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By Root 319 0

Republican minds with another big idea embraced by the antigovernment libertarian world of offshore: It is essential to cut taxes to starve the beast of big government. Or, as the antitax zealot Grover Norquist memorably put it, government should be cut “down to the size where we can drown it in the bathtub.”22 There is a problem with all of this, of course. Many people think tax cuts boost revenue. Starve-the-Beast-ers think tax cuts are useful ways to cut revenue. They can’t both be right. Bob McIntyre of Citizens for Tax Justice explains how he thinks the two conflicting theories have thrived side by side for over a quarter of a century. “It’s simple,” he said. “On Mondays, Wednesdays and Fridays Republicans say that cutting taxes raises revenues. On Tuesdays, Thursdays and Saturdays they say cutting taxes reduces revenues so much that it forces government to cut back—to starve the beast. And on Sundays they rest.” In truth, most serious analysts don’t believe that tax rates, on their own, make all that much difference. Obviously, real businesspeople invest and hire workers where there is demand for their products, strong infrastructure, and a healthy and educated workforce. Most studies show that corporate tax rates are a relatively minor factor in business location in most areas of business. Tropicana won’t grow oranges in Alaska just because it is offered a tax break there. In the golden age of 1947–73, the U.S. economy grew at nearly 4 percent a year—while the top marginal tax rate varied from 75 to over 90 percent.23 I am not arguing that those tax rates caused that growth. But high taxes clearly don’t need to choke off growth.

And if tax cuts are the answer to reducing tax evasion, as Mitchell suggests, then he might like to explain the great global eruption of international tax evasion, not to mention the sudden plague of capital flight, from the 1970s onward—just as tax rates went into freefall worldwide.

Here is the real story: As tax havenry exploded and finance became freer, tax evasion and capital flight followed.

By 2000, as the OECD project on tax havens’ harmful tax competition rolled forward, Mitchell and his allies began to firehose Washington with letters, emails, and presentations. Almost nobody was articulating the counterarguments.

The OECD was soon on the defensive. Then the havens themselves began to mobilize. In January 2001 the secretary general of the British Commonwealth invited the OECD to set up a joint working group, with equal representation for small member states (that is, the tax havens). This group began to festoon the OECD in red tape, and the whole project got bogged down in arcane haggling. The havens also set up a body called the International Tax and Investment Organisation to coordinate defenses, and they linked up with Mitchell and the Center for Freedom and Prosperity.

Then George W. Bush came to power.

Until then, President Clinton’s treasury secretary, Larry Summers, had backed the OECD, even proposing sanctions against the havens in his last budget. Bush’s first treasury secretary, Paul O’Neill, initially seemed unsure about the issue, even saying, to Mitchell’s alarm: “I support the priority placed on transparency and cooperation.”

The Center for Freedom and Prosperity ramped up the pressure. They organized eighty-six congressmen and senators, including big hitters like Jesse Helms and Tom DeLay, to urge O’Neill to ditch the OECD’s project. Milton Friedman, James Buchanan, and other conservative economists signed on. Letters flooded into the treasury. Mitchell thundered about the “Parisian monstrosity,” and a Cayman Islands official popped up at the United Nations to rail against “Big Brother” and the “big bully syndrome.” The lobbyists neglected to mention that the Caymans were effectively governed from London. The British Commonwealth repackaged the havens’ critiques in Washington and lambasted the OECD as a bullying, coercive bureaucracy.24

The Caribbean havens also persuaded the powerful U.S. Congressional Black Caucus to act, and to send O’Neill a letter warning