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CF&P E-Mail Update, November 8, 2002

Center for Freedom and Prosperity's E-mail Update

1) Washington Update

2) CF&P Strategic Memo: The Impact of the U.S. Elections on Tax Competition

3) Don Manzullo: House Small Business Committee Chairman Strongly Opposes IRS Interest Reporting Rule

4) We Need Your Help: Stop IRS Regulatory Abuse

5) Heritage Foundation's President condemns tax harmonization, asks Treasury Secretary O'Neill to explain the U.S. position on the EU Savings Tax Directive

6) Dan Mitchell explains Europe's cult-like worship of multi-lateralism

7) For your reading pleasure: A left-winger has a temper tantrum. . .

8) UK lawyer reveals improper nature of OECD attack on low-tax jurisdictions

9) Robert Stewart: The Moral Case For Tax Havens

10) Michael O'Brien: The OECD: A Supranational Tax Authority?

11) The Income Tax: Root of all Evil

12) Walter Williams: Economic Asininities

13) Richard Rahn: Growth and Envy

14) Harvard Business School: Are We Racing to the Bottom?  Evidence on the Dynamics of International Tax Competition

15) CF&P Clips


1) Washington Update

The past week was very exciting here in Washington.  The mid-term elections have changed the outlook and make-up of Congress. CF&P's Strategic Memo below discusses this shake-up and summarizes the effect on our major issues. We should be able to make progress since most Republicans are more sympathetic to tax competition, tax reform and smaller government, but it also is likely that the left will intensify its opposition. The bottom line is that we have an opportunity, but it will require hard work to reap any benefits.  Make sure you read the strategic memo below to get the full story on this historic election.

The update is filled with more big news. Another senior member of Congress, for instance, comes out strong against the IRS's interest reporting rule. The Heritage Foundation's president asks Treasury Secretary Paul O'Neill to reject the EU Savings Tax Directive and IRS regulation.

Every week I receive many interesting reports and studies from all over the world. In this update I feature several of these, including: Paul Baxendale-Walker, who discusses the flagrant abuses inherent in the OECD "harmful tax competition" initiative; Robert Stewart on the "The Moral Case For Tax Havens;" Michael O'Brien on "The OECD: A Supranational Tax Authority?;" a Harvard Business School report written by Mihir A. Desai entitled, "Are We Racing to the Bottom?  Evidence on the Dynamics of International Tax Competition;" and a 48-year old classic essay on state confiscation of wealth by Frank Chodorov, "The Income Tax: Root of all Evil."

Also please don't forget to contact the IRS and object to their interest reporting regulation (see below for how to contact the IRS). The deadline is next Thursday (14th). Please make sure to ask your friends, co-workers and family to comment as well.

Regards, AQ

 

2) CF&P Strategic Memo: The Impact of the U.S. Elections on Tax Competition

The 2002 mid-term election produced an unexpected Republican victory. The GOP was expected to hold the House of Representatives, but few expected Republicans to win control of the Senate. This dramatic shift will have important implications for the global battle to preserve tax competition.

Republican control of the Senate is important for several reasons. A GOP majority, for instance, means greater control of the political process. Republicans will now run all Senate Committees, including the Senate Banking Committee and the Senate Finance Committee. And while not all Republicans are firm supporters of tax competition, financial privacy, and fiscal sovereignty, they almost always are better on these issues than the Democrats they replace. Republican control also makes it easier to block bad legislation, either by bottling it up in Committee or by controlling the Senate schedule. Needless to say, the GOP also will have the votes – at least in theory – to win floor fights. [Link to full Strategic Memorandum:]
http://www.freedomandprosperity.org/memos/m11-07-02/m11-07-02.shtml

News Clip:

November 8, 2002, Tax-News.com, Republican Win Positive For Tax Competition, Says Washington's CFP
http://www.tax-news.com/asp/story/story.asp?storyname=9941

 

3) Don Manzullo: House Small Business Committee Chairman Strongly Opposes IRS Interest Reporting Rule

Illinois Congressman Don Manzullo, Chairman of the House Small Business Committee, sent a letter seeking the withdrawal of the proposed Internal Revenue Service regulation that would require the reporting of bank deposit interest paid to nonresident aliens. Rep. Manzullo stated that that the proposed rule "…is a misuse of the regulatory process and is in direct conflict with America's economic interests." Manzullo, a champion for small business, warns that the regulation will chase away capital, money that is needed in America for the creation and expansion of small businesses. [Link to full release and letter below:]

CF&P Press Release:
http://www.freedomandprosperity.org/press/p11-07-02/p11-07-02.shtml

Link to Rep. Manzullo's letter:
http://www.freedomandprosperity.org/ltr/manzullo-irs/manzullo-irs.shtml

CF&P's dedicated web page on withdrawing the proposed IRS regulation. http://www.freedomandprosperity.org/update/irsreg/irsreg.shtml

 

4) We Need Your Help: Stop IRS Regulatory Abuse -- Don't Let the Bureaucrats Undermine President Bush

Please contact the IRS by Thursday, November 14, and let them know you disagree with the proposed regulation (REG-133254-02) that requires U.S. banks to report to the IRS the amount of bank deposit interest paid to foreign depositors, even though the IRS admits that this information is not needed to enforce U.S. tax law and is being requested solely for the benefit of foreign governments.

The proposed regulation is based on a similar regulation (REG-126100-00) proposed during the final days of the Clinton Administration. The only significant difference is that the original Clinton regulation required reporting on all foreign depositors, whereas the latest proposal targets residents of 15 major nations.

We need your help to defeat the IRS!

The IRS is required to accept letters and e-mails from the public during a "comment period." If there is sufficient opposition, they will be forced to withdraw their scheme. Indeed, the IRS already has been forced to modify the original Clinton regulation because of heated opposition from the American people.

There are two main arguments you can use when submitting your public comment:

1. The IRS is abusing its regulatory authority by trying to overturn existing law. Congress approved favorable tax and privacy rules for foreign depositors to attract capital to the American economy. The IRS has no legal authority to overturn this policy.

2. The regulation will harm the U.S. economy by causing money to flee American banks. Foreigners will take their deposits to other nations, and this will mean less capital for car loans, home mortgages, and small business expansion.

Register your Objection to Proposed Regulation Online with the IRS
http://www.irs.gov/app/scripts/ct.jsp?regTitle=Reporting%20of%20Deposit%20Interest %20to%20Nonresidents

Or mail you comments to:

Alexandra K. Helou
Office of Associate Chief Counsel (International).
Internal Revenue Service
CC:DOM:ITA:RU (REG-133254-02)
Room 5226
P. O. Box 7604, Ben Franklin Station
Washington, DC 20044

See CF&P's dedicated web page on this IRS Info Sharing Regulation for more information
http://www.freedomandprosperity.org/update/irsreg/irsreg.shtml

 

5) Heritage Foundation's President condemns tax harmonization, asks Treasury Secretary O'Neill to explain the U.S. position on the EU Savings Tax Directive

Tax competition is a liberalizing force in the world economy. The mobility of resources -particularly capital - encourages politicians to lower tax rates and implement pro-growth tax reforms. This is why market-oriented organizations such as The Heritage Foundation are ardent opponents of tax harmonization initiatives like the OECD "harmful tax competition" initiative and the EU "savings tax directive." Simply stated, the United States has little to gain and much to lose if international bureaucracies impose automatic information-sharing requirements on jurisdictions that benefit from global capital flows. [Link to full letter:]

September 10, 2002, The Heritage Foundation, Edwin J. Feulner's letter to Treasury Secretary Paul O'Neill on Global Tax Competition
http://www.freedomandprosperity.org/ltr/feulner/feulner.shtml

 

Additional Clips on the European Union Savings Tax Directive

November 6, 2002, Tax-News.com, by Ulrika Lomas, EU Proposes Tax Amnesty To Force Switzerland Into Savings Tax Plan
http://www.tax-news.com/asp/story/story.asp?storyname=9912

November 5, 2002, Telegraph (London), By Selina Mills, Switzerland barricades against sharing banking information
http://money.telegraph.co.uk/money/main.jhtml;$sessionid$1CNJVYBWJHBFVQFIQMF CFFWAVCBQYIV0?xml=/money/2002/11/05/cnswis05.xml&sSheet=/money/2002/11/05/i xcity.htm

November 5, 2002, Tax-News.com, by Ulrika Lomas, EU To Face Imminent Collapse Of Information Sharing Plans
http://www.tax-news.com/asp/story/story.asp?storyname=9898

November 5, 2002, Tax-News.com, by Ulrika Lomas, Ireland And UK Blocking EU Tax Harmonisation Plans
http://www.tax-news.com/asp/story/story.asp?storyname=9888

November 5, 2002, Ananova (AFX News), ECOFIN Savings tax deal at risk if automatic information swap sought - Grasser
http://www.ananova.com/business/story/sm_703501.html?menu=

November 4, 2002, Swissinfo, by Claudia Spahr, Swiss and British lock horns over banking secrecy
http://www.swissinfo.org/sen/Swissinfo.html?siteSect=111&sid=1436793

November 4, 2002, Tax-News.com, by Ulrika Lomas, EU To Undertake Coordinated Tax Evasion Clampdown
http://www.tax-news.com/asp/story/story.asp?storyname=9874

October 31, 2002, OpinionJournal.com, By Dan Lewis, Channel 'Tea Party' Forces British Tax Retreat
http://www.freedomandprosperity.org/Articles/oj10-31-02/oj10-31-02.shtml

 

6) Dan Mitchell explains Europe's cult-like worship of multi-lateralism.

[Excerpt:]
There is an ever-increasing gulf between Europe and the United States on issues such as Iraq, the United Nations, the International Criminal Court, Kyoto, and tax harmonization. In part, this represents a divergence of interests. Europe's overtaxed and overregulated economies have fallen far behind America, and it is should come as no surprise that European politicians would like to use international policies to hamstring America's dynamic economy.

But this is not just a matter of self-interest. Having just spent two of the last three weeks in Europe, I believe Europeans have adopted an almost cultlike worship of multilateralism. To Europe's bureaucratic elite, a policy is automatically correct if it is the product of international discussions, especially if the negotiations take place under the auspices of an international organization.

Because of this multilateralist mindset, there is almost no effort to defend or justify policies that result from international discussions.

 Indeed, those who try to discuss whether these policies are desirable are treated as heretics because the European elites interpret open debate as an attack on the sacred process of multilateralism.

Relations between Europe and the United States have soured because European politicians and bureaucrats instinctively and reflexively oppose the concept of national sovereignty. To these self-anointed elites, the United States is acting like an international outlaw because America has the gall to make unilateral decisions. [Link to full article below:]

November 7, 2002, The Washington Times, by Daniel J. Mitchell, European cult of multilateralism
http://www.washtimes.com/commentary/20021107-15891175.htm

 

7) For your reading pleasure: A left-winger has a temper tantrum to protest the battle against the IRS bank deposit regulation.

[Excerpt:]
In the waning days of the Clinton administration, the Internal Revenue Administration proposed to require U.S. banks to report the interest they pay to foreign depositors. Foreigners are exempt from U.S. federal taxes but not from taxes where they live. The goal was to curb tax cheating, both by foreigners in their home countries and by Americans pretending to be foreigners in order to evade U.S. taxes.

The banking industry and right-wing taxaphobes were apoplectic. So was Florida Gov. Jeb Bush, whose no-income-tax state harbors a large share of the tax-free deposits. They all looked to the new management at the White House to kill the proposal. [Link to full article below:]

November 18, 2002, The American Prospect, By Robert S. McIntyre, The Taxonomist: The Tax Cheaters Lobby: How the banking industry and the right foment tax evasion
http://www.prospect.org/print/V13/21/mcintyre-r.html

 

8) UK lawyer reveals improper nature of OECD attack on low-tax jurisdictions.

Presenting at the Conservative Party's annual conference, Paul Baxendale-Walker discusses the flagrant abuses inherent in the OECD "harmful tax competition" initiative. This is a must-read. As Mr. Baxendale-Walker properly states: "'Appeasement never purchases liberty. It merely sells freedom at a discount. And the OECD, like any aggressor who is not resisted, will be back for more." [Link to full speech below:]
http://www.freedomandprosperity.org/Articles/baxendale-walker.pdf

News Clip:

October 16, 2002, Tax-News.com, by Robert Lee, UK Tories Urge Dependent Territories To Stand Up To OECD
http://www.tax-news.com/asp/story/story.asp?storyname=9692

 

9) Robert Stewart: The Moral Case For Tax Havens

[Excerpt:]
. . . Over the past ten years or so, governments (and other quasi governmental organisations such as the OECD) in the United States and Western Europe have been throwing rotten eggs and rotten arguments at the so-called tax havens like Bermuda and the Cayman Islands on the grounds that they siphon off legitimate tax revenues. This has been described as "harmful tax competition" (an oxymoron), or has been categorized as illegal tax evasion. The clients of tax havens, wealthy individuals and multi-national corporations, are, it is said, dodging their legitimate tax obligations to their countries of domicile and as a result those who are left at home are unfairly compelled to pay higher taxes. Spending on social programs such as education and pensions is reduced and many high-powered and high-paid lawyers and accountants expend time and effort in tax dodging when they could usefully be engaged in more productive tasks.

. . . Those who value individual freedom over government benevolence (or should that be malevolence) seek to protect their assets and their privacy from prying eyes, but they are usually portrayed as greedy selfish barons who neglect their responsibilities to those at home. Whilst most of the tax avoiders do not act from altruistic motives, it is relevant to recall that Joseph Schumpeter in his essay "The Fiscal State" pointed out that one of the consequences of the unlimited power of governments to tax their citizens would be a misallocation of resources away from wealth producing investments and into largely non-productive public spending designed to redistribute income or the building of public monuments. The Declaration of Independence put it more succinctly when it said of King George III that: "He has erected a multitude of new offices, and sent hither swarms of officers to harass our people and eat out their substance."

The most important activity of the misnamed tax havens is to avoid governmental unproductive spending and to allow entrepreneurs freely to invest and produce the goods and services needed for the world to prosper. [Link to full article below:]

October 30, 2002, LewRockwell.com, by Robert Stewart, The Moral Case For Tax Havens
http://www.lewrockwell.com/orig2/stewart2.html

 

10) Michael O'Brien: The OECD: A Supranational Tax Authority?

When investors go abroad in search of lower tax rates, their home countries seldom respond by lowering taxes and preventing the loss of further capital. However, to the consternation of some governments, there is a movement underway to do just the opposite.

At the forefront of this movement is the Paris-based Organisation for Economic Cooperation and Development (OECD), which advocates creating a centralised bureaucracy to levy and monitor taxes worldwide and, presumably, eliminate tax competition. But should organisations less accountable than democratically elected governments be granted the power to dictate sweeping tax policies? And would the the OECD's plans dilute national sovereignties and individual privacy? [Link to full article below:]

2002 PricewaterhouseCoopers, The OECD: A Supranational Tax Authority?, by Michael O'Brien
http://www.pwcglobal.com/extweb/newcolth.nsf/docid/868294654DC186AA85256C3E00 6FE82D?OpenDocument

 

11) The Income Tax: Root of all Evil

The Sovereign Society's Offshore A-Letter brought this 1954 Frank Chodorov classic essay on state confiscation of wealth to our attention (http://www.sovereignsociety.com).

[Excerpt]
Argument

Tradition has a way of hanging on even after it is, for all practical purposes, dead. We in this country still use individualistic terms-as, for instance, the rights of man-when, as a matter of fact, we think and behave in the framework of collectivistic doctrine. We support and advocate such practices as farm-support prices, social security, government housing, socialized medicine, conscription, and all sorts of ideas that stem from the thesis that man has no rights except those given him by government.

Despite this growing tendency to look to political power as the source of material betterment and as the guide to our personal destinies, we still talk of limited government, states rights, checks and balances, and of the personal virtues of thrift, industry, and initiative. Thanks to our literature, the tradition hangs on even though it has lost force.

But there are many Americans to whom the new trend is distasteful, partly because they are traditionalists, partly because they find it personally unpleasant, partly because reason tells that it must lead to the complete subjugation of the individual, as in Nazi Germany or Communist Russia, and they don't like the prospect. It is for these Americans that this book was written. For their opposition to the trend takes the shape of reform, while nothing will turn it but revolution. And by "revolution" I mean the return to the people of that sovereignty which our tradition assumes them to have. I mean the return to them of the power which government confiscated by way of the Sixteenth Amendment.

When you examine any species of government intervention you find that it is made possible by revenues. A government is as strong as its income. Contrariwise, the independence of the people is in direct proportion to the amount of their wealth they can enjoy. We cannot restore traditional American freedom unless we limit the government's power to tax. No tinkering with this, that, or the other law will stop the trend toward socialism. We must repeal the Sixteenth Amendment.

Washington, February 1954
[Link to full online essay below]

October 2002, The Ludwig von Mises Institute, by Frank Chodorov, The Income Tax: Root of all Evil (Copyright 1954 by Frank Chodorov and the Devin-Adair Company)
http://www.mises.org/etexts/rootofevil.asp

 

12) Walter Williams: Economic Asininities

Whenever there's a World Trade Organization, Monetary Fund or World Bank meeting, crowds of idealistic, useful idiots show up to riot and protest against what they call globalization and capitalistic exploitation of Third World poor people. They charge Western multinational corporations with exploiting the poor through "slave" wages and child labor. Let's examine this nonsense.

According to the Economist magazine, multinational corporations typically pay wages that are double the local wages in Third World countries but far below those paid in richer countries. That, to protesters, is evidence of exploitation of the poor, but is it? [Link to full article below:]

November 2, 2002, The Washington Times, by Walter Williams, Economic asininities
http://www.washingtontimes.com/commentary/20021102-6561880.htm

 

13) Richard Rahn: Growth and Envy

The empirical evidence from around the world during the last half-century clearly shows that, in general, high-growth and prosperous economies on average have less income disparity than low-growth and low-income societies. [Link to full article below:]

November 5, 2002, The Washington Times, by Richard W. Rahn, Growth and envy
http://www.washingtontimes.com/commentary/20021105-39611316.htm

 

14) Harvard Business School: Are We Racing to the Bottom?  Evidence on the Dynamics of International Tax Competition

This paper examines the pervasive claim that mobile corporations increasingly bear no burden of taxation in globalized capital markets shifting the burden to immobile factors. This popular claim is contrasted with the alternative theoretical prediction that capital taxation can persist in global markets through the device of foreign tax credits and the presence of large capital exporters. Evidence is provided in support of the alternative claim whereby race to the bottom incentives are attenuated and capital exporters, not capital importer, dictate the dynamics of international tax competition. By exploiting data on U.S. multinational activities and the composition of tax revenue around the world, this paper demonstrates that race to the bottom incentives appear to be attenuated relative to the popular claim. [Link to full study below:]

Harvard Business School, By Mihir A. Desai, Are We Racing to the Bottom? Evidence on the Dynamics of International Tax Competition, Published after 1996(?)
http://www.people.hbs.edu/mdesai/racenew.pdf

 

15) CF&P Clips

November 8, 2002, Tax-News.com, by Jason Gorringe,Gibraltarians Almost Unanimous Against Joint Sovereignty
http://www.tax-news.com/asp/story/story.asp?storyname=9942

November 6, 2002, Free market Net, by J.D. Tuccille, Americans again question government power
http://www.free-market.net/spotlight/libertyreturns/

November 5, 2002, BBC News, Jersey signs tax agreement with US
http://news.bbc.co.uk/2/hi/business/2402989.stm

November 5, 2002, BBC News, Jersey signs tax agreement with US
http://news.bbc.co.uk/1/hi/business/2402989.stm

November 5, 2002, The New York Times, By David Cay Johnston, Departing Chief Says I.R.S. Is Losing War on Tax Cheats
http://www.nytimes.com/2002/11/05/business/05IRS.html

November 4, 2002, BBC News, by Julian Knight, Britons burdened by red tape
http://news.bbc.co.uk/1/hi/business/2393735.stm

November 4, 2002, Tax-News.com, Panama's Foreign Minister Attacks The OECD
http://www.tax-news.com/asp/story/story.asp?storyname=9882

November 3, 2002, The Washington Times, by Hugo Gurdon, The Nice treaty not so nice for the U.S.
http://www.washingtontimes.com/commentary/20021103-69304416.htm

November 1, 2002, The Washington Times, by Ernest S. Christian & Gary A. Robbins, Stealth approach to tax reform
http://www.washingtontimes.com/commentary/20021101-14999568.htm

October 31, 2002, Telegraph (London), By Toby Harnden, US may set up MI5-style spy agency in security shake-up
http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2002/10/31/wfbi31.xml/

October 28, 2002, The Washington Times, by John Linder, Make the code less taxing
http://www.washingtontimes.com/op-ed/20021028-19218553.htm

 

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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