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CFP Weekly Update, April 17, 2002

Center For Freedom and Prosperity's Weekly Update

1) Washington Update -- Making Bad Tax Law Even Worse

2) 46 Lawmakers Urge Withdrawal of Clinton-Era IRS Regulation

3) Cato Paper: International Tax Competition -- A 21st-Century Restraint on Gov't

4) Quinlan and Mitchell to Speak in Nassau, The Bahamas, on Tax Competition

5) De Rugy: The Latest IRS Scare Campaign

6) Mitchell:  More snooping from the IRS?

7) De Rugy on the EU Savings Tax Directive in the European Journal

8) WSJ Hits the Nail on the Head: "Offshore Belgium"

9) Omaha World-Herald: U.S. should rebuff calls to end int'l 'tax competition.'

10) Cato's Chris Edwards:  U.S. has the fourth highest corporate income tax rate

11) Singapore: Tax Competition on the Move

12) Mitchell on the WTO's FSC/ETI Decision in the European Journal

13) Gedrich: Monterrey Money Grab Exposed

14) Russian Economic Revolution

15) CFP Clips

 

1) Washington Update -- Making Bad Tax Law Even Worse

Last week, Senators Max Baucus and Charles Grassley unveiled protectionist legislation that would restrict the right of corporations to reincorporate in another country. Last month two House Members introduced similar bills.  All four Members of Congress are trying to make bad tax law even worse. As we stated in a press statement released on March 12, America's "worldwide" system of taxing corporate income is very anti-competitive, causing many companies to give up their U.S. charters and instead become foreign-based companies. This has created a debate. On one side are lawmakers who want to meet the challenge of foreign competition, preferably by junking "worldwide" taxation and instead shifting to a "territorial" system that would only tax companies on their U.S. income. On the other side are politicians who want to preserve "worldwide" taxation and instead impose restrictions on the ability of companies to re-charter in other jurisdictions.

What we said in mid-March is even more true today: "Fiscal protectionism is bad tax 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 not persecuted. In fact, 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."

Over the next several weeks, CFP and other free-market groups who are active in the Coalition for Tax Competition will launch a major education campaign for lawmakers, the media and the American people.

If you would like to get involved, or help out any way you can, in this effort, please respond to this e-mail or call 202-285-0244.

Press Clips:

CFP Press Release:
http://www.freedomandprosperity.org/press/p03-12-02/p03-12-02.shtml

April 12, 2002, Tax-News.com, by Mike Godfrey, US Senate Gets Tough On Tax Avoidance
http://www.tax-news.com/asp/story/story.asp?storyname=7879

April 11, 2002, Financial Times, GLOBAL INVESTING: Uncle Sam upsets the tax shelter game
http://globalarchive.ft.com/globalarchive/article.html?id=020411001801

April 1, 2002, Sarasota Herald-Tribune:  Letter to the Editors, by Earle Wallick, U.S. tax code creates need for corporate shells in Bermuda
http://www.heraldtribune.com/frontpage/story.cfm?ID=65677

March 27. 2002, The Royal Gazette, By Lilla Zuill, 'Bad, bad tax policy' threat looms
http://www.theroyalgazette.com/apps/pbcs.dll/artikkel?SearchID=73094353779171&Avi s=RG&Dato=20020327&Kategori=BUSINESS&Lopenr=103270010&Ref=AR

March 22, 2002, New York Times, By David Cay Johnston, Senators Assail Corporate Use of Bermuda as Tax Shelter
http://www.nytimes.com/2002/03/22/business/22TAX.html

March 21, 2002, Tax-News.com, by Mike Godfrey, Offshore Tax Legislation Likely To Be Passed In US
http://www.tax-news.com/asp/story/story.asp?storyname=7665

March 13, 2002, Tax-News.com, US Congress Threatens Emigre Companies
http://www.tax-news.com/asp/story/story.asp?storyname=7587

 

2) 46 Lawmakers Urge Withdrawal of Clinton-Era IRS Regulation: Accuse IRS of Putting Foreign Tax Collectors Ahead of US Economic Interests

Representative Dave Weldon (R-FL) and Representative Robert Wexler (D-FL) released a bi-partisan letter calling on President George W. Bush to permanently withdraw an Internal Revenue Service proposed regulation that would require US financial institutions to report interest income they pay to nonresident alien account holders. The letter, signed by 46 Members of Congress, explains that the IRS initiative is an abuse of the regulatory process and that the proposal would undermine US financial institutions and weaken the American economy.

"Representatives Weldon and Wexler should be congratulated on their leadership," said Andrew Quinlan President of the Center for Freedom and Prosperity. "This last-minute Clinton-era regulation," Quinlan added, "is not in the best interest of the County, which explains why 99 percent of the public comments and 100 percent of the public statements at the IRS hearing were against the proposed regulation. Moreover, every financial trade association – from those representing small, local credit unions to those representing large money center banks – oppose this regulation." [Link to full CFP Press Release:]
http://www.freedomandprosperity.org/press/p04-09-02/p04-09-02.shtml

Weldon Letter:
http://www.freedomandprosperity.org/ltr/weldon-nra/weldon-nra.shtml

Op-ed from Rep. Dave Weldon on IRS regulation:
http://www.freedomandprosperity.org/Articles/hill04-10-02/hill04-10-02.shtml

 

3) Cato Paper: International Tax Competition -- A 21st-Century Restraint on Government

[Excerpt]
As economic integration increases, individuals and businesses gain greater freedom to take advantage of foreign economic opportunities. That, in turn, increases the sensitivity of investment and location decisions to taxation. Countries feel pressure to reduce tax rates to avoid driving away their tax bases. International "tax competition" is increasing as capital and labor mobility rises.

Most industrial countries have pursued tax reforms to ensure that their economies remain attractive for investment. The average top personal income tax rate in the major industrial countries of the Organization for Economic Cooperation and Development has fallen 20 percentage points since 1980. The average top corporate income tax rate has fallen 6 percentage points in just the past six years.

Rising tax competition has caused governments to also adopt defensive rules to prevent residents and businesses from enjoying lower tax rates abroad. In the United States, such tax rules are hugely complex and affect the ability of U.S. companies to compete in world markets. Other defensive responses to tax competition include proposals to harmonize taxes across countries and to restrict countries from offering tax climates that are too hospitable to foreign investment inflows.

Those defensive responses to tax competition are a dead end. They do nothing to promote economic growth or reform inefficient tax systems. A more constructive response to tax competition would be to learn from foreign reforms and adopt pro-growth tax policies at home. The United States should be a leader but has fallen behind on tax reform. For example, the United States now has one of the highest corporate tax rates among major nations. The chairman of the president's Council of Economic Advisers, Glenn Hubbard, believes that "from an income tax perspective, the United States has become one of the least attractive industrial countries in which to locate the headquarters of a multinational corporation." [Link to full paper below:]
http://www.cato.org/pubs/pas/pa431.pdf

 

4) Quinlan and Mitchell to Speak at Conference on Tax Competition in Nassau, The Bahamas

CFP's President Andrew Quinlan and Heritage Foundation Senior Fellow Dan Mitchell are scheduled to speak at the First Annual Global Conference on Offshore Tax Planning, Compliance and Money Laundering to be held in Nassau, The Bahamas from May 2-4, 2002.

Quinlan looks forward to the conference because "many of the speakers have been very involved in the battle to protect tax competition, financial privacy and fiscal sovereignty."

Dan Mitchell also commented that the conference is an opportunity to hear a balanced debate.

CFP encourages anyone interested in the issues to attend the conference. Below is a link to the Conference's web page.

In addition, both Quinlan and Mitchell are available to meet in private with anyone interested.  Please respond to this e-mail or call 202-285-0244 to set up an appointment while they are in Nassau.

Global Conference on Offshore Tax Planning, Compliance and Money Laundering:
http://www.stu.edu/tax/conference/

Conference Brochure:
http://www.stu.edu/tax/Conference/Conference_Brochure.pdf

 

5) De Rugy: The Latest IRS Scare Campaign

[Excerpt]
Most years, the IRS launches a huge scare-the-taxpayer campaign as April 15 approaches. This time the IRS has decided to target American taxpayers who use credit cards issued by foreign banks, demanding that Visa turn over millions of confidential records.

Is this because it is illegal for Americans to have credit cards issued overseas? No, the IRS admits that this is legal.

Is this because the IRS has proof that these American credit card holders are tax evaders? No, the IRS has no proof of illegal activity.

But the IRS apparently does not care about due process and civil liberties.

The IRS is on a fishing expedition. It is demanding that credit card companies violate the privacy rights of their customers because the IRS thinks that some taxpayers might be using their cards to access money in foreign bank accounts — money that some taxpayers might not be reporting to the IRS.

In other words, the IRS is undermining the Constitution's guarantee that government cannot investigate our private affairs unless it has sufficient evidence to obtain a warrant from a judge. Moreover, the IRS is making a mockery of the Constitution's presumption that people are innocent until proven guilty. [Link to full article below:]

April 10, 2002, FoxNews.com, by Veronique de Rugy, The Latest IRS Scare Campaign
http://www.foxnews.com/story/0,2933,50025,00.html

 

6) Mitchell: More snooping from the IRS?

[Excerpt]
With April 15 just around the corner, anti-IRS sentiment is riding high among taxpayers stuck trying to decipher dozens of incomprehensible tax forms. But, some may ask, does the IRS deserve all this animosity?

Not always. In fact, politicians in Washington deserve much of the blame. They're the ones, after all, who enacted the complicated, loophole-ridden tax laws that the IRS must enforce.

But every so often, the agency does something to justify its wretched reputation. A few years ago, for instance, it was rightfully condemned for launching "lifestyle audits" that gave tax collectors the right to rummage through people's personal possessions to see if they appeared to enjoy a lifestyle above the income reported on their tax returns. The IRS was forced to withdraw this outrageous assault on privacy after numerous complaints.

Unfortunately, the IRS hasn't learned. It is now demanding to examine credit-card records from non-U.S. banks to see how many Americans have foreign accounts. (Its estimate: between 1 million and 2 million.) This despite the fact that the agency admits such "offshore" accounts are legal -- and that such a fishing expedition essentially presumes Americans with these accounts are guilty until proven innocent. [Link to full article in PDF format below:]

April 9, 2002, National Review Online, By Daniel J. Mitchell, Snoop Dogs: The IRS chases Americans with foreign bank accounts.
http://www.nationalreview.com/nrof_comment/comment-mitchell040902.asp

 

7) De Rugy on the EU Savings Tax Directive in the European Journal

[Excerpt]
Because it is increasingly easy for investment funds to cross national borders, politicians must exercise a degree of fiscal discipline to attract jobs, capital, and entrepreneurs instead of losing them to another country. The United States is the world's biggest winner in this process, which is known as 'tax competition'.

America's relatively modest tax burden, combined with privacy laws for foreigners seeking to escape oppressive fiscal systems, has helped attract more that $9 trillion of foreign investment to the US economy. That inflow is a key source of American prosperity because the money is put to work for the nation and produces more jobs, higher standards of living and general prosperity.

Naturally, high-tax nations resent tax competition. Most European politicians, for instance, get upset when their taxpayers shift their money to low-tax jurisdictions like Switzerland and the United States. They even have a plan - the European Union's 'Savings Tax Directive' - that would allow them to impose their burdensome tax rates on income earned in places like America. [Link to full article in PDF format below:]
http://www.freedomandprosperity.org/Articles/derugy.pdf

 

8) WSJ Hits the Nail on the Head with their Editorial entitled "Offshore Belgium"

[Excerpt]
Part of what embarrasses the EU here is that cutting taxes to attract foreign investment inevitably puts a spotlight on the awkward truth that Europe's high taxes limit its attractiveness for foreign investment. The EU reacted similarly when Ireland cut corporate taxes on technology companies in 1990s.

To its credit, Ireland responded by lowering all its corporate taxes, giving the Celtic Tiger more ability to roar. The EU continues to grumble about Ireland's 12.5% corporate tax rate as an example of "fiscal dumping," and now some East European countries, such as Hungary, are coming under pressure not to follow the Irish example as they prepare for EU membership.

What really rankles the EU, of course, is that low-tax countries encourage capital flight from the big taxers that dominate the union. High taxes also divert investment dollars away from Europe's socialist paradises. But as the European Commission's host country has demonstrated, high taxes reward a search for loopholes. Belgium may be an embarrassment to EU mandarins, but it is only doing what comes naturally. [Link to full article below:]
http://www.freedomandprosperity.org/Articles/wsj04-11-02/wsj04-11-02.shtml

 

9) Omaha World-Herald: Don't share the power to tax -- United States should rebuff calls to end international 'tax competition.'

[Excerpt]
It would seem to go without saying that nations, as sovereign entities, should have absolute control over their domestic tax policy. But the United States is under growing pressure from foreign governments to jettison that autonomy as part of a campaign that goes under the innocent-sounding name of "tax harmonization."

The most recent case involves demands from the 15-member European Union that U.S. companies impose a European-style value-added tax whenever Europeans go online to buy goods and services from U.S. companies. The tax revenues would be forwarded to European governments. That demand joins previous calls from the EU that would enable foreign governments to tax the stocks, bonds, personal income and business investment made in the U.S. economy by foreigners and immigrants. Overseas investment in U.S. stocks alone, for example, totaled $ 1.5 trillion during 2000.  [Link to full editorial below:]

April 6, 2002, Omaha World-Herald, Editorial, Don't share the power to tax: United States should rebuff calls to end international 'tax competition.'
http://www.omaha.com/index.php?u_np=0&u_pg=608&u_sid=358785

 

10) Cato's Chris Edwards:  United States has the fourth highest corporate income tax rate

[Excerpt]
KPMG found that the United States has the fourth highest corporate income tax rate in the 30-nation Organisation for Economic Co-operation and Development (OECD). The combined U.S. federal and average state rate of 40 percent is almost 9 percentage points higher than the average OECD top corporate rate of 31.4 percent.

This is a dramatic reversal of the U.S. tax situation. After cutting the federal corporate rate from 46 percent to 34 percent in 1986, policymakers fell asleep at the switch, perhaps assuming that we had claimed a low-tax advantage permanently. But most industrial countries followed the U.S. lead and cut tax rates in the late 1980s. Then another round of tax rate cuts began in the late 1990s, with the result that the average OECD corporate rate fell from 37.6 percent in 1996 to just 31.4 percent by January 2002 (see chart). The average corporate rate in the European Union is now 32.5 percent, down from 38.2 percent in 1996.  [Link to full article below:]

April 4, 2002, Cato Institute, by Chris Edwards, Fourth Highest Corporate Tax Rate Means Time for Reform
http://www.cato.org/dailys/04-04-02.html

 

11) Singapore: Tax Competition on the Move

[Excerpt from Bureau of National Affairs, April 12, 2002, http://pubs.bna.com/]

Hoping to sharpen its competitive edge in Asia, Singapore April 11 proposed sweeping changes to its tax structure, slashing corporate and income taxes by as much as 6 percentage points while hiking consumer taxes to make up for the revenue shortfall.

A tax and wage arm of the Economic Review Committee recommended the government immediately but gradually begin cutting taxes on corporate profits to 20 percent from 24.5 percent, and on the income of Singapore's wealthiest to 20 percent from 26 percent. The ERC subcommittee said the tax cuts would lure foreign investment and talent, boost sluggish economic growth, and bring down the unemployment rate currently at a 15-year high of 4.7 percent."

 "…The new corporate and income tax rates puts Singapore in closer competition with Asian financial hub rival Hong Kong, where businesses pay 16 percent taxes and individuals pay 15 percent. Singapore faces a tough road ahead if it is to staunch the flow of investments to Honk Kong, analysts say, as China's recent entry into the World Trade Organization has raised Hong Kong's attractiveness as a base to tap into the world's most populous market."

Additional Article

April 12, 2002, , Tax-News.com, by Mary Swire, Tax Cut Proposals Unveiled In Singapore
http://www.tax-news.com/asp/story/story.asp?storyname=7875

April 15, 2002, Tax-News.com, by Mary Swire, Hong Kong Government Says It Will Monitor Singapore Tax Changes
http://www.tax-news.com/asp/story/story.asp?storyname=7883

 

12) Mitchell on the WTO's FSC/ETI Decision in the European Journal

[Excerpt]
In a recent decision, the World Trade Organisation (WTO) sided with the EU and ruled that a section of US tax law is an unfair trade subsidy.

According to the Geneva-based institution, America's treatment of corporate income from exports (as governed by ETI – the Extraterritorial Income Exclusion Act) violates trade rules.

In many ways, this is a troubling decision. Most importantly, a dangerous precedent has been established. What happens, for instance, when the French argue that America's low tax rates are an export subsidy? As the Wall Street Journal stated on 17 January 2002, "Once tax policy is on the table, there's no end to what the WTO might meddle in. Which may be exactly what some Europeans want. Saddled with their own anti-competitive, high-tax regimes, they would love to use the global trade bureaucracy to force Britain, the US and other lower-tax countries to become just as uncompetitive."

The decision also reeks of hypocrisy and double standards. The WTO has decided America cannot choose how to tax certain types of income, but European governments are allowed to rebate the value-added tax (which can reach 25 per cent) on exported goods. [Link to full article in PDF format below:]
http://www.freedomandprosperity.org/Articles/mitchell3.pdf

 

13) Gedrich: Monterrey Money Grab Exposed

Fred Gedrich from the Freedom Alliance (www.freedomalliance.org) writes:

Hugo Chavez, Venezuelan President, prot้g้ of Fidel Castro and anointed representative of the G-77's 133 developing countries at the UN Financing for Development Conference a Monterrey, Mexico several weeks ago suffered, the indignity, last week, of being temporarily removed from office and pilloried by the liberal news media in the United States for gross deficiencies as a leader.

Just a few weeks earlier, Mr. Chavez addressed the Conference Plenary, sanctimoniously calling on "wealthy" countries to "comply" with the UN's foreign aid target of 0.7 percent of their gross domestic product. He created considerable anti-American sentiment when the United States decided not to fork over $70 billion annually for this dubious UN cause – even though the United States is already the most generous country in the world. [Link to full article below:]

http://www.freedomandprosperity.org/Articles/fa04-15-02/fa04-15-02.shtml

 

14) Russian Economic Revolution: Ignoring the pro-tax sentiments of international bureaucracies, Russia has implemented a flat tax and is now dramatically reducing business taxes. The results – which are only a surprise in Paris and Brussels – demonstrate that market-based tax policy promotes economic development.

[Excerpt from National Center for Policy Analysis, Daily Policy Digest, April 11, 2002, http://www.ncpa.org]

Much has changed for the better in Russia's economy since the dark days of August 1998 -- when it devalued its ruble and defaulted on government bonds. Observers say Russia is now in the midst of a radical economic turnaround.

  • A new labor code makes it easier to hire and fire workers -- and private ownership of urban land has been legalized.
     
  •  On Jan. 1, the tax on business profits was slashed to 24 percent from 34 percent.
     
  •  At the same time a 13 percent flat tax on personal income want into effect.
     
  • That lifted tax revenue 30 percent in the first half of 2001, according to the American Enterprise Institute's Leon Aron.

Lower costs and wealthier Russian consumers have helped foreign investment blossom, observers report. 

Still, the county remains poor by western standards and people who are 50 or older -- who are relics of the communist system -- are often unable to adjust to the new realities.

But those in their 20s and 30s have better work habits and are eager to learn new skills.

Source: Paul Katzeff, "Basket Case Now a Breadbasket: Putin's Crew Transforms Russia," Investor's Business Daily, April 11, 2002.

Additional clip:

March 11, 2002, Insight. by Deroy Murdock, Russia and the Flat-Tax Rate: Americans Should Be So Lucky
http://www.insightmag.com/main.cfm?include=detail&storyid=207245

April 15, 2002, The Washington Times, by Bruce Bartlett, Toward a less taxing experience
http://www.washingtontimes.com/commentary/20020415-72704120.htm

April 16, 2002, Tax-News.com, by Tatiana Smolensky, More Russians Paying Income Taxes
http://www.tax-news.com/asp/story/story.asp?storyname=7904

 

15) CFP Clips

April 16, 2002, The Royal Gazette, Another US firm looking to move head operations here, By Mairi Mallon
http://www.theroyalgazette.com/apps/pbcs.dll/article?Date=20020415&Category=BUSI NESS&ArtNo=104150002&Ref=AR

April 16, 2002, The New York Times, by David Cay Johnston, Tax Treaties With Small Nations Turn Into a New Shield for Profits
http://www.nytimes.com/2002/04/16/business/16TAX.html

April 16, 2002, Tax-News.com, by Ulrika Lomas, Schroder Back On EU Tax Soapbox
http://www.tax-news.com/asp/story/story.asp?storyname=7905

April 15, 2002, Tax-News.com, by Ulrika Lomas, Jersey And Switzerland In The Information-Sharing Firing Line
http://www.tax-news.com/asp/story/story.asp?storyname=7894

April 12, 2002, Bismarck Tribune, By Steve Cates, Are we treading the 'Road to Serfdom'?
http://bismarcktribune.com/archives/index.inn?loc=detail&doc=/2002/April/12-232-cat00 .txt

April 12, 2002, Tax-News.com, by Mike Godfrey, US-EU Export Subsidy Dispute Rears Head Again
http://www.tax-news.com/asp/story/story.asp?storyname=7871

April 12, 2002, Financial Times; By Edward Alden, THE AMERICAS: US groups moving to tax havens face curbs
http://globalarchive.ft.com/globalarchive/article.html?id=020412001672

April 12, 2002, Tax-News.com, by Mike Godfrey, US Senate Gets Tough On Tax Avoidance
http://www.tax-news.com/asp/story/story.asp?storyname=7879

April 11, 2002, Government Accounting Office, Internal Revenue Service: Enhanced Efforts to Combat Abusive Tax Schemes – Challenges Remain
http://www.gao.gov/new.items/d02618t.pdf

April 8, 2002, Tax-News.com, Prosperity Institute Outlines International Tax Agenda For US
http://www.tax-news.com/asp/story/story.asp?storyname=7821

April 7, 2002, The Washington Post, By David B. Rivkin Jr., Lee A. Casey and Darin R. Bartram, When Justice For All Isn't Fair
http://www.washingtonpost.com/wp-dyn/articles/A4939-2002Apr6.html

April 5, 2002, Tax-News.com, by Jeremy Hetherington-Gore, Multilaterals Continue Joint Plotting Against Tax Competition
http://www.tax-news.com/asp/story/story.asp?storyname=7808

April 3, 2002, National Review Online, By Daniel J. Mitchell, The EU's Tax Attack: Finance ministers want to collect VATs on U.S. Internet sales.
http://www.nationalreview.com/nrof_comment/comment-mitchell040302.asp

 

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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