THE SOVEREIGN SOCIETY OFFSHORE A-LETTER
Your Link to Freedom, Privacy & Prosperity in the Offshore World
Wednesday, November 17, 2004 - Vol. 6 No. 221
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In This Issue:
* COMMENT: Bush Victory Boosts Tax Competition.
* OFFSHORE: British Virgins Go Naked on Corporate Taxes.
* WEALTH: Arafat's Secrets. More Loopholes Needed. Dying Dollar.
* PRIVACY & RIGHTS: "Achtung! Your Papers, Please!"
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Daniel J. Mitchell PhD. is senior fellow in political economy at the Heritage Foundation, Washington, DC, and a leading expert on domestic and international tax policy.
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COMMENT: Bush Victory Boosts Tax Competition
Dear A-Letter Reader:
Republican election victories were greeted with dismay in Paris and Brussels, but not merely because of foreign policy differences. Bureaucrats at the European Union (EU) and Organization for Economic Cooperation and Development (OECD) had more reasons than most to be disappointed with the outcome. Acting at the behest of high-tax welfare states such as France and Germany, these international bureaucracies have been trying to curtail tax competition. President Bush's re- election, combined with big Republican gains in Congress, is a major setback for advocates of so-called 'tax harmonization.'
Let's begin with a little history. In the late 1990s, both the EU and the OECD launched an assault on tax competition These bureaucracies argued that it was 'unfair' when jobs and capital migrated from high- tax nations to low-tax jurisdictions. To stop this process, the EU and OECD urged various forms of tax harmonization, ranging from cartelized tax rates to indirect forms of harmonization such as the collection and sharing of confidential data on cross-border investment.
This effort had significant momentum, especially since the Clinton administration was ideologically sympathetic. Indeed, Pres. Clinton's Treasury secretary even referred to tax competition and capital mobility as the 'dark side of globalization.'
Pres. Bush's election in 2000 disrupted the campaign for tax harmonization. Thanks to a concerted effort by free market groups, including the Sovereign Society, effectively organized by the Center for Freedom and Prosperity, the Bush Administration quickly backed away from the OECD's 'harmful tax competition' project. This was a devastating blow to the Paris-based bureaucracy since any effort to create a global tax cartel must fail if the world's largest economy does not participate.
The Bush White House also rejected the EU savings tax directive, a tax harmonization scheme that sought participation from six non-EU nations, including Switzerland and the US. This rejection forced the EU to scale back dramatically its proposal and completely give up on its effort to destroy financial privacy.
Last but not least, the Bush administration unambiguously has rejected proposals for global tax authority for the United Nations. Indeed, the head of the US delegation at a recent UN meeting stated that, '...global taxes are inherently undemocratic.' The White House also has summarily dismissed efforts for the creation of an International Tax Organization.
This is not to suggest the Bush presidency is solid on all tax competition issues. Thanks to America's misguided world-wide tax system, there is an active contingent at Treasury and the IRS that supports tax harmonization because schemes like information exchange make it easier to enforce bad US tax law. These bureaucrats do not care that the US also is a 'tax haven' and that global information sharing would mean significant capital flight from America.
The bureaucrats have had some minor victories. They successfully have resisted White House efforts to permanently kill a proposed Clinton era IRS regulation that would require American financial institutions to act as deputy tax collectors for foreign governments - notwithstanding more than 80 years of established law. And they have succeeded in making it even harder for US taxpayers to move to jurisdictions with better tax law.
But there is no question that the net effect of the Bush presidency has been positive, particularly when compared to what would have happened during a Gore administration. Looking forward, it is also quite evident that a Kerry Presidency would have been a big step in the other direction.
Finally, it is worth noting that Republican gains in the House and Senate will bolster the support for tax competition. Not only are there more conservative members, but the Republican Party is much more philosophically committed to free market policy. Indeed, there already is a spontaneous effort in the US Congress to de-fund the OECD. It's not clear that this effort will succeed since it was launched late in the process, but it's likely the OECD's gravy train will be derailed next year when the GOP majority will be even larger in numbers. The OECD, EU, and UN had good reason to be depressed after the election results. And with continued hard work by the Center for Freedom and Prosperity, the Sovereign Society and the Coalition for Tax Competition, they will be even more depressed in future years.
Daniel J. Mitchell, PhD
E-mail: dan.mitchell@heritage.org
Web site: http://www.heritage.org/About/Staff/DanielMitchell.cfm
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COMMENT LINKS:
* Economics of Tax Competition: Harmonization vs. Liberalization
http://www.heritage.org/research/features/index/ChapterPDFs/chapter2.HTML
* Back Door Plan: Tax Competition.
LINK: http://www.techcentralstation.com/102004A.html
* OECD's Dishonest Campaign Against Tax Competition. LINK:
http://www.freedomandprosperity.org/Papers/oecd-dishonest/oecd-dishonest.shtml
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FROM THE EDITOR'S DESK
OFFSHORE:
BRITISH VIRGIN ISLANDS DODGE EU TAX ORDER ROAD TOWN:
A few days ago we complained, as is our wont, that the BVI was being treated like the UK colony that it is -- since it was ordered by London to conform its tax laws to EU demands. The EU wants all it member states to deny any special tax breaks to foreigners not also granted to natives.
Well, as did the Channel Islands and the Isle of Man, the BVI chose to comply, but in a way that will not harm its 400,000 registered offshore international business corporations (IBCs). BVI abolished the local 15% corporate tax and now all corporations are income tax free.
Not exactly what the EU or UK bureaucrats had in mind, but it works.
* BVI Set To Abolish Corporate Income Tax.
LINK: http://www.tax-news.com/asp/story/story.asp?storyname=17949
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WEALTH:
ARAFAT'S 36 YEARS OF OFFSHORE SQUIRRELING IT AWAY GAZA CITY:
To follow up on my comments yesterday about Arafat's squirreling away millions in cash, the latest is that financial investigators are focusing on secret bank accounts he reportedly set up over 36 years in tax havens such as Cayman Islands, Luxembourg, and Liechtenstein. Other accounts linked with Arafat have been traced to Austria, Belgium, Switzerland, France, Sweden, Greece and Bulgaria. The LINK below gives a full run down on Arafat's (and his wife's)spending habits, enough to make any refugee, Arab or otherwise, weep, when you consider the abject poverty of most Palestinians.
* Detectives to Trace Arafat Secret Fortune.
LINK: http://www.novinite.com/view_news.php?id=41573
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MORE TAX LOOPHOLES, PLEASE
WASHINGTON: All the Bush talk about 'tax reform' is being presented in what might be called 'socialist speak.' Granted there is a dire need to simplify a tax code that is a major mess, the uneducated media seems to regard anything that reduces taxes as an unwarranted 'loophole'that needs to be slammed shut.
Our view is that any taxes are exactions that detract from a person's right to dispose of his own private property as he or she sees fit. Even if we grant that some money is needed to run government, we often don't think what the politicians want to do is needed or right.
For the right take on tax reform, check the LINK below in which the author makes clear the correct premise from which to begin.
* More Loophole Lobbyists, Please!
LINK: http://www.mises.org/fullstory.aspx?Id=1672
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THE DYING DOLLAR - DOES ANYONE CARE?
WASHINGTON: Which is true (and does anyone really know?):
1) global markets are awash in so much cash that the US can borrow forever and still get by;
2) foreign governments will support the dollar for their own sake;
3) the dollar will collapse and the shock wave will rock the global economy.
I tend towards No. 3 above; the door behind which sits the tiger.
* The Dollar Is Down, but Should Anyone Care?
LINK: http://www.nytimes.com/2004/11/16/business/16dollar.html
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PRIVACY & RIGHTS:
STOP THE U.S. NATIONAL I.D. CARD!
"Your papers, please!" the Nazi inspector used to say in those black and white World War II flicks. We all knew what that meant - trouble!
Yet the thick headed politicians and bureaucrats in Washington, most without a shred of understanding of American history or of the US Constitution, keep on pushing for this crassly common denominator. The latest effort for a national ID is attached to the 9-11 Commission legislation, that emotional grab bag that in some parts is worse than the PATRIOT Act. Now pending in the lame duck session of Congress,it might get through unless you contact your Senator or Congressman.
* ACLU, Conservative, Liberal Allies Denounce National ID. LINKS:
http://www.aclu.org/SafeandFree/SafeandFree.cfm?ID=17019&c=206
http://www.chronwatch.com/content/contentDisplay.asp?aid=11115
* US Senate: http://www.senate.gov/ * US House: http://www.house.gov/
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THE SOVEREIGN SOCIETY OFFSHORE A-LETTER.
* Bob Bauman, Editor * Daniel Aponte, Jr. Editorial Asst.
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