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Center for Freedom and Prosperity's E-mail Update 1) Panel of International Experts Announced for CF&P's Tax Competition Roundtable in Ottawa 2) Mitchell: New Heritage paper explains need for international tax reform for US-based companies 3) Rahn: Washington Times editorial provides more evidence that IRS regulation is dead 5) Coalition for Tax Competition Praises John E. Sweeney for Fighting UN and OECD Tax Schemes 6) Mitchell: Washington Times Editorial on "The IRS vs. The Bill Of Rights" 8) Paul Johnson: Europe's Utopian Hangover 9) Rahn: Is our economic freedom eroding? 10) SBSC Releases Its 8th Annual State by State Rankings of Small Business Climates 11) JEC: Constant Change: A History of Federal Taxes 12) Brough: A Bigger IRS or a Smaller Tax Code? 14) CF&P Clips
1) Panel of International Experts Announced for CF&P's Tax Competition Roundtable in Ottawa The Center for Freedom and Prosperity announced a partial list of speakers for a Tax Competition Roundtable to be held in Ottawa Canada on Monday, October 13. The Roundtable, which is co-sponsored by the Heritage Foundation, will take place at 4 p.m. in the Macdonald room of the Fairmont Chateau Laurier hotel, and will be followed by a reception. The Roundtable will coincide with the Organization for Economic Cooperation and Development's (OECD) Global Forum on International Tax Policy, which will take place October 14-15. The
Center for Freedom and Prosperity's event is designed to educate policy makers and hopefully will hinder the OECD's effort to undermine economic liberalization. The Roundtable is bringing together leading
international experts to discuss how best to preserve tax competition, financial privacy, and fiscal sovereignty. (We realize, of course, that this is Canada's Thanksgiving Day, but the timing of the OECD meeting
precludes us from having the event on a day that might be more convenient for Canadians.) An OECD representative has been invited to participate in the Roundtable. [Link to full release with list of speakers:] Link to List of Speakers:
2) Mitchell: New Heritage paper explains need for international tax reform for US-based companies [Excerpt] The World Trade Organization (WTO) has repeatedly sided with the European Union (EU) and ruled that provisions of U.S. tax law provide impermissible "subsidies" because business income from exports is sometimes not taxed at the same rate as other forms of corporate income. More specifically, the WTO twice ruled that the Foreign Sales Corporation (FSC) portion of the tax code violated trade rules, leading U.S. lawmakers to replace FSC with the Extraterritorial Income Act (ETI). But the EU argued that the new law also was an impermissible subsidy, and the WTO subsequently ruled two more times against the United States. The WTO decisions put the United States in a difficult position. If FSC/ETI is not repealed, the EU has the right to impose more than $4 billion of "compensatory" tariffs every year on American products. These taxes on U.S. exports, which could be as high as 100 percent, would fall on over 1,800 different products including agriculture, jewelry, steel, machinery and mechanical appliances, wool and cotton textiles, and toys. Yet repealing the law means higher corporate income taxes--also about $4 billion annually--for companies that benefit from the law. This seems like a no-win situation--either higher taxes on corporate income or higher taxes on exports. While not desirable, the WTO decisions could be a blessing in disguise if they spurred much-needed tax reform. The tax code has numerous features that significantly undermine the competitiveness of U.S.-based companies. The bad news is that fixing these problems would "cost" money (according to static revenue-estimating models). The good news, in a manner of speaking, is that repealing ETI would generate about $49.4 billion in tax revenue over the next 10 years--money that can be used to ameliorate the anti-competitive provisions of the tax code. [Link to full report below:] September 25, 2003, The Heritage Foundation Backgrounder #1691, by Daniel J. Mitchell, Making American Companies More Competitive Additional Articles on International Tax Reform: October 2, EU Business, EU warns US of huge fines if illegal tax breaks not scrapped September 2003, Cato Institute: Tax & Budget Bulletin, by Chris Edwards, The U.S. Corporate Tax and the Global Economy
3) Rahn: Washington Times editorial provides more evidence that IRS regulation is dead [Excerpt] During the last week of the Clinton administration, a foolish and dangerous IRS regulation was proposed at the behest of the French to require U.S. banks to help foreign governments tax interest earned on certain bank accounts in the U.S. As former senior Treasury economic official Steve Entin has shown, this would drive out considerable foreign investment from the U.S., and cost the U.S. jobs and substantial tax revenue because of reduced investment in our economy. Perhaps of even more concern is that the proposal would provide sensitive financial information on individuals and organizations to governments that are themselves corrupt (and, in fact, may be enemies of the U.S.) or have inadequate procedures to keep the information from falling in the hands of criminals, terrorists or governments that support terrorists. Despite the urging of virtually every senior economist in the administration and more than 30 economic policy organizations, the administration has yet to withdraw the proposal. Mr. Snow reportedly has told senior administration officials and senior members of Congress that he intends to withdraw the proposal. The problem is that every day he delays the withdrawal, he also discourages needed foreign investment. [Link to full article below:] October 3, 2003, The Washington Times, By Richard W. Rahn, Self-inflicted wounds
4) CF&P's Lobbying Pays Off: Congress Strip Corporate Inversion Language From U.S. Homeland Security Bill [Excerpt from Tax Analyst's Report] U.S. House of Representatives and Senate conference negotiators for a homeland security funding bill struck language from the Senate bill that would have prohibited the U.S. Department of Homeland Security from contracting with companies that incorporate in tax haven countries. Section 624 of the Senate bill would have defined an inverted domestic company as a company that completes a direct or indirect acquisition of properties held by a domestic corporation after 25 November 2002, and after the acquisition 80 percent of the company stock is held by former shareholders or former partners of the domestic corporation, and the expanded acquisition group does not have substantial business activities in the foreign country. Congress defined an inverted company when it signed off on the Homeland Security Act of 2002 (section 835 of H.R. 5005; P.L. 107-296; 6 U.S.C. 395). Conferees to that bill agreed to bar the agency from awarding federal contracts to reincorporated companies except in cases where the Homeland Security Department secretary believes it is in the interest of homeland security or would protect U.S. jobs. Some lawmakers tried to revisit the issue this year when Congress turned to funding the new department. The House Appropriations Committee accepted an amendment by Rep. Rosa L. DeLauro, D-Connecticut, to bar the department from contracting with inverted companies in fiscal 2004. The House Rules Committee later struck it from the bill. Sen. Carl Levin, D-Michigan, added a similar proposal to the Senate version. Conferees stripped the section from a House-Senate conference report, which the House and the Senate cleared on 24 September. [Source: September 24, 2003, Tax Analysts, by Patti Mohr, Conferees Strip Corporate Inversion Language From U.S. Homeland Security Bill, http://www.taxanalysts.com]
5) Coalition for Tax Competition Praises John E. Sweeney for Fighting UN and OECD Tax Schemes; The Center for Freedom and Prosperity, joined by more than 30 of the country's largest and most influential free-market groups, praised New York Congressman John E. Sweeney for his defense of America's economic interests. Sweeney, a member of the House Appropriations Committee, has taken a lead role in opposition to tax harmonization schemes promulgated by the United Nations (UN) and the Paris-based Organization for Economic Cooperation and Development (OECD). The letter to Rep. Sweeney from members of the Coalition for Tax Competition stated, "Recent events have demonstrated that international bureaucracies often are hostile to US interests, but this antipathy is not limited to 'foreign policy' issues. We believe the tax harmonization and global taxation plans of the OECD and UN are bad tax policy – and we also believe that American taxpayers should not subsidize their statist agendas. If these bureaucracies insist on pursuing anti-free market tax policies, they should do so without any financial assistance from the United States – particularly since poor people around the world will suffer if developing countries are discouraged from using tax policy to promote economic growth." Link to full press release and letter below:] Link to Press Release: Link to letter:
6) Mitchell: Washington Times Editorial on "The IRS vs. The Bill Of Rights" [Excerpt] To get an idea of what it's like to tangle with the IRS, imagine having to fight Mike Tyson -- with both hands tied behind your back. The IRS is the most feared government agency, and with good reason. Americans who run afoul of this bureaucratic behemoth have little chance of surviving unscathed. In large part, this is because the rules are rigged against taxpayers. We have to provide information to the IRS, even though the Bill of Rights supposedly protects us from self-incrimination. We're guilty until we prove ourselves innocent, even though our Constitution -- at least, in theory -- guarantees the presumption of innocence. And heaven forbid you scribble a little message in the margins of your tax return: The IRS has the power to fine you for exercising your right to free speech. Yet even with the playing field tilted in its favor, the IRS wants more power. Because some taxpayers have had the unmitigated gall to challenge this Darth Vader-like bureaucracy, the IRS is targeting lawyer-client confidentiality. [Link to full article below:] September 22, 2003, The Heritage Foundation, by Daniel Mitchell, The IRS Vs. The Bill Of Rights
7) From the Archives: The Adverse Impact of Tax Harmonization and Information Exchange on the U.S. Economy [Executive Summarey] The United States is the world's biggest beneficiary of jurisdictional tax competition. A modest tax burden, combined with advantageous tax and privacy laws for nonresident aliens, has helped attract more than $9 trillion of foreign investment to the U.S. economy. This translates into more jobs and higher incomes for American workers. European-sponsored tax harmonization initiatives would undermine this competitive advantage. At the behest of uncompetitive nations like France, international bureaucracies want to give high-tax governments the power to tax income earned in low-tax jurisdictions. This is a direct threat to America's economic interests. Tax harmonization proposals such as "information exchange" would make America much less attractive to the world's investors and likely would result in a significant loss of capital. [The following CF&P Foundation Prosperitas is a must read and was published in November 2001. Dan Mitchell's study is still one of the most requested studies on our web page. His arguments and reasoning are as sound today as they were two years ago.] Link to study below: November 2001, CF&P Foundation Prosperitas Vol. I Issue IV, by Daniel J. Mitchell, The Adverse Impact of Tax Harmonization and Information Exchange on the U.S. Economy Other articles of note: March 2002, The European Journal, by Dr Véronique de Rugy, The European Union Tax Cartel is Bad for the US Economy April 2002, CF&P Foundation Prosperitas Vol. II, Issue II, by Carlyle Rogers, The Case for International Tax Competition: A Caribbean Perspective August 13, 2001, Research Reports, Published by American Institute for Economic Research, Tax Competition Is Beneficial, Not Harmful [Note: Please remember that all of these articles can be found on our web page under our Tax Competition Issue section:
8) Paul Johnson: Europe's Utopian Hangover [Excerpt] One thing history teaches, over and over again, is that there are no shortcuts. Human societies advance the hard way; there is no alternative. Communism promised Utopia on Earth. After three-quarters of a century of unparalleled sufferings, the Soviet Union collapsed in privation and misery, leaving massive Russia with an economy no bigger than tiny Holland's. We are now watching the spectacle of another experiment in hedonism, the European Union, as it learns the grim facts of life. The EU is built on a fantasy--that men and women can do less and less work, have longer and longer holidays and retire at an earlier age, while having their income, in real terms, and their standard of living increase. And this miracle is to be brought about by the enlightened bureaucratic regulation of every aspect of life. The EU is a French concept and is still largely run according to French ideas. And France is the archetypal EU country. If you have a regular job in France, your life is, in theory, lyrical. You work 35 hours a week. You generally get four weeks of holiday in August, plus a further three weeks throughout the year, in addition to 11 state holidays. Full medical care is provided, even in retirement. Retirement age varies, but it is now typically 55. Pensions may be two-thirds to three-quarters of a person's salary at the time of retirement. [Link to full column below:] October 6, 2003, Forbes, by Paul Johnson, Europe's Utopian Hangover Additional EU articles: September 29, 2003, Tax-News.com, by Amanda Banks, Jersey Denies FT Story On EU Savings Tax Directive 'Loophole' September 26, 2003, Cato Institute, by Veronique de Rugy, European Politicians Want to Tax U.S Companies September 24, 2003, Times Online, By Carl Mortished, Banquo's Ghost of tax hovers at EU ministers' table September 18, 2003, Business World (Ireland), EU pushes to gain control of tax policy September 18, 2003, SwissInfo, Bankers attack EU and OECD over tax September 11, 2003, Tech Central Station, By Kevin Hassett, Europe's Good Idea September 11, 2003, Tech Central Station, By Jean-Christophe Mounicq, Swedish Sense
9) Rahn: Is our economic freedom eroding? [Excerpt] Are you more or less free in your economic life than you were 20 years ago? The question is not trivial because economic freedom is highly correlated with real per capita income and is a necessary component of fundamental liberty. The question was one of the topics debated among a group of the world's leading economists last week at a meeting of the Mont Pelerin Society. Government taxing, spending and regulating erode economic freedom. There are those who argue that, at least in the United States, total government taxing and spending has not grown as a share of gross domestic product (GDP) over the last 40 years (it has fluctuated between approximately 28 percent and 33 percent of GDP), and so we need not worry. In most countries, government taxing and spending as a share of GDP has risen, but in others, like Ireland, it has dropped sharply (giving the Irish the highest real growth in the European Union). Unfortunately, governments in almost all countries are taxing and spending well above the growth and general welfare maximizing rates. Even more disturbing is the fact government regulation is growing rapidly in virtually every country. A recent study by the Mercatus Institute of George Mason University and the Weidenbaum Center at the Washington University in St. Louis found direct federal government regulatory spending had grown to $30.1 billion in 2002, but the total cost of regulations on the economy is estimated to be $843 billion (or almost a third of direct federal outlays). [Link to full article below:] September 26, 2003, The Washington Times, By Richard W. Rahn, Is our economic freedom eroding?
10) SBSC Releases Its 8th Annual State by State Rankings of Small Business Climates This is a great example of how competition rewards states that keep taxes and spending under control. Small Business Survival Committee (SBSC) chief economist Raymond J. Keating, author of the study said, "The best policy environment for entrepreneurship consists of low taxes, limited government, restrained regulation, and government protecting life, limb and property. States following such a governing philosophy will reap great rewards from America's entrepreneurs, including faster economic growth and increased job creation." [Link to SBSC press release:]
11) JEC: Constant Change: A History of Federal Taxes A Joint Economic Committee Report: The current tax code is the product of an ongoing legislative process influenced both by shifts in the philosophy of taxation and by growth in understanding the economic implications of taxation. The result is an extraordinarily complex code that is frequently at cross-purposes with itself. This report highlights the major trends in the U.S. tax system since the beginning of the income tax, and especially over the last several decades, to illustrate how we arrived at the current tax system. Such an historical perspective on the tax system is crucial for understanding the motivations of features of the current code and evaluating proposals for simplification and reform. September 12, 2003, Joint Economic Committee, Constant Change: A History of Federal Taxes
12) Brough: A Bigger IRS or a Smaller Tax Code? A simplified tax code, not more enforcement, is the answer to tax avoidance. [Excerpt] This week, the Internal Revenue Service announced a new program to combat tax avoidance by teaming up with state tax authorities. The new plan provides for greater information sharing between state and federal tax authorities in order to ensure compliance with state and federal tax laws. Yet in many ways such policies perpetuate the existing tax system, piling on greater authorities for tax collectors rather than addressing the root problem: an overly complex and obtuse tax code that invites creative accounting and shady practices. A simpler, flatter tax code would eliminate such opportunities, improve compliance, and reduce the need to continually expand the authority of the IRS. The Treasury Department's Assistant Secretary for Tax Policy, Pam Olson, views the new program as a way to restore the public's faith in the tax system. Yet a tax code that treats neighbors making the same income differently based on particular circumstances is not likely to garner public confidence. Nor is a tax code that has five different definitions of a "child," leading many taxpayers to guess or hire a professional to determine whether they are eligible for benefits such as a dependent child exemption, child tax credit, or a dependent care tax credit. [Link to full article below:] September 18, 2003, Citizens for a Sound Economy, By Wayne T. Brough, A Bigger IRS or a Smaller Tax Code? A simplified tax code, not more enforcement, is the answer to tax avoidance.
13) Ricardo M. Alba: Presentation before the Offshore Centers of Latin America and the Caribbean: The Need For a Level Playing Field in the Search for Integrity [Excerpt] Integrity is a set of absolute moral values, which should be a leading and common principle in all human activity. Fairness, due process and the absence of force in international relations are in the core of the principle and application of integrity. In practice some of the measures adopted by Offshore Centres in the last years to avoid the abuse of their financial services by criminals, and specially to supply information to foreign countries, have been to a great extent the outcome of pressures exerted by rich countries and organisations controlled by them, following schemes of "name, blame and shame", and disregarding the possible damage to economic and competition standards of those Centres. Although there is no doubt on the commitment to combat financial and therefore to enhance levels of integrity, there is the need to establish a framework of level playing field in the international efforts to combat such crimes. [Link to full presentation below:] September 11, 2003, 21st International Symposium on Economic Crime (Cambridge, UK), by Ricardo M. Alba, Offshore Centres of Latin America and the Caribbean: The Need For a Level
Playing Field in the Search for Integrity
October 2, 2003, DW-World.de, German Celebrities Head to Tax Oasis Switzerland September 30, 2003, National Post, by Robert Fife, Thieves nab private data of 120,000 Canadians: Four computers taken from tax department had names, addresses and SIN numbers September 30, 2003, Tax-News.com, by Leroy Baker, No Tax Joy For American Employees Of The UN September 29, 2003, Lowell Sun, By Ian Bishop, Move to overhaul the Patriot Act is picking up steam September 28, 2003, The New York Times, By Eric Lichtblau, U.S. Uses Terror Law to Pursue Crimes From Drugs to Swindling September 25, 2003, The Guardian, by Luke Harding, Becker quits Germany for Swiss tax haven September 24, 2003, DelmarvaNow, By Patrick Jackson, Delaware passes on tax-cheat pact: First State chose not to join IRS program aimed at catching evaders September 18, 2003, Forbes, The Richest People In America: The Forbes 400 September 17, 2003, The Washington Times, By Richard W. Rahn, Saving Iraq September 17, 2003, The Otago Daily Times (New Zealand), By John Gibb, Tax havens cost NZ millions, expert says September 18, 2003, Citizens for a Sound Economy, By Wayne T. Brough, A Bigger IRS or a Smaller Tax Code? A simplified tax code, not more enforcement, is the answer to tax avoidance.
September 2003, Cato Institute: Tax & Budget Bulletin, by Chris Edwards, Government Schemes Cost More Than Promised June 26, 2003, Cato Institute, by Clyde Wayne Crews Jr., Protecting Privacy in the Database Nation
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