe that a business should own a college or serve students. Now this is a perfectly respectable point of view. But one could ask: is a person who holds this point of view a fit regulator of a sector consisting of colleges owned by businesses? The judgment on whether businesses were fit to own colleges was made by the Congress of the United States in 1965. Mr. Shireman and now his successor regulators seek to substitute his judgment for that of Congress.

Obama administration officials substituting their lawless judgment for that of duly elected members of Congress seems par for the course these days.



June 2014



The Artifacts of Big Government

Written by , Posted in Big Government, Culture & Society, Liberty & Limited Government

Last month, the Washington Post provided an exposé on the proliferation of wasteful government reports. As the headline example, the author cites the 15 employees across at least six different offices that prepare an annual Report to Congress on Dog and Cat Fur Protection. The requirement was created as part of a 2000 law written by legislators no longer in office. It is, in other words, perfectly emblematic of Washington DC dysfunction. The question is: what exactly does this tell us about why and how our government is failing?

The Dog and Cat Fur Protection report is just one of many. The story claims that the current Congress expects 4,291 different reports from 466 federal agencies (aside: there should not even exist anywhere near this many federal agencies, and wouldn’t if the government stuck to its Constitutional duties).

It would be easy for some to blame all this on bad legislators. Certainly it would be possible for Congress to collectively decide to solve the problem by going through and eliminating unnecessary reports, just the same as they could close down duplicative and unneeded agencies. But that’s misleading. If the institutions of government, along with the incentives they create, and the political culture both remain constant, it’s not going to matter who is elected. The results will continue to be the same.

We have now a system that has grown out of control, and a populace enamored with magical thinking. We expect every problem in life to have a political solution, and we demand that someone – the more centralized their role, the better – be answerable for every setback or inconvenience. The result is that government not only must try to involve itself in far too many aspects of daily existence, but that politicians must constantly demonstrate that they are in firm control of the apparatus of government, even as such control becomes increasingly impossible.



May 2014



Reading Rainbow Ditches Government

Written by , Posted in Culture & Society, Free Markets

Reading Rainbow was an iconic children’s show with a long run on PBS that ended in 2006. As one of millions who grew  up watching the show – it aired for the first time just days before I was born – I’m happy to see it returning to encourage new generations to read. LeVar Burton, long time host and a major force behind the show, announced on Kickstarter plans to revive the program as a web-based program and get it into classrooms for free. The campaign quickly blew through its $1 million goal, which was hit in less than 24 hours. The revival is not a return of the TV show, though, but rather an evolution appropriate for reaching new generations.

It is also a testament to the fact that government is not a necessary ingredient for the provision of educational content, especially in the age of Kickstarter and ubiquitous crowdsourcing. Proponents of public television will no doubt argue that the campaign would not have caught fire if it weren’t for the decades of exposure the program already had on government subsidized television. This is a far point. But even accepting this particular project might not have gotten precisely as much support as it did, and as quickly as it did, if not for its previous exposure, does mean that: 1) such exposure could not have come without government or, 2) that it or similar worthy causes could not thrive otherwise.

So for fellow fans of Reading Rainbow, celebrate not just its return, but also that it is doing so through voluntary support instead of government force.



May 2014

Growing the Global Economy Through Offshoring and Tax Competition

Written by , Posted in Taxes
Coauthor(s): Dan Mitchell
Originally published in China Offshore
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High-growth nations have learned the importance of good tax policy when it comes to enhancing prosperity and living standards. Low marginal tax rates reward productive behavior by encouraging people to work more, save more, and invest more. Bad tax policy, on the other hand, can significantly stunt economic development. More specifically, excessive taxes on capital – such as capital gains, dividends, interest and inheritances taxes –are particularly destructive because they inhibit the formation of capital, which all economic theories agree is necessary for economic growth.

With economic growth comes advancement in human prosperity. Even slight differences in growth rates provide a major impact over time thanks to compounding. A seven percent growth rate can double economic output every 10 years, for instance, but a one percent growth rate can only do so every 70 years. Even smaller differences can be profound. A modest three percent rate of growth means doubling economic output in less than 24 years, or about once every generation or so.

Unfortunately, politicians rarely care about promoting growth, and often are themselves obstacles to its achievement. They care more about raising tax revenues that can then be spent in the quest for the accumulation of personal power and prestige.

The Power of Competition

Thankfully there is a mechanism by which the interests of the people in growing the economy can be imposed, at least to some degree, onto the political class. Tax competition between jurisdictions makes it difficult for politicians to impose bad policy and it gives them an incentive to adopt less punitive tax policies instead.

This is because when individuals and businesses relocate either physically or financially to jurisdictions with more favorable tax rates, they apply pressure on home governments to reduce excessive taxation. Nations that ignore competition suffer fiscally and economically, whereas those which embrace it are shown to prosper.

When the U.S. and the U.K underwent tax reform under Ronald Reagan and Margaret Thatcher, it kicked off a round of global tax cutting. The number of flat tax nations increased ten-fold, and the top income tax rates on both corporations and individuals plummeted.

Competition’s Discontents

Where there are political winners there are also losers. Short-sighted politicians see only declining tax rates and not the benefits that come with economic growth, including higher revenues in the long run. Acting through the Organization for Economic Cooperation and Development (OECD), politicians in high tax nations reacted by seeking to erode tax competition. Their efforts to create a global tax cartel – essentially an “OPEC for politicians” – have resulted in a constant imposition of new obstacles to fiscal competition.

The effort began with a 1998 OECD entitled, “Harmful Tax Competition: An Emerging Global Issue.” When a backlash erupted, the organization backed off from officially labeling tax competition as harmful and instead sought ways to slowly chip away at its effectiveness.

The bureaucrats and politicians who supported this effort claimed that they merely wanted to crack down on illegal tax evasion, but their actions indicate that the real goal is to make it easier for politicians to grab more money from the economy’s productive sector.

For example, in 2009 at the Mexico City meeting of the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes, organizers secretly inserted a bombshell into their draft “summary of outcomes” document. Legal tax planning and avoidance were suddenly identified as a “harmful tax practice” on par with evasion.

This was a shot aimed squarely at the heart of tax competition, with a clear goal of hindering the legal movement of capital toward low tax jurisdictions. It again induced a backlash from attendees, with China taking a lead role in scuttling the effort.

Despite the Mexico City setback, the OECD continued to make progress in their quest. Nations that use their tax code to attract investment are constantly pressured and cajoled into abandoning recognition of financial privacy rights, and have been forced into signing lopsided information sharing treaties designed to eliminate the benefits of relocating for tax purposes.

If the politicians from high-tax nations can’t prevent jurisdictions from offering more competitive tax policies, then they are content to stop their citizens from taking advantage of them.

Opposition Reaches Fever Pitch

Even with their successful introduction of Tax Information Exchange Agreements and other measures designed to blunt the impact of competition, the OECD continues to assert new powers over the flow of global capital. The latest item on the agenda is the bulk and automatic exchange of taxpayer information between jurisdictions. In reality, this means information will flow one way – from low-tax jurisdictions to high-tax jurisdictions – since nations with good tax policy have no interest in seeking revenues from extraterritorial earnings.

The OECD is piggybacking on international financial upheaval created by U.S. passage of the Foreign Account Tax Compliance Act (FATCA), which imposes unilateral requirements on foreign institutions to report information collected on Americans to the U.S. government. Through FATCA, the United States is asserting its universal “right by might” to enforce domestic tax laws on the entire world. FATCA purports to combat tax evasion, using a dragnet-style spying regime that threatens to cost the world far more than it will rise in new revenue for the U.S. government.

Rather than be appalled by the United States’ assault on fiscal sovereignty, or its onerous and costly burdens on the global financial sector, the OECD appears jealous of FATCA’s bold demands and the bureaucrats have used to it justify their own renewed assault on competition.

The G20 and the OECD have recently asserted a new global standard. The July 2013 Communiqué at the conclusion of the Meeting of Finance Ministers and Central Bank Governors in Moscow declared the body is “committed to automatic exchange of information as the new, global standard.” They even acknowledge that FATCA “acted as a catalyst for the move towards automatic exchange of information in a multilateral context.”

The OECD’s pursuit of automatic exchange of taxpayer information threatens the foundations of tax competition by making it possible for all nations to tax income no matter where it is earned. Currently only the United States engages in this destructive practice, but politicians in other nations are no less greedy than their American counterparts; they have simply lacked the means to apply such a policy in the past. With new rules to pressure other tax agencies to help spy on their citizens throughout the world, the OECD’s new standard would make it much easier for additional governments to adopt the practice of worldwide taxation. Making it more difficult for citizens to take advantage of low-tax jurisdictions will erode the power of competition in restraining political excess. The inevitable result is higher global taxes and reduced economic output.

OECD tax policy head Pascal Saint-Amans calls these developments a “watershed moment for international tax policy,” and OECD Secretary-General Angel Gurría has trumpeted its new standard as “a real game changer.” The game he refers to is international tax competition, which has for so long worked in the interests of taxpayers, and the change he desires is a tilting of the field away from economic producers and toward wealth confiscators.

In the past the OECD has relied heavily upon coercion to establish its tax regimes. This tactic has worked because the targets of their attacks are typically small and too afraid to stand up for their sovereign rights. But as Western nations continue to languish under the destructive weight of excessive taxing and spending, the emergence of new global competitors with increased political power could change the dynamic. If Chinese citizens want to continue to avail themselves of favorable tax policies – and maintain the pressure created by tax competition at home – they should oppose efforts by the OECD to rewrite in their own interests the rules of global commerce.



April 2014

OECD Agenda Threatens Panamanian Prosperity

Written by , Posted in Taxes
Coauthor(s): Andrew Quinlan
Originally published in La Estrella de Panama

Earlier this year, the Organization for Economic Cooperation and Development (OECD) released its finalized Standard for Automatic Exchange of Financial Account Information. The standard boasts requirements for sharing of a variety of information, including full account balances, that constitute both an intrusion on personal privacy and a costly imposition on the institutions expected to implement the standard.To make matters worse, nations are expected to adapt their laws and policies to accommodate the organization’s demands.

The OECD’s new standards are part of a lengthy effort by the Paris-based bureaucracy to police international taxation and force low-tax jurisdictions to conform to the will of large, high-tax welfare states. The fundamental issue has always been about the ability of individuals, businesses and capital to flow away from jurisdictions with bad or unfavorable tax and regulatory policies and toward jurisdictions with more attractive systems.The nations that consistently lose out to this kind of tax competition are the very ones who dominate the international discussion and hold the most influence within organizations such as the OECD.

The losers in this battle are nations like Panama, which seek to attract capital and investment through competitive policies but lack the power and leverage of the larger nations to advance their interests within international bodies. Past OECD efforts, such as the blacklisting of Panama and other low-tax jurisdictions as so-called tax havens, combined with efforts to compel adoption of policies against Panama’s economic interests, have proven costly and disruptive. But the new initiative is an existential economic threat unlike others Panama has faced.

Full automatic exchange of all tax information is de facto tax harmonization. It allows high-tax nations to pursue even income earned in other territories, which given their track record is likely to happen. This will negate the appeal of pro-growth tax systems and reduce the ability of Panama to attract international investment. Yet the OECD expects Panama and nations like it to jump at the initiative and pass legislation for the benefit of other nations. In a world where nations respected the sovereignty and rights of their neighbors, this would never happen. But we don’t live in such a world, and if Panama does not comply there will be punishments of some kind.

Given the heightened stakes and increased costs for compliance compared to prior demands, more significant punishments will certainly accompany the OECD’s current initiative. And while it’s worked in the past, eventually something will have to give. Low-tax jurisdictions cannot continue enabling the insatiable greed of international tax collectors, but on their own they also cannot be expected to simply absorb the high costs of non-subservience.

Perhaps it’s time to take a page from the OECD play book. Europe and the United States, which drive the OECD agenda, themselves rely heavily on international investment. Their fragile economies would not easily withstand a significant lose of foreign money. If low-tax jurisdictions band together and form a counter-OECD body to advance their own interests, they could similarly threaten to redirect investment toward more respectful nations unless their fiscal sovereignty is respected. That may seem like drastic action, but this could represent the last chance for Panama to defend its right of fiscal self-governance.



April 2014



Should We Punish Success as Inequality Fix?

Written by , Posted in Economics & the Economy, Taxes

Thomas Picketty has received a lot of attention for his attack on capitalism. His new book Capital in the Twenty-first Century has breathed new life into old Marxist critiques of capitalism, and been elevated to the status of very important book by the designated smart people™ who make it their business to decide what is important for the rest of us. It has received glowing coverage from the elite press like The New York Times and The Nation, and gushy reviews from prominent statists thanks to his assertion that capital is unfairly allocated, and that inequality poses an existential threat to democracy. In response, he calls for the admittedly utopian and impractical imposition of a global tax on wealth.

I’m not going to offer a rebuttal to Picketty. That work has already  been done. Rather, I’m here to note how his work has emboldened statists to admit their deepest policy desires – policies so radical and destructive that in the past were only whispered about at cocktail parties.

Matthew Yglesias writes at Vox that we need “confiscatory taxation” because “endlessly growing inequality can have a cancerous effect on our democracy.” Others are calling for a “maximum wage.”

There are problems with such proposals. First, inequality is largely misstated and misunderstood. Much of the data to back claims of rapidly growing inequality are being driven by statistical artifacts and cultural trends – creations of changes in the nature of households which make up the basis of inequality comparisons, or of changes in marriage patterns, or of problems with trying to take static snapshots of a dynamic economy.

Yglesias correctly notes that taxes influence behavior. Specifically, if you tax something, you get less of it. This forms the basis for his assertion that we should “apply the same principle of taxation-as-deterrence to very high levels of income.” If you start with the presumption that large incomes are unearned and without economic merit this might make sense. But if you believe that the market by-and-large distributes resources based on productivity, then this plan is quickly revealed as a tax on high levels of productivity. And with the agreed upon understanding that taxing a thing makes it less likely to occur, that means discouraging high levels of productivity. The net results is lower total output.

It is, in other words, the classic leftist plan to more evenly distribute a smaller economic pie. Or, as Margaret Thatcher would say, they would “rather that the poor were poorer, provided that the rich were less rich.”



April 2014



Statists Getting Heartburn Over Free Internet?

Written by , Posted in Big Government, Free Markets

The latest digital scare to captivate the media is the so-called Heartbleed bug, which constitutes a major vulnerability in OpenSSL, a common encryption program. In light of the find, the Washington Post’s Craig Timberg penned an article less about the bug itself and more about his discomfort at the idea that there are systems which operate outside the heavy hand of government or other centralized control. Wringing his hands over the “chaotic nature of the Internet,” Timberg finds it “terrifying” that the internet is “inherently chaotic,” and that there’s “nobody in charge of it all.” Give me a break.

Keep in mind that the Heartbleed bug was discovered by security experts and the news at this stage is just a proof of concept. No major infiltration has yet been attributed to the vulnerability, though it’s apparent lack of a footprint means they may still have occurred. But even if there were, it would hardly justify concern over the internet’s free nature, nor the prevalence of open source programs, which Timberg spends an inordinate amount of time dissecting. Despite his fretting that “volunteers and nonprofit groups that often create [open source software] lack the time and expertise to continually update their work,” such programs nevertheless are found in many ways to outperform enterprise or closed-source developments, or do just as well across a range of metrics. It’s the power of emergent order on display.

Likewise, there is little reason to be great central control would make vulnerability like Heartbleed less likely to occur. If you want an idea of what the internet would be like with “someone in charge of it all,” just look to any of the number of failed Obamacare exchange launches for guidance.

Bugs and vulnerabilities in code are a fact of life. There is nothing that will ever prevent them entirely. But a robust, innovative system unencumbered by centralized, bureaucratic control is far more likely to possess the nimble responsiveness necessary to react quickly and minimize the damage.



April 2014

New OECD Rules Strike at the Foundation of Tax Competition

Written by , Posted in Taxes
Originally published in Cayman Financial Review

The Organization for Economic Cooperation and Development (OECD) claims that new rules in its recently published Common Reporting Standard for Automatic Exchange of Financial Account Information are necessary to eliminate tax evasion. They’ve used the same argument in the past to justify numerous other demands, and each time when low-tax jurisdictions undertook the costly process of meeting OECD mandates, the goal posts were subsequently moved.

Jurisdictions surprised by ever evolving standards make the mistake of taking OECD claims at face value. Far from being motivated primarily by reducing tax evasion, their true objective is to eliminate tax competition so that the world’s largest welfare states can maximize the extraction of wealth from the global economy.

Tax evasion is not a very complicated problem to solve. Nations with the highest compliance rates tend also to be those with the least burdensome tax code. If members of the OECD took the sensible route of lowering tax rates and ending double taxation on capital, they could achieve the twin objectives of increasing both prosperity and fairness.

Unfortunately, politicians in high tax nations have other goals. Chief among them is collecting every potential tax dollar they can get their hands on. This includes dollars that might otherwise be attracted, even legally, to jurisdictions offering more favorable tax rates or more efficient regulations. The OECD is not aiming to even the playing field, in other words, but to kneecap the competition.

Evidence of this agenda is simple to find. Numerous OECD documents refer favorably to the theory of capital export neutrality (CEN), which asserts that economic efficiency is best promoted by harmonizing tax rates between domestic and international investments. The argument is that so-called neutrality promotes the making of investment decisions on business rather than tax considerations, which in turn enhances economic efficiency. But CEN fails to account for the negative economic impact of high tax rates, and thus the legitimate reasons for considering the impact of taxes not just as a fundamental part of choosing an investment, but simply of running a successful business. CEN also ignores the positive impact of tax competition as a pressure for the adoption of pro-growth fiscal policy.

Elements of CEN theory were featured prominently in the OECD’s 1998 and 2000 anti-tax competition reports. While the anti-tax competition initiative was shelved after a backlash from both the U.S. and low-tax jurisdictions, subsequent OECD efforts – in particular those of the Global Forum on Transparency and Exchange of Information for Tax Purposes – continue to move in the direction of reducing or eliminating the ability of capital to gravitate toward more favorable tax structures.

Subsequent OECD efforts to pressure low-tax jurisdictions to sign tax information exchange agreements have not proven to be a mutually beneficial endeavor. While large nations have sought to acquire the information they desire in order to impose onerous tax rates no matter the location of their citizens or their money, low-tax jurisdictions which have no desire to double tax capital receive only the benefit of avoiding punishment for noncompliance.

This dynamic is not indicative of a healthy relationship built upon mutual respect between nations, and should provide low-tax jurisdictions with no stronger sense of security than the store operator feels after he’s paid the latest round of protection money to the local mafia.

Despite the asymmetry of benefits, it was nevertheless easy for low-tax jurisdictions to justify compliance. After all, if a nation presents evidence of wrongdoing on the part of a specific individual, it is not unreasonable for another to assist in the enforcement effort. Sure, the OECD’s tactics – including threats of blacklisting and economic sanctions – were both deplorable and an affront to national sovereignty and international camaraderie, but despite being also costly, the demands hardly appeared an existential threat to tax competition.

The current initiative is not so well disguised. Despite getting everything it has thus far requested, the OECD remains unsatisfied. The new standard’s demand for automatic transmission of bulk taxpayer data is aimed squarely at the heart of tax competition – and also the continued vitality of jurisdictions that rely on investment attracted by pro-growth tax policies and streamlined regulatory systems.

The U.S. is currently the only OECD nation that taxes the income of its citizens no matter where it is earned, but that will likely change with the widespread adoption of automatic exchange. OECD hand-wringing over so-called “double non-taxation” makes clear the distaste with which bureaucrats and finance ministers from high tax nations view the choice of other jurisdictions not to impose exorbitant tax rates on every type of economic activity. Widespread adoption of the new standard will allow them to rectify this perceived oversight.

Despite being the world’s largest (de facto) tax haven, attitudes in the U.S. have changed considerably since it helped torpedo the OECD’s anti-tax competition initiative in the early 2000’s. With passage of the Foreign Account Tax Compliance Act (FATCA), the U.S. has led the way on fiscal imperialism and the effort to globalize tax administration, which provided the opening the OECD needed to press ahead on its quest to eliminate tax competition.

The OECD acknowledges that FATCA “acted as a catalyst for the move towards automatic exchange of information in a multilateral context.” By unilaterally subjecting institutions to costly reporting requirements and draconian penalties for noncompliance, the United States inadvertently managed a feat in making the OECD seem reasonable that international bureaucrats couldn’t have dreamed possible.

In hopes of sparing the world from a proliferation of FATCA-like laws, some jurisdictions seem to have calculated that the OECD is the lesser of two evils. But if history is anything to go by, the costs of acquiescing to the OECD’s new initiative will be significantly higher than they first appear.

The new OECD standard, which is based largely on the model FATCA agreements, is being sold as a means to prevent the spread of FATCA-like laws and thus the need to comply with a hodgepodge of different rules and requirements. Even ignoring the obviously superior solution of standing up against fiscal imperialism and demanding that the U.S. stop its assault on the global financial sector, the OECD provides a poor alternative.

The new standards are themselves just a minimum requirement, and some nations will no doubt have demands that go above and beyond.

In other words, the new standard will do little to reduce the costs of complying with a multitude of different standards. But it will ensure the flow of information to high tax nations, which in turn will be used to facilitate the flow of tax dollars. Where will this leave low-tax jurisdictions?

After its initial defeats, the OECD realized that the way to boil a frog is not to dump it in blistering hot water, as it will simply jump out.

Rather, if the water is initially cool and the temperature raised gradually over time, the frog won’t notice the danger and will eventually boil alive. For more than a decade, the OECD has been slowly raising the temperature on tax competition and low-tax jurisdictions. They’ve so far played along and, like the frog, have yet to jump out of the water. But the water is no longer cool, and the new requirements threaten to send bubbles rippling toward the surface.

The time for low-tax jurisdictions to save themselves is now, but they must both recognize the gravity of the danger and possess the necessary fortitude to jump from the water.