Contact Information:

Center for
Freedom and Prosperity
 P.O. Box 10882
Alexandria, Virginia 22310-9998
Phone: 202-285-0244
Fax: 208-728-9639
                                            

CFP Weekly Update, May 14, 2002

Center for Freedom and Prosperity's Weekly Update

1) Washington Update

2) CFP Strategic Memo: Fighting Fiscal Protectionism, Helping Companies Compete

3) Mitchell, Rahn and de Rugy on Corporate Relocation and Bad tax Policy

4) IRS Bank Deposit Interest Regulation Attracts More Opposition

5) Puncturing the "single market" tax harmonization myth

6) IPI shows how to make the US tax code more competitive – and warns that the EU/OECD tax harmonization agenda will cripple tax reform.

7) UK Treasury attacks EU tax plans

8) Gilbert Morris of the Nassau Institute Says OECD Is Acting Outside Its Powers,

9) Dr. Peter D. Maynard discusses OECD destabilization of "small fragile countries primarily populated by people of color…"

10) Richard Vedder: Europe…Prosperity or Stagnation?

11) Norman Barry -- Competitive Federalism: The Case of the European Union

12) Ruta Vainiene: The More the Better: but not Taxes! Tax and spend is hardly the recipe for economic success

13) Human Events:  Should Americans Pay Global Taxes?

14) Another victory for the welfare state… Study shows that Swedes are less well off than poorest Americans

15) CFP Clips

 

1) Washington Update

Last Friday, the Center participated in a Capitol Hill seminar on corporate expatriation. Tim Hanford of the Federal Policy Group explained why the tax code drives companies to expatriate. Dan Mitchell of the Heritage Foundation spoke about the need for tax reform, specifically territorial taxation. And I discussed why U.S. policy makers should defend tax competition in order to protect America's competitive advantage in the world economy. The seminar attracted about 60 key Capitol Hill staff and is the first of many pro-tax competition/anti-fiscal-protectionism programs that the Center will be participating in over the next few months. Veronique de Rugy discussed the threat of tax harmonization and fiscal protectionism at a meeting of Cato Institute supporters the same day. 

Dan Mitchell and I just returned from a May 2-4 tax competition conference in The Bahamas. We both participated in a tax competition roundtable and Dan also made two power-point presentations on tax competition (the power-point files are available on request). Incidentally, the Bahamas held their national election while we were there and the incumbent party – which had supported the imperialistic attempts by the OECD to cripple the islands' financial services industry – was trounced. See below the remarks of Gilbert Morris of the Nassau Institute on the political shift.  This week's update also features several papers that discuss the economic situation in Europe.

FYI: This week, beginning May 14, Dan Mitchell and I will be in Panama City, Panama to participate in several forums.  If you are going to be in Panama, please contact me through e-mail and we can set up a meeting. Also, for those planning ahead, Dan Mitchell will be participating in a major tax competition conference in London on May 27. Hosted by the Institute for Economic Affairs, the conference will explore whether the U.S. and U.K. should support the OECD and EU tax harmonization schemes. Economists from both America and England will be presenting their views.

 

2) CFP Strategic Memo: Fighting Fiscal Protectionism, Helping Companies Compete

[Excerpt:]
Supporters of tax competition and fiscal sovereignty face an important challenge. At issue is whether U.S.-chartered companies should have the right to escape America's anti-competitive "worldwide" tax system by re-domiciling in low-tax jurisdictions like Bermuda (a process known as expatriation). The outcome of this battle could be pivotal in the conflict between tax harmonizers and supporters of market liberalism.

The Big Picture

 The U.S. taxes companies on their "worldwide" income. In addition to imposing high compliance costs, this system makes American-based companies less competitive. A U.S. firm competing against a Dutch firm for business in Ireland, for instance, would have to pay a 35 percent tax on its income – with the lion's share going to the IRS. The Dutch firm, by contrast, only pays the 10 percent Irish tax on its Irish-source income because Holland has a "territorial" tax system (the common-sense notion that a government only taxes income earned inside a nation's borders).

 In an effort to remain competitive and protect the interests of shareholders and workers, some U.S. companies are re-chartering in low-tax jurisdictions. Bermuda is a popular choice because of its strong legal system and zero-tax environment. The Cayman Islands has attracted several companies for similar reasons. A company that expatriates to one of these jurisdictions no longer has to pay U.S. tax on its overseas income. This enables the company – which still maintains substantial U.S. operations and pays taxes to the U.S. government on all income earned in America – to compete on a level playing field with foreign competitors. [Link to full Memo below:]
http://www.freedomandprosperity.org/memos/m05-01-02/m05-01-02.shtml

 

3) Mitchell, Rahn and de Rugy on Corporate Relocation and Bad tax Policy

May 8, 2002, The Washington Times, by Dan Mitchell, Bad tax policy: You can run . . .
http://www.washtimes.com/commentary/20020508-28100060.htm

May 2, 2002, The Washington Times, by Richard W. Rahn, Tax patriots . . . and scoundrels
http://www.washtimes.com/commentary/20020502-21315608.htm

De Rugy's Comments on Corporate Relocation:  CNN and NPR

  • We have to understand the big picture and the reason why all these firms are moving out of the U.S. The U.S. government taxes income on a worldwide basis. It puts U.S. firms on a very uncompetitive position compared to other firms around the world.  [Source:  May 9, 2002; CNN's Lou Dobbs Moneyline, quote by Veronique de Rugy, Cato Institute]
     
  •  A U.S. firm operating outside the U.S., for example, in Europe, not only pays the European taxes, but also pays the U.S. taxes, which puts the U.S. firm in a very uncompetitive situation compared to a European firm. [Source: May 8, 2002; National Public Radio's All Things Considered, quote by Veronique de Rugy, Cato Institute]

 

4) IRS Bank Deposit Interest Regulation Attracts more opposition

1) Two Democratic Senators Lambaste IRS Info Sharing Regulation

Senators Bob Graham and Bill Nelson of Florida sent a strong letter to Treasury Secretary Paul O'Neill on March 12, 2002 highlighting "serious flaws: and the need for the regulation to be "withdrawn until further analysis can be done on the costs and benefits associated with the proposal."  Link to full pdf version of the letter below:
http://www.freedomandprosperity.org/graham-nelson.pdf

2) Florida Governor Jeb Bush Sends Second Letter to Brother's Administration, Urges Withdrawal of Clinton Era IRS Proposal

Governor Bush sends a second letter to the Bush Administration.  The first letter dated June 7, 2001 to Treasury Secretary Paul O'Neill is below.  The most recent letter to President Bush's Chief of Staff, Andrew Card, was delivered March 26, 2002.  Link to full pdf version of the March 26 letter below:
http://www.freedomandprosperity.org/bush-fl2.pdf

Governor Bush's June 7, 2001 letter:
http://www.freedomandprosperity.org/bush-fl.pdf

 

5) Puncturing the "single market" tax harmonization myth

Politicians and tax bureaucrats from Europe commonly assert that the move toward the "single market" requires tax harmonization. There is no factual or theoretical basis for this claim, as Dan Mitchell explains in the May 6 issue of Tax Notes International. Link to full pdf version of the story below:
http://www.freedomandprosperity.org/Articles/tni05-06-02.pdf

 

6) Institute for Policy Innovation shows how to make the US tax code more competitive – and warns that the EU/OECD tax harmonization agenda will cripple tax reform.

The Texas-based Institute for Policy Innovation has published excerpts of two papers from their "Roadmap to Tax Reform" series. The first paper, by Ernest Christian, explains how the US tax code hinders international competitiveness and could be improved. The second paper, by Daniel Mitchell, reveals how the EU/OECD agenda would destroy financial privacy and significantly hinder fundamental tax reform. Link to full pdf version of the story below:
http://www.ipi.org/ipi/IPIPublications.nsf/PublicationLookupFullTextPDF/F8E2F6A0A1 C5E46C86256B9E0061C489/$File/layout4.pdf?OpenElement

 

7) UK Treasury attacks EU tax plans

[Excerpt from www.no-euro.com newsletter: Main events 26 April – 2 May 2002 link
http://www.no-euro.com/mediacentre/archive.asp?ID=55

4. [UK] Treasury attacks EU tax plans

* The [UK] Treasury this week attacked EU plans for a single system for calculating corporate tax across the EU. The [UK] Treasury fears that the system would be a first step to the upward harmonisation of corporate tax in Britain.

* A [UK] Treasury spokesman said, "we won't support any action at the EU level that would threaten jobs and the competitiveness of UK business" (Guardian, 1 May).

* Tax Commissioner Frits Bolkestein first made his gradual harmonisation plan explicit in February 2001, saying "taxes should be raised on a similar basis. Then we will see what happens to tax rates..." (Frankfurter Allgemeine Zeitung, 22 February 2001).

* The Commission's tax plan confirms the relentless drive to harmonise UK corporate tax up to Eurozone levels. Outside the euro we can block plans which would damage UK businesses. But in the euro it would be far more difficult to prevent a gradual loss of control over tax.

 

8) Gilbert Morris of the Nassau Institute Says OECD Is Acting Outside Its Powers

[Excerpt:]
At a recent conference in Nassau, Dr. Gilbert NMO Morris, director of the Nassau Institute in the Bahamas, criticized the OECD for operating outside of any known powers or authority in proporting to deal with sovereign governments on matters properly left to the foreign policy of states.

Said Dr. Morris: "You cannot have constitutional democracies and have the OECD in its current iteration. You cannot have an international regulatory dictator and legitimate governments. You must choose one or the other."

May 9, 2002, Tax-News.com, Nassau Institute Says OECD Is Acting Outside Its Powers
http://www.tax-news.com/asp/story/story.asp?storyname=8139

May 1, 002, Tax-News.com, by Mike Godfrey, New Bahamas Government To Review Offshore Laws
http://www.tax-news.com/asp/story/story.asp?storyname=8113

 

9) Dr. Peter D. Maynard discusses OECD destabilization of "small fragile countries primarily populated by people of color…"

Comments by Dr. Peter D. Maynard, President of the Bahamas Bar Association and the Organization of Commonwealth Carribbean Bar Association at the First Annual Global Conference on Offshore Tax Planning, Compliance & Money Laundering, Nassau, The Bahamas

[Excerpt:]
It is not justifiable to take the blunderbuss approach and knock down innocent bystanders legitimately investing or carrying out a legitimate livelihood in international financial centres on par with  any others. More money laundering goes on in a single day in London, New York or Tokyo than  takes place in an entire year in the Bahamas, Cayman the  Cook Islands or Nauru.  There are double standards and loss of proportionality and perspective. [Link to full stsatement below:]

May 2, 2002, Statement By Dr. Peter D. Maynard, First Annual Global Conference on Offshore Tax Planning, Compliance & Money Laundering, Nassau, The Bahamas
http://www.freedomandprosperity.org/Papers/maynard/maynard.shtml

 

10) Richard Vedder: Europe… Prosperity or Stagnation?

[Excerpt]
With the break-up of the Soviet Union just over 10 years ago, the newly emerging nations of Eastern Europe and Central Asia faced three options. First, they could retain a system of government based on the old Communist model, with virtually no private ownership of the means of production, with central control of the allocation of scarce resources, and also with authoritarian government with limited opportunities for the citizens to express themselves politically. Let us call this the Soviet Model. Second, they could move to the opposite extreme, and move towards an economy where resources are almost entirely privately owned, where markets allocate resources, where government is small and exists largely to enforce laws protecting lives and property, and consequently taxes are low. Call this the Capitalist Model, such as practiced in Hong Kong and, to a much lesser degree, in the United States. In its purest form, it is a model advocated by persons with classical liberal perspectives.  Finally, there is the model that is somewhere in between the Capitalist and Soviet Models, where the private sector produces most goods or services, where many resources are privately allocated by markets, but where governments command a large proportion of society's output to fund extensive social programs and services. High taxes take income earned by private citizens to fund these social programs. Call this the Welfare State Model, exemplified by most nations in the European Union, such as Sweden or Germany. [Link to the full speech below;]

February 9, 2002, Prof Richard Vedder, Remarks to the Taxpayers Association of Europe's International Taxpayers Conference, Kiev, Ukraine, Prosperity or Stagnation?
http://www.taxpayers-europe.org/html/redeve_1.HTM

 

11) Norman Barry -- Competitive Federalism: The Case of the European Union

[Excerpt:]
To non-European countries anxious to establish their liberal and democratic credentials admission to the European Union looks very tempting. Believers in the free market were once entranced by its superficial attractiveness. Western Europe was saved from the ravages of socialism by its apparent commitment to capitalism and the relative peace that the continent has experienced since the end of the Second World War is often attributed to Europe's apparent internationalism: though European enthusiasts they seem to forget that the defeat of communism and the preservation of the integrity of Europe were brought about by America rather than the countries of the continent, which were largely free riders on the military strength of the US. No doubt the progenitors of the original European movement towards unity were inspired by the bitter memories of nationalism and a genuine fear of communism. Again, the fact that, through various phases, European countries gradually submitted their legal systems to an international jurisdiction must have encouraged believers in the rule of law to think that Europe's legalism was a welcome departure from that national sovereignty which had so disfigured Europe's history.

It is not so difficult to show, however, that the allure of a free Europe has less substance when it is closely examined. [Link below]

October 2001, The Centre for the New Europe, by Norman Barry, Competitive Federalism: The Case of the European Union
http://www.cne-network.org/cne/pub/barry.pdf

 

12) Ruta Vainiene: The More the Better: but not Taxes! Tax and spend is hardly the recipe for economic success

[Excerpt]
The following article was published in a bimonthly magazine Lithuania in the World (2002 No.1). It discusses the issues of high vs low taxes, Tax Freedom Day and low-tax jurisdictions...

Let us take a quick look at the pocket of an ordinary Lithuanian citizen. According to the Lithuanian Department of Statistics, an average Lithuanian household spends roughly 43 percent of their expenditures on food, almost 11 percent on housing and utilities, and 7.5 percent on clothes and footwear. Other needs absorb even less. The data of the Department of Statistics lack one item of expenditures, one large portion of people's outlays. I am talking about taxes we pay to the state. The amount of money we give away in taxes is best reflected in the share of the country's gross domestic product that is redistributed through the state budget, or the tax burden.

No. 1, 2002, Lithuania in the World, By Rūta Vainienė, The More the Better: but not Taxes! Tax and spend is hardly the recipe for economic success
http://www.freema.org/NewsLetter/tax.budget/2002.1.more.phtml

 

13) Human Events:  Should Americans Pay Global Taxes?

[Excerpt]
In a March 19 op-ed in the Washington Post about the UN's Monterrey Conference on Financing Development, Mexican President Vicente Fox indicated his support for a system of global taxation.

"As a stepping-stone on the path toward development for all," wrote Fox, "Monterrey should allow us to move closer to new and more far-reaching goals, including some proposals that didn't make the radar screen this time. For example, global taxes such as the one proposed on carbon emissions could be used to finance global public goods. . . . The industrialized countries . . . [could provide] money for development and also a more efficient use of scarce resources."

Human Events Assistant Editor David Freddoso asked some senators last week if they would support Fox's idea for global taxation.  [Link to full article with Senator's quotes:]

March 25, 2002, Human Events, Should Americans Pay Global Taxes?
http://www.humaneventsonline.com/articles/03-25-02/capitolq&a.htm

 

14) Another victory for the welfare state… Study shows that Swedes are less well off than poorest Americans

The American people enjoy a standard of living that others dream about.  With the U.S.'s per capita GDP more than 50 percent higher than the European Union, one can only wonder why many of the super-welfare states of Europe have not adopted the free-market policies of America. The Reuters report mentioned below illustrates the stark difference between the U.S. and its allies across the "pond."

Reuters reports that "Swedes, usually perceived in Europe as a comfortable, middle class lot, are poorer than African Americans, the most economically deprived group in the United States, a Swedish study showed on Saturday." Sweden's median household income at the end of the 1990s was $26,800, or about 68% of the average American income, $39,400. Black American households had a median income about 70% of the U.S. median.
http://biz.yahoo.com/rf/020504/sweden_poverty_1.html

NOTE: It's a bit ironic, given that Gunnar Myrdal, a Swedish socialist, was the author of "An American Dilemma: The Negro Problem and Modern Democracy," a seminal study of inequality in America.  Myrdal won a NOBEL ECONOMICS PRIZE in 1974.

 

15) CFP Clips

May 13, 2002, Swiss Info, Talks on closer EU ties remain in limbo
http://www2.swissinfo.org/sen/Swissinfo.html?siteSect=111&sid=1136865

May 13, 2002, Swiss Info, EU lashes out at Swiss over taxation
http://www2.swissinfo.org/sen/Swissinfo.html?siteSect=111&sid=1139030

May 1, 002, Tax-News.com, by Mary Swire, Vanuatu Launches Stinging Attack On OECD
http://www.tax-news.com/asp/story/story.asp?storyname=8057

May 2, 002, Tax-News.com, US Commentators Argue Against Congress On Expatriation Tax Bill
http://www.tax-news.com/asp/story/story.asp?storyname=8075

 

Best regards,

Andrew Quinlan

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

__________________________

Did you like what you just read? If so, consider contributing to the Center for Freedom and Prosperity at:
https://secure.chargedcontribution.com/cfp/default.asp?s=true&r=c&ref=cfp

Do you have a friend who might be interested in our e-mails? If so, forward it to them, or have them join our list at:
http://www.freedomandprosperity.org/update/update.shtml

 

 

Return Home

[Home] [Issues] [Tax Competition] [European Union] [IRS NRA Reg] [Corporate Inversions] [QI] [UN Tax Grab] [CFP Publications] [Press Releases] [E-Mail Updates] [Strategic Memos] [CFP Foundation] [Foundation Studies] [Coalition for Tax Comp.] [Sign Up for Free Update] [CFP At-A-Glance] [Contact CFP] [Grassroots] [Get Involved] [Useful Links] [Search] [Contribute to CFP]