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CFP Weekly Update, February 22, 2002

Center for Freedom and Prosperity's Weekly Update

1) Larry Craig Joins other Senate Republican Leaders in Opposition to EU, UN, & OECD Tax Schemes

2) House Government Reform Committee Chairman Dan Burton Urges Vigorous Opposition to Information Exchange Schemes

3) House Small Business Committee Chairman Don Manzullo Says the UN's Tax Scheme is "…a Threat to America's Economic Interests."

4) CFP Strategic Memorandum: The OECD February 28 Deadline

5) Bush Administration Endorse Competition between Nations…the U.S. is the "engine of economic growth for the rest of the world"

6) Mitchell:  Low-tax regimes like Bermuda may be threatened by moves towards global fiscal harmonization

7) Cato Conference: Trade War or Tax Reform? The WTO Ruling on Tax Breaks for U.S. Exporters

8) Capitalism Blessings versus Socialisms Misery

9) Ireland should defy the European Commission

10) Gilbert Morris on the history of the development of tax planning techniques and current trends to limit and compromise their use

11) How did we get into this mess? When in a hole, stop digging! What next?

12) CFP Clips
 

1) Larry Craig Joins other Senate Republican Leaders in Opposition to EU, UN, & OECD Tax Schemes

Senator Larry Craig, Chairman of the Senate Republican Policy Committee, joins Senate Republican Assistant Minority Leader Don Nickles and Senate Republican Conference Chairman Rick Santorum in his Opposition to Tax Harmonization and in Favor of Tax Competition

[Excerpt from letter]
"The OECD, UN, and EU initiatives are completely misguided, seeking to change the rules of worldwide commerce and taxation for the benefit of fiscally uncompetitive nations. These bureaucracies even support tax harmonization policies such as information exchange that would enable foreign governments to tax income earned in America. Tax harmonization also represents bad tax policy. It is completely inconsistent with fundamental tax reform. It is based on worldwide taxation instead of territorial taxation, and it presumes that tax codes should be biased against income that is saved and invested."

Below is a link to the complete letter:
http://www.freedomandprosperity.org/ltr/craig/craig.shtml

 

2) House Government Reform Committee Chairman Dan Burton Urges Vigorous Opposition to Information Exchange Schemes

Indiana Congressman Dan Burton, who is the Chairman of the House's Government Reform Committee and serves on the House International Relations Committee, urges Treasury Secretary Paul O'Neill to continue his opposition to Tax harmonization programs pushed by the European Union and the Organization for Economic Cooperation and Development.

[Excerpt from letter]
"As a long-standing Member of the Committee on International Relations, I believe that the United States benefits from tax competition. Compared to other industrialized nations, our aggregate tax burden is low, and our tax and privacy laws for foreign investors have helped attract trillions of dollars to the U.S. economy. It would be counter-productive to undermine the recent tax cuts and economic reforms that have been initiated by President Bush and passed by Congress, especially given that the economy is now recovering from the weakness that began with the previous administration.

"Furthermore, I disagree with the notion that fiscal competition between nations is "harmful." Tax competition has proven to be a liberalizing force in the global economy. Its "invisible hand" rewards nations for being fiscally responsible and penalizes governments that impose oppressive tax regimes."

Below is a link to the complete letter:
http://www.freedomandprosperity.org/ltr/burton/burton.shtml

 

3) House Small Business Committee Chairman Don Manzullo Says the UN's Tax Scheme is "…a Threat to America's Economic Interests."

Rep. Don Manzullo (R-IL), Chairman of the House of Representatives' Small Business Committee and Member of the House's Financial Services Committee asks Treasury Secretary Paul O'Neill to clarify the US's position on the United Nations conference on "Financing for Development" to be held in Mexico in March.

Chairman Manzullo asks the Secretary to answer three questions (summary of questions below).

1) Can you give me a firm commitment that the Treasury Department will oppose the International Tax Organization?

2) Can you give me a firm commitment that the Treasury Department will oppose currency and carbon taxes?

3) Can you give me a firm commitment that the Treasury Department will oppose any scheme that would make it easier for other governments to tax U.S.-source income?

Rep. Manzullo concludes by stating, "It appears that the United Nations is hostile to tax competition and therefore allying itself with high-tax European welfare states. This is unfortunate, particularly since attractive fiscal policies are an effective strategy to boost economic development. To protect America's competitive advantage in the global economy – and also to promote sound economic policy in poorer nations, I urge you to vigorously resist all forms of tax harmonization."

Below is a link to the complete letter:
http://www.freedomandprosperity.org/ltr/manzullo2/manzullo2.shtml

 

4) CFP Strategic Memorandum: The OECD February 28 Deadline

CFP's Strategic Memorandum written by Dan Mitchell and sent to low-tax jurisdictions puts the OECD February 28 deadline in perspective. The following is an excerpt:

"Less than two years ago, the Organization for Economic Cooperation and Development was an immense threat to taxpayers in general and low-tax jurisdictions in particular. The Paris-based bureaucracy was aggressively moving forward with its so-called "harmful tax competition" initiative, and it was widely expected that blacklisted jurisdictions would surrender their fiscal sovereignty by the OECD's self-imposed deadline.

Fortunately, the world has changed. Thanks to strong opposition in the United States and the election of a market-oriented President, the OECD was forced to substantially narrow its imperialist agenda. The "line-in-the-sand" deadline has been delayed two times. Perhaps most importantly, key OECD member governments clearly are much less committed to organization's assault on low-tax jurisdictions.

"But what happens now? The OECD's latest deadline is quickly approaching, and many jurisdictions have to make a choice. There are five powerful reasons why low-tax jurisdictions should not surrender. . ."

1) The OECD is a paper tiger; 2) The real deadline is 2003; 3) United you stand, divided you fall; 4) Sauce for the goose is sauce for the gander; and, 5) Appeasement will breed more attacks. 

These points are discussed in greater detail in the complete memo linked below:
http://www.freedomandprosperity.org/memos/m02-18-02/m02-18-02.shtml

 

5) Bush Administration Endorse Competition between Nations…the U.S. is the "engine of economic growth for the rest of the world"

Vice President Dick Cheney Speaking at the Council on Foreign Relations on Friday, February 15, 2002 said:

"…For the United States, every advance for global trade is an opportunity to expand an already great economy, and include more of our people in the nation's prosperity.  Our country is still the engine of economic growth for the rest of the world.  Fortunately, for all the impediments to growth in the United States, we've managed to resist the more extreme regulatory impulses seen in Western Europe.  The OECD has looked into the reason why productivity growth is consistently higher in the U.S. than in Western Europe.  The answer, in part, lies in our higher level of job mobility and entrepreneurship, a well-developed market for venture capital, and quicker resolution of bankruptcies.  The European Commission itself recognizes this, reporting last fall that 'Structural rigidities continue to sap the resilience and the potential growth of the euro area economy.'

"The U.S. economy, on the other hand, remains a model of flexibility, having the capacity to generate new and higher-paying jobs. And just as we stand to gain a great deal from wider trade, so do our trading partners – especially the less developed nations…"

 

6) Mitchell: Low-tax regimes like Bermuda may be threatened by moves towards global fiscal harmonization

"There is good news and bad news for reinsurance companies based in low-tax jurisdictions like Bermuda. The good news is that a Republican White House and a Republican-controlled House of Representatives should make it difficult for protection-minded lawmakers to enact legislation {such as the Johnson-Neal Bill) that would undermine com-petition from foreign-based companies. There also may be a tiny silver lining to September 11 's dark cloud since policymakers probably now understand the importance of a vibrant and heal-thy reinsurance market and are therefore unlikely to take steps that could undermine the industry and increase business costs.

"The bad news is that the spectre of tax harmonisation has not disappeared. Many Treasury and Finance Ministry bureaucrats around the world genuinely believe tax competition is bad for global welfare. This view is widely held in Europe, but also has a surprising number of adherents in the. United States. The people holding this view believe that workers, investors, and entrepreneurs should base their decisions on pre-tax rather than post-tax rates of return. But because people in the real world do not behave according to this odd theory, tax bureaucrats want to harmonise tax systems -either explicitly, by fixing tax rates, or implicitly, by information exchange." Link below to a PDF version of the article:

February 2002, The Worldwide Reinsurance Review, by Dan Mitchell, Outside the Jurisdiction
http://www.freedomandprosperity.org/Articles/mitchell2.pdf

 

7) Cato Conference: Trade War or Tax Reform? The WTO Ruling on Tax Breaks for U.S. Exporters

The following is the link to the audio recording of the Cato Policy Forum: Trade War or Tax Reform?: The WTO Ruling on Tax Breaks for U.S. Exporters.  Please pay special attention to Rep. Phil Crane's comments (Start approx. 20 minutes in to the conference and pay special notice to his comments around 31:30 into the file).

Audio link to conference:
http://www.cato.org/realaudio/cpfa-02-13-02.ram

 

8) Capitalism Blessings versus Socialisms Misery

Winston Churchill once said, "The inherent vice of capitalism is the unequal sharing of the blessings. The inherent virtue of socialism is the equal sharing of the misery."

A study written last year by the National Bureau of Economic Research discusses the reason why American seem to be more "happy" and why Europeans are miserable and seem to rely on government to help solve there problems. Please see the abstract below and follow the instructions to get a copy of the report.

April 2001, NBER Working Paper No.w8198, "Inequality and Happiness: Are Europeans and Americans Different?" by Alberto Alesina, Rafael Di Tella, Robert MacCulloch
http://papers.nber.org/papers/w8198

 

9) Ireland should defy the European Commission

Below is an excerpt and link to a year-old article that recently came to our attention. It appeared in the Irish Independent written by three Heritage Foundation scholars -- John Hulsman, Bob Moffit, and Denise Froning.

"LAST month, the European Commission criticised Ireland's budget, urging it to adopt less expansionary economic policies. It was the first time the Commission has used its powers to intervene in a member state's fiscal affairs. As, due to Ireland's membership in the euro, Brussels already controls Irish macroeconomic policy, such an intrusion in Irish microeconomic policy, if allowed to stand, would make it little more than a region of an emerging European super-state.

"Why should Ireland, one of the great global economic success stories, surrender meekly to the museum of socialism in Brussels? As Tanaiste Mary Harney has put it, "Its amazing that our EU partners would want to punish the most successful economy in Europe. They really ought to be thinking of ways to emulate our approach, not to stifle it."

"While mainland Europe struggled throughout most of the 1990s, Ireland (between 1995-2001) attracted nearly half of all new North American investment in Western Europe. Ireland is sitting on the EU's largest budget surplus and the second lowest debt ratio. In such circumstances, Finance Minister Charlie McCreevy has argued that it is unrealistic to tighten fiscal policy as the EU demands, especially as individual Irish tax rates are still on average higher than their EU partners…."

The following is a link to the full article:
http://www.unison.ie/irish_independent/stories.php3?ca=36&si=372942&issue_id=399 3

 

10) Gilbert Morris on the history of the development of tax planning techniques and current trends to limit and compromise their use

[Excerpt from Tax-News.com article]
Dr Gilbert Morris, Executive Director of the Bahamas' Nassau Institute recently held a workshop at which he addressed the threats to the Bahamas' financial sector from the recently-signed US/Bahamas Tax Information Exchange Agreement and other international legislative developments.

Under the title 'The Diplomatic Opportunities and Strategic Possibilities In Neutralizing the Effects of Cross Border Financial Services Regulations', Dr Morris addressed the history of the development of legitimate tax avoidance techniques and current trends to limit and compromise their use.

Link to full article below:

February 21, 2002, Tax-News.com, by Mike Godfrey, Nassau Institute Examines Threats To Bahamas Financial Sector
http://www.tax-news.com/asp/story/story.asp?storyname=7392

 

11) How did we get into this mess? When in a hole, stop digging! What next?

Below is a link to Anton Keller's remarks delivered at the The Nassau Institute's Workshop on "Bermuda's Tax Information Exchange Agreement (TIEA)" on 15 February 2002:

"After the events of September 11, people get more used than ever to play to the tune of the latter-day Piper of Hamlet. I emphasize: more than ever. For the drive to get lex americana universalis adopted world-wide is all but new: in fact it has been with us already for several decades. But those who early on rung the alarm against this kind of legal, economic and political aggression where up against gullible but powerful forces - mostly in their own camps. So it may be in order to take a look back and seek inspiration from past events and failures to properly and timely respond to benign-sounding yet real challenges to such time-tested principles as fiscal sovereignty, tax competition and financial privacy…."  Link to full comments below:

February 15, 2002, The Nassau Institute's Workshop on "Bermuda's Tax Information Exchange Agreement (TIEA), Anton Keller, How did we get into this mess?  When in a hole, stop digging! What next?
http://www.solami.com/15February.htm

 

12) CFP Clips

February 13, 2002, Tax-News.com, Leading Republican Senator Warns O'Neill Against EU Tax Directive
http://www.tax-news.com/asp/story/story.asp?storyname=7280

February 11, 2002, U.S. New and World Report, By Paul Bedard, Washington Whispers (see section titled "Bank Run"
http://www.usnews.com/usnews/issue/020211/whispers/11whisplead.htm

February 5, 2002, Tax-News.com, by Mike Godfrey, Offshore Havens Fear Enron Backlash
http://www.tax-news.com/asp/story/story.asp?storyname=7195

February 4, 2002, Tax-News.com, by Mike Godfrey, US Senator Queries UN Tax Organisation Plan,
http://www.tax-news.com/asp/story/story.asp?storyname=7181

December 2001, European Journal (www.europeanfoundation.org), by Katherine Fennell, Will the Channel Islands Survive?
http://www.freedomandprosperity.org/Articles/fennell.pdf

July 23, 2001, Business Week, If You're Wealthy, by William Echikson, This Must Be Belgium: The country's unique mix of taxes is attracting Europe's rich
http://www.businessweek.com/magazine/content/01_30/b3742148.htm

 

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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