- The Washington Times - Wednesday, July 25, 2001

In case you didn't know, the U.S. Senate has a Permanent Subcommittee on Investigations. Last week Michigan Democrat Carl Levin summoned Treasury Secretary Paul O'Neill to appear before the committee. Mr. Levin demanded that Mr. O'Neill explain himself for opposing the OECD's plan to capture runaway tax slaves.

The Organization for Economic Cooperation and Development (30 industrialized countries) has identified 36 "tax havens" (small countries mainly in the Caribbean) that provide financial privacy. Prosecutors maintain that these havens facilitate tax evasion and also enable criminals to launder their illicit profits.

Mr. Levin accused Mr. O'Neill of protecting tax evaders and criminals by opposing the OECD. Promptly put on the defensive, as Republicans always are when interrogated by Democrats, Mr. O'Neill promised to crack down on tax evasion. He would achieve this, he said, through tax treaties with offshore havens and not through OECD coercion.

Mr. O'Neill missed his chance to refocus the hearing from "tax cheats" to much more important issues: civil liberties, the right to privacy, and national sovereignty.

Mr. O'Neill could have begun by pointing out that "tax haven" is a loaded term designed to put financial privacy in a bad light. If critics of "tax havens" were forthright, they would use the term "privacy havens." Critics object to privacy, because they want the right to troll bank accounts and security holdings for large accounts that might reflect income from criminal activity such as narcotics.

No doubt privacy aids and abets criminals. But privacy has many positive functions as well, and these functions should not be abolished just in order to better chase after criminals. For example, financial privacy gives voice to many people who live in political jurisdictions where dissent is risky and where wealth is confiscated. (Asset forfeiture laws are making even the U.S. such a place.) Would political dissidents be as bold if the governments they oppose had a handle on the location of their financial assets?

In many countries (Columbia and Brazil, for example) financial privacy is necessary to protect people and family members from becoming targets for kidnappers. In countries with corrupt governments, low-paid government bureaucrats sell the identities of wealthy people to kidnappers.

In the U.S., the Fourth Amendment restricts search and seizure. Police are not allowed indiscriminate search powers in order to troll for criminals. Individuals can be searched only with probable cause and warrants. Requiring Americans to report their foreign bank accounts to the Internal Revenue Service constitutes blanket, warrantless search that violates the U.S. Constitution.

There are many legitimate functions of financial privacy. Mr. Levin and the OECD should not be permitted to get away with arguing that privacy serves only money launderers and tax evaders.

Robert Morgenthau, the Manhattan district attorney who sees conspiracy in every bank, told Mr. Levin's Permanent Subcommittee on Investigations that "tax havens" threaten the integrity of the U.S. tax system. He says $70 billion in tax revenues are lost because of offshore havens.

This is small potatoes. $200 billion are lost to domestic evasion by underreporting income. Far more is lost to high tax rates that discourage people from earning taxable income. Secretary O'Neill would raise more revenues by replacing Treasury's static revenue estimates with dynamic estimates than by chasing after tax cheats.

Mr. O'Neill should have asked the Investigations Subcommittee, "Why do people cheat on their taxes?" They cheat for the same reasons slaves ran away. They believe the system is unfair and exploits their work.

By closing down "tax havens," the OECD wants to recapture runaway tax slaves from Europe's high taxes. Carl Levin wants to aid the OECD by embarrassing the U.S. Treasury secretary who spoke against OECD coercion of small countries that provide financial privacy.

There is no difference between an income tax and slavery. A slave does not own the fruits of his labor, and neither does anyone who is subject to income tax. Sen. Carl Levin and the OECD bureaucrats are trying to round up the runaway tax slaves and send them back to their masters.

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