Contact Information:

Center for
Freedom and Prosperity
 P.O. Box 10882
Alexandria, Virginia
22310-9998
 

CF&P E-Mail Update, January 13, 2003

Center for Freedom and Prosperity's E-mail Update

1) Washington Update

2) CF&P Strategic Memorandum: Analysis of 2002 and Prospects for 2003

3) IRS Interest Reporting Regulation

4) EU Savings Tax Directive

5) Anti-Inversion Campaign

6) OECD Anti-Tax Competition Initiative Revisited?

7) President Bush's Tax Package

8) France and Germany Push to Harmonize World Tax Rates

9) Quinlan and Mitchell visit Bermuda

10) Treasury's Pam Olson on the U.S. International Tax Agenda

11) NBER: Why Europe Should Love Tax Competition - and the U.S. Even More So

12) Rahn: Pinning hopes on tax competition

13) CF&P Clips

1) Washington Update

I apologize for leaving so much time between updates. Our intense efforts against the IRS regulation combined with holiday activities have consumed an enormous amount of time. But as you can see, our time has been productive. 

Many of you have received e-mails from me detailing our efforts to stop the IRS's interest reporting regulation from being finalized.  We believe that a decision will be made in the near future. Assistant Treasury Secretary Pam Olson said last week that the IRS is still accepting comments on the proposed IRS regulation. Please consider weighing in on the rule (e-mail addresses below).

It looks like our plate will be full over the next several weeks fighting to preserve tax competition, financial privacy and fiscal sovereignty. Please visit our web page for timely updates (www.freedomandprosperity.org).

Regards, AQ

IRS Regulation Comment Page:
www.irs.gov/app/scripts/ct.jsp?regTitle=Reporting%20of%20Deposit%20Interest%20to %20Nonresidents

CF&P's Dedicated IRS Interest Reporting Web Page:
http://www.freedomandprosperity.org/update/irsreg/irsreg.shtml

 

2) CF&P Strategic Memorandum: Analysis of 2002 and Prospects for 2003

On January 6, the Center released a review and outlook memo for major tax competition issues. The memo discussed the victories enjoyed in 2002 and previewed the battles that we expect to fight in 2003.

[Excerpt]

2002 was a remarkably successful year. The hard work of many people inside and outside the Administration helped convince the White House to reject the European Union's (EU) proposed savings tax cartel. This decision combined with Switzerland's emphatic opposition to the Directive ensures that fiscal competition will continue to act as a liberalizing influence in the world economy. But that is not the only good news. The "harmful tax competition" scheme of the Organization for Economic Cooperation and Development (OECD) remains moribund, largely thanks to leaders in many low-tax jurisdictions and free-market groups in the United States. Supporters of tax competition even overcame immense odds and blocked a proposed IRS regulation that would force U.S. banks to put foreign tax law above American tax law. And most impressive of all, advocates of international fiscal competition managed to prevent or neutralize all efforts either to prohibit companies from re-chartering in jurisdictions with better tax laws or to subject them to fiscal protectionism if they made the decision to "invert."

But this does not mean that the news is all good, or that the battles have all been won. Indeed, every single victory should be viewed as a temporary respite. The EU, for instance, has announced that it will continue to push for the Savings Tax Directive. The OECD is still trying to bully low-tax jurisdictions. The IRS regulation could be finalized any day. And the American left intends to renew its campaign against corporate "inversions." Unfortunately, there will never be a permanent (or at least long-term) victory in the battle for tax competition, financial privacy, and fiscal sovereignty until there is fundamental tax reform in the United States. Simply stated, IRS and Treasury bureaucrats will continue to agitate for tax harmonization policies such as "information-exchange" as long as America has a "worldwide" tax system. But if the internal revenue code is replaced by a simple and fair system like the flat tax, the United States government no longer will have any reason to care about income earned in other nations. And if this happened, Europe's welfare states would have almost no chance of convincing the United States to oppose tax competition. This would be the death knell of tax harmonization. The United States is the 800-pound gorilla in the world economy, and any effort to create a global tax cartel is bound to fail without American support. [Link to full memo below:]

January 6, 2003, CF&P Strategic Memorandum, by Dan Mitchell, Analysis of 2002 and Prospects for 2003
http://www.freedomandprosperity.org/memos/m01-06-03/m01-06-03.shtml

January 7, 2003, Tax-News.com, Center For Freedom & Prosperity's Prognosis For 2003
http://www.tax-news.com/asp/story/story.asp?storyname=10450

 

3) IRS Interest Reporting Regulation

We feared that the IRS would try to finalize the regulation before the end of the year (in part to give back-door support to the EU since the regulation could be misinterpreted as an "equivalent measure" and thus a sign of U.S. support for the Savings Tax Directive). This did not happen, but the Treasury Department is actively pushing the proposal. The President's new economic team probably will decide this issue. If the decision goes the wrong way, expect a legal challenge since the regulation contravenes existing law and the IRS also failed to obey regulatory procedures such as preparation of a cost-benefit analysis.

As the following links indicate, CF&P and many others are working hard to stop this misguided regulation.

Recent Op-eds:

January 2, 2003, The Washington Times, by Dan Mitchell, IRS undermining the White House?
http://www.washtimes.com/commentary/20030102-32220256.htm

December 30, 2002, Chicago Sun Times, by Robert Novak, Closing the American tax shelter
http://www.suntimes.com/output/novak/cst-edt-novak30.html

December 23, 2002, Tax Notes, By Dan R. Mastromarco and Lawrence A. Hunter, The 'U.S. Anti-Savings Directive'
http://www.freedomandprosperity.org/anti-savings_directive.pdf

Recent Congressional letters:

U.S. Senator Orrin Hatch
http://www.freedomandprosperity.org/ltr/hatch-irs/hatch-irs.shtml

U.S. Senator Don Nickles
http://www.freedomandprosperity.org/ltr/nickles-irs/nickles-irs.shtml

Ten House Lawmakers Urge OMB to Review IRS's Interest Reporting Rule
http://www.freedomandprosperity.org/ltr/ney-omb/ney-omb.shtml

U.S. Representative Bob Ney and 16 sixteen Members of Congress: Todd Akin; Dan Burton; Chris Cannon; Phil Crane; Jim Davis; Jim DeMint; Lincoln Diaz-Balart; Mark Foley; Randy Forbes; J.D. Hayworth; Don Manzullo; Butch Otter; Ron Paul; Joseph Pitts; Ileana Ros-Lehtinen; and, Joe Wilson
http://www.freedomandprosperity.org/ltr/ney-irs/ney-irs.shtml

Federal Government Letters:

Office of Advocacy of the U.S. Small Business Administration
http://www.sba.gov/advo/laws/comments/irs02_1114.html

Federal Deposit Insurance Corporation (FDIC)
http://www.freedomandprosperity.org/fdic.pdf

Financial Institution letters:

American Bankers Association:
http://www.freedomandprosperity.org/aba2.pdf

Conference of State Bank Supervisors
http://www.csbs.org/government/regulatory/comment_ltrs/cl_11.14.02.htm

Other Financial Institution letters
http://www.freedomandprosperity.org/update/comments-irs/comments-irs.shtml#finInst

IRS Hearing Testimony:

Andrew Quinlan's IRS Hearing Testimony ~ December 5, 2002
http://www.freedomandprosperity.org/Papers/aq12-05-02/aq12-05-02.shtml

Other IRS Hearing Testimony:
http://www.freedomandprosperity.org/Papers/hrng12-05-02/hrng12-05-02.shtml

News Clips:

January 9, 2003, Tax-News.com, Mixed Reactions To President Bush's Tax-Cutting Plan
http://www.tax-news.com/asp/story/story.asp?storyname=10473

January 6, 2003, Tax-News.com, by Mike Godfrey, US Bankers Again Protest At Planned IRS Interest Reporting Rules
http://www.tax-news.com/asp/story/story.asp?storyname=10436

December 19, 2002, Tax-News.com, by Mike Godfrey, 17 US Congressmen Write To Treasury About Bank Reporting Rules
http://www.tax-news.com/asp/story/story.asp?storyname=10339

December 6, 2002, Tax-News.com, CFP Testifies To IRS Against Interest-Reporting Rules
http://www.tax-news.com/asp/story/story.asp?storyname=10221

News Accounts of IRS Hearing, December 5, 2002
http://www.freedomandprosperity.org/Articles/irs12-05-02/irs12-05-02.shtml

December 3, 2002, The American Banker, by Laura K. Thompson, Second Thoughts on Second Foreign Deposit Plan by IRS
http://www.freedomandprosperity.org/Articles/tab12-03-02/tab12-03-02.shtml

 

4) EU Savings Tax Directive

Even though both the United States and Switzerland rejected the scheme, the EU already has announced that the Savings Tax Directive remains a top priority. As such, supporters of market liberalization will need to continue fighting the proposed cartel. But if we are as successful and hard-working next year as we were this year, the EU Directive will remain dead. Many EU member nations are secretly relieved that the proposal failed.

News Clips:

December 17, 2002, Investors Offshore.com, by Philip Morton, Liechtenstein Expresses Support For Swiss Withholding Tax Proposal
http://www.tax-news.com/asp/story/story.asp?storyname=10318

December 13, 2002, Investors Offshore.com (via Tax-News.com ), by Philip Morton, Liechtenstein Expresses Support For Swiss Withholding Tax Proposal
http://www.tax-news.com/asp/story/story.asp?storyname=10318

December 13, 2002, Tax-News.com, by Ulrika Lomas, Savings Tax Deadline Postponed At ECOFIN Meeting
http://www.tax-news.com/asp/story/story.asp?storyname=10285

December 12, 2002, SwissInfo.com, Swiss stand firm on EU tax offer
http://www.swissinfo.org/sen/Swissinfo.html?siteSect=161&sid=1513702

December 12, 2002, EurActiv.com, No deal on savings tax by end of 2002
http://www.euractiv.com/cgi-bin/cgint.exe/?targ=1&204&OIDN=1504414&-home=home

December 12, 2002, SwissInfo.com, Swiss insist on tax offer
http://www.swissinfo.org/sen/Swissinfo.html?siteSect=161&sid=1513702

December 12, 2002, Tax-News.com, by Ulrika Lomas, Luxembourg Rejects Savings Tax Compromise
http://www.tax-news.com/asp/story/story.asp?storyname=10270

December 11, 2002, Bloomberg.co.uk, By Emma Vandore and Catherine Hickley, EU Tax Bid Fails as Luxembourg Defends Bank Secrecy (Update1)
http://quote.bloomberg.com/fgcgi2.cgi?mnu=news&ptitle=Top%20Stories%20Europe& tp=ad_uknews&T=news_storypage99.ht&ad=euro&s=APfet_RTLRVUgVGF4

December 9, 2002, Tax-News.com, by Ulrika Lomas, EU Tax Deals Unlikely This Year, Says Upcoming Greek Presidency
http://www.tax-news.com/asp/story/story.asp?storyname=10226

December 5, 2002, AFX News, EU officials, Switzerland's Villiger keep quiet after savings tax talks
http://www.ananova.com/business/story/sm_722427.html?menu=

December 6, 2002, Investors Offshore.com, by Carla Johnson, SBA Chief Condemns EU Over Savings Tax Controversy
http://www.tax-news.com/asp/story/story.asp?storyname=10218

November 8, 2002, International Money Marketing, EU threatens Swiss again over information exchange
http://www.freedomandprosperity.org/Articles/imm11-08-02/imm11-08-02.shtml

 

5) Anti-Inversion Campaign

The Coalition for Tax Competition worked very hard to explain that inversions were a way for American companies to compete on a level playing field. The companies keep their jobs and headquarters in America, but can compete overseas since they no longer have to pay an extra layer of tax to the IRS on income that is earned and taxed in other nations. This campaign paid dividends, as proposals to stop inversions (or to punish companies that inverted) were defeated or emasculated. The left will try to attach anti-inversion amendments to legislation this year. Such efforts likely will be emasculated during House-Senate conference committees. There is some possibility that an anti-inversion provision could be included in a tax package that improves the competitiveness of U.S.-based companies.

New Clips:

January 8, 2003, The Royal Gazette, By Becky Ausenda, US Democrat plans to file 'Bermuda Bill'
http://www.theroyalgazette.com/apps/pbcs.dll/article?Site=RG&Date=20030108&Catego ry=BUSINESS&ArtNo=101080051&Ref=AR

December 10, 2002, The Royal Gazette, By Lilla Zuill, Cox slams 'unfair' targeting of Bermuda companies on S&P
http://www.theroyalgazette.com/apps/pbcs.dll/article?Site=RG&Date=20021210&Catego ry=BUSINESS&ArtNo=112100043&Ref=AR

December 10, 2002, Forbes.com, Bermuda denounces demands for firms' index ouster
http://www.forbes.com/markets/newswire/2002/12/10/rtr819291.html

December 9, 2002, The Royal Gazette, By Lilla Zuill, US turns up the heat
http://www.theroyalgazette.com/apps/pbcs.dll/article?Site=RG&Date=20021206&Catego ry=BUSINESS&ArtNo=112060042&Ref=AR

December 9, 2002, The Royal Gazette, By Becky Ausenda, Banks end US dollar cheque service
http://www.theroyalgazette.com/apps/pbcs.dll/article?Date=20021209&Category=BUSI NESS&ArtNo=112090024&Ref=AR

December 6, 2002, Sacramento Bee, By Dale Kasler, Treasurers urge S&P to delete 'expatriates'
http://www.sacbee.com/content/politics/ca/story/5483367p-6466870c.html

November 19, 2002, BenefitNews.com, CalPERS pressures offshore firms to return to U.S.
http://www.benefitnews.com/finance/detail.cfm?id=3750

 

6) OECD Anti-Tax Competition Initiative Revisited?

The OECD is still trying to pressure low-tax jurisdictions even though the collapse of the EU Savings Tax Directive means that there is no "level playing field." This comes as no surprise to those who have observed the OECD's dishonest tactics over the last two-three years. Fortunately, the low-tax jurisdictions have performed admirably. They have refused to implement the OECD wish-list, and two nations Panama and Antigua have sent letters to Paris explaining that they no longer are bound by the earlier commitment letters. Hopefully, this will be the start of a trend.

The OECD "harmful tax competition" campaign will remain stalled in 2003, especially if more low-tax jurisdictions disavow their commitment letters. The OECD may even face budget cuts because many U.S. lawmakers now see it as a counter-productive bureaucracy.

News Clips:

January 7, 2003, Tax-News.com, by Amanda Banks, Sanders Renews Attack On OECD
http://www.tax-news.com/asp/story/story.asp?storyname=10447

December 20, 2002, Tax-News.com, by Amanda Banks, Antiguan Diplomat Warns Over Disappearance Of Level Playing Field Over Tax
http://www.tax-news.com/asp/story/story.asp?storyname=10359

Decmber 10, 2002, Government of the Republic of Panama, Press Release No. 230: Panama Reiterates to the OECD the Need for Equitable and Non-Discriminatory Treatment
http://www.freedomandprosperity.org/Papers/rop12-10-02/rop12-10-02.shtml

 

7) President Bush's Tax Package

The Bush Administration has announced a supply-side tax package that will significantly improve the economy and make America more competitive. Its crown jewel is a proposal to eliminate the double taxation of dividend income. This dramatic initiative, which is an important part of fundamental tax reform, will increase investment, improve corporate governance, and attract capital to the U.S. economy.

The White House also has proposed to immediately implement the personal income tax rate reductions that were approved in 2001 but were not scheduled to be fully effective until 2006--fixing a bizarre policy that encourages taxpayers to delay economic activity. In addition, the President is seeking a three-fold increase in the amount of small-business investment that can be immediately deducted ("expensed"), thus reducing a perverse bias in the tax code and taking a further step on the road to fundamental tax reform. [Link to full memo below:]

January 8, 2003, The Heritage Foundation: Executive Memorandum #847, by Dan Mitchell, President Bush's Tax Package: Pro-Growth and Pro-Tax Reform:
http://www.heritage.org/Research/Taxes/EM847.cfm

Additional Articles:

January 11, 2003, The Washington Times, by Lawrence Kudlow, Big bang
http://www.washtimes.com/commentary/20030109-92586236.htm

January 10, 2003, The Washington Times, by Stephen Moore, A tax cut with dividends
http://www.washtimes.com/commentary/20030110-82837524.htm

January 8, 2003, The Washington Times, by Bruce Bartlett, Calculating tax-cut dividends
http://www.washtimes.com/commentary/20030108-47902977.htm

January 7, 2003, The Washington Times, by Richard W. Rahn, Tax fairness fabrications
http://www.washtimes.com/commentary/20030107-82607197.htm

 

8) France and Germany Push to Harmonize World Tax Rates

Instead of trying to fix their own problems, two of Europe's most decrepit economies are trying to drag other nations down to their level. France and Germany want the EU to have central taxing powers in order to harmonize tax rates and destroy tax competition. Is anyone surprised?

December 1, 2002, The New York Times, By George Parker in Brussels, France and Germany call for EU tax accord
http://www.nytimes.com/financialtimes/international/FT1037872455975.html

 

9) Quinlan and Mitchell visit Bermuda

[Excerpt from The Royal Gazette on the trip:]

"Dr. Mitchell was on the Island this week along with Andrew Quinlan, president and CEO of citizens' lobby the Center for Freedom and Prosperity (CF&P). The two were in Bermuda as guest speakers for the Bermuda International Business Association's (BIBA) annual general meeting yesterday. . . "

"Dr. Mitchell and Mr. Quinlan, as staunch proponents of market liberalisation, have been actively lobbying against anti-inversion legislation on Capitol Hill. And while in Bermuda both took time out to meet with members of the business community on the corporate inversion issue and more. . . Dr. Mitchell and Mr. Quinlan spoke to an audience of about 120 business people at yesterday's BIBA meeting."  [Link below to the full article:]

December 13, 2002, The Royal Gazette, By Lilla Zuill, Island must get in the arena
http://www.theroyalgazette.com/apps/pbcs.dll/artikkel?SearchID=73119964320601&Avi s=RG&Dato=20021213&Kategori=BUSINESS&Lopenr=112130064&Ref=AR

 

10) Treasury's Pam Olson on the U.S. International Tax Agenda

Speaking last week at George Washington University's 15th Annual Institute on Current Issues in International Taxation, Assistant Treasury Secretary for Tax Policy Pam Olson set out her views on the United States' international tax policy. [Link to comments below:]

December 17, 2002, Tax-News.com, US Treasury Sets Out International Tax Agenda
http://www.tax-news.com/asp/story/story.asp?storyname=10321

 

11) NBER: Why Europe Should Love Tax Competition - and the U.S. Even More So

The following is an extremely important research paper - published by the National Bureau for Economic Research - that unambigiously demostrates that tax competition is in the best interest of all nations. Please read and pass on to others.

[Abstract]

Is global competition for mobile capital harmful (less public goods) or beneficial (less government waste)? This paper combines both aspects within a generalized version of the comparative public finance model (Persson, Roland and Tabellini, 2000) by introducing multiple countries and endogenous tax bases. We consider the role of political institutions and compare parliamentary democracies (Europe) and presidential-congressional systems (USA) to show that increasing tax competition is likely to improve voter welfare, even if public good supply decreases because rents to politicians also fall. The conditions for voter welfare to improve are less stringent under the presidentialcongressional system than under parliamentary democracies. Increasing tax competition lowers voter welfare if the only benefit to politicians is to divert resources from the government budget and the future is valued highly. [Link to full article below:]

November 2002, National Bureau Of Economic Research (NBER) Working Paper No. 9334, by Eckhard Janeba and Guttorm Schjelderup, Why Europe Should Love Tax Competition - and the U.S. Even More So
http://www.freedomandprosperity.org/nber9334.pdf

 

12) Rahn: Pinning hopes on tax competition

[Excerpt:]

What would your reaction be if you learned the countries of the world all decided everyone must drive the same car and this new car must cost at least $50,000?

In this hypothetical situation, the rationale given for this decision is that some countries were able to make cars more inexpensively than other countries, and this was not fair to the high-cost countries that were losing market share to low-cost countries. In addition, high-cost countries demanded that every new car have leather seats whether the consumer wanted them or not. The reason for insisting upon high-cost leather seats was because it was "unfair" to leather tanners union workers to be undercut by producers of cheaper cloth seats.

As absurd as the above may seem, this type of reasoning is behind the demand of major European high-tax countries that low-tax countries increase their taxes. It would have the same damaging impact on workers in low-tax countries and customers worldwide as in the auto example.

December 5, 2002, The Washington Times, by Richard W. Rahn, Pinning hopes on tax competition
http://www.washtimes.com/commentary/20021205-22298680.htm

 

13) CF&P Clips

January 7, 2003, Financial Times, By Andrew Parker, Ed Crooks and Philip Coggan, Dividend reform brings US closer to rivals
http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=Sto ryFT&cid=1039524265007

December 30, 2003, The New York Times, Is Saudi Arabia Tough Enough on Terrorism?, By Allan Gerson and Ron Motley
http://www.nytimes.com/2002/12/30/opinion/30GERS.html

December 20, 2002, LewRockwell.com, by Robert Stewart, How I Became a Libertarian
http://www.lewrockwell.com/orig2/stewart4.html

December 19, 2002, CayPolitics News, UK Should Not Have Control of Our Financial Affairs"
http://www.caypolitics.com/index2.vep?FORUM=politics&FUNCTION=read&SORT=d na2&MODE=&_COMPAND=Expand&_Message_ID=12991&username=anonymous& pop3host=caymail.com&ses

December 13, 2002, Bermuda Sun, By Mairi Mallon, Bermuda faces hedge fund threat
http://www.bermudasun.bm/archives/2002-12-13/03Business03/

December 11, 2002, Investors Offshore (via Tax-News.com), by Leroy James, Hedge Funds Are Anxiously Eyeing IRS Rules On Insurance Wrappers
http://www.tax-news.com/asp/story/story.asp?storyname=10258

December 11, 2002, Tech Central Station, By Stephen W. Stanton, For Richer, Not for Poorer
http://www.techcentralstation.com/1051/techwrapper.jsp?PID=1051-250&CID=1051-121 102D

Best regards,

Andrew Quinlan
Center for Freedom and Prosperity
President
202-285-0244
208-728-9639 (efax)
quinlan@freedomandprosperity.org
www.freedomandprosperity.org

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