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CF&P E-mail Update, July 23, 2004

Center for Freedom and Prosperity's E-mail Update

1) Floundering EU tax directive takes another step backwards

2) European money fleeing to Hong Kong?

3) Dan Mitchell to speak in Oxford and Cambridge on Tax Competition and Financial Privacy

4) Countries with lower tax rates grow faster

5) High tax rates increase evasion, boost underground economy

6) Congressman Paul Ryan introduces plan to privatize Social Security

7) The size of government matters most, not the deficit

8) Europe's dismal future

9) Mitchell:  A Pyrrhic Victory for Statism? Tax competition survives constitutional challenge

10) Richard Rahn on giving bureaucrats an incentive for sensible regulation

11) Threats to US sovereignty

12) The destructive impact of the "War on Poverty."

13) Foreign investment in US reaches $10 trillion level

14) Unions and politicians whine about jurisdictional competition

15) Politicians today undermine Founders' vision of liberty

16) Court blocks IRS fishing expedition, upholds Constitution

17) CF&P Blogs and News Clips

 

1) Floundering EU tax directive takes another step backwards

The Bureau of National Affairs reports that EU nations have officially acknowledged that the proposed savings tax cartel will not be implemented in January. This scheme has been emasculated, but it is still a step in the wrong direction - particularly since bureaucrats in Brussels immediately will agitate to expand its reach once it goes into effect.

[Excerpt from BNA article:]

The European Union member states agreed July 19 to postpone until July 1, 2005, the implementation of a long-awaited and highly controversial cross-border tax on interest income from savings accounts. The EU law will take effect provided Switzerland ratifies a separate agreement to impose a savings tax on income earned by EU citizens with Swiss bank accounts. ...The commission also recognized that, if Switzerland does not implement the law, the EU savings tax will not take effect. "If the Swiss reject it, the whole deal will collapse," the commission official said. "But we do not think that will happen as the Swiss government and banking industry are very happy with this deal as they can maintain bank secrecy." In the Swiss banking industry, the new cross-border tax has been dubbed "the dummy tax" because they believe there are numerous loopholes that will make it easy to avoid. [Link to full article below:]

July 20, 2004, The Bureau of National Affairs, By Joe Kirwin, EU Savings Tax Plan Postponed Six Months: While Switzerland Takes Up Side Agreement
http://pubs.bna.com/ip/BNA/der.nsf/is/a0a9e2a3r7   (subscription required)

July 20, 2004, The Market Center Blog, Floundering EU tax directive takes another step backwards.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#207

Additional blogs and articles on the EU savings tax directive:

June 28, 2004, Tax-News.com, by Ulrika Lomas, Savings Tax Directive Delay 'Not Switzerland's Fault', Say Bankers
http://www.tax-news.com/asp/story/story.asp?storyname=16466

June 24, 2004, The Market Center Blog, Even a watered-down, un-implemented savings tax directive is causing capital flight from Europe. http://www.freedomandprosperity.org/blog/2004-06/2004-06.shtml#244

June 24, 2004, The Market Center Blog, Will Swiss voters save Europe from self-imposed folly?
http://www.freedomandprosperity.org/blog/2004-06/2004-06.shtml#241

June 23, 2004, The Market Center Blog, Bad news for the EU savings tax cartel, good news for economic liberalization.
http://www.freedomandprosperity.org/blog/2004-06/2004-06.shtml#234

June 23, 2004, SwissInfo, Government rejects mandatory Schengen vote
http://www.swissinfo.org/sen/swissinfo.html?siteSect=105&sid=5029529

June 22, 2004, EUBusiness, EU says Switzerland to miss deadline for savings tax deal
http://www.eubusiness.com/afp/040622120728.8ndpcfon

 

2) European money fleeing to Hong Kong?

A recent government report shows that Hong Kong investment funds have seen a surge in assets, with much of the money coming from overseas. There is considerable speculation that the EU savings tax directive already is having an effect.

[Excerpt from Tax-news.com:]

The Hong Kong Securities and Futures Commission reported on Tuesday that total assets managed by funds in the city surged 80% in 2003 compared to the previous year's total. According to the figures, which include asset management and advisory businesses, in addition to private banking firms, total assets rose to HK$2.947 billion in 2003 from HK$1.635 billion in 2002. Within this total, licensed corporations reported HK$2.317 billion worth of assets and accounted for 79% of the total fund management business. ...The survey found strong interest from overseas funds which amounted to HK$1.860 billion, representing 63% of the total assets in the fund management business. [Link to full article below:]

July 8, 2004, Tax-News.com, by Mary Swire, Assets Managed By Funds In Hong Kong Leapt 80% In 2003
http://www.tax-news.com/asp/story/story.asp?storyname=16584

July 8, 2004, The Market Center Blog, European money fleeing to Hong Kong?
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#082

Additional articles on capital fleeing Europe:

July 14, 2004, United Press International, By Sonia Kolesnikov-Jessop, Feature: Chasing wealth in Japan, China
http://www.upi.com/view.cfm?StoryID=20040713-070104-9975r

June 24, 2004, Investors Offshore.com, by Phillip Morton, Asia Pacific Set For Private Banking Boom
http://www.tax-news.com/asp/story/story.asp?storyname=16439

June 24, 2004, Tax-News.com, by Ulrika Lomas, Liechtenstein Bank Anticipates Growth In Singapore Operation
http://www.tax-news.com/asp/story/story.asp?storyname=16441

 

3) Dan Mitchell to speak in Oxford and Cambridge on Tax Competition and Financial Privacy ~ September 6 & 9, 2004

In September, Dan Mitchell of the Heritage Foundation will participate in both the Oxford Offshore Symposium and the Cambridge International Symposium on Economic Crime. He will give a dinner address in Oxford on September 6th on the "Economics of Tax Competition" and a September 9th morning panel presentation on "The Patriot Act and Beyond" in Cambridge.

The 14th Oxford Offshore Symposium
Sunday 5th Saturday 11th September
Jesus College, Oxford
http://www.offshoreinvestment.com/Offshore_Postgraduate/index.html

The 22nd Cambridge International Symposium on Economic Crime
"The Financial War on Terror and Organised Crime"
Sunday 5th Sunday 12th September 2004
Jesus College, Cambridge
http://www.crimesymposium.org/PDFfiles/2004%20Programme.pdf

 

4) Countries with lower tax rates grow faster.

The National Bureau of Economic Research has released a new study ("Tax Effects on Work Activity, Industry Mix and Shadow Economy Size: Evidence from Rich-Country Comparisons") showing that high tax rates discourage employment and increase the underground economy. Using cross-country data, the economists show that higher tax rates are associated with weaker economic performance:

[Excerpt from NBER's paper:]

...higher tax rates reduce work time in the market sector, increase the size of the shadow economy, alter the industry mix of market activity, and twist labor demand in a way that amplifies negative effects on market work and concentrates effects on the less skilled. ...Regressions on rich-country samples in the mid 1990s indicate that a unit standard deviation tax rate difference of 12.8 percentage points leads to 122 fewer market work hours per adult per year, a drop of 4.9 percentage points in the employment-population ratio, and a rise in the shadow economy equal to 3.8 percent of GDP.  [Link to abstract of paper below:]

May 2004, National Bureau of Economic Research, By Steven J. Davis and Magnus Henrekson, Working Paper No. w10509:  Tax Effects on Work Activity, Industry Mix and Shadow Economy Size: Evidence from Rich-Country Comparisons
http://papers.nber.org/papers/w10509

June 28, 2004, The Market Center Blog, Countries with lower tax rates grow faster.
http://www.freedomandprosperity.org/blog/2004-06/2004-06.shtml#282

 

5) High tax rates increase evasion, boost underground economy.

A comprehensive article by Bruce Bartlett shows that high tax rates drive taxpayers into the underground economy. Not surprisingly, the OECD seeks to downplay the role of tax policy, but the studies cited by Mr. Bartlett demonstrate that lower tax rates and tax reform are the best ways to improve tax compliance:

[Excerpt from Bartlett's column:]

The underground economy results from many factors, including criminal activity. But the bulk of it arises from ordinary businessmen and workers who are evading taxes and government regulations. The OECD downplays the importance of taxes and puts most of the responsibility on regulation. However, other studies have found that high tax rates are the most important factor in stimulating growth of the underground economy. "In various surveys, the tax burden has always been identified as the main cause for the growth of the shadow economy," according to Schneider and Enste. Their analysis found that a 10 percentage point increase in the tax burden would cause the underground economy to rise by 3 percent of GDP. A Federal Reserve study found an even higher response, with an increase in the tax rate from 9.3 percent to 10 percent leading to a 1.5 percent rise in underground output. A recent IMF study found that the composition of taxation was very important. High taxes on small businesses and the self-employed were most likely to lead to underground economic activity. "Raising tax rates too high drives firms into the underground economy," the study concluded. [Link to full article below:]

July 13, 2004, Townhall.com, by Bruce Bartlett, The underground economy
http://www.townhall.com/columnists/brucebartlett/bb20040713.shtml

July 13, 2004, The Market Center Blog, High tax rates increase evasion, boost underground economy.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#132

Link to more entries on taxation from The Market Center Blog
http://www.freedomandprosperity.org/blog/issues/issues.shtml#tax

 

6) Congressman Paul Ryan introduces plan to privatize Social Security

Three cheers for Congressman Paul Ryan. The Wisconsin Republican has a plan to modernize Social Security by allowing workers to shift payroll taxes to personal retirement accounts. Some two dozen nations have implemented this reform, which simultaneously reduces long term government spending and increases retirement income for workers.

[Excerpt from Cong. Ryan's WSJ column:]

This week I am introducing new legislation that empowers workers with the freedom to choose a large personal account option for Social Security, with no benefit cuts or tax increases of any sort, now or in the future. Through these large personal accounts, the bill would increase future retirement benefits and cut future taxes for all workers. ...The plan maintains a strong safety net, as the accounts are backed by a federal guarantee that workers would receive at least as much as Social Security promises under current law. The plan is voluntary. Anyone who chooses to stay in traditional Social Security would receive the benefits promised under current law. Survivors and disability benefits would continue as under the current system. The proposal achieves solvency without benefit cuts or tax increases because so much of Social Security's benefit obligations are ultimately shifted to the accounts. In fact, the official score of the chief actuary shows that ultimately, instead of increasing the payroll tax to over 20%, as would be needed to pay promised benefits under the current system, the tax would be reduced to 4.2%, enough to pay for all of the continuing disability and survivors benefits. This would be the largest tax cut in U.S. history. [Link to full column below:]

July 19, 2004, The Wall Street Journal, By Paul Ryan, Outside the (Lock) Box
http://online.wsj.com/article/0,,SB109019190010366972,00.html?mod=opinion (subscription required)

July 19, 2004, The Market Center Blog, Congressman introduces plan to privatize Social Security.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#194

 

7) The size of government matters most, not the deficit

A British economist makes an excellent point in a Wall Street Journal column. He explains that the debate about "balancing the budget" is misplaced since it ignores the much more important issue of whether government is too big and spending too much.

[Excerpt from the WSJ column:]

The big issue in fiscal policy is how much a government is going to spend -- that is the key economic cost. How government spending will be financed and the choices made between borrowing and taxation are only of secondary concern. ...The fixation with government borrowing and deficit rules, however, is a distraction from the much more important questions of how much a government should spend and whether it will yield results that exceed the costs of the resources used. The EU's Economic Growth and Stability Pact has done little to curb the level of public spending and the size of the public sector in the euro-zone. The European Central Bank estimates that government expenditure in the euro zone as a percentage of gross domestic product hardly budged in recent years, still accounting for almost half of national income. And it is this level of government spending that is at the heart of so many of the structural problems that create slow growth and high unemployment in Europe. [Link to full article below:]

July 14, 2004, The Wall Street Journal, By Warwick Lightfoot, Deficits Are Not the Problem
http://online.wsj.com/article/0,,SB108975587580262794,00.html?mod=opinion (subscription required)

July 14, 2004, The Market Center Blog, The size of government matters most, not the deficit.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#143

 

8) Europe's dismal future.

A Roundtable organized by the former president of the European Commission has produced a genuinely frightening document. Chaired by a former French cabinet minister, "A sustainable project for tomorrow's Europe" bemoans market-based developments such as tax competition and endorses statist proposals such as "massive" spending increases, new tax powers for Brussels, the "right" to a particular career, a European minimum income, and industrial policy. With antiquated ideas like these so prevalent in Old Europe, little wonder the future is grim.

[Excerpt from study:]

The importance attached to social justice ("the rights of the poor man") is something peculiar to Europe: the development of the welfare state, the intensity of fiscal redistribution are features specific to Europe. Taxation averages 42% of GDP in Europe, ranging between 38% and 53% depending on the Member State; it is only 28% in the United States and Japan, ten points lower than in the least redistributive European State.... The European model ...prefers sustainable development to productivist growth. ...The globalisation of economic flows is an acute problem for the European model of development: when regulation - one of its features, with such things as minimum wages, social protection and environmental standards - becomes too heavy, economic flows flee Europe. To attract investments, European countries are tempted to engage in a fiscal and social competition which can end up with them abandoning the European model in favour of a more liberal [in the European free-market sense] model. This competition has on occasion taken the alarming turn of organising fiscal and social dumping, with the development of tax havens for multinationals within the European countries themselves...finding the way back to growth... means above all ensuring that the Lisbon strategy is implemented by giving it teeth: investing in research, investing in higher education... The fundamental idea is to bring about a massive increase in budgetary spending on the future. It also involves giving the Union an active industrial policy. ...remedial action is still at the heart of the European model: ...the creation of a European minimum income, would help to attenuate the negative perception of Union action in social matters. ...professional social security could become the first European social right. ...A political Europe will have a cost: it cannot be deployed with unchanged budgetary resources of less than 1% of European GDP. The Community budget needs to grow gradually beyond the own resources ceiling (1.24% of European GDP), which should be removed. These additional resources will come in the first instance from transfers from the Member States. But they will also require the introduction of a first European tax: a supplementary company tax could be a good solution. [Link to full study below:]

April 2004, European Commission's Round Table on "A sustainable project for tomorrow's Europe," By Dominique Strauss-Kahn, Building A Political Europe: 50 proposals for tomorrow's Europe
http://www.delaus.cec.eu.int/whatsnew/building_a_political_europe.pdf

July 14, 2004, The Market Center Blog, Europe's dismal future.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#146

July 15, 2004, EU Business, Adopting the EU constitution: a wide range of approaches
http://www.tax-news.com/asp/story/story.asp?storyname=16607

July 5, 2004, Tax-News.com, by Ulrika Lomas, Overall EU Tax Burden Declined In 2002, Eurostat Reveals
http://www.tax-news.com/asp/story/story.asp?storyname=16542

June 30, 2004, The Washington Times, By Marian L. Tupy, An uncoupled Europe ahead?
http://www.washingtontimes.com/commentary/20040629-090641-3054r.htm

Link to more entries on the EU from The Market Center Blog
http://www.freedomandprosperity.org/blog/issues/issues.shtml#eu

 

9) Mitchell: A Pyrrhic Victory for Statism? Tax competition survives constitutional challenge

[Excerpt:]

Notwithstanding efforts by high-tax nations such as France and Germany, the draft constitution retains the unanimity rule for tax matters. This means that a single country has the ability to block any and all tax harmonization proposals. This is important because "tax competition" has become a very powerful force for economic liberalization in Europe. But the handful of nations that are driving this process - including Ireland with its 12.5 percent corporate tax rate and Slovakia with its 19 percent flat tax - could have been out-voted and forced to raise taxes if the constitution relied on "qualified majority voting" for tax matters.

Leftist policy makers are very unhappy that the unanimity rule still exists. German, French, and Belgian officials made a last-minute push to water down the provision, but they could not even get agreement for majority rule voting for more limited issues such as tax fraud. Representatives from the European Commission also wanted the unanimity rule weakened, but (relatively) low-tax nations - including the United Kingdom, Ireland, and several new members from Eastern Europe - were not persuaded.

Politicians in high-tax countries are right to be concerned. There is every reason to believe that tax competition will become even more prevalent in the future. One reason is that the European Union has expanded to 25 nations, and several of those countries have aggressively reduced tax rates and implemented pro-growth tax reforms. In addition to Slovakia, the three Baltic nations have flat tax regimes, and countries such as Poland and Hungary have corporate tax rates of less than 20 percent. This almost surely will lead businesses to migrate eastward and pressure nations from "Old Europe" to lower tax rates. Indeed, the recent decision in Austria to lower the corporate rate from 34 percent to 25 percent was a direct response to the enactment of Slovakia's 19 percent flat tax.

Another reason to expect further tax competition is that taxation is one of the few fields left where governments in the EU are allowed to compete. In some economic policy areas, such as trade, nations have no ability to compete by lowering tariffs. In other fields, like labor policy, there is a limited degree of national flexibility, but it is safe to say that national governments increasingly are playing second fiddle to the Brussels bureaucracy - and the draft constitution will further constrain their options. One of the biggest exceptions, of course, is taxation, which is why governments will be even more prone to use tax policy to improve competitiveness (much as airlines competed with better food and cute stewardesses back in the days when the Civil Aeronautics Board rigged fare prices). [Link to full article below:]

June 25, 2004, Tech Central Station, By Daniel J. Mitchell, A Pyrrhic Victory for Statism?
http://www.techcentralstation.com/062504A.html

 

10) Richard Rahn on giving bureaucrats an incentive for sensible regulation

Richard Rahn writes in the Washington Times that government bureaucracies often impose foolish regulations, in part because there is no penalty for imposing high costs on the productive sector of the economy. But if regulations had to meet a cost-benefit test - and if the bureaucracies might lose some of their funding if they proposed regulations that failed that test, the quality of rules almost surely would improve.

[Excerpt from Richard Rahn's column:]

Too few government regulations are subjected to rigorous cost-benefit tests, even when required. Many government agencies do not take the requirement seriously, act in good faith or present accurate data. The regulators have a strong incentive to underestimate the true costs of their regulations. ...there is a solution. In recent years, Congress has established the right of "private course of action," whereby individuals can sue an agency not adequately enforcing some civil rights or environmental laws. The courts have been empowered to compensate lawyers who prevail in these suits for the fees and associated litigation expenses in order to encourage private enforcement of these laws. Congress should expand the right of "private course of action" to allow any individual or group to sue an agency for issuing a regulation the benefits of which do not exceed the costs. If the private party is able to prove, by a reasonable standard, that a regulation is not cost-effective, that party would be entitled to normal legal fees plus the fees of professionals who did the necessary technical work. The agency issuing the faulty regulation should be required to pay the awarded fees out of its own budget. In addition, the agency would be required to withdraw the regulation or reissue it to operate in a cost-effective manner. [Link to full article below:]

July 11, 2004, The Washington Times, By Richard W. Rahn, Regulation therapy
http://www.washingtontimes.com/commentary/20040710-094509-5151r.htm

July 11, 2004, The Market Center Blog, Giving bureaucrats an incentive for sensible regulation.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#112

Additional Richard Rahn articles:

July 8, 2004, The Washington Times, By Richard W. Rahn, Economics chasm between
http://www.washingtontimes.com/commentary/20040707-090157-2404r.htm

June 25, 2004, The Washington Times, By Richard W. Rahn, The ideal
http://washingtontimes.com/commentary/20040624-081414-7572r.htm

 

11) Threats to US sovereignty.

Phyllis Schlafly explains in Townhall.com that the United States should not make the mistake of Europe and surrender sovereignty to international bureaucracies. This is especially important since this would mean more government control and regulation.

[Excerpt from Mrs. Schlafly's article:]

The U.S. Constitution is based on the premise that we are a sovereign nation and we need not obey any power unless authorized in the Constitution. The Europeans, on the other hand, are rapidly abandoning their national sovereignty in favor of an international bureaucracy called the European Union.... Clinton signed the International Criminal Court treaty, which would have locked us into a global judicial order. He urged us to accept the Convention on the Rights of the Child, which would have set up a global committee to monitor the way parents raise their children. Clinton and former Vice President Al Gore were big fans of the Kyoto Protocol to the Convention on Climate Change, which would have set up a global tribunal to control our energy use. Clinton and first lady Hillary Rodham Clinton demanded the Convention on the Elimination of All Forms of Discrimination Against Women, which would have created a global commission of feminist "experts" to regulate gender issues in our laws, customs, education and wages. Finally, the Convention on the Law of the Sea would have created an international seabed authority to control and distribute the mineral riches under the seas. Each of these Clinton-supported treaties would have grabbed a big slice of our sovereignty, but fortunately they were never ratified. ...Our Declaration of Independence is, in essence, a declaration of U.S. sovereignty. Freedom in the United States depends on it and on avoiding European mistakes. U.S. citizens must never accept any governing authority higher than the U.S. Constitution. [Link to full article:]

July 5, 2004, Townhall.com, by Phyllis Schlafly, To celebrate independence, we must have sovereignty
http://www.townhall.com/columnists/phyllisschlafly/ps20040705.shtml

July 6, 2004, The Market Center Blog, Threats to US sovereignty.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#064

 

12) The destructive impact of the "War on Poverty."

In the 1960s, the government launched a so-called war on taxpayers. As expected, this effort was a complete catastrophe. Taxpayers were the biggest casualties, but the ostensible beneficiaries also suffered. A Wall Street Journal column explains how government programs inevitably have adverse consequences.

[Excerpt from Wall Street Journal article:]

The Community Action Program, the War on Poverty's first (and worst) initiative, rests on a bizarre circularity in reasoning: that the poor must become active in improving their lot by demanding more and better services and transfer payments of which they are the passive recipients. As a practical matter, the most spectacular action the program took was the protracted mau-mauing of New York City's welfare offices, which resulted in loosened eligibility requirements, fatter welfare payments, and a huge expansion of the welfare rolls. This campaign went a long way to destigmatizing welfare and establishing it as a right, as if it were reparations for victimization. In this way, Community Action contributed mightily to the long-term dependency that became a defining, and debilitating, feature of underclass life. So too with another War on Poverty creation, the Legal Services Corporation, designed to use the courts to change "the system." LSC tirelessly sued to raise welfare payments and expand eligibility -- so much so, to take only one example, that a San Francisco affiliate boasted that its efforts had more than doubled California's welfare rolls between 1968 and 1973 and had hiked the average grant by a third, costing the state over a quarter of a billion dollars. Erasing the distinction between the deserving and the undeserving poor, LSC successfully sued to have the drug addiction and alcoholism of many of its clients declared a disability, qualifying them for payments under the government's SSI disability insurance scheme, which thus often became a subsidy for vice. And LSC was equally successful in keeping public-housing tenants from being evicted when family members dealt drugs or even murdered neighbors, making the projects increasingly anarchic for law-abiding residents. [Link to full article:]

July 20, 2004, The Wall Street Journal, By Myron Magnet, Freedom vs. Dependency
http://online.wsj.com/article/0,,SB109027916719767925,00.html?mod=opinion (subscription required)

July 20, 2004, The Market Center Blog, The destructive impact of the "War on Poverty."
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#203

Additional free market blogs:

July 22, 2004, The Market Center Blog, Absurd lawsuit against Wal-Mart.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#223

July 20, 2004, The Market Center Blog, Hong Kong has most economic freedom.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#202

July 13, 2004, The Market Center Blog, High tax rates increase evasion, boost underground economy.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#132

June 29, 2004, The Market Center Blog, Crazy court case underscores an American disadvantage.
http://www.freedomandprosperity.org/blog/2004-06/2004-06.shtml#292

June 24, 2004, The Market Center Blog, You've heard of tax competition; how about health insurance competition?
http://www.freedomandprosperity.org/blog/2004-06/2004-06.shtml#245

Link to more free market blogs:
http://www.freedomandprosperity.org/blog/issues/issues.shtml#free

 

13) Foreign investment in US reaches $10 trillion level

Recently released Commerce Department data show that foreigners find America a good place to invest their money. Interestingly, the lion's share of this investment is in the form of foreign purchases of US securities (almost $3.4 trillion) and money placed in US banks (nearly $1.9 trillion) - capital inflows that in part are due to America being a safe haven for foreigners seeking to escape oppressive taxes in their home countries.

[Excerpt from BEA release below:]

Foreign-owned assets in the United States increased $986.8 billion to $9,633.4 billion with foreign direct investment valued at current cost, and they increased $1,348.2 billion to $10,515.0 billion with foreign direct investment valued at market value. Foreign holdings of U.S. securities other than U.S. Treasury securities, excluding official holdings, increased $604.4 billion to $3,391.1 billion. Foreign holdings of U.S. stocks increased as a result of a price appreciation and net foreign purchases. Foreign holdings of U.S. bonds increased as a result of net foreign purchases, exchange-rate appreciation of foreign currencies, and price appreciation. U.S. liabilities to private foreigners and international financial institutions reported by U.S. banks increased $368.8 billion, to $1,887.2 billion. Link to full release below:]

June 30, 2004, Bureau of Economic Analysis News Release, U.S. Net International Investment Position at Yearend 2003
http://www.bea.gov/bea/newsrelarchive/2004/intinv03.pdf

July 1, 2004, The Market Center Blog, Foreign investment in US reaches $10 trillion level.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#012

Additional tax competition blogs and articles:

July 22, 2004, The Market Center Blog, Jurisdictional competition is forcing European reform.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#221

July 20, 2004, The Market Center Blog, European Commission moves forward with corporate tax harmonization.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#206

July 16, 2004, The Market Center Blog, More positive evidence of tax competition.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#167

July 14, 2004, The Market Center Blog, More tax harmonization talk from the EU.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#141

July 13, 2004, EU Observer, By Sharon Spiteri, Pressure for common tax base continues
http://euobserver.com/?aid=16879&rk=1

July 9, 2004, Tax-News.com, by Ulrika Lomas, Abolition Of Subscription Tax In Luxembourg Welcomed
http://www.tax-news.com/asp/story/story.asp?storyname=16607

July 5, 2004, The Market Center Blog, Another Euro-crat endorses tax harmonization.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#052

July 5, 2004, The Market Center Blog, Tax havens boost US economy by saving money for businesses.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#056

June 24, 2004, Tech Central Station, By Einar Du Rietz, The Slovak Tiger
http://www.techcentralstation.be/062404A.html

June 23, 2004, The Market Center Blog, Pressure tactics against tax competition backfire against Germany, France, and the EU.
http://www.freedomandprosperity.org/blog/2004-06/2004-06.shtml#231

 

14) Unions and politicians whine about jurisdictional competition.

The Wall Street Journal has an encouraging editorial explaining how international competition is leading European workers to be more flexible and productive. Union bosses and politicians are upset, but this is exactly why tax competition is a liberalizing force in the global economy.

[Excerpt from the Wall Street Journal:]

With eight former Eastern Bloc countries now inside the EU -- most with both lower tax rates and far lower wages than the EU's pre-existing 15 member states -- a number of big employers are finding the threat of moving jobs east to be a powerful lever. They are using it in their negotiations with formerly complacent unions in countries like France and Germany. In France at least, it seems the politicians haven't yet gotten the memo. Echoing Mr. Sarkozy's statements last week, Budget Minister Dominique Bussereau called Bosch's demands "terrifying blackmail," saying that the measure was not in accord with the wishes of President Jacques Chirac and Prime Minister Jean-Pierre Raffarin. French unions, meanwhile, are nearly apoplectic. The CGT, which represents Bosch's employees, says it is examining a possible legal challenge to the move. Unfortunately for the union militants, Bosch's employees seem to have taken a more pragmatic line with their employer. ...The finance minister is playing to the gallery with his populist rhetoric, but the recent moves by Siemens in Germany and Bosch in France show that employers in Europe -- and many of their employees -- are increasingly aware that they are no longer an audience captive to these performances. It is too soon to say that enlargement has made reform inevitable, but the EU's inclusion in May of 10 new mostly tax-cutting, low-cost competitors to the cushy West European social consensus is already raising the costs of not reforming in measurable ways. [Link to full article below:]

July 20, 2004, The Wall Street Journal, Thinking the Unthinkable
http://online.wsj.com/article/0,,SB109027447274667807,00.html?mod=opinion (subscription required)

July 20, 2004, The Market Center Blog, Unions and politicians whine about jurisdictional competition.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#205

Additional blogs and articles on the size of government:

July 21, 2004, The Market Center Blog, The high cost of free health care.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#216

July 21, 2004, The Market Center Blog, Nanny-state politicians undermine freedom.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#213

July 19, 2004, The Market Center Blog, British politicians don't want honest global warming debate.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#197

July 19, 2004, The Market Center Blog, Government bureaucracy seeks to reduce regulatory extortion.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#193

June 28, 2004, The Market Center Blog, The high cost of over-regulation.
http://www.freedomandprosperity.org/blog/2004-06/2004-06.shtml#281

Links to more big government blogs:
http://www.freedomandprosperity.org/blog/issues/issues.shtml#big

 

15) Politicians today undermine Founders' vision of liberty

Roger Pilon of the Cato Institute has an excellent article explaining how bloated government necessarily reduce individual liberty. This is an unfortunate development, especially since America's founders designed a system to protect individual freedom.

[Excerpt from the NRO article:]

Too often today, however, government is not serving liberty but is at war with it, telling us that it knows best, that it will decide for us. ...When the Founders spoke of liberty, they meant that each of us has a right to plan and live his own life, as he thinks best, to pursue happiness in his own way, by his own lights, provided that in doing so he respect the equal rights of others to do the same. ...Yet the more we ask government to do for us, the more we undermine that vision. Every time government creates a new program "for our own good," it forces us all to a common vision of the good. Take Social Security. Do you want to retire at 55? Sorry, too early. We've decided that you can retire at 62, but at a reduced rate. Do you want the government to pay for your child's education? Here's the school you have to use and the curriculum your child must study? No thanks, you say, you'll send your child to a private school instead, where you have a choice of programs? You'll still have to pay for the public system. [Link to full article below:]

July 1, 2004, National Review Online, By Roger Pilon, Celebrating Independence: A reflection on where we came from, where we are, and where we're headed.
http://www.nationalreview.com/comment/pilon200407012232.asp

July 3, 2004, The Market Center Blog, Politicians today undermine Founders' vision of liberty.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#031

 

16) Court blocks IRS fishing expedition, upholds Constitution.

In a welcome decision, a federal judge has finally said no to an IRS data-grab. In recent years, the tax police have aggressively sought information on taxpayers, even in the absence of any evidence of wrongdoing. Up to this point, courts have been deferring to the IRS, so it is welcome to see that at least one judge is upholding the rule of law.

[The New York Times reports:]

A federal judge has ruled that the accounting firm BDO Seidman does not have to turn over dozens of confidential documents in its fight against government accusations that it sold abusive tax shelters, giving the firm a partial victory. ...The documents are protected by rules governing the confidentiality of written communications between lawyers and their clients, Judge Holderman wrote in his decision. Accounting firms have said that they are protected by such rules, known as attorney-client privilege, but the government has sought to challenge claims to that privilege in its investigation into tax shelters. ...[The judge's] ruling contrasts with recent decisions in other tax-shelter cases that have reinforced the government's efforts to compel firms to turn over scores of documents. In one case involving the government's investigation into the accounting firm KPMG, a federal judge in Washington wrote in May that Brown & Wood's favorable opinion letters were "an orchestrated extension of KPMG's marketing machine" for abusive tax shelters. [Link to full article below:]

July 7, 2004, The New York Times, By Lynnley Browning, U.S. Is Denied Most Papers Sought From Auditing Firm
http://www.nytimes.com/2004/07/07/business/07tax.html

July 9, 2004, The Market Center Blog, Court blocks IRS fishing expedition, upholds Constitution.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#091

 

17) CF&P Blogs and News Clips

July 22, 2004, The Market Center Blog, And what's wrong with being a "Cowboy American?"
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#222

July 21, 2004, The Market Center Blog, Why is Hollywood left wing?
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#217

July 19, 2004, The Market Center Blog, White House obesity decision will fatten the budget.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#191

July 19, 2004, LawAndTax-News.com, by Mary Swire, Hong Kong Remains World's Freest Economy, Says Cato Institute
http://www.tax-news.com/asp/story/story.asp?storyname=16694

July 19. 2004, The Royal Gazette, US House brings more pressure on offshore tax shelters
http://www.theroyalgazette.com/apps/pbcs.dll/article?AID=/20040719/BUSINESS/107190108

July 17, 2004, The Market Center Blog, And yet further signs of progress in Russia.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#171

July 16, 2004, CNN.com, House targets offshoring by U.S. companies: The House is taking an election-year swipe at U.S. companies that have lowered their tax bills by moving offshore, voting to bar them from receiving some lower-cost federal loans.
http://www.cnn.com/2004/ALLPOLITICS/07/16/congress.offshore.ap/

July 13, 2004, The Market Center Blog, Destroying lives with political correctness.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#133

July 9, 2004, The Market Center Blog, John Edwards and junk science.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#092

July 9, 2004, The Market Center Blog, More hypocrisy from international bureaucrats.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#094

July 6, 2004, Tax-News.com, by Mike Godfrey, US Accountants Oppose Overseas Housing Tax Proposals
http://www.tax-news.com/asp/story/story.asp?storyname=16552

July 6, 2004, The Market Center Blog, Bad policy undermining the benefits of immigration.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#063

July 4, 2004, The Market Center Blog, Cosby again urges individual responsibility.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#041

July 2, 2004, The Market Center Blog, OECD suggests reforms for Germany, but ignores oppressive tax burden.
http://www.freedomandprosperity.org/blog/2004-07/2004-07.shtml#023

July 1, 2004, Washington Post, By Jonathan Krim, Court Limits Privacy Of E-Mail Messages: Providers Free to Monitor Communications
http://www.washingtonpost.com/ac2/wp-dyn/A19211-2004Jun30?language=printer

July 1, 2004, AccountancyAge.com, By David Rae, Global taskforce sets its sights on avoidance industry
http://www.accountancyage.com/News/1137544

July 2004, Reason Online, By Brink Lindsey, 10 Truths About Trade: Hard facts about offshoring, imports, and jobs.
http://www.reason.com/0407/fe.bl.truths.shtml

June 29, 2004, Caribbean Net News, Cayman Islands NGOs accuse Britain of deception
http://www.caribbeannetnews.com/2004/06/29/deception.htm

June 28, 2004, The Market Center Blog, Will Republicans and Democrats switch their positions on abortion?
http://www.freedomandprosperity.org/blog/2004-06/2004-06.shtml#283

June 25, 2004, The Market Center Blog, High-tech magazine dismisses protectionist anti-inversion rhetoric.
http://www.freedomandprosperity.org/blog/2004-06/2004-06.shtml#254

June 23, 2004, The Market Center Blog, Left-wing media bias.
http://www.freedomandprosperity.org/blog/2004-06/2004-06.shtml#236

June 19. 2004, The Royal Gazette, Bush against ban on offshore businesses
http://www.theroyalgazette.com/apps/pbcs.dll/article?AID=/20040619/BUSINESS/106190067

 

Best regards,
Andrew Quinlan
Center for Freedom and Prosperity
President
202-285-0244
quinlan@freedomandprosperity.org
www.freedomandprosperity.org

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