All Americans Are Idiots…Or So They Think

Today's comment is by Bob Bauman JD, Former U.S. Congressman, and now Senior Writer and Legal Counsel for The Sovereign Society.

Dear A-Letter Reader,

There's an old Russian saying that describes the master-servant relationship. It goes: "I'm the boss, you're an idiot. You're the boss, I'm an idiot."

Well, an "idiot" is an utterly foolish or senseless person. Or, in psychology, it's a person who has the lowest form of mental facilities. Either way, not a very complimentary term.

But some extremist members of the United State Senate (to wit, Levin, Dorgan, Coleman and Obama), are treating Americans and American businesses as if we are all idiots -- and they definitely want to be our boss. They pretend to know better what we should be doing. And they're ready to force us to follow their direction under pain of double and triple taxation and even criminal sanctions.

I am referring to the unconstitutional, irrational, illogical (and, as the late Senator Strom Thurmond used to say: "What's more I don't like it!") pieces of legislation these radical worthies introduced in the Senate last year. Without a doubt, these ridiculous bills violate the Bill of Rights and numerous treaties.

What's Wrong with Them? Well, I Just Don't Like It!

This sort of inane legislation is typical, considering these self-important senators hired a bunch of sympathetic staff kooks and gave them free reign over their committees. "Stop tax havens? Sounds great, draft something!"

S. 396, introduced by Sen. Byron Dorgan, (D-ND), would prevent American companies from deferring taxes on their foreign-source income if they dare to do business in selected low-tax or "tax haven" nations Dorgan doesn't like. Never mind that the law has allowed that for many years.

The bill would punish offshore companies Americans own. The law instructs the U.S. Internal Revenue Code to treat controlled foreign corporations created or organized abroad as U.S. domestic corporations for tax purposes.

The bill audaciously sets forth a list of presumably "bad" countries (because they are recognized tax havens), and grants the U.S. Treasury (i.e. the IRS) the plenary authority to remove or add a country from this unique blacklist.

S. 681, the Stop Tax Haven Abuse Act, (introduced by Senators Levin [D-MI], Norm Coleman [R-MN] and Obama [D-IL]) would establish a legal presumption against the validity of any personal or business transactions by Americans that involve offshore jurisdictions where there are bank and financial secrecy laws.

This bill also includes its own bad list of tax havens. In other words, in an unprecedented action, American law would establish an international blacklist of countries simply because they respect individuals' privacy.

They Ignore the Tax Haven Right Here in the U.S.

Meanwhile, the U.S. Government Accountability Office, at the behest of the Senate's resident busybody, Sen. Charles Grassley (R-IA), is conducting an investigation of possible offshore tax evasion by U.S. companies and individuals using the Cayman Islands.

Grassley's bogeyman is the known fact that thousands of corporations are organized in the Caymans in order to take advantage of legal offshore tax breaks allowed under U.S. law. Apparently he thinks the office building is somehow sinister. Now Grassley claims he wants GAO investigators to check on a five-story Cayman Islands building listed as the address of thousands of U.S. and international companies.

He might just as well send the GAO to investigate similar incorporation service buildings in corporate-friendly Wilmington, Delaware. If Grassley knew better, he'd know hundreds of thousands of Americans use Delaware as their "corporate tax haven" for tax purposes.

So what, Senator? Do you take Americans for idiots?

Read This: Bush Should Veto This Monstrosity

Taking all this Capitol Hill idiocy seriously, the Channel Island of Guernsey, Luxembourg and the Isle of Man have all petitioned the U.S. Treasury to be removed from the list of "offshore secrecy jurisdictions" in S. 681.

That's a bit premature. The Treasury won't have any power over the list unless Congress adopts such garbage as law, and the President signs it. Assuming he is still sane, George Bush should veto this mess.

What Does all this Hullabaloo Mean for You

Over the years, senators and governors alike have made perfectly legal offshore havens their whipping boys. And so far, it hasn't done anything but stir up the press. Politicians like to appear they're "battling offshore havens." It makes the wealthy politicians "one of the people" if they find ways to crack down on the rich.

But so far, they haven't succeeded. And it's doubtful they will this time. As always, if you're using offshore corporations, investments and vehicles for legal uses (and paying your taxes), then you have nothing to fear, even when the politicians try to pick a fight once again.

Remember, they want you to be ignorant - that way you'll have no choice but to keep investing, banking and doing business here in the U.S. - where you have zero asset protection and zero privacy, you're forced to pay the highest taxes, and you're missing out on 60% of the investment opportunities (all located abroad).

BOB BAUMAN, Legal Counsel

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The Dreaded Day of Reckoning Finally Arrives

It's been a long-debated, much anticipated event, and it has finally arrived. You can't say that you didn't get plenty of advanced warning either.

What am I talking about? The economic slowdown now underway in China, of course. Apparently that day has finally arrived. It's time for the China-bears to rejoice.

Growth has indeed slowed in the world's fastest growing economy...to 10.6% in the first quarter of 2008, down from 11.9% for full-year 2007. That's not exactly falling off a cliff now is it?

"But soon" say the bears, "any day now China will blow-up." Don't bet on it, says I.

Beijing actually revised its final 2007 growth numbers last week, upward...from 11.5% to the higher 11.9% for all of 2007. Even after "slowing" to the mid-10% range over the past three months, China's economy continues to expand - growing about 18-times faster than the U.S.!

Such strong growth is especially amazing considering the headwinds coming from the ongoing credit crunch and soaring food and energy costs. Heck, if China were expanding at just half the current rate, it would still be the world's fastest growing major economy.

China's export growth to the U.S. and Europe is slowing, no doubt about it. In fact, growth in shipments to Wal-Mart and other U.S. customers has been steadily declining over the past few years.

Most China-bears forget to mention this while they're warning of a devastating slowdown in exports "coming soon." In fact, this export slowdown already happened. It started long before the Wall Street credit crunch.

Increased trade with other emerging markets, particularly in Asia, has more than picked up the slack for slowing shipments to the United States.

The Economist recently pointed out that "Asia and the Middle East accounted for more than 40% of China's export growth in the first 10 months of 2007, North America for less than 10%." In fact, China's overall trade surplus continues to grow - by US$41 billion in the first quarter of 2008 - up 40% from a year ago. That's in spite of slowing exports to the United States.

The China-bears have another popular misconception - they believe China is an export-only economy. Exports are very important for sure, but China's economy is also a great story of accelerating internal demand growth. In fact, even if China's "net exports fell to zero, China's GDP growth would still be close to 9% thanks to strong domestic demand," according to the Economist.

Retail sales in China soared at a 21.5% annual rate in March. That's the largest gain in consumer spending in over nine years! Over 500,000 new automobiles drive off dealer lots and showrooms each and every month! As a result, China's factories are running flat-out to keep up. Industrial production in China surged at close to an 18% annual rate in March, accelerating from 15.4% in February, the fastest pace in five months.

This is yet another crystal clear sign that internal consumption is leading the Middle Kingdom's impressive growth, just as much as external trade.

So how should global investors square China's robust growth with a stock market that's plunged over 30% in the first quarter? That's a great question. In tomorrow's A-Letter, I'll take a closer look at what's driving China's share prices now, and what to look for next. Stay tuned!

MIKE BURNICK, Senior Editor and Global Markets Analyst

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Fingering Big Government's and Big Businesses' Obsession with Fingerprinting

Could an employer ask for your fingerprints so you can apply for a job? Or even as a condition to enter a Disney theme park? Could police force you to submit your fingerprints for no reason at all?

If you live in the United States, the answer is "yes." And that's got me pointing my finger at some serious problems with these developments.

Last night I had dinner with some friends here in Phoenix. One of them has a friend named Roberto.

Roberto is a native-born American, but comes from a Hispanic family. And he received the shock of his life a few days ago when sheriff's deputies in Maricopa County, Arizona pulled him over while he was driving.

Roberto wasn't intoxicated or driving erratically. In fact, it appears the reason he was pulled over - and detained for nearly an hour - was because he has a Hispanic appearance.

During the encounter, the deputies grilled Roberto about his immigration status. They didn't believe that he was a native-born U.S. citizen. To add insult to injury, the deputies fingerprinted him. Refusing to be fingerprinted, they told him, would subject him to arrest.

Maricopa County is hardly alone in this regard. Police in Hawaii, Kansas, New York, Wisconsin, and perhaps other states as well, now routinely scan fingerprints when they stop motorists for traffic infractions. At the same time, the FBI is investing US$1 billion in a national database that will combine fingerprint data with retinal scans and even tattoos.

What's more, if you want to apply for a job, you may have to submit your fingerprints along with your job application. Both state and federal laws now require fingerprinting for many types of jobs, particularly those involving contact with children, security or with large sums of money.

But what really makes my finger wag is a policy instituted in 2006 at Walt Disney World in Orlando, Florida. To enter the "Magic Kingdom," you must now submit to a fingerprint scan. This is to prevent you from sharing or re-selling your admission tickets.

However, as with many other surveillance technologies, fingerprinting is in many cases essentially "security theater." The FBI claims a "zero error rate" in its fingerprint identification. But that's simply not true.

One problem is false matches. For example, in 2004, police were investigating the Spain bombing that killed 191 people. The bomber left a bag on the scene with a fingerprint. A false match on that fingerprint led to the arrest and detention of Portland attorney Brandon Mayfield. After Mayfield spent two weeks in jail, prosecutors finally released him after realizing that "zero error rate" doesn't necessarily mean, well, "zero error rate."

Fingerprint readers can also be spoofed. In 2005, Japanese cryptographer Tsutomu Matsumoto designed a system to trick biometric fingerprint readers. Matsumoto's system involves duplicating an actual fingerprint through digital photo editing software and other advanced technology. His design apparently fools fingerprint readers about 80% of the time.

In other words, in the not-so-distant future, someone could hack the FBI biometric database, steal your fingerprints, duplicate them using Matsumoto's techniques or even more advanced methods, and then leave them at the scene of various crimes. Guess who would be arrested?

What routine fingerprinting is effective for is conditioning all of us to accept surveillance, searches and identity checks as a routine part of life. And that has me pointing my finger...skyward.

MARK NESTMANN, Privacy Expert &
President of The Nestmann Group
www.nestmann.com

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