Treasury Secretary Paul O’Neil Confuses Tax Avoidance versus Tax Evasion

by | Sep 13, 2002

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 […]

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,

Dr. Salsman is president of InterMarket Forecasting, Inc., an assistant professor of political economy at Duke University and a senior fellow at the American Institute for Economic Research. Previously he was an economist at Wainwright Economics, Inc. and a banker at the Bank of New York and Citibank. Dr. Salsman has authored three books: Breaking the Banks: Central Banking Problems and Free Banking Solutions (AIER, 1990), Gold and Liberty (AIER, 1995), and The Political Economy of Public Debt: Three Centuries of Theory and Evidence (Edward Elgar Publishing, 2017). In 2021 his fourth book – Where Have all the Capitalist Gone? – will be published by the American Institute for Economic Research. He is also author of a dozen chapters and scores of articles. His work has appeared in the Georgetown Journal of Law and Public Policy, Reason Papers, the Wall Street Journal, the New York Times, Forbes, the Economist, the Financial Post, the Intellectual Activist, and The Objective Standard. Dr. Salsman earned his B.A. in economics from Bowdoin College (1981), his M.A. in economics from New York University (1988), and his Ph.D. in political economy from Duke University (2012). His personal website is richardsalsman.com.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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