Pope needs lesson on how taxes work

London's Times Online recently reported that, according to Vatican sources, Pope Benedict XVI is working on his second encyclical, a doctrinal pronouncement that will condemn tax evasion as "socially unjust." (See www.timesonline.co.uk/tol/comment/faith/article2237625.ece.) The pontiff will denounce the use of tax havens and offshore banking by wealthy individuals because it reduces tax revenues for the benefit of society as a whole.

Pope Benedict could benefit from a bit of schooling. Tax avoidance is legal conduct whereby individuals arrange their affairs so as to reduce the amount of income that is taxable. Tax avoidance can run the gamut of legal acts, such as investing in tax-free bonds, having employer-paid health plans, making charitable gifts, quitting a job and banking in another country. Tax evasion refers to the conduct by individuals to reduce their tax obligation by illegal means. Tax evasion consists of illegal acts such as falsely claiming dependents, income underreporting and padding expenses.

Pope Benedict's second encyclical puts him squarely in company with a group of thugs known as the Organization for Economic Cooperation & Development, an international bureaucracy headquartered in Paris and comprised of 30 industrial nations, mostly in Western Europe, the Pacific Rim and North America. One of its reports concluded that low-tax nations are bad for the world economy and identified 35 jurisdictions that are guilty of "harmful tax competition."

In the OECD's view, harmful tax competition is when a nation has taxes so low that saving and investment are lured away from high-taxed OECD countries. The blacklist of countries they've identified as tax havens, having strong financial privacy laws, low taxes or zero taxes on certain activities, includes Panama, the Bahamas, Liberia, Liechtenstein, the Marshall Islands and Monaco.

The OECD demands these nations, as well as offshore financial centers in the Caribbean and the Pacific, in effect surrender their fiscal sovereignty and act as deputy tax collectors for nations like France and Germany. This would be a dream for politicians and bad news for the world's taxpayers; fortunately the hard work of the Center for Freedom and Prosperity has stymied the OECD's proposed tax cartel.