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CFP E-Mail Update, July 10, 2002

Center for Freedom and Prosperity's E-mail Update

1) CFPF's Unofficial Congressional Staff Delegation Trip to the Republic of Panama

2) CFP Strategic Memo: The EU Savings Tax Directive -- Who will Decide for America: President Bush or IRS Bureaucrats?

3) Mitchell: Making U.S. More Like Europe: The war on America's economy.

4) WSJ: The Global Tax Cartel Cometh

5) EU Savings Tax Directive: De Rugy says Bush Should Reject European Tax Cartel

6) The US Starts To Recognize EU 'Information Exchange' Problem

7) De Rugy: Runaway Corporations: Political Band-Aids vs. Long-Term Solutions

8) Salsman: Capital on Strike: The Tax Haven Controversy (Part Two)

9) Walter Russell Mead: The Case Against Europe…

10) More evidence that high-tax nations, not so-called tax havens, are financial conduits for terrorism

11) Pete Du Pont argues for American sovereignty: Shredding the Constitution: The case against the International Criminal Court.

12) Cato Institute Issues Sixth Report on Global Economic Freedom: Hong Kong remains in first place, United States climbs to third

13) BizOffshore, OffshoreOn.com: Investors Fail in Attempt to Oppose Nabors' Reincorporation

14) CFP Clips

 

1) CFPF's Unofficial Congressional Staff Delegation Trip to the Republic of Panama

I just returned from an unofficial Congressional Staff Delegation trip to the Republic of Panama.  CFP Foundation sponsored the trip with help from some Panamanian Associations.  The delegation of 12 consisted of White House and Congressional staffers and think tank experts. We had the opportunity to meet with Panama's President Her Excellency Mrs. Mireya Moscoso and several in her cabinet including Foreign Minister Jose Miguel Aleman. We also had the opportunity to meet with several lawmakers, including President of the Legislative Assembly Rubén Arosemena Valdés.  We toured the Panama Canal and visited the Colon Free Trade Zone. We also meet with many of Panama's leading organizations, including the International Lawyers Association, Panamanian Bankers Association and Panamanian Association of Business Executives. Our main focus of the trip was to discuss the need to protect tax competition. There was widespread agreement that both Panama and the United States are threatened by European-instigated tax harmonization campaigns. We also discussed Panama's territorial tax system and how it could be adopted to the U.S. Last but not least, members of our delegation participated in a tax competition seminar that was attended by more than 300.

This was CFP Foundation's fourth such staff trip including past trips to Barbados, British Virgin Islands and the Cayman Islands. We have found that it is invaluable for U.S. policy makers to see first hand how other low-tax countries work and respond to international pressure. 

The update below brings you up to date on what is happening on the EU Savings Tax Directive, the corporate inversion fight in the U.S., and a few other interesting tidbits.

Best regards,

AQ

 

2) CFP Strategic Memo: The EU Savings Tax Directive -- Who will Decide for America: President Bush or IRS Bureaucrats?

June 26, 2002 -- The European Union issued a communiqué last week claiming that the United States supports the "savings tax directive," a tax harmonization proposal that would require American financial institutions to act as vassal tax collectors for Europe's welfare states. Specifically, the EU claimed, "Contacts at political and technical level have been held with the United States, Monaco, Andorra, San Marino and Liechtenstein. These States have expressed their willingness to cooperate with the European Union." [Emphasis added]

If true, this would be an enormous betrayal by the White House. President Bush was elected to lower taxes and reduce the burden of government. Capitulating to Europe's welfare states would be a victory for the career bureaucrats at Treasury and the IRS and a stunning defeat for the President's economic team. [Link to full memo below:]

June 26, 2002, CFP Strategic Memorandum, Who is in Charge: President Bush or IRS Bureaucrats?
http://www.freedomandprosperity.org/memos/m06-26-02/m06-26-02.shtml

Re: June 27, 2002, Tax-News.com, by Mike Godfrey, EU Claims That US Supports Savings Tax Directive
http://www.tax-news.com/asp/story/story.asp?storyname=8621

 

3) Mitchell: Making U.S. More Like Europe: The war on America's economy.

[Excerpt]
Two years ago, politicians and bureaucrats at the European Commission announced their intention to turn the 15 nations of the European Union into "the most competitive knowledge-based economy in the world by 2010." This is a tall order. Smothered by oppressive tax rates and burdensome regulations, Europe trails the United States by a wide margin.

Thanks in large part to the Reagan tax cuts and other free-market policies, per-capita national income in America is now 50 percent higher than it is in Europe. Our growth rate over the last decade has been about 60 percent higher, and our unemployment rate is about 50 percent lower. Tax policy is America's biggest advantage. Taxes consume about 29 percent of economic output in the United States. This is too high, but America is like the Cayman Islands compared to Europe, where tax collectors seize 42 percent of gross domestic product.

So how is Europe planning to surpass the United States? Could it be that Europe's welfare states are planning to cut tax rates? Ireland already has shown that tax cuts are a recipe for prosperity. Thanks to Reagan-style tax-rate reductions, including a corporate income tax rate of just 10 percent, Ireland has become the "Celtic Tiger" and is now the European Union's second richest country.

Sadly, the politicians representing Europe's welfare states have little interest in cutting taxes. Indeed, they censured Ireland for cutting tax rates and growing too fast! Apparently, the French and the Germans consider supply-side economics a crime. Link to full article below:]

July 1, 2002, National Review Online, By Daniel J. Mitchell, Making U.S. More Like Europe: The war on our economy.
http://www.nationalreview.com/nrof_comment/comment-mitchell070102.asp


This editorial also appeared in the Washington Times on June 27, 2002 and is available on the Heritage Foundation website:

June 19, 2002, Daniel Mitchell, America: Europe's Tax Collector?
http://www.heritage.org/views/2002/ed061902a.html

 

4) WSJ: The Global Tax Cartel Cometh

[Excerpt]
Europe's remorseless quest for tax harmonization shows no sign of abating. The EU already has an agreed minimum VAT rate of 15% and the European Commission is currently seeking to harmonize taxes on corporate income, tobacco, energy and digital products. It has also won a WTO ruling to end tax breaks for U.S. companies competing in foreign markets.

Its latest tax-harmonization initiative -- the Savings Tax Directive -- seeks to obtain wide international agreement on the need for collecting and swapping confidential financial data on nonresidents. This would enable high-tax nations such as France and Germany to tax outside their borders and would go a long way toward creating a global tax cartel -- or what one U.S. commentator has described as "a kind of OPEC for politicians."

The EU, of course, lacks direct means to influence tax rates outside its borders. But the Savings Tax Directive will give participating states the means to impose home-country taxes on citizens regardless of where they save or invest. Link to Full article below:]

July 3, 2002, The Wall Street Journal – Europe, By John Blundell, The Global Tax Cartel Cometh
http://www.iea.org.uk/record.php?type=feature&ID=16

 

5) EU Savings Tax Directive: De Rugy says Bush Should Reject European Tax Cartel

[Excerpt]
The European Union (EU) just released a document stating that the United States was willing to make American financial institutions enforce foreign tax law. More specifically, the EU is bragging that it has browbeaten America into supporting the "Savings Tax Directive," a plan designed to stop money from escaping Europe's high-tax economies and fleeing to low-tax economies. And since the United States is a low-tax country (at least compared to places like France), the plan would require U.S. financial institutions to collect private financial data on non-resident investors so it can be turned over to foreign tax collectors. Is the EU bluffing or is the Bush administration about to put the interests of European welfare states before the interests of the American economy?

It's hard to believe that the U.S. has capitulated since this initiative is an assault on American sovereignty. European politicians may believe that it is unfair for jobs and capital to flee from high-tax countries to low-tax countries, but the United States has no obligation to prop up Europe's welfare states. The Savings Tax Directive is a significant threat to market-based policy and fiscal competition. But most of all it is a threat to America's interests. [link to full article below:]

July 2, 2002, Cato Institute, by Veronique de Rugy, Bush Should Reject European Tax Cartel
http://www.cato.org/dailys/07-02-02.html

 

6) The US Starts To Recognize EU 'Information Exchange' Problem

Congressman Jim DeMint of South Carolina has written to Treasury Secretary Paul O'Neill urging him to reject the EU's Savings Tax Directive. The EU had wanted to impose a withholding tax on investment returns accruing to the citizens of member states, but was stymied by the Brits, who feared for the international bond business which makes up a large proportion of the City's revenue.

Instead, EU leaders agreed on a scheme to exchange information, whereby each member state would report payments made to other member states' citizens. However, they recognised that this would make EU financial institutions uncompetitive by comparison with outside financial centres such as Switzerland, the US and offshore jurisdictions such as Jersey and the Isle of Man. Thus they made the information-exchange regime conditional on the inclusion of all these other countries, and have been struggling since to persuade Switzerland in particular to sign up to information exchange.

There has been little news about the discussions which are presumed to be taking place between the EU and the US on the issue of information exchange, and Jim DeMint's letter, reproduced below, is aimed at stiffening resistance in the Treasury Department to the EU's plans. [Link to full article and letter below:]

June 20, 2002, Tax-News.com, by Mike Godfrey, The US Starts To Recognize EU 'Information Exchange' Problem
http://www.tax-news.com/asp/story/story.asp?storyname=8553

Rep. DeMint's letter:
http://www.freedomandprosperity.org/ltr/demint/demint.shtml

 

7) De Rugy: Runaway Corporations: Political Band-Aids vs. Long-Term Solutions

[Excerpt]
A growing number of multinational companies are changing their place of incorporation from the United States to foreign jurisdictions. By doing so, companies are able to reduce taxes paid to the U.S. government on their foreign operations. They do not typically change their actual business structure, and they continue to pay taxes on U.S.-source income to the federal government.

A number of bills have been introduced in Congress to stop such corporate "inversions" or "expatriations." Unfortunately, those bills offer only a superficial response to issues raised by the inversions and do not tackle the underlying problems caused by the U.S. corporate income tax. A recent U.S. Treasury report provides a more thoughtful, even though incomplete, response to the corporate inversion trend. The report recognizes that inversions raise broad issues related to business tax burdens and calls for a comprehensive reexamination of U.S. international tax rules.

Corporate inversions are part of a broader dynamic of rising global tax competition. U.S policymakers have so far not formulated a response to this powerful and liberating force in the world economy. Instead, they occasionally apply Band Aids to corporate tax issues raised by the media, but put off long overdue fundamental tax reforms. [Link to full article below:]

July 2002, Cato Institute Tax and Budget Bulletin, by Veronique de Rugy, Runaway Corporations: Political Band-Aids vs. Long-Term Solutions
http://www.cato.org/pubs/tbb/tbb-0207-9.pdf

Clips on Inversion:

June 18, 2002, Reuters, U.S. Senate panel backs anti-tax avoidance bill
http://money.iwon.com/jsp/nw/nwdt_rt.jsp?section=news&news_id=reu-n1822246&fe ed=reu&date=20020618&cat=INDUSTRY

June 18, 2002, Associated Press, by Eileen Alt Powell, Complex U.S. tax code 'an abomination,' Treasury secretary says
http://www.bakersfield.com/24hour/politics/story/438662p-3511116c.html

July 1, 2002, Business Week, By William C. Symonds, The Tax Games Tyco Played
http://www.businessweek.com/magazine/content/02_26/b3789018.htm

June 26, 2002, Associated Press, By Curt Anderson, Tax havens get a careful look: Lawmakers urged to go slow on ban of reincorporations
http://www.rockymountainnews.com/drmn/taxes/article/0,1299,DRMN_94_1230390,00.h tml

July 1, 2002, The Miami Herald, By Elaine Walker, Proposed U.S. legislation may close Bermuda loophole
http://www.miami.com/mld/miamiherald/business/3568010.htm

American Institute of Certified Public Accountants:  Comments for the Record of the June 25, 2002 House Ways and Means Committee Select Revenue Measures Subcommittee Hearing on Corporate Inversions
http://www.freedomandprosperity.org/ltr/aicpa/aicpa.shtml

Link to June 28, 2002 House Ways and Means Subcommittee hearing
http://waysandmeans.house.gov/srm/107cong/srm-8wit.htm

 

8) Salsman: Capital on Strike: The Tax Haven Controversy (Part Two)

Part 1 of Mr. Salsman's report was very popular. Below is an excerpt from Part 2 of his "Capital on Strike" series:

[Excerpt]
In Part One of this report we described the scope of tax havens and the perfectly innocent (and profitable) motives for accessing them. Tax burdens imposed by the world's welfare states -- especially those imposed on the wealthiest, most successful entrepreneurs and shareholders -- have increased with every passing year. No wonder "Atlas is Shrugging." By accessing tax havens (or any other manner of lowering the tax burden), income-producers maximize their after-tax returns --and hence the investment returns available to investors.

But the tax havens are under attack-- from the leaders of high-tax, welfare nations. And those who access tax havens have been characterized as evil – as "unpatriotic tax cheats" who deprive the high-tax nations of what they call their "rightful" revenue and prevent welfare-states from playing the role of Robin Hood. Moreover, high-tax nations are pressuring relatively lower-tax industrialized nations (like the U.S.) to raise taxes. This is a set-up, not to find a proper remedy for growing tax avoidance (by reducing the welfare state and its tax burdens) but to impose still greater burdens. That's a threat to greater income-earning and investment returns.

We'll see that tax havens boost wealth creation – and therefore should be heralded by investors; havens represent "harm" (if it can be called that) only to the tax-collecting power of wealth-destroying welfare states. But such "harm" is positively beneficial for wealth-creation – just as the "harm" (jail time) "imposed" on robbers or vandals is good for wealth-creation. Next we'll examine the case in favor of tax havens – especially how, through "tax competition," they make welfare-state tax burdens less than they'd be otherwise. Finally, we'll analyze the risks to further wealth creation posed by a pending assault on tax havens and on those who access them. [Link to full article below:]

May 28, 2002, Richard M. Salsman, The Capitalist Advisor, InterMarket Forecasting, Inc., Capital on Strike: The Tax Haven Controversy -- Part Two
http://www.freedomandprosperity.org/Articles/salsman2.pdf

 

9) Walter Russell Mead: The Case Against Europe…

The Case Against Europe: The very things that Europeans think make their political judgment better than Americans' actually make it worse.  Amusing commentary by Walter Russell Mead on the differences between Europe and the US.

[Excerpt]
The United States is too unilateralist, too religious, too warlike, too laissez-faire, too fond of guns and the death penalty, and too addicted to simple solutions for complex problems. So goes the European indictment of American society, and much of the U.S. foreign-policy elite accepts it at something close to face value. But populist nationalists—Jacksonian Americans, that is—don't.

The twentieth century taught Europeans and Americans different lessons. Europe learned that nationalism could lead to destruction; Americans learned that nationalism could bring safety and prosperity. Europe learned that bureaucratic welfare states and powerful trade unions were the only alternatives to bitter class warfare; Americans learned that government and unions were, at best, necessary evils. Europe learned that Christianity was an exhausted religion that could play no serious part in the contemporary world; Americans learned that personal religious faith was more necessary than ever. [Link to full article below:]

April 2002, The Atlantic Monthly, by Walter Russell Mead, The Case Against Europe: The very things that Europeans think make their political judgment better than Americans' actually make it worse
http://www.theatlantic.com/issues/2002/04/mead.htm

 

10) More evidence that high-tax nations, not so-called tax havens, are financial conduits for terrorism

[Excerpt]
In Britain this week, Scotland Yard special anti-terrorism investigators said they had 'growing, darkening' concerns about the unwitting part the UK may have played in the development of the al-Qaida network prior to September 11. This included the use of Britain for terrorist fund-raising, money laundering and as a communications centre. [Link to full article below:]

June 27, 2002, Guardian (London), by Simon Tisdall, Assessing the al-Qaida threat
http://www.guardian.co.uk/elsewhere/journalist/story/0,7792,745266,00.html

 

11) Pete Du Pont argues for American sovereignty: Shredding the Constitution: The case against the International Criminal Court.

[Excerpt]
How much sovereignty and individual liberty are we willing to sacrifice to build a rule of law defined by a globally chosen court bound by no constitution? Should we abandon our constitutional guarantees so that our military personal, their commanding officers, the secretary of defense and the president can be tried in an ICC court, by judges from Cambodia or Madagascar? How would an Iranian judge handle a female defendant, being from a culture where women have no rights at all? Since the judges are elected on a global basis, the majority will not be from the few nations with a Judeo-Christian ethic or constitutional democracies. Do we want to turn over jurisdiction of U.S. citizens and officials to such a court? Surely not.

June 26, 2002, Opinion Journal, By Pete Du Pont, Shredding the Constitution: The case against the International Criminal Court.
http://www.opinionjournal.com/columnists/pdupont/?id=110001893

 

12) Cato Institute Issues Sixth Report on Global Economic Freedom: Hong Kong remains in first place, United States climbs to third

[Excerpt]
 Hong Kong is still the world's freest economy, with Singapore coming in a close second, according to the Economic Freedom of the World: 2002 Annual Report. But the United States has climbed from fifth to third position, according to the study, which is a comprehensive rating of 123 of the world's economies.

The Economic Freedom of the World Report is an annual project started with the help of Nobel laureate Milton Friedman. The report uses 37 objective criteria to produce an economic freedom index of the world, published by the Cato Institute, Canada's Fraser Institute and institutes from 54 other countries. [Link to full report:]
http://www.cato.org/new/06-02/06-24-02r-2.html

 

13) BizOffshore, OffshoreOn.com: Investors Fail in Attempt to Oppose Nabors' Reincorporation

While the attempt by a coalition of labour unions, institutional investors, and state funds to oppose a plan by Nabors Industries Inc.'s board to reincorporate in Bermuda failed, such moves could serve to strengthen the US Congress' legislative attempts at preventing similar moves by other companies. [Link to full story below:]
http://www.offshoreon.com/articles/3096.asp?docid=3096

 

14) CFP Clips

Jersey Agrees To Implement Exchange of Information Policy With EU
http://www.offshoreon.com/articles/3176.asp?docid=3176

Jersey Signs Exchange of Information Agreement with US Regulators
http://www.offshoreon.com/articles/3236.asp?docid=3236

Merrill Lynch/Cap Gemini Ernst & Young World Wealth Report 2002
http://www.cgey.com/finance/pubs/FSI_WorldWealthReport2002.pdf

June 24, 2002, Swiss Info, Villiger rebuffs EU attack on Swiss banking secrecy
http://www2.swissinfo.org/sen/Swissinfo.html?siteSect=161&sid=1206423

June 23, 2002, Telegraph, by Grant Ringshaw and Mary Fagan Manx government to axe business tax
http://money.telegraph.co.uk/money/main.jhtml?xml=/money/2002/06/23/cnmanx23.xml &sSheet=/money/2002/06/24/ixcity.html

June 25, 2002, Tax-News.com, by Amanda Banks, IOM Proposes Zero Income Tax For Businesses
http://www.tax-news.com/asp/story/story.asp?storyname=8589

June 27, 2002, Tax-News.com, by Jason Gorringe, Gib Government Slammed For Communication Failure
http://www.tax-news.com/asp/story/story.asp?storyname=8615

June 24, 2002, Tax-News.com, by Amanda Banks, Financial Services Minister Says Bahamas To Compete With Europe, US
http://www.tax-news.com/asp/story/story.asp?storyname=8575

June 26, 2002, The Washington Times, J. Bradley Jansen, FBI targets protest groups
http://www.washingtontimes.com/op-ed/20020626-4917655.htm

June 25, 2002, LewRockwell.com, by Butler Shaffer, Are There Limits to Liberty?
http://www.lewrockwell.com/shaffer/shaffer22.html

July 2, 2002, The Washington Times, Richard Rahn, How many phone services needed?
http://www.washingtontimes.com/commentary/20020702-10797200.htm

July 7, 2002, The New York Times, By Elizabeth Olson, Europe Calls It Vital Tax Data; Swiss Banks Call It Vitally Secret
http://www.nytimes.com/2002/07/07/international/europe/07SWIS.html

July 5, 2002, Quicken.com, Foreign Direct Investment Slid 56% to $565 Billion in 2001
http://www.quicken.com/small_business/news/index-article.dcg?story=/news/stories/d j/20020705/on20020705000015.htm&department=1

 

Best regards,

Andrew Quinlan
Center for Freedom and Prosperity
President
202-285-0244
08-728-9639 (efax)
quinlan@freedomandprosperity.org
www.freedomandprosperity.org

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