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CF&P E-Mail Update, September 13, 2002

Center for Freedom and Prosperity's E-mail Update

1) Washington Update

2) News coverage of the EU's collapsing tax cartel

3) Mitchell:  Corporate Expatriation Protects American Jobs

4) Tax-News.com: US Administration Battles Treasury Over Information-Exchange

5) De Rugy: Corporate Inversion . . . "not a loophole"

6) Tax Foundation Analyzes Corporate Inversions: An Introduction to the Issue and FAQ

7) Shlaes: US Gets No Breaks In Territorial Dispute

8) Rahn:  Nightmare on FATF Street

9) Task Force on Information Exchange and Financial Privacy Asks FATF to Withdraw its Consultation Paper and Start Over with the Task Forces Recommendations

10) CSE's Wayne Brough:  Bad Taxes at Home Cause Trouble Abroad

11) Reuters: Chirac to back "globalisation tax" talks

12) AEI's Kevin Hassett on "Europe -- In Search of 'Community'"

13) Freedom Alliance's Fred Gedrich: UN Johannesburg Summit a Farce

14) A Historian Looks at Tax Havens

15) CF&P Clips

 

1) Washington Update

It looks like the Bush Administration's rejection of the European Savings Tax Directive is paying dividends as other countries are standing up to the Brussels bureaucrats. Luxembourg has announced that it will not support sanctions against Switzerland, thus depriving the EU of any ability to browbeat Switzerland into emasculating its financial privacy laws (see articles below). Supporters of tax competition should be cheered by this development. The EU almost surely will continue its pernicious efforts, but it is safe to say that the Savings Tax Directive is dead.

Over the next few weeks, CF&P will be continuing its ongoing educational campaign in Washington.  We have organized many meetings to discuss the EU Savings Tax Directive (even though the proposed cartel is dead, it is like the villain in horror movies, and we want to make sure it does not come back to life). Our other big initiatives are corporate expatriation legislation and the proposed IRS regulation.  We will encourage thousands of Americans to contact the IRS with their objections to this new Clinton-Lite information exchange regulation. The deadline for public comment on the regulation is November 14.

Regards, AQ

 

2) News coverage of the EU's collapsing tax cartel

[Excerpt from WSJ]
Last month, the news out on the EU's so-called Savings Tax Directive was that the U.S. wasn't interested. But over the weekend the news got even better, as Luxembourg, the tiny country sandwiched between Belgium and France, also stood up to the EU's tax bullying.

The EU's finance ministers sat down last week with talk swirling that they were prepared to threaten Switzerland with economic sanctions if it didn't further eviscerate its cherished bank-secrecy laws. In order to comply with the EU's demands that it report the banking activities of all EU citizens Switzerland would have to create a cumbersome and expensive information-collection and reporting system for all its banking customers, regardless of nationality. All for the sake of helping the EU hunt down suspected tax cheats.

If the EU's finance ministers had put their heads together to come up with a proposal sure to antagonize the Swiss, they couldn't have done better than to threaten sanctions over an issue as touchy as banking privacy. Luckily for both the Swiss and the EU's diplomatic reputation, Luxembourg chose to be sensible. Economic Affairs Minister Henri Grethen told reporters that the savings-tax proposal was not worth going to "political war" over. [Limk to full article below:]

September 12, 2002, Wall Street Journal Online: Review & Outlook, Mighty Little Luxembourg
http://online.wsj.com/article_email/0,,SB1031774448239965315,00.html

September 12, 2002, Tax-News.com, by Ulrika Lomas, Luxembourg Opposed To EU's Sanction Plans For Switzerland
http://www.tax-news.com/asp/story/story.asp?storyname=9360

 

3) Mitchell: Corporate Expatriation Protects American Jobs

Corporate executives are being criticized for bad decisions, some of which have crossed the line into criminal behavior. This heightened attention has helped to create a political environment in which all corporate actions are suspect--including decisions by some companies to re-incorporate in low-tax jurisdictions (a step commonly known as inversion or expatriation). At the very least, critics accuse these firms of being unpatriotic. In many cases, they have asserted that such companies are engaged in a questionable form of tax evasion.

Such claims are absurd. The decision to re-incorporate in a low-tax jurisdiction should be viewed as a prudent and responsible business reaction to a tax code that severely hinders the ability of U.S.-chartered firms to compete in world markets. Expatriation allows a company to compete on a level playing field with foreign-based firms while maintaining its headquarters and jobs in America--a combination that advances U.S. interests. And since the company continues to pay tax on all income earned in the United States, the evasion issue is a red herring. [Link to Full Memo below:]

August 29, 2002, The Heritage Foundation: Executive Memorandum #829, by Daniel J. Mitchell, Ph. D., Corporate Expatriation Protects American Jobs
http://www.heritage.org/Research/Taxes/em829.cfm

 

4) Tax-News.com: US Administration Battles Treasury Over Information-Exchange

[Excerpt]
Warfare continues within the US government over the question of information-sharing.

On your left, in William Jefferson Clinton colours, are 1960's tax-and-spend, Colbertian bureaucrats who eagerly welcomed (and probably helped to design) the European Union's Savings Tax Directive, which would ensure that all countries around the world tell investors' home tax authorities about income they receive, so that it can be taxed accordingly. This illiberal, pen-pushers' nightmare would move the world a noticeable step towards 1984. These gentlepersons, mostly secreted within the Treasury Department in offices well away from the open air, were happy to reissue recently a domestic regulation requiring just such information exchange for foreign investors in the US, as a covert signal to the EU not to give up on its already tattered Savings Directive.

On your right, in the colours of Ronald Reagan, is President Bush's administration, including his political appointees to the left-leaning Treasury, who have more or less consistently denied the EU's information-sharing plans, and who hope to can the newly resurgent Treasury worms-i'-the-bud before they can do any real damage.

The Centre for Freedom and Prosperity is making this fight one of its key challenges for the fall.  [Link to full article below:]

September 4, 2002, Tax-News.com, by Mike Godfrey, US Administration Battles Treasury Over Information-Exchange
http://www.tax-news.com/asp/story/story.asp?storyname=9279

 

5) De Rugy:  Corporate Inversion . . . "not a loophole"

[Excerpt]
"This is not a loophole. It's only that other countries have a better tax system than the U.S.," de Rugy said. "That's like saying I moved out of France because of a loophole. I left because France sucks." {Link to full article below:]

August 16, 2002, Dallas Business Journal, by William Hoffman, Analyst: corporate tax reform needed in U.S.
http://www.freedomandprosperity.org/Articles/derugy2.pdf

Additional Inversion News Clips:

September 10, 2002, Tax-News.com, by Mike Godfrey, Offshore Jurisdictions Should Challenge US, Tax Expert Suggests
http://www.tax-news.com/asp/story/story.asp?storyname=9328

September 10. 2002, The Royal Gazette, By Lilla Zuill, Gibbons warns of disaster
http://www.theroyalgazette.com/apps/pbcs.dll/article?Date=20020910&Category=BUSIN ESS&ArtNo=109100057&Ref=AR

September 6, 2002, South Florida Business Journal, Senate: No contracts for expat companies
http://southflorida.bizjournals.com/southflorida/stories/2002/09/02/daily97.html

September 5, 2002, Reuters, By Thomas Ferraro, Senate targets companies that avoid taxes
http://www.macon.com/mld/macon/business/4010793.htm

 

6) Tax Foundation Analyzes Corporate Inversions: An Introduction to the Issue and FAQ

A good primer on this complicated and political inversion issue.

[Excerpt]
It is tempting, and politically easy, to tag U.S. companies considering re-incorporation as unpatriotic tax dodges and attempt to stop this popular new transaction through federal legislation. But, to do this would be to ignore the underlying reasons that corporate executives feel such a complicated arrangement is necessary, even in the face of potentially negative press. Specifically, policy makers should be looking at fundamental reform of the existing U.S. corporate income tax code, which has become overly burdensome and mind-numbingly complex, thus penalizing American firms that compete in the global marketplace. [Link below to full article:]

May 30, 2002, Tax Foundation: Fiscal Policy Memo, by John S. Barry, Corporate Inversions: An Introduction to the Issue and FAQ
http://taxfoundation.org/reincorporation.html

 

7) Shlaes: US Gets No Breaks In Territorial Dispute

[Excerpt]
The World Trade Organisation's arbitrators bashed America good this past week when it announced the US could be subject to up to Dollars 4bn in new tariffs. The US is to be punished, theoretically at least, because it does not comply with current WTO tax law.

At issue are preferential tax rates applied to income earned from exports abroad by US-based companies. Under the famous Foreign Sales Corporation rules, aka Extraterritorial Income Exclusion rules, US companies may receive tax breaks. The goal of the credits is to offset America's system of worldwide taxation. The WTO penalties are meant to compensate foreign groups for this "unfair" US advantage. It's not fun to be bullied by international bodies. What's more, Americans can make the case that US tax rates are none of the WTO's beeswax, taxation being a matter of sovereignty. One can also argue that the European groups and politicians leading this fight are not doing so out of pure dedication to the icon of tax neutrality; rather, they see a chance to use the WTO to undermine competitors.

September 5, 2002, Financial Times, by Amity Shlaes, US Gets No Breaks In Territorial Dispute
http://www.freedomandprosperity.org/Articles/ft09-05-02/ft09-05-02.shtml

 

8) Rahn: Nightmare on FATF Street

[Excerpt]
   Assume a friend came to you and said: "Do you know there is this international government organization that is trying to take away your right to protect yourself from criminals; is demanding that your lawyer, accountant, real estate agent, bank teller, jewelry store clerk and car salesman spy on you; and is going to take your personal financial records and give them to every government in the world including those of Iraq, Libya, Syria, Iran and Cuba?"

   Your first reaction might well be that perhaps your friend was smoking the wrong thing and watching too much science fiction.

     Unfortunately, there is indeed such an organization, and what your friend described is exactly where it is headed. The organization is the Financial Action Task Force. [Link to Full Article Below:]

September 6, 2002, The Washington Times, by Richard W. Rahn, Nightmare on FATF street
http://www.washtimes.com/commentary/20020906-25551064.htm

 

9) Task Force on Information Exchange and Financial Privacy Asks FATF to Withdraw its Consultation Paper and Start Over with the Task Forces Recommendations

[Excerpt from Letter]
The Task Force on Information Exchange and Financial Privacy was formed in July, 2001 under the auspices of the Prosperity Institute to systematically research and analyze information exchange laws, organizations, mechanisms and proposals and their implications for financial privacy and economic prosperity.  The Task Force developed specific proposals that meet the legitimate needs of the national security and law enforcement communities and the reasonable requirements of tax administration while respecting privacy, including financial privacy. It was composed of former senior U.S. government officials (including law enforcement officials), economists, attorneys and privacy experts who approach the project from a wide variety of perspectives.

The recommendations in the report offer a means of both substantially increasing the effectiveness of efforts to combat terrorism and crime and improving the degree to which the privacy of law-abiding citizens is respected.  Most notably, the members of the Task Force unanimously determined that the best means of ensuring a balance of needs is not to take the approach adopted by the FATF in requiring ever more information from parties involved in financial transactions.  Rather, we resolved that there must be an international convention that establishes minimum benchmarks for financial privacy, and sets forth the duties and obligations of governments that can be trusted with that information.

The Consultation Paper is extremely disappointing because it demonstrates unwillingness on the part of FATF:

  • to place any appreciable value on the privacy and civil liberties of individuals;
  • to acknowledge the vital, even life-saving, importance of financial privacy to some people and organizations throughout the world;
  • to establish serious restrictions on the use to which governments and others can put to information obtained by virtue of FATF's efforts;
  • to genuinely prioritize terrorism and the exchange of information about terrorists;
  • to establish serious restrictions on which governments and individuals can obtain sensitive information obtained by virtue of FATF's efforts;
  • to place any appreciable weight on the cost of the increasingly complex and intricate rules being implemented, particularly in small countries or on small businesses;
  • to establish metrics by which the effectiveness (or lack thereof) of various rules can be measured;
  • to establish accountability for FATF and its staff; and
  • to consider the economic implications of its proposals and their impact on the standard of living of the public. [Link to PDF of letter:]

August 30, 2002, Letter to the Financial Action Task Force on Money Laundering from David R. Burton, Executive Director, Task Force on Information Exchange and Financial Privacy
http://www.freedomandprosperity.org/ltr/PI-FATF.pdf

Link to Task Force on Information Exchange and Financial Privacy Report
http://www.freedomandprosperity.org/task-force-report.pdf

CF&P's Press Release on Task Force on Information Exchange and Financial Privacy Report
http://www.freedomandprosperity.org/press/p04-03-02/p04-03-02.shtml

Prosperity Institute's Press Release on Task Force on Information Exchange and Financial Privacy Report
http://www.prosperity-institute.org/media/PI_FP_Report.htm

 

10) CSE's Wayne Brough:  Bad Taxes at Home Cause Trouble Abroad

While the United States once may have been the premier location for doing business worldwide, that image has been tarnished, in large part, due to a tax code that puts American businesses at a competitive disadvantage. [Link to full article below:]

September 4, 2002, Citizens for a Sound Economy, Bad Taxes at Home Cause Trouble Abroad, By:  Wayne T. Brough, Ph.D.
http://www.cse.org/processor/printer.php?issue_id=1091

 

11) Reuters: Chirac to back "globalisation tax" talks

[Excerpt]
 French President Jacques Chirac will urge world leaders to launch talks on a new international tax to fight world poverty, sources with him at the Earth Summit in Johannesburg say.

The sources said Chirac rejected the existing "Tobin Tax" proposal to raise levies purely on foreign exchange transactions but would call in a speech to the summit for discussion on a wider tax on wealth generated by globalisation.

"It could be a tax on airplane tickets, on carbon dioxide, on health products sold in industrialised countries, and indeed on international financial transactions," one source said. [Link to Full Article:]

September 2, 2002, Swiss Info, Chirac to back "globalisation tax" talks
http://www.swissinfo.org/sen/Swissinfo.html?siteSect=143&sid=1309807

 

12) AEI's Kevin Hassett on "Europe -- In Search of 'Community'"

[Excerpt]

There are currently 13 candidate countries, and the majority of them are countries that only recently emerged from communist rule. These ten include Bulgaria, the Czech Republic, Estonia, Hungary, Lithuania, Latvia, Poland, Romania, Slovenia, and Slovakia. These countries have undergone remarkable changes in the past 15 years. Will the next ten transform them even more?

My conversations with government leaders lead me to believe that there is an appropriate skepticism among the candidate countries concerning the intrusive regulation and bureaucracy of the EU. There is genuine concern that socialist bureaucrats will partly turn back the clock to communism. It was, for example, almost impossible to make it through a session without hearing at least one mention of the fact that the EU has strict regulations concerning even the curvature of bananas (these are designed, of course, to aid French colonies in the Caribbean). What other flights of fancy might await members in the future? There was clearly a great deal of concern.

September 10, 2002, Tech Central Station: Europe, by Kevin Hassett, In Search of 'Community'
http://www.techcentralstation.be/2051/wrapper.jsp?PID=2051-100&CID=2051-091002B

 

13) Freedom Alliance's Fred Gedrich: UN Johannesburg Summit a Farce

Fred Gedrich of the Freedom Alliance is one of the many members of the Coalition for Tax Competition and he sent CF&P this special report below from last weeks Johannesburg UN summit:

UN Johannesburg Summit a Farce

Johannesburg, South Africa - In hype leading up to this event, the UN described the Summit as the most significant in its history. It promised immediate relief to the 3 billion people living in poverty, hunger, squalor and despair. The event was hijacked by a group of global ideologues and environmental radicals who failed to provide anything meaningful to the poor.

The Summit was doomed to failure at the onset because many of these demagogues decided to pit "rich" against "poor" nations. Thabo Mbeki, President of South Africa and the 53 nations comprising the African Union fired the opening salvo by suggesting wealthy nations like the United States engaged in "global apartheid."

This group of hypocrites spent much of their time demanding $70 billion of annual foreign aid from U.S. taxpayers - and belittling the President of the United States for not coming to their party so they could jeer him like they did Secretary of State Colin Powell. They want this money no strings attached and are highly critical of President Bush for insisting on democracy, political and economic freedom, adherence to the rule of law, and human rights improvements as conditions for increased aid. Among the things they sought to establish was a "Global Solidarity Fund" under the control of the UN General Assembly to presumably be used to eradicate poverty. It reality, it would be more likely used to advance their socialist agenda that seems to be the prime motivator of everything they do.

While debating helping the world's poor, many of these hypocrites could be found feasting on exotic African game in fancy local restaurants and shopping in the finest gold and diamond jewelry stores South Africa has to offer.

Disturbingly, the tyrant and human rights abuser extraordinaire Robert Mugube of Zimbabwe - who affectionately addressed the audience as "comrades" - received the loudest ovation from the delegates.

I will shortly file a more complete report.

[September 2002, Fred Gedrich, Freedom Alliance (http://www.freedomalliance.org)]

Additional News Clips:

September 4, 2002, Freedom Alliance, by Thomas Kilgannon, Freedom Alliance Condemns UN Treatment of United States
http://www.freedomalliance.org/view_article.php?a_id=173

More from the Freedom Alliance
http://www.freedomalliance.org/un/2002/johan3.htm?a_id=176

September 4, 2002, Cato Institute, by Jerry Taylor, It's the Third World -- Not the West -- That's Unsustainable
http://www.cato.org/dailys/09-04-02.html

September 3, 2002, Cascade Policy Institute, by John A. Charles, Sustainable development
http://www.cascadepolicy.org/QP/QP0902-1.htm

 

14) A Historian Looks at Tax Havens

The recent attack on tax havens by the OECD has pictured about 2030 countries, called tax havens, as financial cesspools destructive of the high tax systems of the world. The OECD argues that its members should gang up on these nations and shut them down by whatever means they can. This view needs to be corrected. Tax havens have a long and beneficial history serving civilization.

September 2002, LewRockwell.com, by Charles Adams, An Historian Looks at Tax Havens
http://www.lewrockwell.com/orig2/adams2.html

 

15) CF&P Clips

September 13, 2002, The Washington Times, by Richard W. Rahn, Bringing back Hoovernomics?
http://www.washtimes.com/commentary/20020913-81043632.htm

September 12, 2002, Tax-News.com, by Ulrika Lomas, Luxembourg Opposed To EU's Sanction Plans For Switzerland
http://www.tax-news.com/asp/story/story.asp?storyname=9360

September 11, 2002, Tax-News.com, by Ulrika Lomas, EU Abandons Plan To Harmonise Alcohol Taxes
http://www.tax-news.com/asp/story/story.asp?storyname=9348

September 10, 2002,, The New York Times, Editorial, The War on Civil Liberties
http://www.nytimes.com/2002/09/10/opinion/10TUE1.html

September 10, 2002, Tax-News.com, by Jason Gorringe, Jersey Could Benefit From EU Tax Pressure, Says JFSC Chief
http://www.tax-news.com/asp/story/story.asp?storyname=9329

September 09, 2002, FoxNews.com, By Catherine Herridge and Eric Shawn, Were Civil Liberties a Casualty of 9/11?
http://www.foxnews.com/story/0,2933,62406,00.html

September 9, 2002, The Washington Times, by Bruce Bartlett, Capital gains tax drag on economy
http://www.washtimes.com/commentary/20020909-87068200.htm

September 9, 2002, Tax-News.com, by Mike Godfrey, US Congress Unlikely To Pass Tax Changes For Exporters This Year
http://www.tax-news.com/asp/story/story.asp?storyname=9315

September 8, 2002, The Washington Times, by Paul Craig Roberts, Finding doom amid boom
http://www.washtimes.com/commentary/commentary-20029822159.htm

September 06, 2002, Ludwig von Mises Institute, by William L. Anderson, The War on Business
http://www.mises.org/fullstory.asp?control=1041

September 6, 2002, Cato Institute, by Robert A. Levy, The USA Patriot Act: We Deserve Better
http://www.cato.org/current/terrorism/pubs/levy-martial-law.html

September 5, 2002, The Washington Times, by Edwin Feulner, Confounded by economic 'static'
http://www.washtimes.com/commentary/20020905-10444895.htm

September 5, 2002, Washington Post, By Eric Pianin and Bill Miller, Businesses Draw Line On Security: Firms Resist New Rules For Warding Off Terror
http://www.washingtonpost.com/wp-dyn/articles/A38213-2002Sep4.html

September 5, 2002, Tax-News.com, by Ulrika Lomas, Banking Secrecy Talks Restart Between EU And
http://www.tax-news.com/asp/story/story.asp?storyname=9290

September 3, 2002, AFX News, EU, Switzerland discuss Swiss tax retention ideas to deter evasion
http://www.ananova.com/business/story/sm_663412.html

September 1, 2002, The New York Times, By Leslie Wayne, A Guardian of Jobs or a 'Reverse Robin Hood'?
http://www.nytimes.com/2002/09/01/business/yourmoney/01EXIM.html

Fall 2001, Cato Journal: Volume 21, Number 2, by Robert Gelfond, "Toward Free-Market Money"
http://www.cato.org/pubs/journal/cj21n2/cj21n2-9.pdf

September 3, 2002, Tax-News.com, by Jeremy Hetherington-Gore, IMF Accused Of Hampering FATF Money-Laundering Work
http://www.tax-news.com/asp/story/story.asp?storyname=9266

September 3, 2002, Washington Post, By Douglas Farah, Al Qaeda Gold Moved to Sudan: Iran, U.A.E. Used as Transit Points
http://www.washingtonpost.com/wp-dyn/articles/A27535-2002Sep2.html

September 2, 2002, The Economist, All washed up?
http://www.economist.com/agenda/displayStory.cfm?story_id=1308156

September 2, 2002. CNN.com, Who's watching you? A surveillance society: Tracking technologies abound in everyday life
http://www.cnn.com/2002/TECH/ptech/09/02/surveillance.society.ap/index.html

 

Best regards,

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

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