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CF&P E-mail Update, October 31, 2005

Center for Freedom and Prosperity's E-mail Update

1) Center for Freedom and Prosperity Co-Hosts Tax Competition Roundtable in Australia

2) CF&P Says U.S. Should Stop Subsidizing OECD

3) OECD urges higher taxes in America – including a European-style VAT

4) Presidential Panel proposes territorial tax system

5) Mitchell testifies to Senate on economic damage caused by excessive government

6) A stagnant Europe hurts America, not a growing China

7) Tax reform panel may issue wimpy report

8) Don't let the U.N. seize control of the Internet!

 

1) Center for Freedom and Prosperity Co-Hosts Tax Competition Roundtable in Australia

[Excerpt from Press Release]

Today, the Center for Freedom and Prosperity Foundation (CF&P) announced a Tax Competition Conference to be held in Melbourne, Australia on Monday, November 14th, at 3:00 p.m. at the Langham Hotel. Co-hosted by Australia's Centre for Independent Studies and the Washington-based Heritage Foundation, the conference will focus on the virtues of tax competition and explore the adverse consequences of tax harmonization. The Conference deliberately precedes the OECD's Global Forum on International Tax Policy that starts the next day.

     The Conference is designed to promote discussion and understanding about tax competition issues -- particularly the OECD's persecution of low-tax jurisdictions and the negative impact of tax harmonization on the global economy. The event will also  give non-OECD policy makers useful information as they prepare to meet with the OECD.

The Conference is bringing together leading international tax experts from the United States and Australia to discuss how best to preserve tax competition, financial privacy, and fiscal sovereignty. An OECD representative has been invited to participate in the event.

     The OECD will convene their Global Forum in Melbourne (November 15 & 16) in part to convince targeted non-OECD jurisdictions that there is a "level playing field" between them and the 30 OECD countries, notwithstanding the fact that numerous OECD member nations do not share information with foreign tax authorities.

This is the sixth conference that CF&P has held to coincide with an OECD Global Tax Forum. Previous conferences have been held in Barbados, London, Paris, Ottawa and Berlin. [Link to full press release below:]

October 17, 2005, CF&P Press Release
http://www.freedomandprosperity.org/press/p10-17-05/p10-17-05.shtml

 

2) CF&P Says U.S. Should Stop Subsidizing OECD:  Paris-based Bureaucracy Urges Higher Taxes in America

[Excerpt from theCF&P Press Release]

Today, the Center for Freedom and Prosperity Foundation and several members of the Coalition for Tax Competition condemned the Organization for Economic Cooperation and Development (OECD) for its recent "Country Survey" of the United States. In its survey, the Paris-based bureaucracy suggests that higher taxes are desirable and that America should adopt a value-added tax.

     This is not the first time the OECD has tried to interfere with American public policy. Earlier this year, the OECD endorsed a scheme pushed by the United Nations to increase U.S. foreign aid spending by 450 percent -- from about $15 billion to more than $80 billion per year. And over the last seven-years the OECD's Committee on Fiscal Affairs has pursued a tax harmonization agenda that is contrary to the interests of the U.S. and other low-tax countries. Notwithstanding these radical views, the OECD receives about 25 percent of its budget – more than $60 million – from American taxpayers.

Public policy experts have reacted to the OECD's most recent assault against free market policy:

     "Here we go again. Once again the OECD is pushing on the U.S. their Euro-centric, anti-American economic policies. It is time for the President and Congress to re-evaluate America's annual subsidy to the OECD. In fact, we should cut our contribution greatly, or zero it out all together," said Andrew Quinlan, president of the Center for Freedom and Prosperity Foundation. [Link to full article below:]

October 31, 2005, CF&P Press Release
http://www.freedomandprosperity.org/press/p10-31-05/p10-31-05.shtml

 

3) OECD urges higher taxes in America – including a European-style VAT

The bureaucrats at the Organisation for Economic Cooperation and Development continue to spread bad policy ideas and America is the latest target. In their "Country Survey" of the United States, the Paris-based bureaucracy suggests that higher taxes are needed and that America should adopt a value-added tax. The OECD even endorsed a cartel for state sales taxes. To be fair, the report also has some good suggestions – and the economists who wrote the report are vastly more reasonable than the radical leftists at the Committee on Fiscal Affairs (the division of the OECD responsible for the anti-tax competition project), but that is damning with faint praise. Why are American taxpayers squandering $70 million per year on a bureaucracy that pushes for European-style big government?

[Excerpt from OECD study]

…some increase in revenues will be necessary… a federal VAT should be considered. …retaining a personal income tax would allow the desired degree of progressivity of the overall tax system to be achieved. …assuming successful implementation of the Streamlined Sales and Use Tax Agreement, Congress should authorise them to require remote vendors to collect use tax on their behalf. [Link to full study below:]

October 2005, OECD's Economic Survey of the United States, 2005
http://www.oecd.org/dataoecd/4/11/35541272.pdf

 

4) Presidential Panel proposes territorial tax system

This blog has pointed out some of the shortcomings on the President's Tax Reform Panel, but there are some very good features. In addition to the proposals to reduce double-taxation, the Financial Times reports that the Panel is proposing a territorial tax system for business income. This won't make the Europeans happy since US-based companies will become more competitive, but it certainly is a long-overdue reform:

[Excerpt from the Financial Times]

The advisory panel appointed by George W. Bush to recommend changes to the Byzantine US tax system will call for an end to taxes on US companies' foreign profits, eliminating a competitive handicap for US businesses. The proposal is part of an ambitious slimming down of the tax code proposed by the panel, set up by the president in January. With Mr Bush's plan for Social Security reform foundering, tax reform is expected to rise up the agenda as Republicans prepare their platform for congressional elections in 2006. …Tax experts gave a cautious welcome. Chris Edwards, head of fiscal studies at the Cato Institute, said: "Both plans are much better than existing tax law. Both would be a significant simplification and would help promote economic growth." [Link to full article below:]

October 18 2005, Financial Times, By Christopher Swann and Edward Alden, Panel calls for end to foreign profits tax
http://news.ft.com/cms/s/c69a2c0a-4010-11da-8394-00000e2511c8.html

 

5) Mitchell testifies to Senate on economic damage caused by excessive government

[Excerpt from Dr. Mitchell's testimony]

Economic theory does not necessarily tell us the proper size of government. Instead, economic theory tells us to examine costs and benefits in order to determine whether resources are allocated in a manner that increases or decreases economic growth.

     Economists are fond of stating that there is no such thing as a free lunch. For purposes of fiscal policy, this means that a dollar that is spent by the government is a dollar that no longer is available to the private sector of the economy. This is an unavoidable cost. The key question is whether there are offsetting benefits.

     Not all government spending is created equal. Some forms of spending on "public goods" facilitate the operation of a market economy. A well-functioning legal system, for instance, is necessary to facilitate private contracts. There will be an economic cost when resources are taken from the private sector to finance outlays for a court system, but the benefits presumably will exceed those costs – meaning that the net effect on economic performance is positive.

     Other forms of government spending have a less desirable impact on economic activity. If a program does not facilitate or encourage economic activity, or has only a small positive effect, then the aggregate impact on the economy will be negative because there are limited benefits – if any – to outweigh the costs. And if the program actually undermines work, saving, and investment or encourages misallocation of resources, then the overall adverse impact on economic growth will be particularly pronounced. A good example from recent events is federal flood insurance. Not only does the program require resources to be taxed or borrowed from the productive sector of the economy – with all the associated economic costs, but it also encourages over-building in flood zones, which leads to the destruction of wealth during natural disasters.

     There are two macroeconomic reasons why government spending can undermine economic performance. The first reason, mentioned above, is "resource displacement." Every time government spends money, it is using labor and/or capital and those resources no longer are available for private sector uses.

     The second macroeconomic issue associated with government spending is the "financing cost." When government taxes, it not only takes money from the productive sector, but it also raises revenue by means of a tax system that generally reduces incentives to work, save, and invest. And if it finances spending with debt, it siphons money out of private credit markets. [Link to full article below:]

October 25, 2005, U.S. Senate Committee on Homeland Security and Governmental Affairs, by Daniel J. Mitchell, The Economic Consequences of Government Spending
http://hsgac.senate.gov/_files/102505Mitchell.pdf

 

6) A stagnant Europe hurts America, not a growing China

A Techcentralstation.com column correctly explains that the United States benefits when other nations grow faster. That is why we should be more concerned that Europe is over-burdened by big government - particularly since it is our biggest market,

[Excerpt from Techcentralstation.com]

...a growing China has created large investment opportunities for American business, an expanding market for American exporters, and an important source of low cost goods for American consumers. ...a much larger, more troubling foreign economic situation poses a challenge quite opposite from that of China. The problem is not one of fast growth in an emerging economy, but rather slow growth of a developed region; not of surging exports to the U.S., but rather slowing import growth from the U.S.; not about an economy stealing jobs from America, but an inability to create jobs at all. The problem is Europe and it should worry us more than anything going on in China. ...the European economy is floundering. Annual economic growth in the eurozone has averaged less than 2 percent since 2000. The unemployment rate has averaged 9 percent thus far in 2005, compared to 5.1 percent in the U.S. Half of Germany's unemployed are classified as "long-term" compared to just 12 percent in the U.S. -- a direct result of the fact that Germans receive at least 12 months of unemployment benefits and older workers can receive benefits for more than two and one-half years, compared to the typical six months of benefits available in the U.S. ...government spending in Europe is nearly half of GDP as tax burdens are enormously high on everything from gasoline to low-income worker's wages. ...Unfortunately, the short term economic outlook for Europe is poor. The International Monetary Fund (IMF) again lowered its growth forecast for Europe now to below 2 percent annually for this year and next. [Link to full article below:]

October 17, 2005, TCS Daily, By Alex M. Brill, Will the Real Global Economic Threat Please Stand Up?
http://www.techcentralstation.com/101705C.html

 

7) Tax reform panel may issue wimpy report

According to Tax-news.com, the President's Tax Reform Advisory Panel may propose to tinker with the tax code rather than replace it with a simple and fair system such as the flat tax. This is not to say that the proposals will be bad. But advocates of sweeping reform were hoping for steak, not tunafish.

[Excerpt from Tax-News.com]

The Presidential Tax Advisory panel is likely to recommend curbing tax breaks on home ownership and employer-provided health insurance plans when it produces its final report, scheduled for November 1. ...the eleven members were in broad agreement that the total amount of mortgage debt for which interest is deductible should be reduced to a figure in the region of $300,000 to $350,000 from its current level of $1 million. The panel has also indicated its preference for limiting tax deductions for employer healthcare plans by placing an $11,000 per year per employee cap on the amount of premiums that employers can deduct. ...Limiting these tax breaks would also help absorb the cost of repealing or limiting the Alternative Minimum Tax, another issue upon which the panel has reached a consensus. This system was initially designed to ensure that the wealthy cannot get away with paying little or no tax, but it is now beginning to affect taxpayers in the middle income brackets. [Link to full article below:]

October 13, 2005, Tax-News.com, by Leroy Baker, Tax Panel May Call For Reduction Of Mortgage And Healthcare Tax Breaks
http://www.tax-news.com/asp/story/story_open.asp?storyname=21422

 

8) Don't let the U.N. seize control of the Internet!

The Wall Street Journal correctly warns that anti-U.S. forces are trying to grab control of the Internet and put it under the control of the kleptocrats at the U.N. Global taxes are one possible consequence. The second column in the Wall Street Journal warns that the United Nations, aided and abetted by European politicians, are trying to impose global government on the Internet. This is both bad for commerce and an assault on sovereignty.

[Excerpt from The Wall Street Journal editorial]

International bureaucrats and assorted countries are struggling to wrest control of "Internet governance" from that old unilateralist bogeyman, the United States. There's one big problem with this picture: Cyberspace isn't "governed" by the U.S. or anyone else, and that's the beauty of it. But if the United Nations gets its way in the coming month, the Web will end up under its control. Uh-oh is about right. ...Real "governance," on the other hand, could bring oversight of content and even transactions by a new international body -- two jobs that Icann explicitly doesn't perform. For an example of how the Internet is governed, look no further than the strict limits China -- one of the main proponents of "internationalizing" the root zone file -- places on Web sites that promote or even discuss democracy. But if China and other countries already do this now, why would they be pushing for change? Good question. So far, exactly what this new intergovernmental body would look like or do remains worryingly vague. ...One constant -- and this is where vagueness becomes an even bigger danger -- is that a U.N.-run oversight body would address "public policy issues that currently do not have a natural home or cut across several international or intergovernmental bodies." In other words, it could do darn near anything it wanted. It's no surprise that supporters' bureaucratic web of choice is the U.N., which cloaks its designs on Internet control in language about such niceties as bridging the "digital divide." Spreading Web access is a worthy goal, but centralizing control runs directly at odds with that aim. The phenomenal growth of email, e-commerce and e-everything else is directly attributable to the Internet's decentralized nature. One area where a U.N.-run Web might very well expand its reach is into the taxpayer's pocket. Kofi Annan and Jacques Chirac have long dreamed of a global "solidarity" tax on online financial transactions. This could be their vehicle for doing so. [Link to full article below:]

[Excerpt from Thierer's and Crews' column]

Kofi Annan, Coming to a Computer Near You! The Internet's long run as a global cyberzone of freedom -- where governments take a "hands off" approach -- is in jeopardy. Preparing for next month's U.N.-sponsored "World Summit on the Information Society" (or WSIS) in Tunisia, the European Union and others are moving aggressively to set the stage for an as-yet unspecified U.N. body to assert control over Internet operations and policies now largely under the purview of the U.S. In recent meetings, for an example, an EU spokesman asserted that no single country should have final authority over this "global resource." To his credit, the U.S. State Department's David Gross, bristled back: "We will not agree to the U.N. taking over management of the Internet." That stands to reason. The Internet was developed in the U.S. (as are upgrades like Internet 2) and is not a collective "global resource." It is an evolving technology, largely privately owned and operated, and it should stay that way. ...regulators across the globe have long lobbied for greater control over Internet commerce and content. A French court has attempted to force Yahoo! to block the sale of offensive Nazi materials to French citizens. An Australian court has ruled that the online edition of Barron's (published by Dow Jones, parent company of this newspaper), could be subjected to Aussie libel laws -- which, following the British example, is much more intolerant of free speech than our own law. Chinese officials -- with examples too numerous for this space -- continue to seek to censor Internet search engines. ...We favor the non-regulatory approach. But where laissez-faire is not an option, the second-best solution is that the legal standards governing Web content should be those of the "country of origin." Ideally, governments should assert authority only over citizens physically within its geographic borders. This would protect sovereignty and the principle of "consent of the governed" online. It would also give companies and consumers a "release valve" or escape mechanism to avoid jurisdictions that stifle online commerce or expression. The Internet helps overcome artificial restrictions on trade and communications formerly imposed by oppressive or meddlesome governments. Allowing these governments to reassert control through a U.N. backdoor would be a disaster. [Link to full article below:]

October 17, 2005, The Wall Street Journal, Review & Outlook: e-Meddling
http://online.wsj.com/article/SB112950445280770217.html?mod=opinion&ojcontent=otep   (subscription required)

October 8, 2005, The Wall Street Journal, By Adam Thierer and Wayne Crews, The World Wide Web (of Bureaucrats)?
http://online.wsj.com/article/SB112873051002163416.html?mod=opinion&ojcontent=otep   (subscription required)

 

Best regards,

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

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