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Freedom and Prosperity
 P.O. Box 10882
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CF&P E-Mail Update, February 5, 2003

Center for Freedom and Prosperity's E-mail Update

1) Washington Update Part 1: IRS Reg

2) Washington Update Part 2: EU Savings Tax Directive

3) House Fin. Serv. Comm. Chairman Worried about IRS Interest Reporting Reg

4) Free Market Leaders Denounce New Savings Tax Directive

5) SLF Memo on the U.S.'s Treaty Obligations and the Proposed IRS Regulation

6) Treasury Graph Illustrates the EU STD's Threat to the U.S.

7) Mitchell:  Time to Stiff-Arm the OECD

8) Cayman Islands, Antigua and Barbuda, and Panama: Tells OECD: All Bets Are Off'

9) Mitchell: Cleaning up the mess at the IRS

10) RPC's Eric Schlecht on President Bush's Economic Growth Plan

11) IPI: Another Look at the Kennedy Tax Cuts

12) The Lighthouse:  The Case for Tax Cuts

13) Brough:  A Brotherhood of Taxes

14) Kleinfeld: Beware the new IRS!

15) Tax Competition is Alive and Well . . . Even for Left-Wingers like Ted Turner

16) CF&P Clips

1) Washington Update Part 1: IRS Reg

CF&P has been working very closely with many free market groups, think tanks, taxpayer advocates and other interested parties to stop a proposed Internal Revenue Services regulation that would require financial institutions to report the interest income paid to nonresident aliens.  Many members of Congress, including House Financial Services Committee Chairman Michael Oxley (see below), have come out strong against the IRS's attempt to bypass Congressional authority. Many government agencies have raised serious objections to the proposed regulation, like the Federal Deposit Insurance Corporation (FDIC) and the Small Business Administration.  Also in the last few month representatives of the banking Industry like the American Bankers Association and the Conference on State Bank Supervisors have raised red flags. Also see below the memo by the Southeastern Legal Foundation on the U.S.'s treaty obligations and the proposed IRS Interest Reporting Regulation. No matter what the Treasury moved forward with this plan.

Last week, Senate Budget Committee Chairman and Senate Finance Committee Member, Senator Don Nickles of Oklahoma, asked Treasury Secretary-designee John Snow during his confirmation hearing to take a hard look at the regulation and report back to the Committee. Senator Nickles noted that the regulations were proposed by the previous administration in its final days and would cause an exodus of foreign deposits from the U.S. Mr. Snow said that he would review the public comments. This is good news since more than 99 percent of the public comments were against the regulation. More than 50 members of Congress and most every major banking group is in opposition to the regulation.

We are continuing to tirelessly work against the regulation. Please check out our dedicated web page on the regulation, linked below.  We still have a long way to go. If you want to help, please consider contacting the IRS. Assistant Treasury Secretary Pam Olson said last month that the IRS is still accepting comments on the proposed rule (e-mail addresses below).

Regards, AQ

IRS Regulation Comment Page:
http://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) Washington Update Part 2: EU Savings Tax Directive

The "new" Savings Tax Directive is a defeat for the European Union, but it is still bad tax policy. The Center for Freedom and Prosperity plans on working with the Coalition for Tax Competition to derail this misguided tax harmonization scheme. Below is a press statement from many Free Market leaders against the plan.  Countries like Panama, the Cayman Islands and Antigua and Barbuda have correctly noted that this is a violation of the "level playing field" requirement and announced that this negates OECD commitment letters. Dan Mitchell has written an article advising the Bahamian Government to reject their agreement with the OECD. CF&P has received many inquires from around the world on these developments. This is just the beginning.  For the next ten-plus years, high-tax countries like the France and Germany will never stop trying to export their misery. CF&P plans on spending the foreseeable future working with our allies and friends around the globe protecting and fostering tax competition, financial privacy, and fiscal sovereignty.

Regards Part 2, AQ

 

3) Financial Service Committee Chairman Michael Oxley Warns IRS Reg Could Impose "Significant New Regulatory Burdens." Questions Why Service is Seeking to Overturning Congressional Policy

[Excerpt]
The proposal, which originated in the previous administration, has caused concerns that the U.S. is reversing its long-standing policy of encouraging citizens of other countries to deposit their funds in the U.S. banking system. Moreover, because interest income earned on non-resident alien deposits is exempt from U.S. taxation, it is not readily apparent what enforcement or tax collection objective is served by requiring this income to be reported to the IRS.

From a process standpoint, I believe that it would be ill-advised for Treasury to issue a final rule on this important issue prior to Secretary-Designate Snow's confirmation. Implementation of such a far-reaching change in U.S. tax policy – which seems likely to impose significant new regulatory burdens on the U.S. depository institutions – should at the very least await a thorough review by incoming Secretary. [Link to full letter]

January 21, 2003, Tax-News.com, by Mike Godfrey, House Financial Services Chairman Writes Treasury Against Interest Rules
http://www.tax-news.com/asp/story/story.asp?storyname=10581

January 12-25, 2003, The Panama News, Coalition for Tax Competition praises Bush tax plan but warns about proposed interest reporting rule
http://www.thepanamanews.com/pn/v_09/issue_01/opinion_03.html

 

4) Free Market Leaders Denounce New Savings Tax Directive: US Will Not Support EU Tax Harmonization Scheme, OECD Commitment Letters No Longer Binding

[Excerpt from CF&P Press Statement]
Tax experts from America's most influential free-market organizations harshly criticized the European Union's new Savings Tax Directive. Andrew F. Quinlan, President of the Center for Freedom and Prosperity, announced, "The bureaucrats in Brussels have substantially scaled back their proposal, but the new Savings Tax Directive is still bad tax policy. The proposal is an unworkable house of cards, and the Center for Freedom and Prosperity will work with the Coalition for Tax Competition to derail this misguided tax harmonization scheme."

The European Union originally wanted all 15 of its member nations, as well as six non-EU nations including Switzerland and the United States, to collect private financial data about nonresident investors and automatically share that information with the tax authorities of other nations. The new proposal, by contrast, gives nations the option of imposing a withholding tax on nonresident savings and sharing the revenue with tax authorities from other nations.

Daniel Mitchell of the Heritage Foundation denounced the new EU proposal, stating, "We are pleased with the defeat of the original EU scheme, but the new proposal is based on the same flawed principles of taxing economic activity in other nations and double-taxing income that is saved and invested. All low-tax, capital-inflow jurisdictions should reject this attack against economic liberalization and tax reform." [Link to full release below:]
http://www.freedomandprosperity.org/press/p01-27-03/p01-27-03.shtml

EU STD Press Clips

January 30, 2003, Tax-News.com, by Ulrika Lomas, Liechtenstein Expresses Concern Over EU Savings Tax Agreement
http://www.tax-news.com/asp/story/story.asp?storyname=10682

January 25, 2003, International Herald Tribune, by Thomas Crampton, EU tax deal shouldn't flood Asia with cash
http://www.iht.com/articles/84573.html

January 24, 2003, The Sovereign Society Offshore A-Letter, by Bob Bauman, This Mouse Will Roar
http://www.freedomandprosperity.org/Articles/ss01-24-03/ss01-24-03.shtml

January 24, 2003, Tax-News.com, by Jason Gorringe, Low-Tax Jurisdictions Puzzle Over Response To EU Savings Tax Deal
http://www.tax-news.com/asp/story/story.asp?storyname=10627

January 23, 2003, The Wall Street Journal (Europe), Still Secret
http://www.freedomandprosperity.org/Articles/wsje01-23-03/wsje01-23-03.shtml

January 23, 2003, International Herald Tribune, by Thomas Fuller and Eric Pfanner, Crackdown on tax cheats could backfire on the EU
http://www.iht.com/articles/84316.html

January 22, 2003, The Guardian, by Charlotte Denny and Andrew Osborn, EU deal on tax dodging leaves loopholes
http://www.guardian.co.uk/business/story/0,3604,879581,00.html

January 23. 2003, The Royal Gazette, By Becky Ausenda, Bermuda banks to end secrecy under EU deal
http://www.theroyalgazette.com/apps/pbcs.dll/article?Date=20030123&Category=BUSIN ESS&ArtNo=101230048&Ref=AR

January 21, 2003, Reuters, By Lisa Jucca, EU optimistic on tax compromise
http://www.reuters.co.uk/newsArticle.jhtml?type=businessNews&storyID=2077529

January 21, 2003, BBC News, By Patrick Bartlett, EU tackles tax evasion
http://news.bbc.co.uk/1/hi/business/2679349.stm

January 21, 2003, Tax-News.com, by Ulrika Lomas, Europe's Low-Tax Territories Watch And Wait . . .
http://www.tax-news.com/asp/story/story.asp?storyname=10586

January 20, 2003, The Wall Street Journal, By Brian M. Carney, Europe's Tiny Tax Havens Have Survival Skills
http://www.freedomandprosperity.org/Articles/wsj01-20-03/wsj01-20-03.shtml

January 20, 2003, Tax-News.com, by Ulrika Lomas, Luxembourg, Austria, And Belgium Offered New Concessions Over Savings Tax
http://www.tax-news.com/asp/story/story.asp?storyname=10568

January 19, 2003, Scotland on Sunday, by Bill Jamieson, Ugly return of the unwanted savings tax
http://www.scotlandonsunday.com/comment.cfm?id=68472003

January 17, 2003, Reuters, By Lisa Jucca, Watered-down EU proposal may solve savings tax row
http://www.reuters.com/financeNewsArticle.jhtml?type=governmentFilingsNews&storyI D=2063452

 

5) Southeastern Legal Foundation's Memorandum on the U.S.'s treaty obligations and the proposed IRS Interest Reporting Regulation

[Excerpt]
Because deposit interest paid to non-resident aliens is not subject to U.S. tax, financial institutions are not required to report that income. The IRS has proposed a regulation to require the reporting of that income, however, and some supporters have justified the proposal on the basis that tax treaties with other nations require the collection of this data. This justification is inaccurate.

Major U.S. tax treaties have been in effect for decades, and no administration, Democratic or Republican, has interpreted our treaties as requiring this sort of regulation. Tax treaties do not require governments to collect data that they do not normally collect and to share that data with treaty partners.  Moreover, the treaties impose no obligation to automatically collect data solely for the benefit of a treaty partner. [Link to full memorandum]

January 2003, Southeastern Legal Foundation Memorandum, Dan R. Mastromarco, Proposed IRS Regulation and Data Collection Requirements
http://www.freedomandprosperity.org/slf-memo.pdf

 

6) Treasury Graph Illustrates the EU Savings Tax Directive's Threat to the U.S.

The linked graph below shows that there is more capital in America via the Caribbean than from all of Europe combined. This is very important. Some people claim that there is relatively little money at risk because of the IRS regulation. Some experts disagree with that contention, but admit the data is not precise. We do know, however, that implementation of the IRS regulation would provide a major boost to the EU Savings Tax Directive (the bureaucrats in Brussels are quite explicit about this). And we also know that the EU Savings Tax Directive would apply to UK Territories. And since a lot of European money comes into America via the Caribbean, this would be a threat to America's economic interests.  Needless to say, this demonstrates why the EU Savings Tax Directive would be so damaging to America. [Link to graph below:]
http://www.ustreas.gov/tic/exhibita.pdf

 

7) Mitchell: Time to Stiff-Arm the OECD

From The Nassau Institute: "This Week's Focus has been contributed by Dr. Daniel J. Mitchell a leader in the fiscal sovereignty debate.

"Dr. Mitchell asserts that the Bahamas has a golden opportunity to restore its flagging economy by Stiff-Arming the OECD's tax initiatives.

"As usual, he provides an interesting argument and we are grateful for this exclusive article.

"You may also wish to read some more of Dr. Mitchell's commentary by visiting the Center for Freedom and Prosperity's web site at www.freedomandprosperity.org." [Link to full article below:]
http://www.nassauinstitute.org/news/articles.asp?m=1&c=100&p=0&cat=GUEST%20AU THORS&a=271

February 4, 2003, Tax-News.com, US Institute Advises Bahamas To Resist EU/OECD Pressure
http://www.tax-news.com/asp/story/story.asp?storyname=10724

 

8) Cayman Islands, Antigua and Barbuda, and Panama: Tells OECD: All Bets Are Off'

January 24, 2003, CayPolitics News, Cayman Highly Critical of EU Savings Initiative; Questions Legitimacy
http://www.caypolitics.com/index2.vep?FORUM=politics&FUNCTION=read&SORT=dn a2&MODE=&_COMPAND=Expand&_Message_ID=13102&username=anonymous&po p3host=caymail.com&ses

January 29, 2003, Tax-News.com, Antigua Tells OECD: 'All Bets Are Off'
http://www.tax-news.com/asp/story/story.asp?storyname=10660

December 10, 2003, The Republic of Panama, 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

December 6, 2002, The Republic of Panama, Letter to the OECD
http://www.freedomandprosperity.org/ltr/latorraca/latorraca.shtml

 

9) Mitchell: Cleaning up the mess at the IRS

[Excerpt]
You have to feel sorry for Mark Everson. Sure, he's moving up in the world: President Bush just nominated him to be the new commissioner at the Internal Revenue Service. But Mr. Everson, who currently serves as a deputy director at the Office of Management and Budget, may want to withdraw his name. The IRS is a mess these days, reeling from problems that got much worse under Commissioner Charles Rossotti, Mr. Everson's supposedly pro-business predecessor.

Mr. Everson better be prepared to deal with some of the land mines Mr. Rossotti planted, especially if he wants the IRS to obey the law and respect the Constitution. Among the Rossotti "legacies" that will now land in his lap are the infamous "lifestyle audits," a fishing expedition against people with credit cards issued by foreign banks, and a Clinton-era proposal that the IRS help foreign governments tax their citizens on money kept in American banks — even though this proposed regulation would overturn existing law. [Link to full article below:]

January 30, 2003, The Washington Times, by Daniel J. Mitchell, Cleaning up the mess at the IRS
http://www.washingtontimes.com/commentary/20030130-99901490.htm

 

10) RPC's Eric Schlecht on President Bush's Economic Growth Plan

[Excerpt]
President Bush has proposed an economic growth and job creation plan that will benefit all Americans this year and well into the future.  It will immediately help boost the economy through its acceleration of the 2001 tax reductions, and it will ensure long-term economic growth through its tax relief for small business and its elimination of the double taxation of dividends.

Like President Kennedy before him, President Bush understands that there aren't "winners and losers" when the government cuts taxes – everyone benefits. As President Kennedy noted in promoting his tax cut dramatically reducing the top marginal rate, "A rising tide lifts all boats." [Link to full paper below:]

January 14, 2003, Senate Republican Policy Committee, by Eric Schlecht, President Bush's Economic Growth Plan Benefits All Americans Today and Into the Future
http://www.freedomandprosperity.org/rpc1.pdf

 

11) IPI: Another Look at the Kennedy Tax Cuts -- What Can We Learn from the Tax Policy of the 1960s?

This Issue Brief shows the impact of the Kennedy tax cuts of the 1960s on getting the economy stimulated. It is relevant to this issue because it points out that business tax cuts came FIRST with Kennedy, 2 years before individual tax cuts. While today's politicians always want to do personal tax cuts first, and then maybe get around to business tax cuts later, Kennedy recognized the importance of business tax cuts to actually stimulate economic activity, and did them first. There was an 8.3% cut in corporate tax rate in 1964, which lowered production costs.

September 20, 1996, Institute for Policy Innovation, by Gary Robbins, Aldona Robbins, Another Look at the Kennedy Tax Cuts -- What Can We Learn from the Tax Policy of the 1960s?
http://www.ipi.org/ipi/IPIPublications.nsf/4E3087E6CE3D8BE6862567D8006FD628/363CF B8A1341EEE8862567ED00211438?OpenDocument

 

12) The Lighthouse:  The Case for Tax Cuts

The following is from The Lighthouse, a weekly e-mail newsletter of The Independent Institute.

President Bush has spent much effort rallying Congress to support him on Iraq instead of tackling the domestic economy. President Bush's time would be well spent were he to push Congress for tax cuts to revive an economy that has been stuck in the doldrums for months, argues Paul Craig Roberts, research fellow at the Independent Institute.

Those worried that a tax cut would raise the deficit and interest rates -- and thereby nullify the intended expansionary effect of a tax cut -- could breath a sign of relief, according to the supply side economist and former Treasury Department official, in a recent op-ed.

"When an economy is dragging, deficits have no impact on interest rates," Roberts writes. "In a booming economy with supply constraints and no foreign lenders, government deficits compete with other financing and can cause a rise in interest rates.

See

"Whither the Economy?" by Paul Craig Roberts (10/12/02)
http://www.independent.org/tii/lighthouse/LHLink4-42-1.html

"Stalled Engines of Economic Growth," by Paul Craig Roberts (10/16/02)
http://www.independent.org/tii/lighthouse/LHLink4-42-2.html

For an analysis of the supply-side tax cuts of the Reagan era, see the two articles, "What Really Happened in 1981," by Alan Reynolds and by Paul Craig Roberts (THE INDEPENDENT REVIEW, Fall 2000)
http://www.independent.org/tii/content/pubs/review/tir52_reyn.html

[Source: October 21, 2002, The Lighthouse, "Enlightening Ideas for Public Policy...," Vol. 4, Issue 42, http://www.independent.org/tii/lighthouse/Lighthouse.html]

 

13) Brough:  A Brotherhood of Taxes

[Excerpt:]
Starting with a warmed-over Clinton-era tax proposal, the Internal Revenue Service is gearing up a regulation that would threaten financial privacy, further the goals of an international tax cartel, and deal a blow to the U.S. economy, all in one fell swoop. The proposal, which is unnecessary for U.S. tax policy, expands the operational requirements of the IRS even as it scrambles to ensure compliance with the overly complex and inefficient federal tax code.

The proposal first saw the light of day back in January 2001, part of a flurry of "midnight regulations" rushed out the door by agency heads one step ahead of President Clinton's departure. Issued by the Department of Treasury, the IRS proposal sought to establish "guidance on reporting of deposit interest paid to nonresident aliens." More simply stated, the proposal would require U.S. banks and financial institutions to report interest paid to foreigners on deposits they keep in U.S. institutions. Interestingly, this information would do little to assist the IRS do its job—the interest payments are not considered taxable income here in the United States. [Link to full article below:]

October 30, 2002, Citizens for a Sound Economy, by Wayne Brough, A Brotherhood of Taxes: The Internal Revenue Service is gearing up a regulation that would threaten financial privacy, further the goals of an international tax cartel, and deal a blow to the U.S. economy, all in one fell swoop.
http://www.cse.org/informed/issues_template.php/1155.htm

 

14) Kleinfeld: Beware the new IRS!

The United States Internal Revenue Service is reorganising and, once again, reinventing itself anew. To be fair, when talking about tax, it is always easy to blame the IRS. However, the real tax villain is not the IRS but Congress and the President. Congress and the President have victimised both the IRS and the taxpayers with a tax code that cannot be administered nor complied with. Many, if not most, of the abuses and intrusive actions of the IRS are the natural consequences of the Byzantine complexity of the tax code itself. Between being burdened with a draconian tax law and a flawed reorganisation, clearly the IRS is an agency in trouble. Which means trouble for the taxpayers as well.

Although Congress is putting more pressure on the Internal Revenue Service to collect taxes, it is clear that tax politics and the tax policy are not aligned. New IRS data makes it difficult for the politicians to claim that the rich are not paying their fair share of taxes. According to the latest released figures, the top 1% of taxpayers ranked by income now pay 37.4% of all federal income taxes. The top 5% now pay more than half of all taxes, while the top 10% pay more than two thirds of all the income taxes in the United States of America. The bottom 50% pay just 3.9% of all federal income taxes. With the pressure to collect tax from such a small percentage of the people, the idea of a kinder and gentler IRS is no longer feasible.

The political importance of this is that a large number of Americans have no stake in the outcome of elections. Since such a large number of potential voters bear none of the cost of government, but nonetheless get all of the benefits, it is not really important to them who wins.

January 2003, by Denis A. Kleinfeld, The Kleinfeld Law Firm, Beware the new IRS!
http://www.offshoreinvestment.com/current_issue/letter_miami/main.html

 

15) Tax Competition is Alive and Well . . . Even for Left-Wingers like Ted Turner

[Excerpt]
"Turner, the TV mogul who called his apartment atop the CNN Center in Atlanta his official home, now lists his legal residence as his 25,000-acre Avalon Plantation outside of Tallahassee, spokeswoman Maura Donlan said Thursday."

". . . Turner's accountants had urged him for years to list Florida, which has no state income tax, as his residence, but he resisted because of his connections to Atlanta as founder of Turner Broadcasting and CNN, Donlan said." [Link to full article below:]

January 30, 2003, The Associated Press, Ted Turner Now a Floridian
http://ap.tbo.com/ap/florida/MGABI9CDLBD.html

 

16) CF&P Clips

February 3, 2003, BusinessWeek Online, By Pete Engardio, Aaron Bernstein, and Manjeet Kripalani, The New Global Job Shift
http://www.businessweek.com/magazine/content/03_05/b3818001.htm

January 30, 2003, The Moscow Times.com, By Robert Skidelsky and Pavel Erochkine, The Debate Over Capital Flight
http://www.themoscowtimes.com/stories/2003/01/30/006.html

January 29, 2003, The Peninsula (Qatar), Gold smuggling still rife: Seminar
http://www.thepeninsulaqatar.com/Display_news.asp?section=Local_News&subsection =Qatar+News&month=January2003&file=Local_News20030129308.xml

January 26, 2003, Reuters, By Kristin Roberts, Intl bankers struggle to unravel Patriot Act rules
http://www.reuters.com/financeNewsArticle.jhtml?type=governmentFilingsNews&storyI D=2111679

January 24, 2003, Reuters, US, Switzerland ink pact on tax info exchange
http://www.forbes.com/markets/newswire/2003/01/24/rtr858643.html

January 15, 2003, The Telegraph (London), By Ambrose Evans-Pritchard, Red tape and low funding 'has Europe trailing US'
http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2003/01/15/weu15.xml&sSheet=/ news/2003/01/15/ixworld.html

January 21, 2003, Tax-News.com, The IRS's Credit Card 'Amnesty' Program Explained
http://www.tax-news.com/asp/story/story.asp?storyname=10580

January 14, 2003, The Miami Herald, by Leigh Strope, IRS Offers Foreign Credit Card Amnesty
http://www.miami.com/mld/miamiherald/news/politics/4938601.htm

January 13, 2003, Tech Central Station, by Hans Labohm, Eliminating 'Eurosclerosis'
http://www.techcentralstation.be/2051/wrapper.jsp?PID=2051-100&CID=2051-011303N

January 9, 2003, OffshoreOn.com, Tax Reform or Anti-Tax Haven Legislation? The Political Dilemma
http://www.offshoreon.com/articles/3936.asp?docid=3936

December 12, 2002, The Economist, The needle in the haystack
http://www.economist.com/displayStory.cfm?Story_ID=1492146

 

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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