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CFP Weekly Update, March 14, 2002

Center for Freedom and Prosperity's Weekly Update

1) Senator George Allen urges Bush Administration to protect "American principles of competition and free and open markets"

2) CFP on Fiscal Protectionism and the Need for Territorial Taxation

3) UPDATE:  UN Tax Grab Meeting in Monterrey, Mexico

4) US government moving toward territorial taxation...

5) An Example of Left-Wing Hysteria … Is anyone surprised?

6) WSJ: That Beautiful Curve . . . Will Europe ever learn?

7) Chirac endorses fiscal harmonization

8) Dan Mitchell Warns Administration is on Wrong Track With FSC Negotiations

9) Ireland resists Europe's attempt at harmonizing taxes

10) National Post: In praise of the unknown tax evader

11) European Journal: The EU's Plans for Harmonising Corporation Tax

12) NPR: Delaware & Enron


1) Senator George Allen urges Bush Administration to protect "American principles of competition and free and open markets"

Senator George Allen from Virginia is a member of the Senate Commerce, Science, and Transportation Committee and Senate Foreign Relations Committee. A former governor of Virginia, Senator Allen urges Treasury Secretary Paul O'Neill "to reject any tax harmonization plan or any other proposal that contradicts the American principles of competition and free and open markets."  He also warns of the UN's planned tax grab, "While tax harmonization is one of the proposals that most concerns me, I am also concerned about the possibility of the creation of an International Tax Organization, the imposition of global taxes, allowing governments to permanently tax emigrants, and the idea of 'information exchange.'  The only entities to benefit from these proposals are high-tax, anti-competitive governments."

Link to complete letter below:


2) CFP on Fiscal Protectionism and the Need for Territorial Taxation

[Press Release]

Tax Reform, not Fiscal Protectionism, is the Right Response to Corporate Flight: CFP Reiterates Call for Territorial Taxation

Washington (March 12, 2002) – The Center for Freedom and Prosperity, the nation's leader in the fight for international tax competition, announced today that it will vigorously resist all legislation to restrict the freedom of companies to locate in jurisdictions that have more attractive tax and regulatory environments. Andrew Quinlan, President of the Center, remarked, "Fiscal protectionism is bad policy, and the Center for Freedom and Prosperity will oppose and work vigorously to defeat any legislation introduced to stifle tax competition. Tax competition is a liberalizing force in the world economy. It should be celebrated to persecuted."  Quinlan explained that, "High-tax California should not be allowed to stop companies from moving to low-tax Nevada, and Washington politicians likewise should not be able to stop companies from escaping bad U.S. tax law." [Link to complete press release:]

March 12, 2002, CFP Press Release, Tax Reform, not Fiscal Protectionism, is the Right Response to Corporate Flight: CFP Reiterates Call for Territorial Taxation

News Clip:

March 13, 2002,, US Congress Threatens Emigre Companies


3) UPDATE: UN Tax Grab Meeting in Monterrey, Mexico

Next week, March 18-22, the UN will be holding its international conference on "Financing for Development."  UN bureaucrats are meeting to figure out how to separate more taxes from the developed world and they plan to discuss the creation of an International Tax Organization. 

Several of our colleagues from our Tax Competition Coalition will be attending the conference and reporting back to CFP when news warrants. Unfortunately when most international bureaucrats get together, they need parental oversight.  CFP and our friends will work hard to shed the light of truth on their shenanigans. 

Below is a little background on the UN tax scheme:

The UN issued a report attacking tax competition and fiscal sovereignty last summer (link to report below).

The UN report discussed four dangerous ideas:

  • Create a massive "International Tax Organization" with the power to dictate global taxation.
  • Levy a world-wide energy tax that will cost you more for using coal, oil and gasoline.
  • Give foreign governments the power to tax American Income.
  • Hand over private financial information to U.N. member governments.

In the last few weeks, several Members of Congress have warned the Bush Administration about the UN's radical proposals, including Senator Bob Smith, Senator Larry Craig, Congressman Don Manzullo and Congressman Ron Paul.

Check back here in the near future to read reports on the conference.  CFP pledges to keep an eye on the UN tax grab and we plan on vigorously fighting any scheme to collect global taxes.

Links to More Information:

U.N. tax police potential

A one-world taxing authority?

Fox-News report: Critics Slam Proposed U.N. Tax Authority,2933,42529,00.html

CFP Report on the UN's Tax Grab:

CFP's Stop the UN Tax Grab web page:

United Nations Seeks $70 Billion Handout From U.S. Taxpayers

UN Report:

Link to UN Conference in Mexico:


4) US government moving toward territorial taxation...

The recent tax bill signed by President Bush included language that moved the U.S. closer to a territorial tax system for overseas earnings.  Excerpt below from the American Banker reprinted in the Financial Times.


Of greatest interest to financial services firms is a five-year extension in the measure of an exemption for them from U.S. taxes on overseas earnings that are taxed by foreign governments. That exemption expired Dec. 31 and will be renewed retroactively.

Though industry officials initially lobbied to make the exemption permanent, they are pleased with the five-year extension because it gives them more continuity for pricing long-term deals.

"Five years is very good," said Edward L. Yingling, the executive director of government relations for the American Bankers Association. "We had been concerned it may have been be a one-year extension." [Link to full article below:]

March 11, 2002, Financial Times, Bush Gets Bill with Tax Break for Banks (American Banker – USA)


5) An Example of Left-Wing Hysteria … Is anyone surprised?

Liberal California Congressman George Miller goes after corporations leaving the country in a speech on the House floor last week.  Please see CFP's press release above for a more rational discussion on this issue.  I would also like to point out that these corporations will be paying U.S. taxes on their U.S. profits, their employees in the U.S. will be paying payroll taxes and income taxes to the IRS, their U.S. subsidiaries will be paying real estate taxes and other taxes, and their U.S. shareholders will be paying more in capital gains taxes after they sell there stock that is worth more. Mr. Miller and others, instead of making bombastic statements, should ask these companies why they are leaving. And after they find out the reason, Congress should pass laws that make U.S. corporations more competitive, not punish them for doing what is best for their investors. Please see Mr. Miller's comments below:

(Mr. GEORGE MILLER of California asked and was given permission to address the House for 1 minute and to revise and extend his remarks.)

Mr. GEORGE MILLER of California. Mr. Speaker, America goes to war against terrorism. America's fighting men and women are put in harm's way. American soldiers lose their lives. And American corporations go to Bermuda. At a time of national emergency, accountants are writing advice to their corporations saying that maybe patriotism will have to take a back seat in the opportunity to maximize their profits by avoiding American taxes on their corporation by taking up illegal residence on the island of Bermuda.

With the Republican tax cuts to the wealthy, the burden of paying for this war is falling more and more on middle-class and lower-income Americans. More and more this war is being fought out of the Social Security trust fund that is paid more and more by middle-class and lower-income Americans, but American corporations decide that they will escape any liability, any responsibility for the payment of America's efforts against terrorism by going to Bermuda and taking a tax holiday.

[SOURCE: March 6, 2002, Congressional Record, Page: H691]


6) WSJ:  That Beautiful Curve . . . Will Europe ever learn?

[WSJ Excerpt]

"The Laffer Curve might not mean much to many people in the art world, but dealers and buyers sure understand economic incentives when they see them. A report last week said the United States overtook Europe's share the world art market last year, 47% to 45%, with a seven percentage-point increase since 1998, the year before the EU began in earnest its campaign to cripple the European art market through bureaucratic red tape and taxes.

"Britain, the leading European market since France killed its own with taxes decades ago, saw its share plunge to 25% from 30% in 1999 as a result of an EU-mandated doubling of Britain's value-added tax on art sales. And this is well in advance of the 2006 EU-mandated introduction of the droit de suite, which will give artists and their heirs a percentage of the take each time a work is resold for up to 70 years after the artist's death." . . .

. . .  "The Laffer Curve was something like the law of diminishing returns, but applied to taxation. In essence, it argued that as tax rates rise, the incentives for tax avoidance rise as well. People seek ways to get their money out of the country or into investments that won't be taxed. At some point on the upward tax trajectory, revenues start going down, instead of up, as you might expect.

"On savings-tax harmonization as well as art, the EU has long been in denial on this point. When the EU bullied Britain into raising its VAT and adopting the droit de suite, Brussels insisted that it would not have a detrimental effect on the U.K.'s competitiveness. It's now clear that this optimism was unjustified, and sure enough jobs are being lost as one storied London art house after another shutters its doors or moves to Manhattan.

"Brussels can expect its savings-tax measure to have a similar effect on London's bond market, which is a market leader now, but may well go the way of its art market if the EU has its way.

"Some in Europe may be vacillating when it comes to the war on terrorism. But at least the EU is doing its bit for the New York economy."

[SOURCE: March 12, 2002, The Wall Street Journal, Review & Outlook: That Beautiful Curve,]

News Clip:

March 8, 2002, News.Telegraph.Co.Uk, By Will Bennett in Maastricht, Red tape and taxes cost Europe lead in art market;$sessionid$OPDVUMAAAADKPQFIQMG SFF4AVCBQWIV0?xml=/news/2002/03/08/wart08.xml&sSheet=/portal/2002/03/08/por_rig ht.html


7) Chirac endorses fiscal harmonization

From newsletter:


In terms of economic policy, [Jacques Chirac] called for "genuine fiscal harmonisation in Europe", saying that "in an open, competitive Europe with a common currency, it is damaging for the French to always be taxed more than everyone else" (Le Monde, 7 March). Any harmonisation of taxes within the Eurozone is likely to mean higher taxes for Britain. [See link below for full newsletter:]

Main events: 1 March - 7 March 2002,


8) Dan Mitchell Warns Administration is on Wrong Track With FSC Negotiations.

[Excerpt from White House Bulletin]

In January, the WTO issued its final ruling on the US FSC (foreign sales corporations) tax system, which found that in relieving the tax burden on export-oriented corporations, the US was engaged in an illegal export subsidy subject to retaliatory tariffs in the range of $4 billion. The US has claimed that this estimate is grossly inflated, putting possible damages at approximately $1 billion.

Dan Mitchell, McKenna Senior Fellow in Political Economy at the Heritage Foundation, warns the administration against centering its efforts around the debate over possible damages or the formulation of further retaliatory measures. According to Mitchell, the administration "is fighting over the size of the remedies - is it $4 billion or is it $1 billion - it could very well be that the US could win that but only by providing a roadmap for other countries to go after us. Because the US is, in effect, saying that the EU's share of this is only $1 billion, we owe other countries the other $3 billion." Which, says Mitchell, would be an encouragement to other countries to bring cases against the US. Mitchell contends, "The best strategy by far would be to junk our worldwide corporate tax system and switch to a territorial tax system. If we go to a territorial system" the US will be "completely WTO compliant." According to Mitchell, such a switch would work towards solving another tax problem much noted of late, the expatriation of US corporations to places such as Bermuda or the Cayman islands in order to avoid burdensome taxes on their offshore revenue. "The only reason they are doing that is to get out from our worldwide corporate tax system," says Mitchell. However, implementing such a sweeping change to the US tax code would take at least another year. This being the case, Mitchell says, "At the end of the day the EU will go forward with sanctions" that are likely to "split the difference" somewhere between the $1 billion and $4 billion proposals.

[SOURCE:  March 11, 2002, White House Bulletin, Trade Analyst Warns Administration Is On Wrong Track With FSC Negotiations,]


9) Ireland resists Europe's attempt at harmonizing taxes

From Open Republic's Policy Watch newsletter:


'What we need to Europeanise is everything to do with economic and financial policy. In this area we need much more - let's call it co-ordination and co-operation to soothe British feelings - than we had before. That hangs together with the success of the euro.' So said German Chancellor, Mr Gerhard Schröder. Why he thinks use of the words 'co-ordination and co-operation' will sooth British feelings is a mystery.

The Tánaiste, Ms Harney, meanwhile has said Ireland will never agree to tax harmonisation in the EU, 'We do not propose to compromise or qualify that position in any forthcoming treaty or negotiation.' she said.

She added 'The rate of unemployment stands at 9 per cent in France and Italy. It stands at 10 per cent in Germany, at 11 per cent in Belgium and at 13 per cent in Spain. And the main reason that unemployment is high in Europe is that over-taxation and over-regulation are preventing the countries of Europe and the people of Europe from achieving their full potential.'

The French and German governments are terrified that new East-European EU members will follow Ireland's example and not theirs and hence they would like 'harmonisation' to levels closer to their own before the floodgates open. [Link below no get a complete copy of this newsletter:]

Open Republic, Policy Watch newsletter,


10) National Post: In praise of the unknown tax evader

Independent Institute research fellow Pierre Lemieux argued that tax evasion is a public service. "All taxpayers benefit from the existence of the Underground Economy, as it tempers the government's ability to milk the economy even more."


In this perspective, revenues drive expenditures, not the inverse. The more income the state gets, the more priorities it will find to justify its spending, regardless of what is really economical. It follows that tax evasion and the underground economy, by drying up the source of funds, constitute a built-in restraint to state growth. Harold Demsetz, another Nobel prize-winning economist, writes: "As the relative size of government sector grows, so do the unrecorded sizes of the hidden private sectors that operate beyond the reach of tax authorities. ... making the size of [the government sector] difficult to push much beyond 45% in a democracy."

. . . Consequently, tax evasion represents a net benefit to everybody, tax evader or not. Confiscatory taxes corner taxpayers into the sort of peaceful self-defence called tax evasion. Tax evasion, and its twin sister, the underground economy, are a second-best to what would otherwise be an even more interventionist state. Without the threat of the underground economy, all taxpayers would be milked, and regulated, more. A statue should be erected to the unknown tax evader. [Link to full story below:]


11) European Journal: The EU's Plans for Harmonising Corporation Tax


The European Commission (EC) has recently published its plans for harmonising company tax across the EU. The heart of this stage of planning is to standardise the base of the tax, reliefs and rules of computation. The EC points out that companies in the EU are obliged to comply with as many as 15 different sets of corporation tax rules, and that taxation on what it regards as similar activities varies by up to 30 percentage points. It regards this as unacceptable for companies which are based in more than one EU member state, and it considers that this variety of company tax regimes inhibits the unification of the EU's Internal Market. Since the establishment of this Internal Market is a vital objective of the Commission, anything which stands in its way must be removed: "company taxation must become an instrument for achieving the European Union's goals ." [Link to full article below:]

January/February 2002, European Journal, by Christopher J. K. Arkell, The EU's Plans for Harmonising Corporation Tax


12) NPR: Delaware & Enron

National Public Radio reports on the State of Delaware's incorporation laws. This is a fascinating story for those who somehow think that Caribbean jurisdictions somehow deserve the blame for Enron's corporate fraud.

Below is a Realaudio recording of the radio story.

March 7, 2002, National Public Radio, by Brian Naylor, Delaware & Enron


Best regards,

Andrew Quinlan
Center for Freedom and Prosperity
208-728-9639 (efax)


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