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Freedom and Prosperity
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CF&P E-Mail Update, July 1, 2003

Center for Freedom and Prosperity's E-mail Update

1) CF&P to Hold Forum in Panama on Tax Competition and the OECD's Attack on Shipping Registries

2) OECD Attacks International Competition for Ship Registrations

3) OECD's Attempt to Cripple Global Competition for Business Incorporation

4) Lawrence Lindsey: How to Start a Trade War

5) Richard W. Rahn: Economic murder-suicide

6) Andrew Sullivan: The Euro Menace: The USE Vs The USA

7) Roger Bate: Paradise Lost

8) Andrew Quinlan:  Self-Destructive Behavior -- Union vs. MCI/WorldCom

9) FATF Imposes More Regulatory Burdens

10) NYT: Aging Europe Finds Its Pension Is Running Out

11) Declan McCullagh:  Why Europe still doesn't get the Internet

12) BNA: EU Digital VAT Directive Raising Concerns For U.S. Retailers, Consumers, Allen Says

13) JEC: U.S. Economy is Growing Faster Than the Economies in Europe and Japan

14) Dick Armey Lambasts OECD's Tax Policies

15) Richard W. Rahn: Trust . . . and tax rates

16) Kevin Hassett: Consumption Function  

17) CF&P Clips


1) CF&P to Hold Forum in Panama on Tax Competition and the OECD's Attack on Shipping Registries

The Center for Freedom and Prosperity announced today that it will hold its third in a series of Tax Competition Forums in the Caribbean and Latin America on July 15, 2003. The seminar will start at 6:00 PM and be held at the Panamanian Bar Association Building, Panama City, Panama.

The Seminar will focus on the need to protect tax competition and what is being done to oppose the tax harmonization agenda of international bureaucracies such as the Organization for Economic Cooperation and Development (OECD) and the European Union (EU). The speakers will give updates on the OECD's "harmful" tax competition project, the EU's Savings Tax Directive and the US/Panama Tax Information Exchange Agreement. The seminar also will touch on a number of new issues, including the OECD's attempt to cripple global competition for business incorporation and the OECD's push to limit international competition for ship registration business.

         Event:         CF&P Tax Competition Forum

         Date:         Tuesday, July 15, 2003

         Location:   Panamanian Bar Associations Building, Panama City, Panama.
                             (Address:  Mexico Avenue and 38th Street E, Salón Gregorio Miró)

         Time:         6:00 P.M. to 7:30 PM

         Speakers: To be announced later this week



2) OECD Attacks International Competition for Ship Registrations

A major topic for the Panama tax competition seminar will be the need to maintain competition in the market for ship registration business. Nations such as Panama, Liberia, and the Bahamas maintain effective and competitive "open ship registries." These low-cost registries provide vigorous and necessary competition to restrictive national registries. Needless to say, high-tax nations resent this competition and have convinced their lackeys at the OECD to attack open registries. The Center will be getting much more involved with this issue, and the Panama seminar will be our first foray into this issue. We will explain why competition is desirable, and how it helps to facilitate world trade and ensure lower costs for consumers. We also will deal with the OECD's dishonest (but very predictable) effort to claim that open registries somehow create a security risk.


3) OECD's Attempt to Cripple Global Competition for Business Incorporation

Ship registration is not the only area where the OECD is trying to hinder competition and private sector development. The OECD also wants to interfere with the global market for business incorporation. Under the guise of corporate governance, the OECD wants to cripple the low-cost, market-friendly incorporation laws in jurisdictions that compete with high-tax OECD nations. This assault on incorporation laws also is a threat to the United States since states like Delaware, Nevada, and Florida offer some of the world's best incorporation environments.

June 22, 2003, SwissInfo, Swiss battle OECD "blacklisting" threat

June 23, 2003, Daily Nation (Barbados), by Tony Best, NIS director: Levy used as last resort


4) Lawrence Lindsey: How to Start a Trade War


Unfortunately, the U.S. is particularly vulnerable to European trade retaliation. Last year the World Trade Organization found that an important part of our tax rules relating to American companies' foreign sales violate international trade rules. Unless we remove those provisions, Europe is entitled to levy $4 billion annually in retaliatory tariffs on U.S. exporters.

Last year, the Bush administration negotiated a delay in this retaliation in order to give Congress time to act. Europe recognized that political stalemate in the previous Congress made reform impossible. This is no longer the case. Unfortunately, some special interests are hoping to delay action further in order to protect the status quo. These large corporations are beneficiaries of the special provisions that were found in violation of international trade agreements. They also suspect that European retaliation will not be targeted against them, but against other, more economically vulnerable exporters. They therefore view the retaliatory tariffs as less costly to them than would be the removal of the special tax breaks they get from current law.

These large multinationals have successfully lobbied some in Congress to continue to protect them by extending their current illegal trade benefits for six years. This will almost certainly invite European retaliation that could begin a global trade war. [Link to full article below:]

June 25, 2003, The Wall Street Journal Online, By Lawrence B. Lindsey, How to Start a Trade War,,SB105650186841321500-H9jeoNllaF2nJ2paXqIbKqIm4 ,00.html


5) Richard W. Rahn: Economic murder-suicide

The EU savings tax directive is far from certain, notwithstanding bold pronouncements from Brussels. But if it does ever go into effect, Richard Rahn explains the likely impact:


   On June 3, 2003, the European Commission adopted measures to "tackle harmful tax competition." If the term "harmful tax competition" sounds to you like an oxymoron, you are thinking clearly. The EU's measures are designed to make it easier for them to tax savings but, in reality, will largely destroy the small amount of remaining legal savings by EU citizens.

   Because of confiscatory levels of taxation, many of those who reside in the EU have moved their savings to the United States and other relatively low tax jurisdictions. For the last several years, many economic scholars and public policy organizations have warned the EU that attempts to reach beyond their borders to tax this so-called flight capital would end in disaster.

   To understand the problem, assume you are a citizen of France. You save $1,000 and receive an interest payment of $60 (6 percent). Inflation is 3 percent, so your real interest earnings are only $30. However, you must pay a 59.7 percent tax, or $35.82, on the $60 of interest, plus the $30 inflation tax. (Remember, inflation is caused by government producing too much money.) This leaves you a net loss of almost $6 on each $1,000 saved. (In those EU countries where inflation is 3 percent or more and maximum tax rates are 50 percent or more, many savers have effective tax rates on interest of more than 100 percent.)

   People quickly figure out they are worse off rather than better off by saving; hence, they either move their savings out of the country to a more tax-friendly jurisdiction or stop saving. The EU will receive virtually no increase in tax revenue from these new measures. They will only succeed in driving their citizens to find legal or illegal loopholes. [Link to full article below:]

June 12, 2003, The Washington Times, By Richard W. Rahn, Economic murder-suicide


6) Andrew Sullivan: The Euro Menace: The USE Vs The USA


Of all the remarkable consequences of the war against Saddam Hussein, one stands out for its sheer unlikeliness: The subject of Europe has become interesting to Americans again. In the run-up to the war, France and Germany revealed an unprecedented hostility toward the Bush administration's foreign policy. Americans noticed. France, in particular, orchestrated a global campaign to prevent the United States from deposing its former client, Saddam. And, since the war, France has continued to frustrate U.S. foreign policy--most recently when Foreign Minister Dominique de Villepin visited Yasir Arafat, whom the United States has tried to isolate. Worse, with the unveiling of a new federalist constitution for a "United States of Europe" in June, the anti-American trend will be subtly but profoundly institutionalized. It's past time that Americans wake up and see this new threat for what it is.

For the longest time, of course, America's approach to European unity was one of supportive neglect. In the wake of World War II, there was no reason whatsoever for the United States to object to increased Western European integration, the expansion of intra-European trade, and the pacification of ancient conflicts, especially between France and Germany. In fact, there were many good reasons to endorse and encourage increased European integration.

But this analysis always obscured something at the heart of the European project. From the beginning, European unity was understood, especially in French eyes, as a counterweight to the global hegemony of the United States. The calculation was simple: No single European power could ever hope to approximate U.S. wealth, population, or power. Even the most formidable European nation--Germany--had a population only one-third as large as that of the United States. A nation such as France, with an ancient history of global influence and a recent history of military humiliation, looked to the European project as a way to regain what it had once lost. Beneath the patina of shared sovereignty, there was the dream of a new sovereignty--more powerful than any in the past. Britain's accession to the European Economic Community (EEC), long prevented by the Anglophobic Charles de Gaulle, was only embraced because it appeared at the time to represent Britain's retreat from its commonwealth and U.S. allegiances, and toward a new commitment to forging a federal European entity.

June 14, 2003, The New Republic, by Andrew Sullivan, The Euro Menace: The USE Vs The USA

Additional EU Clips:

July 1, 2003,, by Jason Gorringe, Gibraltar Considers Legal Action Over Savings Tax Directive

June 30, 2003,, by Ulrika Lomas, Tax Cuts Key To Hungarian Competitiveness Says Finance Minister

June 27. 2003, The Royal Gazette, By Roger Crombie, Bermuda's EU tax exemption may not last long - expert 1

June 27, 2003,, by Jason Gorringe, Minister Reiterates Ireland's Hostility to Tax Harmonisation

June 26, 2003,, by Ulrika Lomas, Germany Heading For Clash With EU Over Tax

June 13, 2003, Eubusiness, by Jitendra Joshi, European Union draft constitution unveiled =%25o%20%25B%20%25Y

June 12, 2003,, by Robin Pilgrim, Jersey And IoM Plump For Withholding Tax

June 9, 2003,, by Jason Gorringe, Guernsey Confirms Plan To Introduce Retention Tax Legislation


7) Roger Bate: Paradise Lost


Grand Cayman - it's not often that one erroneous idea in a novel has an enormous impact on so many livelihoods. Rachel Carson's book "Silent Spring" has unfairly undermined the use of DDT for malaria control for decades, and probably cannot be beaten in terms of impact. But perhaps John Grisham's "The Firm" comes in a worthy second. In that book, the Cayman Islands is portrayed as the home of tax evasion and money laundering.

Perhaps it was a long time ago, but the reality in Cayman for at least 15 years is of probity and a spotless reputation in the banking community. Yet everyone else still has Grisham's view and most TV shows that deal with the topic of money laundering mention Cayman (like in an episode of "JAG" last week). Cayman is the most famous of the low-tax centers, which are pejoratively known as "tax havens." They are under attack by high-tax European countries that want them shut down so that they lose fewer taxes. It is essential that the U.S. defend them, because they show the way to the developing, aspiring nations of the world. They demonstrate that an economy can be successful no matter how small it is, if it follows fiscally conservative measures. Furthermore, jurisdictional competition keeps government in check, so we all win when places like Cayman keep their taxes low.

June 9, 2003, Tech Central Station, by Roger Bate, Paradise Lost


8) Andrew Quinlan: Self-Destructive Behavior -- Union vs. MCI/WorldCom


Fewer and fewer American workers these days are choosing union membership, largely because unions increasingly have become channels of left-wing activism. The latest evidence is the Communications Workers of America (CWA), which is demanding that MCI/WorldCom be liquidated.

Yes, you read it correctly: A union that purportedly represents communications workers wants to destroy a telecommunications company that employs about 60,000 workers!

CWA president Morton Bahr concluded a recent press conference with the suggestion: "WorldCom should be broken up, and its valuable components like UUNet and MCI spun off or sold to responsible corporations."

The suggestion that the valuable components be sold off to Baby Bell companies comes as no surprise, as CWA represents Baby Bell employees nationwide. It also is not a coincidence that the union has had limited success in dragging MCI employees into the union. Who can blame them? They know that uncompetitive union contracts will make it more difficult for MCI to regain profitability.

CWA, of course, is pretending that it is not trying to feather its own nest, arguing that MCI should be liquidated because former executives engaged in criminal and unethical behavior. The truth is that a few executives committed fraud — not an entire company. MCI/WorldCom itself discovered the wrongdoing and is cooperating in the prosecution. [Link to full article below:]

June 23, 2003, National Review Online, By Andrew F. Quinlan, Self-Destructive Behavior: Union vs. MCI/WorldCom


9) FATF Imposes More Regulatory Burdens

The good news is that the FATF still understands that "tax evasion" is not a predicate offense for money laundering. FATF also seems to realize that being a so-called tax haven does not mean that a jurisdiction welcomes dirty money. But the bad news is that FATF has no concept of cost-benefit analysis. New recommendations from FATF demonstrate a continued willingness to impose heavy costs on the private sector without any effort to demonstrate that the new mountain of paperwork will have any positive impact on law enforcement.

June 20, 2003, Financial Body Revises Anti-Money Laundering Recommendations (FATF's 40 new recommendations) &CQ_QUERY_HANDLE=125132&CQ_CUR_DOCUMENT=1&CQ_PDQ_DOCUMENT_VI EW=1&CQSUBMIT=View&CQRETURN=&CQPAGE=1

June 20, 2003, OECD's Press Release on the FATF's 40 new recommendations,,EN-document-0-nodirectorate-no-12-42334-0,00.html

June 20, 2003, BBC News, New rules widen dirty money fight

June 18, 2003, BBC News, Experts revise dirty money rules:

June 16, 2003, The Moscow Times, FATF Puts Stocks in Spotlight

June 12, 2003,, by Amanda Banks, Bahamas' Attorney-General Says FATF Should Ensure Level Playing Field


10) NYT: Aging Europe Finds Its Pension Is Running Out

This article is not about tax competition, but it does demonstrate why Europe's welfare states are so anxious to enslave capital and prevent it from fleeing to friendlier climes.


This spa town in the Bavarian countryside, blessed with natural hot springs with reportedly curative powers, does not resemble Fort Lauderdale or Miami Beach, but it is the rough German equivalent, the place where retirees go for their comfort and well-being.

But if Bad Füssing is small compared with senior citizens' centers in the United States, it nonetheless represents a big part of the future in Germany and elsewhere in Europe, where a population that is both living longer and producing fewer children is beginning to change some of the fundamentals of both social and political life.

The changing demographic picture has produced political uncertainty and crowds of angry demonstrators in European countries whose governments, reacting to the shift from youth to the aged, are moving to reduce social services, including the pensions that millions have been counting on for their golden years.

"We've only seen the beginning of that," said Wolfgang Lutz, a demographer at the Austrian Academy of Sciences who projects a steep upward curve in the average age of Europeans in the years ahead.

But while pension reform is the urgent political issue of the moment in Germany, Austria, France and other countries, many experts see it as a harbinger of things to come, a sign of a demographic shift with important implications not only for the welfare of retirees but also for European societies as a whole. The crucial factor is age. [Link to full article below:]

June 25, 2003, The New York Times, By Richard Bernstein, Aging Europe Finds Its Pension Is Running Out =5062&en=cdd13bb8ca30c8ed&ex=1057464000&partner=GOOGLE


11) Declan McCullagh:  Why Europe still doesn't get the Internet


One of the finest days in Internet law dawned on June 12, 1996, when U.S. District Judge Stewart Dalzell wrote an opinion that was remarkable for its clarity and prescience.

At the time, Dalzell was serving on a three-judge panel that rejected the absurd Communications Decency Act as a violation of the First Amendment's guarantee of free expression.

Dalzell recognized that the U.S. government's true fear of the Internet was not indecency or obscenity, but hypothetical worries about how "too much speech occurs in that medium." Dalzell and eventually the Supreme Court realized that the best way to foster the soon-to-be spectacular growth of the Internet was to reduce government regulation--not to increase it.

Unfortunately, Europeans still haven't quite figured that out. The Council of Europe--an influential quasi-governmental body that drafts conventions and treaties--is meeting on Monday to finalize a proposal that veers in exactly the opposite direction. (It boasts 45 member states in Europe, with the United States, Canada, Japan and Mexico participating as non-voting members. Its budget is about $200 million a year, paid for by member governments.) [Link to full article below:]

June 16, 2003, CNET, By Declan McCullagh, Why Europe still doesn't get the Internet


12) BNA: EU Digital VAT Directive Raising Concerns For U.S. Retailers, Consumers, Allen Says

[Excerpt, full article can be found at]

The chairman of a Senate Foreign Relations subcommittee June 24 said he is concerned about the impact and burden of a European Union requirement that non-EU sellers collect value-added tax on digital goods and services starting July 1.

Sen. George Allen (R-Va.), chairman of the Senate Foreign Relations Subcommittee on European Affairs, said he is worried the new VAT requirement will overwhelm small businesses and indicated he would consider supporting a World Trade Organization challenge to the new rule if it is not implemented in a manageable way.

"This is what I see as one of the top two trade issues between two good friends," Allen said at a hearing on the EU VAT directive. "Let's hope this goes well and that this can be implemented with some flexibility. If not, we'll have to go further."

The hearing is the first visible sign of congressional attention to the issue as the July 1 effective date for the initiative nears.

Private-sector witnesses at the hearing said significant questions remain about whether adequate guidelines and systems are in place for non-EU retailers to comply with a requirement that they must register and collect VAT on sales of digital goods and services into the EU.

Speaking on behalf of the U.S. Council for International Business (UCIB), Karen Myer said her group's constituents believe it is too soon to consider seeking redress with the WTO, but that the United States should make concerns known to the EU.

"I don't think UCIB is ready to press for anything as dramatic as a WTO challenge," Myer told Allen. "But it's important for the EU, and EU countries, to know that the U.S. administration, and the U.S. Congress, is very mindful of what they're doing."

[Source: June 25, 2003, Bureau of National Affairs, by Alison Bennett, EU Digital VAT Directive Raising Concerns For U.S. Retailers, Consumers, Allen Says,]

Additional News Articles:

June 26, 2003,, by Mike Godfrey, EU Tax On Internet Could Hurt US Tech Firms Says Lobby Group


13) JEC: U.S. Economy is Growing Faster Than the Economies in Europe and Japan

The Joint Economic Committee (JEC) issued a two-page report, "Putting the U.S. Economy in Global Context."  Among other things, the report points out that the U.S. economy is growing faster than the economies in Europe and Japan


The U.S. economy has been growing for over a year and a half since the 2001 recession, but the rebound has been slower than hoped. Labor markets remain sluggish, while output growth has lagged behind past recoveries. Although some analysts have tried to blame U.S. leaders for this sluggish recovery, it must be emphasized that economic weakness has been a global problem. In fact, many foreign economies have suffered through significantly worse economic setbacks than has the United States. Looking ahead, forecasters see a pickup in growth both here and abroad. [Link to full report below:]


14) Dick Armey Lambasts OECD's Tax Policies


Addressing a two-day economic forum hosted by the Caymanian Chamber of Commerce recently, Former United States Congressional Leader Dr. Dick Armey was severely critical of the Organisation of Economic Cooperation and Development's (OECD) initiatives to curb 'harmful tax competition' around the world.

The former House majority leader and Texas Republican was the key-note speaker on the last day of the event, which attracted business people and government law-makers from the Cayman Islands, as well as members of prominent think tanks and lobby groups from the United States. Mr Armey was harshly critical of the quasi-governmental manner in which the OECD conducts its affairs, chastising the organisation's "lack of respect for other human beings."

"That is what it amounts to when they decide to take over some parts of our lives…We need to find ways to stand up against this audacity," Armey told delegates. [Link to full article below:]

June 12, 2003,, by Amanda Banks, London, Ex-House Leader Lambasts OECD's Tax Policies


15) Richard W. Rahn: Trust . . . and tax rates


Have you ever wondered why many Scandinavians apparently are willing to endure much higher taxes than most Americans? At the same time, former communist countries are adopting the "flat tax" with low maximum tax rates for individuals.

Russia and Ukraine now have maximum individual tax rates of 13 percent, and Slovakia is considering the adoption of a flat tax with a 19 percent rate. One's perception of how wisely the government is likely to spend the taxpayers' money can, in part, explain why voters in Denmark, Finland, Norway and Sweden are willing to accept maximum individual tax rates of more than 50 percent, while Russians prefer a 13 percent maximum.

During the last 15 years, I have spent considerable time in the former communist countries as an adviser on economic transition, and some time in Scandinavia. Scandinavians are often puzzled by why Americans tend to be more hostile to government than they are.

Part of the answer is that Scandinavians often get more for their tax dollars than Americans do. There tends to be a high level of honesty and social cohesion in Scandinavian societies. Most of them are (nonpracticing) Lutherans. As a result of relatively small populations with a high level of homogeneity and education, society operates more like a club or an affiliation group.  [Link to full article below:]

June 19, 2003, The Washington Times, By Richard W. Rahn, Trust . . . and tax rates


16) Kevin Hassett: Consumption Function 


Now that the dividend tax reduction is law, Republicans are already beginning to discuss their tax plans for next year. Such a rapid change in focus is likely to become part of the landscape in Washington each June for as long as the Republicans hold power. The new Republican strategy is clearly to address a pressing tax problem each year, rather than to try to construct the mother of all tax reforms and ram it through in a single year. Each new move, however, will likely capture territory in the march toward the ultimate objective, a consumption based tax.

It is interesting to review the dividend story one last time in order to search for clues about next year's likely tax story. As can be seen in the accompanying chart, the United States began the year with the second highest tax on dividends in the developed world.

This high "double" tax distorted all sorts of behavior - inducing heavy reliance on risky debt finance, for example - and likely caused more economic damage dollar-for-dollar than any other part of our tax code. After the dust settled and the dividend tax rate was cut about in half, the combined tax on dividends in the U.S. dropped considerably compared to that in other countries. Under the new law, as can be seen in the next chart, the U.S. now has the 10th highest combined tax on dividends. [Link to complete article below:]

June 12, 2003, Tech Central Station, By Kevin Hassett, Consumption Function B


17) CF&P Clips

June 26, 2003,, by Leroy Baker, US Trade Official Sees End Of FSC Dispute By Year's End

June 26, 2003, Cato Institute, by Clyde Wayne Crews Jr., Protecting Privacy in the Database Nation

Jun 25, 2003, The Economist, Where did it all go? (Foreign direct investment, from cross-border mergers to the building of new factories, has been battered by global economic uncertainty and changing attitudes towards corporate marriages. Will it revive any time soon?)

June 25, 2003, The Telegraph, Secure sanctuaries or cultural prisons? =%2Fglobal%2F2003%2F06%2F25%2Felter25.xml

June 23, 2003, The Guardian, by Charlotte Denny, Fairness? Only when we're not talking tax,11268,982931,00.html

June 22, 2003, The Observer, by Gaby Hinsliff, Blair ally calls for tax clampdown on foreign tycoons,6903,982577,00.html

June 21, 2003, The Telegraph, Don't include the taxman in your baggage enuId=244&sSheet=/money/2003/06/22/ixfrontperson.html

June 20, 2003, Reuters, IRS wants shelter info from lawyers: Government gets court summons seeking information from Chicago firm's clients.

June 17, 2003,, New York Costliest U.S. City

June 12. 2003, The Royal Gazette, By Mairi Mallon, Bermuda still the captives king - but losing ground to rivals 4

June 11, 2003, Forbes, by Luisa Kroll, Americans Losing In The Wealth Race

June 11, 2003,, by Glen Shapiro, US States Flouting Internet Tax Freedom Act

June 6, 2003, OECD Standardized Unemployment Rates

April 2003, World Bank, Gross National Income Tacles – 2001


Best regards,

Andrew Quinlan
Center for Freedom and Prosperity


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