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CF&P E-mail Update, November 14, 2007

Center for Freedom and Prosperity's E-mail Update

1) Washington Update

2) CF&P Urges World Bank to be Honest in Tax Haven Study

3) Excellent Story Shows Benefits of Tax Havens

4) Two Useful Tidbits About Tax Competition

5) CF&P Signs Subprime Mortgage Market Coalition Letter

6) ATR's Rangel Tax Hike Fact of the Day

7) Raising Taxes Is No Solution to Social Security Mess

8) CF&P Study on Tax Rates Discussed in Washington Times Column

9) CF&P's The Market Center Blog

10) Wall Street Journal Urges Senate to Reject Law of the Sea Treaty

11) Eighteen Short Videos on the History and Morality of Capitalism and Socialism


1) Washington Update

We're continuing our aggressive educational campaign on Capital Hill, keeping senior-level staffers, Senators and Congressmen informed about the latest legislative and regulatory proposals that threaten economic liberty. We're particularly concerned about domestic efforts to undermine America's commitment to free trade and international efforts to harmonize corporate taxes and discourage foreign investment in America's economy. In the last four-months we have meet with more than 150 offices.

We are also keeping a close eye on an upcoming World Bank study that will look at tax competition and low-tax jurisdictions. In this update we spotlight a letter CF&P sent to World Bank President Robert B. Zoellick expressing our concern that the study may be hijacked by anti-free market ideological groups, such as the Tax Justice Network, that will use the study as a means to bash tax competition.

In this update, we also include further evidence that much-maligned "tax havens" are the beacons of prosperity around the world. As inefficient welfare states seek to punish these magnets for wealth, tax havens continue to prosper. Instead of vilifying tax havens, high tax nations should consider emulating them.

Moreover, we take a look at the deeply misguided tax hike proposed by the House, which among other things, raises taxes on 24 million small businesses—the primary engines of economic growth. We also discuss a coalition letter CF&P signed discussing the subprime mortgage market; why raising taxes to "fix" the social security mess is akin to pouring gasoline on a fire; and, we share why the Wall Street Journal believes the Senate should reject the Law of the Sea Treaty.

Finally, we highly recommend the online video series entitled, "Wealth Of Nations: An Inquiry Into the History and Morality of Capitalism and Socialism."  They are well worth viewing and the short videos are also entertaining.

Best Regards, AQ

P.S. But before we discuss these issues, I have a favor to ask. We received lots of feedback on our corporate tax video. These comments have helped us in our filming for a video on tax competition – which is now in the editing process. We want to make sure that this video is as compelling as possible, so if you have not yet provided suggestions, please click on the link below and let us know what you think. And while we like the many compliments we have received, we are looking for constructive criticism, so please be brutal. Moreover, if you can share the video with non-political friends, family, and colleagues, we are especially interested to see how they react to the message.

The Need to Cut the Corporate Income Tax to Make America More Competitive


2) CF&P Urges World Bank to be Honest in Tax Haven Study

The CF&P Foundation sent a letter to World Bank's President Robert B. Zoellick expressing concern about an upcoming study on the "development impact of off-shore financial centers". CF&P Foundation wants to ensure that the study's results are not tainted by an ideological bias against tax competition and fiscal sovereignty. We urged the World Bank to consider compelling evidence pointing to the positive effects that low-tax jurisdictions have had on global prosperity. 

[Excerpt Andrew Quinlan's letter to Mr. Zoellick:]

    I am writing to express concern about an upcoming World Bank study on the "development impact of off-shore financial centers," particularly with regards to whether ideologically motivated interests are seeking to dictate the study's findings in order to support a campaign against tax competition. This would be a mistake. Tax rates have been dramatically reduced in recent decades as tax competition has encouraged nations to adopt pro-growth policy in an effort to attract and retain capital. These lower rates have helped boost global economic growth – a result that is helping to lift tens of millions of people out of poverty. Offshore financial centers are a key part of this process, both because they provide tax-neutral platforms for increased global activity and because their attractive fiscal regimes put pressure on uncompetitive nations to lower tax rates and reform tax systems. … The World Bank should not undermine tax competition. Instead, the World Bank should embrace tax competition for its ability to stimulate pro-growth policies that encourage investment and innovation. Thank you for your attention, and please do not hesitate to have your staff contact me if you need more information. (Below is a link to the full letter and a fact sheet we use for our Capitol Hill meetings.)

Link to CF&P Foundation letter to World Bank's President Robert B. Zoellick:

World Bank Fact Sheet:


3) Excellent Story Shows Benefits of Tax Havens

Reporting from London, The Business notes that so-called tax havens are among the world's richest jurisdictions. But rather than emulating success, high-tax nations attack these free-market outposts - with the Paris-based Organization for Economic Cooperation and Development leading the charge:

[Tax Havens are attacked]

    Of the 20 wealthiest nations, 13 of them are low-tax territories. ...In the past few years, politicians from the developed world have led a determined assault on tax havens. ...The Paris-based Organisation for Economic Co-operation and Development has led a series of attacks on the world's tax havens, accusing them of complicity in money laundering and of lacking transparency. At one point the French government advocated an international boycott of tax havens, arguing that EU banks should refuse to deal with them. ...Even the Vatican has joined the campaign. Pope Benedict XVI was reported last month to be working on a doctrinal pronouncement that will condemn tax evasion as "socially unjust", while the planned encyclical - the most authoritative statement a pope can issue - will denounce the use of tax havens and offshore bank accounts by wealthy individuals, on the grounds that they reduce the tax revenues raised for the benefit of society as a whole (although curiously the Vatican hasn't reacted so well to proposals by the Italian government to curb the Catholic church's own tax break). But instead of attacking tax havens, other countries should be trying to learn from them. The way they lead the global wealth rankings is testament to the power of lower taxes to raise overall living standards.

[Demagoguery against low-tax jurisdictions]

The story explains that the demagoguery against low-tax jurisdictions - particularly regarding charges of money laundering - is false (something that is confirmed [] by both international bureaucracies and US government sources):

    ...though money laundering through the Cayman Islands may be a staple of popular fiction, there isn't much evidence for it in the real world. Most criminals launder the proceeds of the crimes domestically, since they are well aware that moving their money across borders only increases the chances of detection. Terrorists use traditional networks of money changers - not banks in Jersey.

[Key Issues]

The article closes with an excellent summary of the key issues. Tax competition constrains politicians and it encourages policies that make ordinary people richer, and tax havens play a key role in this process:

    Low-tax territories provide an alternative to the high-tax world. They impose some discipline on governments elsewhere, restricting the amount they can raise in taxes by providing an escape route. But more importantly, they demonstrate the ability of lower taxes to consistently raise living standards, even in the most unpromising locations. Maybe it is time to stop hammering the tax havens - and start trying to learn from them instead. [Link to full column below:]

October 24, 2007, The Business (London), by Matthew Lynn, What tax havens teach us about the benefits of low-tax economies -teach-us-about-the-benefits-of-lowtax-economies.thtml

Note: The above information first appeared on our daily web log The Market Center Blog:


4) Two Useful Tidbits About Tax Competition.

[Removal of capital controls]

The UK-based Guardian has an interesting story about how banana companies use careful tax planning to legally reduce their tax liabilities, but the article is worth noting for two secondary points. First, the article notes that the removal of capital controls played a key role in the growth of cross-border capital flows:

    "Although tax havens have existed for decades, the flight of capital took off with the removal of exchange controls."

This has put politicians in a bind. They know that capital controls do not work. And they would not want the international shame of trying to reinstitute them, since they are now associated with incompetent governments in the third world. Yet many of them - particularly the ones from high-tax nations - resent the fact that cross-border capital flows promote tax competition between nations. This is why the tax harmonization schemes of the OECD and EC, which are designed to restrict cross-border capital flows, can be considered the modern version of the discredited model of capital controls.

[Global Trade]

A second point worth pondering is that a significant share of global trade is intra-company:

    "Over 60% of international trade now takes place between subsidiaries within transnational groups, according to the OECD. This gives the corporations unprecedented ability to engineer their finances for the greatest tax advantage."

The left complains that this makes it easy for companies to manipulate their internal prices so that profits appear where tax rates are low and deductions are maximized where tax rates are high. In this case, they are probably right, but efforts to stop this practice (through policies such as "transfer pricing" rules) are probably futile. In any event, the smart approach is the reduce the corporate tax rate so that companies want their profits recognized in America.

November 6, 2007, The Guardian, by Ian Griffiths and Felicity Lawrence, Bananas to UK via the Channel islands? It pays for tax reasons: Analysis of the global trade in commodities shows how corporations legally engineer their finances, increasingly depriving countries where the profits are actually earned.,,2205728,00.html

Note: The above information first appeared on our daily web log The Market Center Blog:


5) CF&P Signs Subprime Mortgage Market Coalition Letter

On October 23, CF&P signed a coalition letter urging Senators to not use the recent turmoil in the subprime mortgage market as an excuse to extend the federal government's reach into the private sector. Onerous government meddling in the mortgage market will reduce lending options and raise prices, which will lead to a decline in homeownership in the long-run.

[Excerpt from coalition letter:]

… We are writing to urge you to be careful not to allow this difficult situation to be used as a pretext for increasing the size and intrusiveness of the federal government. … Sub-prime mortgage lenders and their customers entered into agreements both understood to contain certain risks. Lenders and holders of mortgage-backed securities knew their risk was the possibility that borrowers may not have the means to make their payments once those payments increased.

    Some borrowers chose risky loans and purchased houses they otherwise could not afford in the traditional mortgage market. Others chose these loans as a wealth management tool and to help them achieve financial goals such as starting a business. People are free to speculate as to their future earnings and ability to repay mortgages as well as speculate on the future of housing prices. Government should not step in simply because some people took risks that didn't work out.

    …We urge you to act deliberately and avoid any temptation to step in with a government bailout that would reward financial imprudence, create a moral hazard, and set a dangerous precedent that encourages irresponsible risk-taking at taxpayer expense. Nor should you intervene to prohibit risk-taking that could give some families greater economic opportunity. [Link to full letter below:]

Link to Subprime Mortgage Market Coalition Letter: _group_letter_house.pdf


6) ATR's Rangel Tax Hike Fact of the Day

Every day, our friends at the Americans for Tax Reform will release a new fact about Charlie Rangel's trillion-dollar tax hike. See the link below for all prior facts of the day. Her are a few samples:

  • You don't have to raise taxes to pay for an AMT patch or for full AMT repeal.
  • The Rangel Tax Increase Hikes Taxes on Over 24 Million Small Businesses.
  • The Rangel Tax Hike Would Secretly Raise the Capital Gains Tax Rate to 24.6%.
  • The Rangel Tax Hike Would Secretly Raise the Dividends Tax Rate to 44.2%.
  • The Rangel Tax Hike Replaces Today's AMT With Your Children's AMT.
  • The Rangel Tax Hike Will Cost Americans Six Million Jobs.

Americans For Tax Reform, Policy Briefs, Rangel's "Mother of All Tax Hikes"

See our Market Center Blog entry below for more information on Rangel's tax increase:


7) Raising Taxes Is No Solution to Social Security Mess

Writing in the National Review, Cesar Conda argues against proposals to impose payroll taxes on additional amounts of income. While raising or even eliminating the "wage-base cap" will put a very small dent in the program's unfunded liability, higher taxes will discourage economic activity and encourage tax avoidance. Relying on flawed methodology and disregarding the negative consequences associated with higher taxes, some politicians offer a dubious partial fix to a major long-term problem.

[Here is an excerpt from Mr. Conda's column:]

    In the recent Democratic presidential debate, former Sen. John Edwards said he would impose taxes on the wealthy to address Social Security's long-term funding problems... The Associated Press reports that Sen. Hillary Rodham Clinton said privately that she also would consider levying the Social Security tax for people making over $200,000…The federal government currently imposes Social Security payroll taxes on the annual earnings of workers up to a cap of $97,500. ...levying Social Security payroll taxes again on earnings above $171,000 would solve about 14 percent of the problem (24 percent minus 10 percent). Or, if we didn't pay benefits on the extra payroll-tax contributions, we would solve about 30 percent (40 percent minus 10 percent) of Social Security's funding problem… As noted, the Democrats pretend that these proposals accomplish more than they would in actuality. They do so by relying on the seventy-five-year actuarial balance. Basically, this pretends that the government saves Social Security money and that it earns interest. It doesn't. But by pretending that it does, the Democrats make the long-term deficit appear much smaller since they subtract the interest-compounded value of money the government would be given now to spend…Of course, none of this touches upon the economic downsides of raising taxes of this magnitude. Increasing taxes by this amount would expand the payroll-tax base by nearly 10 percent — a huge additional drag on employment. Moreover, raising the top tax rate to pre-Bush levels, as most of the leading Democratic candidates have proposed, and lifting the payroll-tax wage-cap would hurt the economy and ultimately raise far less tax revenue than static-revenue estimating models would predict…Raising Social Security taxes is the exact wrong medicine for Social Security's financial problems. Without action to fix Social Security, today's thirty-year-old workers can expect a 27 percent benefit cut when they retire.  Instead of raising taxes, the best way to save Social Security is to create voluntary personal accounts so that younger workers can achieve higher rates of return on their retirement dollars. [Link to full column below:]

October 15, 2007, National Review, By Cesar V. Conda, Tax Hikes Won't Fix Social Security, Hillary Clinton and John Edwards are proposing the exact wrong medicine to fix an ailing program. QzOTEwZTU

Note: The above information first appeared on our daily web log The Market Center Blog:


8) CF&P Study on Tax Rates Discussed in Washington Times Column

Richard Rahn's commentary piece elaborates on the relationship of tax rates to work effort - and also the impact on tax revenues.

[Excerpt from Richard Rahn's column:]

    A new econometric study by A.J. de Bruin of Erasmus University in the Netherlands, looking at the effect of changes in tax rates on labor over the last two decades in Belgium, France, Italy, the Netherlands, the United Kingdom and the United States, has just been published. It is an extension of some recent work by Nobel laureate Edward Prescott of Columbia University, which not only verifies the damaging effect of income taxes on labor, but also estimates the magnitude of the effect for several countries and the time it takes for changes in tax rates to affect labor markets. ...The that a decrease in marginal tax rates on productive activity in high-tax societies causes a rise in economic activity (more growth). This increase in economic activity generates additional government revenues that, in part, compensate for the revenue loss due to the lower tax rate. The reverse is of course also true: An increase in tax rates will lower economic activity and provide the government with less additional revenue (and higher unemployment) than would be expected without any behavioral changes. [Link to full column below:]

October 10, 2007, The Washington Times, by Richard W. Rahn, More evidence 0100011

Note: The above information first appeared on our daily web log The Market Center Blog:


9) CF&P's The Market Center Blog

Just is case you missed it… some interesting headlines from our daily blog.

Wednesday, November 14, 2007, The Market Center Blog The Laffer Curve Gains a Convert

Friday, November 9, 2007, The Market Center Blog, Lessons from the '07 Elections.

Thursday, November 8, 2007, The Market Center Blog, Citing Impact of Tax Competition, Former IMF Chief Economist (Reluctantly?) Endorses Flat Tax.

Tuesday, November 6, 2007, The Market Center Blog, The Geese With the Golden Eggs.

Monday, November 5, 2007, The Market Center Blog, Tax Competition Drives Good Policy in Canada.

Friday, November 2, 2007, The Market Center Blog, Should Americans Pay More Tax to Finance Legal Corruption?

Tuesday, October 30, 2007, The Market Center Blog, Rangel's Punitive Tax Hike.

Tuesday, October 30, 2007, The Market Center Blog, The Huge Benefits of Global Capitalism.

Monday, October 29, 2007, The Market Center Blog, More Laffer Curve Straw-Man Arguments.

Sunday, October 28, 2007, The Market Center Blog, Although Government Revenues Are at Record Levels, New York Times Complains About a "Dearth of Taxes."

Wednesday, October 24, 2007, The Market Center Blog, Unanswered Questions About the Re-Packaged EU Constitution.


10) Wall Street Journal Urges Senate to Reject Law of the Sea Treaty

Highlighting some of the provisions that would become long-term obstacles to American interests (and the interests of everybody who supports more growth and sensible policy), the Wall Street Journal urges the Senate to deep-six LOST.

[Excerpt from the Wall Street Journal:]

    The Senate Foreign Relations Committee voted 17-4 Wednesday to approve the Law of the Sea Treaty, meaning it's now up to 34 Senate Republicans to send this giant octopus of a document back where it belongs. To wit, the bottom of the ocean. ...Or take concerns that the treaty's requirements on pollution are a back-door mechanism for forcing U.S. compliance with the Kyoto Treaty and other global environmental pacts. Confronted with the argument, an Administration spokesman told the Senate that the treaty did not exercise jurisdiction over land-based pollution. Replied Republican Senator David Vitter: "If it is . . . not covered by the treaty, why is there a section entitled, 'Pollution from Land-Based Sources'?" A good question, considering that Article 213 notes that countries "shall adopt laws and regulations and take other measures necessary to implement applicable international rules and standards established through competent international organizations" to control such pollution. Note our emphasis. Critics are also right to be concerned about the powers of direct taxation the treaty confers on the International Seabed Authority. The details of this innovation are buried in Article 13 of the treaty's third annex, and contain a mix of "production charges" and annual million-dollar "administrative" fees. Such measures are all but unprecedented for an international organization and have a potential for corruption, especially when the taxes can run as high as 70% of net proceeds. [Link to full column below:]

November 3, 2007, The Wall Street Journal, A Sinkable Treaty: Why America doesn't need the Law of the Sea.

Note: The above information first appeared on our daily web log The Market Center Blog:


11) Eighteen Short Videos on the History and Morality of Capitalism and Socialism

The Wealth Of Nations: An Inquiry Into the History and Morality of Capitalism and Socialism

[Description of the Video Series:]

This informative and entertaining video presentation explains exactly why capitalism has always brought prosperity and why socialism has always brought poverty and suffering. It's packed with the kind of facts you want at your fingertips when discussing these kinds of issues. 

The Wealth Of Nations Series

1of18 – Introduction

2of18 - The Early Colonists

3of18 - Industrial Revolution

4of18 – Inventions

5of18 – Definitions

6of18 - Soviet Gardens

7of18 – Immigration

8of18 - Freedom Reports

9of18 - Compassion for the Poor

10of18 - Genocide Records

11of18 - Socialism's Appeal

12of18 – Capitalism

13of18 - Democracy Today

14of18 - Democracy in 1787

15of18 - Democracy & Socialism

16of18 - The US Constitution

17of18 - Federal Powers

18of18 - The Future


Best regards,

Andrew Quinlan
Center for Freedom and Prosperity

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