To his credit, in May 2001 Treasury Secretary Paul O’Neill wrote an op-ed26 (and a private letter to the OECD) questioning some of its more punitive aims:
I am troubled by the underlying premise that low tax rates are somehow suspect and by the notion that any country, or group of countries, should interfere in any other country’s decision about how to structure its own tax system. I also am concerned about the potentially unfair treatment of non-OECD countries. The United States does not support effort to dictate to any country what its own tax rates or tax system should be and will not be participate in any initiative to harmonize world tax systems. The United States simply has no interest in stifling competition which forces governments, like businesses, to create efficiencies.
But, as we’ll see below, O’Neill fueled the anti-haven fire, by blurring the crucial distinction between tax avoidance (which is legal) and tax evasion (which is illegal). He also endorsed the OECD’s goal — which is merely a pre-requisite for attacking foreign assets and shutting down tax havens — of obtaining the private bank records of those who access tax havens and abrogating the havens’ privacy laws:
We have an obligation to enforce our tax laws as written because failing to do so undermines the confidence of the honest tax-paying Americas in the fairness of our tax system. We cannot turn a blind eye toward tax cheating in any form. That means pursuing those who illegally evade taxes by hiding income in off-shore accounts . . . and making every effort to obtain the necessary information to enforce U.S. tax laws. (emphasis added)
O’Neill evaded the fact that anyone who accesses a tax haven and alters the jurisdiction under which he’ll be taxed merely engages in tax avoidance (legal), not tax evasion (illegal). One would evade taxes, not by fleeing a U.S. jurisdiction for a Bermuda jurisdiction but by staying in the U.S. (or keeping his capital in the U.S.) and not paying taxes due. Even The Economist, a perennial defender of welfare states and high-tax regimes, recognizes this crucial distinction:
As almost everybody knows, there are two ways of cutting your tax bill. Tax avoidance is doing what you can within the law. . . . Tax evasion is what happens outside the law. There may be a thin line between the two, but in one sense it is a solid one. As Denis Healey, a former British chancellor once put it,