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CF&P E-Mail Update,  December 3, 2003

Center for Freedom and Prosperity's E-mail Update

1) Washington Update

2) Do high taxes matter? OECD predicts EU growth will be half that of US

3) Dan Mitchell's Washington Times editorial on Slovakia the Hong Kong of Eastern Europe

4) Cayman Islands Under Attack

5) Dan Mitchell to Speak at Washington Tax Competition Conference – December 9

6) Richard Rahn: Beware of economic hubris

7) U.N. Wants Control of Internet

8) Veronique de Rugy: U.S. Companies Become EU Tax Collectors

9) WSJ: Bursting the Constitutional Bubble

10) John Berlau explains that the Patriot Act erodes Constitutional freedoms, but will likely have no impact in the battle against crime.

11) Czech warns Europe of 'dream world' woes

12) CF&P Clips


1) Washington Update

Next week I'll be in Miami for the 27th Annual Miami Conference on the Caribbean Basin sponsored by Caribbean Latin American Action.  This conference is special for the Center since our first event was a forum at the December 2000 conference. The strategies and tactics we used to combat the OECD's "Harmful Tax Competition" project were developed and honed during this conference three years ago.  Dan Mitchell of the Heritage Foundation and I are setting up meetings with those who would like to discuss the many international tax competition issue we both follow.  If you're going to be in Miami for the conference, please contact me (202-285-0244) and we can set up a meeting.  We already have several scheduled and we look forward to discuss the ongoing fight in Washington to protect tax competition, financial privacy and fiscal sovereignty.

Today's update touches on several issues, including Britain's assault on the Cayman Islands' sovereignty, the proposed European Union constitution, and the new "Hong Kong" of Eastern Europe. John Berlau wrote a very insightful article for Reason magazine on the USA PATRIOT Act and whether it helps catch terrorists. Also, we encourage those of you in the Washington area to attend a tax competition conference next Tuesday at the American Enterprise Institute. Dan Mitchell will be returning early from Miami to be a participant.

I hope you have a great holiday season.

Best regards, AQ


2) Do high taxes matter? OECD predicts EU growth will be half that of US

[From Financial Times story:]

European Union economic growth next year is likely to be less than half that of the US, the OECD is expected to report this week.

The Paris-based group of the world's 30 richest nations is due to publish its twice-yearly economic outlook tomorrow but some details were leaked to the Italian newspaper La Repubblica at the weekend.

The OECD confirmed they were broadly in line with the forthcoming figures.

According to La Repubblica, the OECD has lowered its forecast for EU growth from 2.4 per cent to 1.9 per cent for 2004. However, it raised its expectations for the US from 4 per cent to 4.2 per cent for the same period.

Recent data from the EU have been relatively upbeat - gross domestic product (GDP) grew by 0.4 per cent in the third quarter compared with the previous quarter, according to Eurostat estimates from this month - and the region is widely thought to be over the worst of its economic problems. However questions remain about the sustainability of its recovery. {Link to full article below:]

November 25, 2003, Financial Times, By Lydia Adetunji, OECD predicts EU growth will be half that of US

Additional article:

November 25, 2003, The New York Times, By Kenneth N. Gilpin, Economy Grew Even Faster Than First Thought in 3rd Quarter


3) Dan Mitchell's Washington Times editorial on Slovakia the Hong Kong of Eastern Europe


The "Hong Kong Miracle" describes how an impoverished jurisdiction on the coast of China became the world's fastest-growing economy over the last 50 years, propelled in large part by its simple and fair flat tax. Ireland went from being the "Sick Man of Europe" to the "Celtic Tiger" thanks to sweeping tax-rate reductions, including a 12.5 percent corporate income tax.

These global success stories have a new rival. Slovakia, a small nation in Eastern Europe, has junked its class-warfare tax code and replaced it with a low-rate 19 percent flat tax. This reform, which will go into effect Jan. 1, almost surely will create the "Slovak Tiger" as entrepreneurs and investors from Western Europe's stagnant, high-tax welfare states quickly shift productive activity to take advantage of this market-friendly tax system.

The new Slovakian system is not a pure flat tax, since some forms of double-taxation remain, but it is one of the best systems in the world. Corporate profits will only be taxed one time (at the same 19 percent tax rate) and the death tax will be abolished. And since the flat tax was approved by an 85-48 margin, including some support from opposition parties, there is every reason to expect the new system will have the necessary stability to attract long-run investment.

The flat tax is just the tip of the iceberg in Slovakia. Led by a dynamic young finance minister, Ivan Miklos, the government also eliminated all special preferences and penalties in the value-added tax. This will help ensure economic decisions are based on sound economics instead of tax distortions. [Link to full article below:]

November 29, 2003, The Washington Times, By Daniel J. Mitchell, Slovakia: Hong Kong of Eastern Europe


4) Cayman Islands Under Attack

[Excerpt from November 30th Financial Times article:]

The UK will on Monday demand that the Cayman Islands, the leading tax haven, drop its fierce opposition to implementing the European Union's savings directorate and comply with the EU crackdown on tax evasion.

The Caymans fears significant parts of its financial services industry could move elsewhere because of the EU directive, which seeks to tax cross-border interest payments to EU residents from 2005.

Singapore is expected to be a big winner from the directive and is welcoming European private banks that want to develop their wealth management operations.

The bruising confrontation between the UK and one of its dependent Caribbean territories is threatening the EU offensive against tax cheats because the initiative cannot start without the Caymans' participation. [Link to Times and other article below:]

November 30 2003, Financial Times, By Andrew Parker and John Burton, Caymans faces UK ultimatum over EU directive

December 1, 2003, Financial Times, By Christopher Adams, Caymans defiant in dispute over tax status

November 30 2003, Financial Times, By Andrew Parker, Global crackdown on tax evasion begins to stall

November 26, 2003, The Times (London), By Carl Mortishead, Messy European tax laws provoke the Cayman people,,630-908182,00.html

November 24, 2003,, by Amanda Banks, Primarolo Repeats UK Threat To Cayman Islands Over EU Tax Directive


5) Dan Mitchell to Speak at Washington Tax Competition Conference – December 9

International Tax Policy Forum/American Enterprise Institute conference on "Competition vs. Cooperation in Global Tax Policy"

Info on conference:

With increasing integration of world economies, international tax competition has taken greater importance in the formation of domestic and international policy. This conference will evaluate the evidence regarding international tax competition and the implications for taxpayers and governments. Panelists will consider the latest developments in tax rate-setting among nations, particularly the extent to which governments may have shifted their reliance on different types of taxes in response to competitive international pressures. New evidence on the responsiveness of foreign direct investment to international tax rate differences will be reviewed. Recent multilateral tax initiatives, including those adopted by the European Union and others advanced by the Organization for Economic Cooperation and Development, will be discussed in the light of this evidence and analysis.

Tuesday, December 9, 2003 
8:50 AM to 3:15 PM

ITPF / AEI conference
Wohlstetter Conference Center, Twelfth Floor, AEI
1150 Seventeenth Street, N.W., Washington, D.C. 20036

Link to conference registration:,eventID.676,filter./event_detail.asp


6) Richard Rahn: Beware of economic hubris


. . . [E]conomic hubris is a bipartisan sin. Officials of the current administration have imposed trade restrictions on steel, lumber and most recently some textiles despite warnings from even their own and outside economists that these restrictions are destructive. (Fortunately, the administration is backing off the steel tariffs because of expected European retaliation.) The administration has failed to keep government spending -- even nondefense -- under reasonable control, and continues to flirt with damaging regulations, although it knows major increases in government spending and regulations drain the vitality out of the economy. These actions have discouraged necessary foreign investment, as the U.S. looks less hospitable and more reckless. …

The administration is giving in to special business and labor interests, plus those who slurp at the trough of government spending programs…. These foolish and dangerous actions are unlikely to do major damage before the election but, unless they are quickly reversed now, a second Bush administration might well find itself in great economic difficulty -- much like the second Nixon administration. [Link to full article below:]

December 3, 2003, The Washington Times, By Richard W. Rahn, Beware of economic hubris


7) U.N. Wants Control of Internet


A global summit scheduled in December may result in a proposal to put the Internet under United Nations control — an idea that has met solid resistance from the United States.

"There are some countries that have been very adamant to get their governments to play a bigger role in Internet management," said Ambassador David Gross, the State Department's coordinator for international communications and information policy. He is leading the U.S. delegation to the World Summit on the Information Society (search), scheduled to meet Dec. 10-12 in Geneva, Switzerland.

Gross said that while the U.S. supports greater access for all nations to the Internet, it will resist any efforts to take the Net out of the private sector.

"We will continue to fight hard to ensure that the Internet remains a balanced enterprise among all stakeholders — one of these stakeholders is government, but it is one of many stakeholders," Gross told, adding that "it must be private sector-led. That is very important to us."

December 1, 2003,, By Kelley Beaucar Vlahos, Critics Balk at Efforts to Place Internet in Global Grip,2933,104413,00.html

Back to the Future . . . 1999 Article on the UN's Global Email Tax Proposal:

July 13, 2003, Wired News, by Katie Dean, UN Proposes Global Email Tax,1283,20705,00.html


8) Veronique de Rugy: U.S. Companies Become EU Tax Collectors


Since July 1, U.S. firms selling certain goods to customers in the European Union (EU) have been required, under a law passed by the EU last year, to act as tax collectors on behalf of EU officials.

Concerned that overtaxed consumers might otherwise escape the EU's value-added tax (VAT), member countries adopted on May 7, 2002 a plan that imposes the VAT on software, videos, computer games, and music downloaded via the Internet from non-EU companies. The EU claims the extra-territorial tax scheme is necessary to level the playing field for its own retailers.

European companies traditionally add a VAT to the services and products they sell online. A Dutch company collects the Dutch tax on any online products it sells, regardless of where the customer lives.

By contrast, companies headquartered outside the EU impose only the taxes required by their national governments. They have not collected an EU value-added tax on sales to EU customers, because the point of sale is not in the EU.

The EU's new VAT on Internet sales changes that dynamic, by shifting the point of taxation from where the good is sold to where it is consumed. Under the new VAT, a U.S. company selling to an EU customer is expected to collect the VAT and remit it to the EU government. [Link to full article below:]

December 1, 2003, The Heartland Institute, By Veronique de Rugy, U.S. Companies Become EU Tax Collectors


9) WSJ:  Bursting the Constitutional Bubble


So why does the EU need a Constitution anyway? The question arises again out of the growing unease with Valery Giscard d'Estaing's 265-page treaty. This week, the U.K. and Estonia added their voices to the ranks of potential dissenters. Along with Spain and Poland, who have been playing the spoilers almost alone up till now, a growing (albeit still small) number of countries are beginning to ask, as James Brown did of war: What is it good for?

Different member states have different reasons for disliking the document, and some of those reasons are more sensible than others. Estonia's insistence, for example, that every country always have a seat in the European Commission seems ill-conceived. As one accession-country diplomat recently put it to us, do Europe's small countries really want a guaranteed seat at the commission if that seat is almost certain to be "commissioner for feline affairs"? Far better perhaps to take their turns on the commission but maintain the chance of controlling a truly important position than to settle for a make-work portfolio. Besides, liberal Estonia, of all countries, should appreciate that more commissioners means more regulation, a bigger budget, and more bureaucrats looking for ways to make themselves relevant.

But more interesting than the particular objections is the growing sense around Europe, embodied in the statement earlier this week out of Tony Blair's government that the constitution is "highly desirable" but not "necessary." [Link to full editorial below:]

November 26, 2003, The Wall Street Journa l - Europe, Bursting the Constitutional Bubble

Additional EU articles:

December 3, 2003, International Herald Tribune, By David Howell, Big countries vs. small in Europe: A two-speed EU?

December 2, 2003, BBC News Online, By Stephen Mulvey, The euro and Europe's blurring borders

November 26, 2003, The Wall Street Journa l - Europe, By Guy Verhofstadt, Europe Emancipates Itself

November 25, 2003, The Telegraph (London), By Anton La Guardia and George Jones, Britain threatens veto on EU
ttp:// ws/2003/11/25/ixnewstop.html&secureRefresh=true&_requestid=64153

November 19, 2003, Tech Central Station, By Tomasz Teluk, Constitutional Crisis


10) John Berlau explains that the Patriot Act erodes Constitutional freedoms, but will likely have no impact in the battle against crime.

November 2003, Reason Online, By John Berlau, Show Us Your Money: The USA PATRIOT Act lets the feds spy on your finances. But does it help catch terrorists?


11) Czech warns Europe of 'dream world' woes

[Excerpt from Washington Times column:]

Czech President Vaclav Klaus said Europeans are living in a "dream world" of welfare and long vacations and have yet to realize "they are not moving toward some sort of nirvana."

The Czech Republic is a candidate for European Union membership, but Mr. Klaus, who was elected president in February, made clear in an interview his distaste for the organization.

However, he conceded during a visit to Washington last week that "the political unification of Europe" is now in "an accelerated process ... in all aspects and in all respects."

Mr. Klaus said the movement toward a single political entity of 25 European nations "will not change until people start thinking and realizing they are not moving toward some sort of nirvana."

The Czech president remains convinced that "you cannot have democratic accountability in anything bigger than a nation state."

Asked whether he could see the nation-state disappearing, Mr. Klaus replied, "That could well be the case, [but] it remains to be seen whether it will be the nominal disappearance or the real disappearance.

"We could see the scaffolding of a nation-state that would retain a president and similar institutions, but with virtually zero influence," he said "That's my forecast. And it's not a reassuring vision of the future."

Last week, the European Court of Auditors in Luxembourg released a 400-page report that found "systematic problems, over-estimations, faulty transactions, significant errors and other shortcomings" in the EU budget. [Link to full article below:]

November 25, 2003, The Washington Times, By Arnaud de Borchgrave, Czech warns Europe of 'dream world' woes


12) CF&P Clips

December 1, 2003, South Florida Business Journal, By Kent Hoover, Visa backlog costs U.S. business deals, tourists

December 1, 2003, The Scotsman, by David Simpson, How sovereignty is key to Ireland's tiger success

November 27, 2003, The Washington Times, By Audrey Hudson, Orwellian eyes

November 25, 2003,, by Jason Gorringe, Low Tax Is Shrinking Ireland's Black Economy Says Study

November 22, 2003,, by Jim Lobe, Patriot Act II Headed Our Way

November 20, 2003,, By Jill Barton, Limbaugh Defends Bank Activity

November 21, 2003, The Washington Times, By Richard W. Rahn, Is the deficit too small?


Best regards,


Andrew Quinlan
Center for Freedom and Prosperity


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