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WHO PLANS TO STEAL THE 2004 US ELECTIONS?
It is a shell game, with money, companies and corporate brands switching in a blur of buy-outs and bogus fronts. It is a sinkhole, where mobbed-up operators, paid-off public servants, crazed Christian fascists, CIA shadow-jobbers, war-pimping arms dealers -- and presidential family members--lie down together in the slime. It is a hacker’s dream, with pork-funded, half-finished, secretly-programmed computer systems installed without basic security standards by politically-partisan private firms, and protected by law from public scrutiny.
It is how America, the “world’s greatest democracy”, casts its votes. And it is why George W. Bush will almost certainly be the next president of the United States -- no matter what the people of the United States might want.
The technology had a trial run in the 2002 mid-term elections. In Georgia, serviced by new Diebold systems, a popular Democratic governor and senator were both unseated in what the media called “amazing” upsets, with results showing vote swings of up to 16% from the last pre-ballot polls. In computerized Minnesota, former vice president Walter Mondale -- a replacement for popular incumbent Paul Wellstone, who died in a plane crash days before the vote -- was also defeated in a large last-second vote swing. Convenient “glitches” in Florida saw an untold number of votes intended for the Democratic candidate registering instead for Governor Jeb “L’il Brother” Bush. A Florida Democrat who lost a similarly “glitched” local election went to court to have the computers examined--but the case was thrown out by a judge who ruled that the innards of America’s voting machines are the “trade secrets” of the private companies who make them.
The unelected Bush Regime now controls the government, the military, the judiciary -- and the machinery of democracy itself. Absent some unlikely great awakening by the co-opted dullards of the corporate media, next November the last shreds of a genuine American republic will disappear -- at the push of a button.More on this story here and here.
WORLD’S BIGGEST LUDDITE TO RETIRE
There is shock and bewilderment today following news that Australia’s Senator Richard Alston, (61) the Minister for Communications, Information Technology and the Arts, is to retire. Confirmation of the imminent departure of the World’s biggest Luddite was announced today by Aussie PM John Howard.More on this story here.
JERSEY DENIES STORY ON EU SAVINGS TAX DIRECTIVE “LOOPHOLE”
Senior Jersey finance officials have objected strongly to a Financial Times report last week which suggested that the jurisdiction had found a loophole in the European Savings Tax Directive that will allow investors to bypass the exchange of information and withholding tax requirements through the use of discretionary trusts.
The newspaper said that Jersey government officials had pointed out that investors can escape the clutches of the directive quite easily, as it only applies to individuals’ interest income, not payments made to companies, or dividend payments. Trustees can establish firms in Jersey which in turn would open bank accounts. The banks would then not be required to report interest to member states, or apply a withholding tax, as the income is received by a company. However, the firm can then issue a dividend payment to the trustee to be passed on to the investor.More on this story here and here.
Jersey warned on continuing independence.
Graham Mather, who used to sit as a Conservative in Brussels, believes European tax harmonization rules could signal the end of Jersey’s position in the world of business and finance. Mr. Mather is urging like-minded islanders to campaign against the UK’s continued membership of the European Union and any campaign to introduce the euro in Britain.More on this story here.
PERSIAN GULF BANKS START AWAKENING
The cash-rich banks of the Persian Gulf region are quietly rising to the challenges of modernization and financial globalization, even though on the surface it looks like little has changed. The Gulf banks rated by Standard & Poor’s have remained financially healthy despite focusing almost solely on their domestic markets. Their ratings fall in a tight range in the low investment-grade categories. Profitability is good (average return on assets of 1.5% to 2.0% over the past decade), backed by high margins, cheap deposits and labor, and zero income tax. For the 30 largest banks in the Gulf, capitalization and asset quality compare favorably to other emerging markets.
But underneath the appearance of status quo are signs of a collective awareness of the need to speed the pace of regional and, to a lesser extent, national consolidation. In each country, the largest financial institutions are facing natural limits in new banking opportunities, and cross-border interest is stirring: National Bank of Kuwait is eyeing the Qatari retail-banking market, and Saudi Arabia-based National Commercial Bank was recently granted an onshore banking license in Bahrain.
This impetus is helped by the fact that Gulf banks have been working hard to put their houses in order, prodded by proactive regulators and governments (the latter tend to be owners -- and important clients).More on this story here.
BAHAMAS “RIDING HIGH” SAYS PM
During a luncheon in Washington, DC, Prime Minister Perry Christie said that over the last 15 months, The Bahamas has attracted a significant increase in the level of foreign investment, amounting to over $2.7 billion dollars, with 4.4 million visitors per year.
The Prime Minister told the grouping that the list to invest in The Bahamas is long and persuasive, and investors are mainly attracted to The Bahamas due to: Proximity to North and South America; the attractiveness and beauty of the archipelago; political, economic and social stability; safety; a highly-skilled labour force; modern infrastructure, progressive and sound fiscal policies, and a Ministry of Financial Services and Investments created to facilitate and expedite financial services and investments.More on this story here.
Moody’s issues favorable annual reports on the Bahamas, Caymans.
In its annual report on the Bahamas, Moody’s Investors Service says the country’s investment-grade credit ratings are based on low external debt, a competitive tourism sector, and prudent macroeconomic management. The country’s issuer rating for foreign currency debt and bonds and its foreign currency country ceiling are A3, its issuer rating for domestic bonds and debt is A3, and its off-shore banking sector country ceilings for foreign currency bonds and bank deposits are Aaa.
Moody’s Investor Services has issued its annual report on the Cayman Islands which has attributed the nation’s Aa3 rating to its resilient tourist sector, high per capita income and prudent economic policy framework. Moody’s noted the cooperative response of the Caymanian authorities with regard to US and EU concerns on money laundering through its offshore banking sector and the ratings agency also reported a similarly satisfactory result in response to the OECD initiatives on tax issues.More on these stories here, here, and here.
CARIBBEAN ANTI-TERRORIST CONFERENCE SET FOR NEXT YEAR
The United States (US) plans to sponsor a conference on security in the Caribbean early next year as the Bush administration seeks to reinforce an anti-terrorism partnership with a region that the Americans describe as their third -- and a potentially vulnerable -- border. The Americans are concerned that the Caribbean, a haven for millions of American tourists annually, could be a tempting soft target for terrorists bent on attacking US interests in the region. Both sides are now attempting to fashion joint counter-terrorism and other security initiatives.
“The State Department is planning to approach Caricom (the Caribbean Community) and the OAS (Organization of American States) to put together a conference on terrorism in the Caribbean,” said an administration official. “We hope this conference will take place early in the New Year.”
The Americans agree that the security threat to the region comes not only from radical Islamists and others with an anti-American agenda. Narco-traffickers are also a destabilising force for the small, poor states in the region.More on this story here.
OHIO ACCOUNTANT BARRED FROM FILING TAX RETURNS
A federal court judge found that Robert C. Welti interfered with the administration and enforcement of internal revenue laws. She also ordered him to reveal the names of everyone he had prepared income tax returns for since 1988. Welti prepared tax returns that falsely claimed to eliminate taxes for hundreds of clients based on “sham trusts and bogus deductions”, resulting in more than $3 million in total annual tax understatements, according to prosecutors.
According to the Department of Justice, during IRS audits of his clients, Welti argued that the federal income tax is unconstitutional, that the IRS is not authorized to collect taxes and that only income earned in foreign countries is taxable.More on this story here.
EUROPEAN COURT OF JUSTICE RULES IN FAVOR OF UK OVER GIBRALTAR’S EU STATUS
Government officials from Gibraltar and the United Kingdom have confirmed that a recent ruling by the ECJ will prevent the EU Commission from compelling the UK authorities to demand that Gibraltar implement over 450 European Directives. The Luxembourg court ruled in favour of the UK, reasoning that Gibraltar is excluded from the customs union under the terms of British EU membership. A government spokesman hailed the decision a victory for Gibraltar.More on this story here.
SMALL ISN’T ALWAYS BEAUTIFUL. CASES IN POINT: MALDIVES, SOLOMANS, NAURU
It was romantics like Paul Gauguin who seduced the world into believing that tropical islands are palm-fringed paradises where people are nicer and more innocent than elsewhere, but they did have help from the “small is beautiful” crowd. Surely, they murmured, much of the ugliness and cruelty of mass societies comes from their sheer scale. So let us consider a few small islands.
Start with the Maldives: 1,190 low-lying coral atolls in the Indian Ocean, with about 300,000 people scattered around 200 inhabited islands. President Maumoon Abdul Gayoom has done a good job of raising living standards in the Maldives: 10% annual growth for the past twenty years. An average income now nearing $2,000 a year is not bad for a chain of barren atolls which live exclusively off tourism, fishing and trade. The price, however, has been arbitrary arrests and long jail sentences for government critics. So the younger generation, having benefited from the education their parents could never afford, has turned against the all-powerful patriarch who has outlived his usefulness. Just like anywhere else.
Things have gone much further in the Solomon Islands, 4,000 miles to the east, where a five-year civil war between the Isatabu, the dominant population of the main island, Guadalcanal, and immigrants from the neighboring island of Malaita has already devastated the country. Then go north-east just a few hundred miles to the tiny, lonely island of Nauru.
Small island countries are not nicer than other places; they are just smaller. The people are the same, too, except that there is no way to get away from them. As another Frenchman remarked -- Jean-Paul Sartre, this time -- hell is other people.More on this story here.
MAKING RETIREMENT DREAMS COME TRUE
Nearly 19 million people in Britain are aged 50 and over -- a number that will increase by five million over the next two decades. With high costs of living in Britain and overcrowding, an increasing number of these will move overseas where expenses are lower, the climate more amenable and standards of living are higher.
Traditionally, many retired people will choose the close proximity of Europe where destinations such as France, Spain and Portugal are popular. Those who are more adventurous or want to stretch their money further, will settle in countries that are offering special visa and tax deals to lure retired people to their shores such as Thailand, Mexico, Sri Lanka, Barbados and Costa Rica.
These countries are building attractive retirement villages with good medical and recreational facilities and every other amenity a resident could possibly need. The attractions of such exotic destinations as Thailand include more reasonable living costs. A two bedroom town house in Bangkok or a condominium on the beach can be rented for around £250-300 per month, medical facilities are excellent and inexpensive and domestic help is cheap.More on this story here.
THE PRESSURES OF A FOREIGN ASSIGNMENT
In any foreign posting, it is often the spouse or partner who bears the brunt of the shift. They are the ones who have to oversee and take charge of the details of the move. In many cases, they are the ones who have to arrange the moving company, decide what to take, organize for the house or apartment to be rented out, find out about schools, explain it all to the kids, cancel all the utilities, line things up with the bank and possibly even work out what to do with the dog or cat.
It is often the same at the other end where a large part of organizing the process of settling in seems to fall on the shoulders of the spouse or partner. This can even come down to working out the local currency.
And then when everything seems to working OK, it is then up to the trailing spouse or partner to find a little space for themselves and for their interests as well as venturing out into the world to make more social contact. This can mean even trying to plot a course to finding a job.More on this story here.
TOP 1% U.S. EARNERS LOST INCOME IN 2001, BUT ALSO PAID LOWER TAXES
The incomes of the top 1 percent of Americans fell 18% in 2001, as did their income taxes, shaving $66 billion off revenues and showing how dependent the federal government has become on its wealthiest citizens. Over all, Americans had 2.8% less income in 2001 than in the previous year. But federal tax revenues fell 9.4% because the incomes of those at the top, who pay the highest tax rates, dropped so much more than the average.
The sharp decline in incomes at the top “is obviously due to the collapse of the stock market boom and the recession,” said Bruce Bartlett, a senior fellow at the National Center for Policy Analysis, a lobbying group.More on this story here.
THE MOST EXPENSIVE ZIP CODES IN AMERICA
Yet when we set out to determine the 10 most expensive ZIP codes in the country, we were surprised to learn that many of the most famous and most fashionable ZIPs did not come close to making the list. To compile the list, we used median home prices for 2002, the last full year for which numbers exist, and interviewed dozens of local real estate agents, boards of Realtors and multiple-listing service providers, as well as third-party data providers.
Which ZIPs failed to make the cut? Beverly Hills, 90210, for example. Thanks to the popular TV show of the same name, this is possibly the most famous ZIP code in the country, with a median home price of $1.042 million in 2002, but not pricey enough to make it even within our top 15. (Although, given the fact that the 2002 U.S. median home price was just $158,300, the movie producers and celebrities who call it home are not exactly on food stamps.)
The reason that Beverly Hills doesn’t rank is that even though it may contain some of the world’s most expensive properties, many homes there are also more modestly priced. Unsurprisingly, several of the ZIP codes on our list are smaller communities, where the real estate is limited and the zoning laws predisposed to favor the affluent.More on this story here.
List of all ZIP codes with mediam home prices greater than $500,000 here.
INTRODUCING THE INDIAN BILLIONAIRES CLUB
Individual stories and the underlying statistics reflect significant trends in society. Which is why Business Standard brings out every year its annual listing of the members of India’s Billionaire Club -- those worth more than a billion rupees, or 100 crore ($22 million). There are now 125 in the list, up from 88 two years ago -- reflecting the upsurge in share prices this year. And it is encouraging that the majority on the list remain first generation creators of wealth, not inheritors -- indeed, 7 in the top 10 are first generation businessmen, and two are second generation. So this is not a game of inherited privilege, with its hint of semi-legitimacy; it is a celebration of success and achievement.
Which begs the question: are these super-rich guys smarter than the rest of us? So it would seem, but not all that much smarter, since the top 100 billionaires have increased their listed wealth by 40% since 1999, when Business Standard first came out with the Billionaire Club. Against that, the total market cap of all shares on the Bombay Stock Exchange increased by 34% in the same period. But the Ambanis, who sit at the top of the pile for the first time, have increased their wealth by a staggering 467% in these four years, from Rs 5,046 crore (Rs 50.46 billion) to Rs 23,588 crore (Rs 235.88 billion, or approximately $5.1 billion) -- nearly a fifth of the wealth of all the billionaires put together, and 2.6% of the total wealth that all Indians hold in stocks.More on this story here.
UK INLAND REVENUE’S DEFINITION OF RICH MAY NOT COINCIDE WITH THAT OF SO-CALLED “RICH”
Discussions about how many people should pay higher rate tax are treacherous waters into which politicians wade at their peril, as Peter Hain, leader of the House of Commons, discovered in June. His public musing that the 40% higher rate was catching too many middle income employees -- such as teachers and police officers -- was not received warmly by Downing Street or the Treasury.
The number of people paying higher rate income tax has increased by more than 50% since Labour came to power in 1997. Is this an assault on the middle classes or of concern only to the wealthy few? Mr. Hain was persuaded to drop the subject, but the middle class tax burden is unlikely to remain off the political agenda for long. For one thing, further tax increases may be required before too long. For another, Labour is determined to retain the loyalty of middle class voters. It will not wish tax policy to scare them off.
Many people near the top of the income range seem to believe they are more “average” than they are. The higher rate of tax is paid on incomes in excess of £35,115.More on this story here.
CHINA TO LIFT BAN ON INDIVIDUAL OWNERSHIP OF GOLD
Prominent gold experts and officials are urrging the government to lift the ban on individual trading in the precious metal as soon as possible, as quoted prices at the Shanghai Gold Exchange (SGE) continually hit record highs this month amid a surge in buying enthusiasm. The introduction of individual traders, they say, would kill four birds with one stone, by invigorating flagging consumption, slashing the foreign trade surplus, trimming conspicuous foreign exchange reserves and easing international pressures on China to appreciate its currency.
It is “safe and feasible” for China to spend part of its foreign exchange reserves on gold imports, as well as place such purchases on the domestic market and open the market to individual players at the earliest possible opportunity, said Xi Jianhua, Bank of China’s gold business expert. About 20% of respondents to a recent national survey said they were willing to spend 10 to 30% of their savings in gold investment, indicating a huge potential demand for gold.
Outstanding individual bank savings in China hit 10.61 trillion yuan ($1.28 trillion) at the end of July. After trying in vain for years to encourage a high growth rate in private spending, China has had to rely on proactive fiscal policies, marked by heavy government investment since the Asian financial crisis in 1997, to maintain fast gross domestic product growth.More on this story here.
CONGRESS PUTS BRAKES ON CAPPS II
Congress moved to delay the planned takeoff of a controversial new airline passenger-profiling system until an independent study of its privacy implications and effectiveness at stopping terrorism can be completed. A congressional conference committee, which was reconciling the Senate and House versions of the Department of Homeland Security’s budget for next year, opted to keep the Senate’s stronger language.
That language prohibits deployment of the Transportation Security Administration’s CAPPS II program until the General Accounting Office certifies to Congress that the system will not finger too many innocent passengers. A GAO study is due on February 15, 2004. The study will also check whether the system will effectively pinpoint terrorists, and whether an appeals system is in place for those delayed or prohibited from flying.
CAPPS II is intended as a high-tech replacement for the current system, which simply checks passenger names against a list of suspected terrorists. It will require passengers to provide airlines with additional information, which the agency will check against commercial databases and a watch list of suspected terrorists and people wanted for violent crimes. The system will then color-code each passenger, according to decisions made by the system’s pattern-matching algorithms. An ideologically diverse coalition of civil-liberty advocates oppose the project, saying the system would be Big Brotheresque and ineffective.More on this story here.
House vote stymies “Terrorism Information Awareness” spy plan.
The U.S. House of Representatives has approved a spending bill that eliminates money for the TIA project, effectively putting an end to the controversial Pentagon plan, which sought to assemble computerized dossiers on Americans. The 407 to 15 vote on Wednesday approved a conference bill drafted by a joint House-Senate committee. The approval vote is the result of a year of fierce lobbying by privacy advocates to eliminate TIA (formerly named “Total Information Awareness”) and of Pentagon efforts to defend it against mounting public and congressional criticism.
Sen. Ron Wyden, the Oregon Democrat who led opposition to the TIA project on Capitol Hill, said in a telephone interview that the “program that would have been the biggest and most intrusive surveillance program in the history of the United States will be no more. The lights are going out at the office.” [However, see the article from last week that asserts the scheme can still enter in through “the back door”.]More on this story here.
U.S. READIES PROGRAM TO TRACK VISAS
The federal government is about to unveil a blueprint for one of its largest information technology projects ever, a vast automated system that will track every foreigner entering the United States with a visa. The program, which is designed to prevent terrorists and criminals from obtaining visas, is likely to cost $3 billion to $10 billion, analysts said.
Under the system, U.S. consular officials will fingerprint and photograph visa applicants in their home countries and check their profiles against terrorist watch lists and criminal databases. Border agents will electronically scan travelers’ index fingers to make sure their prints match those on their visa documents. And a massive computer system storing travel and visa data will automatically alert the government to individuals whose visas have expired. The Homeland Security Department plans to release details of the project in November.More on this story here.
BIOMETRICS -- THE EU TAKES ANOTHER STEP DOWN THE ROAD TO 1984
The European Commission has produced two draft Regulations to introduce two sets of biometric data (fingerprints and facial image) on visas and resident permits for third country nationals by 2005. The biometric data and personal details on visas will be stored on national and EU-wide databases and be accessible through the Visa Information System (VIS) held on the Schengen Information System (SIS II). The proposal is silent on whether the biometrics and data on third country nationals will also be held on the SIS, though it is clear that national registers of third country nationals resident in every EU member state will be created (a long-standing demand by the German government will thus be put into practice). That this same information will also be held on the SIS is inevitable. Another proposal for the inclusion of biometrics and personal data: “in relation to documents of EU citizens, will follow later this year”.
Tony Bunyan, Statewatch editor, comments: “These proposals are yet another result of the ‘war on terrorism’ which show that the EU is just as keen as the USA to introduce systems of mass surveillance which have much more to do with political and social control than fighting terrorism.
“To the proposed surveillance of all telcommunications is added the control of movement of all visitors and third country nationals, to be followed by that of EU citizens too. How long will it be before there will be a compulsory EU identity card? All the data will be held on the EU-wide Schengen Information System which can be accessed by tens of thousands of officials -- how long will it be before biometrics collected for travel documents will be used for other purposes?”More on this story here.
BUSH’S UNOFFICIAL OFFICIAL SECRETS ACT
How the Justice Department Has Pushed to Criminalize The Disclosure of Non-Security Related Government Information.
Except in a few highly egregious circumstances relating to national security information (espionage and atomic secrets), the U.S. Congress has, in the past, never made it a crime to leak information to the news media. As a result, for over two hundred years, our government has operated without an “official secrets act”. In contrast, Great Britain and other nations have long criminalized the disclosure of government information. But there is a crucial difference between them and us: They lack an equivalent of our First Amendment.
Despite the free speech costs, President George W. Bush has created the equivalent of an official secrets act for America -- and it is only growing stronger. Indeed, by cobbling together provisions from existing laws, Bush’s Justice Department has effectively created one of the world’s most encompassing, if not draconian, official secrets acts.
If Attorney General John Ashcroft has his way, we will see many more prosecutions of this ilk. Ashcroft has told Congress he wants a “comprehensive, coordinated, Government-wide, aggressive, properly resourced, and sustained effort” to deal with “the problem of unauthorized disclosures.” It is important to watch Ashcroft’s lips here: He said “unauthorized” disclosure -- not, say, disclosures of classified information relating to national security, which would be a very different matter. Plainly, he is targeting anyone who leaks information the Bush Administration would rather not have made public -- even when security is in no way at risk.
During the Clinton Administration, an effort was made to actually enact official secrets legislation. But Scott Armstrong -- the Executive Director of the Information Trust, a secrecy watchdog in Washington -- realized what was occurring, and mounted a major lobbying effort to get Clinton to veto it, and he did. This time, however, it is already too late, for Ashcroft has outfoxed the watchdogs. Rather than pressing for new legislation that might spark similar controversy, he has decided to twist and distort laws already on the books to create the equivalent of such legislation. However, these laws were never intended to criminally prosecute such conduct.More on this story here.
FBI BYPASSES FIRST AMENDMENT TO NAIL A HACKER
The FBI recently sent letters to a handful of reporters who have written stories about the Adrian Lamo case -- whether or not they have actually interviewed Lamo. The letters warn them to expect subpoenas for all documents relating to the hacker, including, apparently, their own notes, e-mails, impressions, interviews with third parties, independent investigations, privileged conversations and communications, off the record statements, and expense and travel reports related to stories about Lamo. In short, everything.
The notices make no mention of the protections of the First Amendment, Department of Justice regulations that restrict the authority to subpoena information from journalists, or the New York law that creates a “newsman’s shield” against disclosure of certain confidential information by reporters. Instead, the FBI has threatened to put these reporters in jail unless they agree to preserve all of these records while they obtain a subpoena for them under provisions amended by the USA-PATRIOT Act.
The government also informed the reporters that this is an “official criminal investigation” and asks that they not disclose the request to preserve documents, or the contents of the letter, to anyone -- presumably including their editors, directors, or lawyers -- under the implied threat of prosecution for obstruction of justice. That is why you are reading about the letters for the first time here.
All of this began the day after the Attorney General advised all United States Attorney’s Offices to prosecute each and every criminal offense with the harshest possible penalties, instead of the previous policy of prosecuting cases with the penalties that most accurately reflect the seriousness of the offense. Thus, journalists be forewarned -- your government may be seeking to throw the book at you! Believe it or not, this is not even the worst of it.More on this story here and here.
INVESTMENT FLOWS OUT OF US EQUITIES MARKETS
According to figures from UBS, the Swiss-based investment bank, and the US Treasury, the net outflow from the US stock market was $41 billion in the 12 months to July, the first time capital has left the US market since 1997. This coincides with a rally on world stock markets, fuelled by expectations of economic recovery.
Where foreign investors are still buying into the US, much of the money has been going into Treasury bonds. The reverse in equity flows follows a decline in confidence in US companies. Analysts believe the image of US equities has taken a battering as the so-called “new paradigm” -- that technology will enable the US to sustain a higher level of long-term non-inflationary growth -- has proved elusive, while scandals such as Enron have compounded the disillusion. The weak dollar, down almost 9 per cent this year against a basket of other currencies, is believed to have accelerated the effect.More on this story here.
Emerging markets are raising capital once again, thanks to some reassuring reforms.
Venezuelan President Hugo Chávez may scare the daylights out of the business Establishment with his leftist economic policies. But when his financial emissaries hit the road in early September to gauge investor interest in a new $500 million bond offer, the response was so enthusiastic the government successfully doubled the issue. Five years ago, Russia was the black sheep of global finance, after it defaulted on $43 billion in bonds. Today, Russian companies have little trouble floating paper abroad, and ratings agencies hint they may soon label Russia as an investment-grade sovereign risk. It is a similar story in Indonesia, another former pariah.
The long drought in emerging-market debt issues is over. This year, developing nations are on track to raise $32 billion in foreign bonds, says a Washington think tank. That is still well below the heady levels before the 1997 Asia financial crisis but more than twice as much as 2001 and 2002 combined. Despite a sell-off when U.S. rates spiked this summer, the spreads above U.S. Treasuries for sovereign issues by the 32 nations in the J.P. Morgan Emerging Markets Bond Index are near their lowest levels since 1998 -- around 460 basis points. Even Western banks, which since 1998 had pulled more money out of developing nations than they loaned them, are now pumping in new credit.
There are two ways to look at the resurgence in capital flows to emerging markets. One view is that investors, awash with liquidity at a time of rock-bottom global interest rates, are letting their thirst for high returns overwhelm their good judgment by buying riskier debt. Then there is the more optimistic view: that the financial environment is becoming much safer for emerging markets.More on this story here and here.
Getting rewards without risk -- invest internationally.
Over 50% of the world’s equity rests outside of the United States. This is too large a market for a clever investor to ignore -- especially since foreign investments, when combined with U.S. stocks, offer additional profit potential while reducing total portfolio risk. While international stocks are “foreign” to us, the factors affecting them are largely the same as those affecting U.S. stocks: earnings, interest rates, and the outlook for inflation and the home economy. Still, international investing involves additional uncertainties that you would not necessarily have to worry about with a U.S. stock, such as the country’s political stability, its financial reporting standards (which might be less stringent than in the U.S.), and currency/exchange rate risk.
So why invest outside the U.S., given these additional unknowns? Diversification. In fact, if you invest broadly across the international spectrum, these unknowns will actually melt away as the various risks and currency fluctuations cancel each other out, thereby reducing risks and actually increasing overall long-term returns.
Consider that in the past 30 years there have been eight bear markets in the U.S. (defined as a decline of at least 10%), the most recent being in July/August 1998 [This article was written in 2000]. During every one of these, international stocks either went up or declined by less than the U.S. market -- as defined by the Morgan Stanley Capital International’s EAFE (Europe, Australasia, Far East) Index. In one of those bear markets (January 1977 through February 1978), international stocks gained 14% while U.S. stocks lost 22%.More on this story here.
DONOR TO CALIFORNIA GOVERNOR GETS A PASS ON STATE OFFSHORE SANCTIONS
By the standards of the moment exploiting feel-good bills for political benefit, SB 640 rates the full-fledged ceremonial launch it is scheduled to get this week. It purports to crack down on “expatriate corporations” that set up shop in offshore tax havens but continue to function as if they were American companies, by denying them the right to contract with state agencies, and is part of California state Treasurer Phil Angelides’ crusade on corporate responsibility.
There is, however, a passage in the fine print of SB 640 that could protect from sanctions a managing consulting firm called Accenture, which is one of the poster children for expatriate operations. Accenture has contributed handsomely to Democratic campaign treasuries, including Gray Davis’ warchest; it gave $25,000 to Davis’ anti-recall drive in August, as SB 640 was nearing legislative approval. And Accenture retained some very well connected lobbyists, including Darius Anderson, a top Davis fundraiser.More on this story here.
GERMAN STATE ATTEMPTS TO LEGISLATE TAX EXEMPTIONS FOR EXPATS
The government of Hesse has launched another attempt at legislating tax exemptions for foreign executives working in Germany, only a year after its first move in this direction fell victim to public outrage. This Friday, the Bundesrat parliamentary chamber representing the federal states will discuss a draft law tabled by Hesse.
Although it is continental Europe’s financial center and boasts the continent’s major international airport, Frankfurt has found it more difficult than other international business hubs to lure highly qualified foreign professionals. While this is especially true for the city’s weighty financial sector, a perennial runner-up to rival London, it is not restricted to it alone.
The draft law cites the pressures of a tough international recruitment market, where more and more companies are moving parts of their business to foreign locations where their employees are taxed less than in Germany. Local politicians have repeatedly criticized the lack of special tax breaks for expats that are common in other countries.More on this story here.
OFFSHORE TRUSTS UNDER WORLDWIDE ATTACK
Offshore trusts, the sophisticated redoubt of many well-off and careful South African investors, have been thrust, uncomfortably, into the limelight in the wake of the government’s tax and exchange control regulations amnesty. Not just in SA though. Revenue authorities across the world have introduced measures to clamp down on people using trusts to avoid paying tax.
It is estimated that about a fifth of all the money in the world may be held directly or indirectly in offshore trusts. It is this figure that inevitably triggered major changes in tax and in law, say tax experts.
Barry Spitz, international tax expert and head of Meritor’s amnesty division, says a trust is a vehicle that allows funds to be held in “trust” by a trustee who has the authority to administer them on behalf of a beneficiary. The settlor, the person who gave the assets into trust, may not be liable for taxation on the income, says Spitz. In most jurisdictions only when the accumulated income is distributed does a tax liability arise and the beneficiary is responsible for this.
“Today [offshore] trusts are coming under the scrutiny of the courts of traditional trust countries. When tested against established trust law many have been found to be invalid,” Spitz says. James Aitchison, international tax expert at PricewaterhouseCoopers, says there is a global antipathy towards trusts by revenue authorities. This is part of the tightening up of antiavoidance measures, such as transfer pricing and tax havens. The UK and US have adopted “look through” rules, which disignate when a trust a sham. This is usually where the settlor controls the trustee’s decision-making powers or the trust assets. Michael Honiball, head of international tax at KPMG, says the US has disregarded trusts in many instances when applying “look through” rules. Pleaces like Jersey and Guernsey have also upheld attacks on offshore trusts on the grounds of settlor control.More on this story here.
THE TRUTH IN THE RAW NUMBERS
If you are skeptical of what businesses report as “earnings” -- their official profits -- you have a right to be. Earnings are an artifice of what are called generally accepted accounting principles, and, while GAAP earnings are universally admired, almost worshiped, by accountants, they are also based on a lot of guesswork -- such as reserves against possible losses on what people owe the company or projections of how expensive shutting down a plant will be.
We have also learned in recent years that some companies cheat. WorldCom, for example, booked operating expenses as if they were capital investments. Under GAAP accrual rules, operating expenses get deducted from profits immediately while capital investments are depreciated over many years, a little at a time.
But even for honest companies, GAAP earnings may not be particularly meaningful. Baruch Lev of New York University, one of the top accounting scholars in the world, said that “extensive research shows that accruals [the GAAP earnings reported in the press each quarter] are widely manipulated, and investors are systematically deceived.” The reason is that “most accruals are based on managers’ estimates, which are never publicly verified,” he said. “This is an invitation to manipulation.”
So what is an investor to do? First, examine a company’s cash flows -- essentially the amount of money that actually comes in and out the door. Cash flow, according to the academic literature, is a better predictor of a firm’s future health and true value than accrual earnings. “Earnings are an opinion,” goes the saying. “Cash is a fact.” Cash flows are reported to the Securities and Exchange Commission just like earnings, but most investors ignore them.More on this story here.
TWO WALL STREET CLASSICS APPEAR IN NEW EDITIONS
Modern stock markets date back to seventeenth-century Amsterdam, which was then the financial capital of Europe. The science of stock valuation is more recent: for a long time, most scholars considered the stock market to be governed by moods and caprice, placing it beyond the scope of rigorous analysis. Then, starting around the time of the Great Depression, some economists began to give the matter a second look.
Valuing companies based on the information contained in their financial statements constitutes an entire discipline, much of it established by Benjamin Graham and David Dodd in their 1934 textbook, Security Analysis. Graham, who taught at Columbia Business School for years, and numbered Warren Buffett among his students, is regarded as the pioneer of “value investing”, the painstaking pursuit of cheap stocks. In 1949, Graham explained his methods to the general public in The Intelligent Investor, a work that HarperBusiness has just reissued, with a new introduction and running commentary by the journalist Jason Zweig. Buffett has described it as “by far the best book on investing ever written,” and although the case studies it cites are now decades old, its practical advice on how to look at balance sheets and income statements is timeless.
Is all this hard work worth it? Most economists of the postwar generation were skeptical. They believed in what has come to be known as the “Efficient Markets Hypothesis”, or E.M.H., which holds that a company’s stock prices already reflect all the available information about that company’s prospects. If a piece of information or analysis were really valuable, E.M.H. proponents say, other smart investors would already have acted on it, thereby eliminating the chance to make a killing. Trying to be an “intelligent investor”, by doing the arcane analysis that Graham recommended, was a mug’s game.
E.M.H., in one version or another, held sway in universities and business schools for more than a quarter of a century; even today, it is routinely taught to M.B.A. students. One of the people responsible for this state of affairs is Burton G. Malkiel, now a Professor of Economics at Princeton. Back in 1973, Malkiel, who was then little-known, published a book entitled A Random Walk Down Wall Street, which expounded efficient-markets theory for the layman. To the surprise of many, not least the author, it turned into one of the most durable investment guides ever written. Marking the thirtieth anniversary of the original publication, Norton has released a revised and updated eighth edition.More on this story here.
UN GLOBAL ANTI-CRIME TREATY TAKES EFFECT
A legally-binding new U.N. treaty to combat global organized crime went into effect Monday. Nearly 150 nations around the world have joined the Convention Against Trans-National Organized Crime. China, Russia, the United States and most Latin American countries have signed the treaty. The agreement calls for broad cooperation against money-laundering, corruption and obstruction of justice, and requires states to work together on extradition issues and victim-protection programs.
Antonio Maria Costa, the executive director of the United Nations Office on Drugs and Crime, says establishing common standards for law-enforcement operations worldwide will stop gangs from using bank-secrecy regulations to conceal criminal activity. The Vienna-based U.N. anti-crime office says organized gangs are using new technologies for theft, smuggling and other crimes, including highly-profitable human trafficking.More on this story here.
THIEVES NAB PRIVATE DATA OF 120,000 CANADIANS FROM REVENUE CANADA
OTTAWA: Elinor Caplan, the Revenue Minister, has ordered a sweeping security review after four tax department computers were stolen containing confidential personal information of more than 120,000 Canadians. Government insiders say the September 4 theft at Revenue Canada’s offices in Laval, Quebec, is the “biggest loss” of personal information in Canadian history and included the SIN numbers of contractors and sub-contractors in the construction industry across the country.
While no personal income tax information was on the computers, the stolen data did include names, dates of birth, home addresses and social insurance numbers. Officials say police fear it could be used to build new identities for criminals and bogus refugee claimants. It could also be sold on the black market to organized crime syndicates, or be used to fraudulently obtain credit cards, employment insurance, welfare or old age pensions.More on this story here.
VIN SUPRYNOWICZ: JUST “TAKE THE BUS”
A federal employee who declined to give his name sent an e-mail to the paper a few weeks back:
“Dear traveling public:”:
“(...) We understand you might be having a bad day, but you do not have to take it out on us by making a snide remark like ‘you are violating my civil rights’ or calling us all a ‘bunch of assholes.’
“If you are late arriving at the airport, then you are late, we had nothing to do with the traffic on the freeway or the lines at the ticket counter. Just remember that you do have the option of not having to go through the security screening process. If flying has turned into such an inconvenience for you, then take the bus or drive yourself back to wherever it is you came from.” (...)
Unfortunately, we could not publish this pouting apologia, since it arrived without signature. But I thought I would take a moment to respond to the anonymous author, anyway:
Dear “TSA Screener”:
For the record, it is possible these complaints you are hearing about “violating civil rights” stem from the complainants having read Amendment IV to the U.S. Constitution, which specifies, “The right of the people to be secure in their persons ... papers and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.”
Perhaps you would contend airline passengers voluntarily waive those rights when they decide to travel by air. If this is indeed a matter of voluntarily private contract, can you confirm that individual airlines are free to offer competing “no-search” commercial flights if they wish?
You say, “We do these things for YOUR safety.” How safe were the victims of 9/11 after all the airport searches conducted that day? Do you really believe there would have been as many deaths that day if all American airline passengers had remained free to carry aboard the firearms they are guaranteed under the Second and 14th amendments (as they peacefully did for decades) -- the very firearms of which you are now retained to deprive us?More on this story here.
TSA may order airlines to share data.
Transportation Security Administration Chief Administrator James Loy said Friday if no airlines voluntarily provide data for a 180-day testing period of the Computer Assisted Passenger Prescreening System (CAPPS II) scheduled for later this year, he will issue a security directive mandating the airlines provide the information.
Delta Airlines had originally agreed to participate in the program but withdrew following a firestorm of criticism over passenger privacy violations. JetBlue Airways was sucked into the controversy earlier this month when it was revealed it had provided passenger data to a defense contractor. Given Delta’s and JetBlue’s experiences, Loy said the agency no longer plans to single out an airline, but, instead hopes to work out an agreement with the Air Transport Association, the powerful lobbying arm of the airline industry.More on this story here.
MOVE TO OVERHAUL THE PATRIOT ACT IS PICKING UP STEAM
Congressional supporters of an overhaul to the USA Patriot Act say momentum for “making sure Big Brother is not looking over our shoulder” is building. Rep. John Olver, an Amherst, Massachusetts Democrat, is joining 135 House members -- nearly a third of the chamber -- in urging action on a bill to protect library and bookstore patrons from the spying eyes of federal agents.
The effort comes after widespread protests of Attorney General John Ashcroft’s recent multicity tour to defend the new law. The law has been denounced by three state Legislatures, 170 communities and numerous library associations. Ashcroft has dismissed the outcry of concern from librarians and civil libertarians as “baseless hysteria”.
Oliver, who was honored last Monday by the ACLU for voting against the Patriot Act, said: “Congress has a responsibility to ensure that our law enforcement authorities have the power to investigate and prosecute individuals involved in terrorist activities. However, certain provisions of the Patriot Act allow law enforcement authorities to violate legally the civil liberties of innocent American citizens.”More on this story here.
U.S. USES TERROR LAW TO PURSUE CRIMES FROM DRUGS TO SWINDLING
The Bush administration, which calls the USA Patriot Act perhaps its most essential tool in fighting terrorists, has begun using the law with increasing frequency in many criminal investigations that have little or no connection to terrorism. A new Justice Department report, given to members of Congress this month, cites more than a dozen cases that are not directly related to terrorism in which federal authorities have used their expanded power to investigate individuals, initiate wiretaps and other surveillance, or seize millions in tainted assets.
The government is using its expanded authority under the far-reaching law to investigate suspected drug traffickers, white-collar criminals, blackmailers, child pornographers, money launderers, spies and even corrupt foreign leaders, federal officials said.
Justice Department officials say they are simply using all the tools now available to them to pursue criminals -- terrorists or otherwise. But critics of the administration’s antiterrorism tactics assert that such use of the law is evidence the administration is using terrorism as a guise to pursue a broader law enforcement agenda.More on this story here.
BANKS READY TO COMPLY WITH PATRIOT ACT
Beginning October 1, the federal law, specifically Section 326, establishes minimum procedures for identification verification for all new accounts within a financial institution, such as banks, mutual funds, savings and loan associations, credit unions, etc. All new accounts must include name, street address (not P.O. Box), tax identification such as a Social Security number and birth date for each person listed on the account.
“Before the Patriot Act, we would only get this information from a brand new customer -- but now even a person who has been banking with us for 50 years decides to open a new account, they must provide us with a form of identification,” a bank officer said.More on this story here and here.
EXPERTS: E-SPYING ON YOUR LOVER COULD BE ILLEGAL
A company calling itself “Lover Spy” has begun offering a way for jealous lovers -- and anyone else -- to spy on the computer activity of their mates by sending an electronic greeting, the equivalent of a thinking-of-you card, that doubles as a bugging device.
Marketed as a way to “catch a cheating lover”, the Lover Spy company offers to send an e-mail greeting card to lure the victim to a Web site that will download onto the victim’s computer a trojan program to be used for spying. The Lover Spy software purports to record anything the victim does on the computer, including all keystrokes, passwords, e-mail, chats and screen shots and even turn on the victim’s Web camera.
The spy program discreetly sends the information to the Lover Spy server which then forwards it on to whoever paid for the software, maintaining their anonymity, according to the company Web site, which did not list contact information.
“That would be a felony,” said Mark Rasch, former head of the U.S. Department of Justice’s computer crime unit and chief security counsel for security company Solutionary. “Loading a program onto someone else’s computer without their authorization is patently illegal.”
“That is clearly a wiretapping violation,” Chris Hoofnagle, associate director of the Electronic Privacy Information Center, said when told of Lover Spy. “It sounds a lot like a commercial version of Magic Lantern,” the controversial program the FBI proposed a few years ago to remotely install a keystroke logger onto people under investigation.More on this story here.
INTERNET WORMS SPREAD FASTER, BLENDED THREATS GROW
Virus writers are increasingly targeting more recent security vulnerabilities in their attempts to spread malicious code. The latest bi-annual Internet Security Threat Report from security software vendor Symantec found that 64% of all new attacks targeted vulnerabilities less than one year old. The Blaster worm, for example, appeared only 26 days after the vulnerability it exploited was announced.
Some 66% of all attacks documented in the first half of 2003 exploited vulnerabilities categorised as highly severe. Symantec’s study paints a picture of a rise in more sophisticated and faster spreading worms, and the increased use by virus writers of new vectors for infection (such as Peer-to-Peer networks and Instant Message applications).
Looking ahead, Symantec expects to see greater worm propagation resulting in overloads to network hardware, crippling network traffic, and seriously preventing both individuals and businesses from using the Internet. A gloomy forecast then.More on this story here.
ID CARDS PROTECT CIVIL LIBERTIES -- TONY BLAIR
The Prime Minster has given his strongest support yet for the introductiuon of identity cards in UK. In what was billed as a make-or-break speech at the Labour Party conference in Bournemouth on Tuesday, Tony Blair presented ID cards as a way of guarding against bogus asylum claims. The theme of ID cards was touched on only briefly in Blair’s 50 minute speech, during which he defended the government’s decision to go to war with Iraq.
In June Blair reportedly spiked the idea of introducing ID cards -- but they’re back. It looks increasingly likely that a bill to pave the way for ID cards in Britain will make its way into the Queeen’s speech in November.More on this story here.
FATF IS MEETING, PROPOSES STILL TOUGHER FREEZE RULES
STOCKHOLM: Terror financing can only be fought with national laws freezing suspect funds without delay and prior notice, according to proposals being discussed by the Financial Action Task Force. Banks and institutions holding assets “allocated for, or being made available to terrorists, those who finance terrorists or terrorist organisations” should be required by law to freeze them and face sanctions for non-compliance, said a draft text to be debated by the FATF. The draft text called for national laws to implement the proposals.
Patrick Moulette, the FATF general secretary, told Reuters that banks and other financial institutions already complied with anti-terror financing requirements and it was now key to target non-traditional financial channels and charities.More on this story here.
Dirty money spotlight widens.
With better oversight in place over many of the traditional conduits in the financial system, attendees at the FATF meeting say the job now is to tighten up controls on other avenues. This is to be achieved in part by extending the rules on reporting suspicions to a range of businesses including lawyers, auction houses, casinos, estate agents and jewelry dealers.
The FATF is revising the advice that accompanies its anti-terror finance regulations -- known as its “Eight Special Recommendations” -- to ensure this field is properly covered, and that asset freezes happen quickly and without notice to the owner of the assets in question. The conference is likely to support a call for countries to put in place laws to make sure that banks and financial institutions which do not comply with freezing orders face sanctions.
The meeting will continue its practice of “naming and shaming” jurisdictions thought to be lax in regulating their financial systems -- a list reduced in recent years from a few dozen to just nine. Current non-cooperative territories are: Cook Islands, Egypt, Guatemala, Indonesia, Burma, Nauru, Nigeria, the Philippines, and Ukraine.More on this story here and here.
GERMAN CELEBRITIES HEAD TO SWITZERLAND
Houses for sale have become a rarity in the Swiss canton of Zug, even if one is rich, famous and a former international tennis star. The Zug district, which lies between Zurich and Lucerne, has become a popular place to live, not just among wealthy Swiss from neighboring cantons. Due to its extremely low tax rates, the district has attracted many wealthy Germans in addition to former Wimbledon champion Boris Becker. Tour de France runner-up Jan Ulrich, party animal Gunter Sachs and pharmaceutical billionare Curt Engelhorn are among those who have abandoned their home country for a milder tax climate in Switzerland.
But not all Swiss are happy with the steady flow of German tax evaders, which according to the German-Swiss Chamber of Commerce, saw an apparent increase after the last German general election in September 2002. Attempts by Formula One driver Michael Schumacher to set up camp in Lucerne were thwarted when locals discovered that the canton had offered the Schumachers special tax rates, exclusive landing rights for their private jet and support in finding an appropriate piece of land.
Tax rates in Zug are almost half of those in Germany. However, while tax rates may be low the cost of living, including rent and health care costs, is around 40% higher in the area than in other western industrial states.More on this story here.
SWITZERLAND INTRODUCES TOUGHER ANTI-CORRUPTION LAWS
The Swiss government implemented tough new anti-corruption laws, effective October 1, designed to clamp down on fraud, bribery, and other forms of corporate wrongdoing in Swiss firms operating overseas. Under the terms of the new legislation, any Swiss organisation found guilty of those activities will face a fine of up to SFr5 million ($3.7 million).
Transparency International (TI), a global anti-corruption body which ranked Switzerland 12th out of 102 countries polled in its public sector corruption survey last year, has suggested that the country needs to take a proactive stance in ratifying international anti-corruption treaties, such as the Council of Europe’s anti-corruption convention.More on this story here.
JERSEY PROPERTY MARKET FACING CRISIS
At first sight Jersey seems confident and busy in the early autumn sunshine. But, below the surface, the tiny Channel Island is facing a property crisis. Values of large country houses owned by the super-wealthy are falling, yet young islanders on average incomes face an affordability crisis far worse than London’s.
While low crime, peacefulness and unspoilt coastal villages are benefits, Jersey’s main attraction has been its 20% income tax -- unchanged since 1940 -- and its total absence of capital gains tax, VAT, estate and inheritance duties. But becoming a tax haven also means producing an ultra-expensive property market with “open” and “local” sectors. Both are now in crisis. The problem is, Jersey is no longer attractive enough to entice sufficient Britons from the mainland, following recent UK changes.
Now, income tax is also set to rise steeply to compensate for the removal of corporation tax in 2005. The majority of Jersey’s residents are not well heeled and enjoy average incomes similar to those on mainland Britain. They now face higher personal taxes just as the island’s average house price has risen to a record £319,000 -- despite a fall in the spring. In Britain the equivalent is just £132,000 even after the bull market of recent years.More on this story here.
PANAMA HOPES TO BECOME LATIN AMERICAN FINANCIAL SERVICES HUB
According to participants at the Council of the Americas conference recently, financial and trading services already contribute 80% of Panama’s GDP, and a further initiative is afoot which backers hope will help transform the country into Latin America’s regional financial services hub.
In partnership with the World Bank’s International Finance Corporation, the Panamanian government is seeking to transform the American military’s Howard airforce base into a special economic zone with tax incentives and high-tech logistical and telecommunications facilities. It is hoped that the project will attract some $600 million in investment and create 20,000 jobs over the next two decades.
This is not to say that Panama is not attractive to foreign investors at present. Currently, no income tax is levied on foreign transactions booked through Panamanian offices, and there are no restrictions on foreign ownership of commercial undertakings. Additionally, there are no duties or tariffs imposed in the Colon Free Trade Area which also provides for exemptions on export income.More on this story here.
US STRUGGLES TO REPLACE BARRED EXPORTER TAX BREAK
More than a year after the World Trade Organisation ruled that the US must end a $4 billion tax break for exporters, Congress will try again to repeal the measure before the end of this year. The Senate Finance committee is set to approve legislation that would abolish the Foreign Sales Corporation tax scheme and replace it with a 3% tax cut for US-based manufacturers. But it faces heavy lobbying from multinational companies that want to expand the scope of the new tax break.
The move comes as the European Union reiterated last week it was prepared to levy trade sanctions worth $4 billion against the US unless the FSC tax break was repealed promptly.More on this story here.
EU warns US of huge fines if illegal tax breaks not scrapped.
The European Union warned Thursday it would press ahead with a record $4 billion fine against the United States if illegal tax breaks for US companies are not scrapped by the end of the year. The European Commission -- the EU’s executive arm -- expressed alarm at discussions in the US Congress to extend the Foreign Sales Corporationlaw for another three years.
The World Trade Organisation ruled in January last year that the law flouted its rules by allowing thousands of US firms, operating through subsidiaries in offshore tax havens, to benefit from reduced export taxes. WTO arbitrators have agreed with the EU that just over $4 billion (€3.4 billion) would constitute “appropriate countermeasures” based on the trade impact of the US policy.More on this story here.
SENATE FINANCE COMMITTEE BACKS BILL TO GIVE TAX WINDFALL TO U.S. COMPANIES
American corporations that have deferred taxes for years on the profits they made overseas could be in line for a huge windfall from Congress. The committee approved a bill on Wednesday that would give a one-time tax holiday to companies that have accumulated as much as $400 billion in foreign profits on which they have yet to pay American taxes.
American companies can usually defer paying taxes on foreign profits as long as they keep the money outside the United States. Much of that money is reinvested in foreign operations, and some is parked in passive investments. The Senate bill, which is part of a much broader bill to overhaul laws on international corporate taxation, would let companies bring those profits back and pay a tax rate of 5.25%.
Supporters say the six-month tax holiday could lure as much as $300 billion back into the United States, which in turn would increase investment and create jobs. But many tax experts, including top tax officials in the Bush administration, say the move would be a mistake because it would validate the strategies of companies that spent years sheltering the overseas profits. Critics also warn that there is no guarantee that the companies will invest their repatriated profits in new factories or larger work forces.More on this story here.
TAXING TIMES FOR OUR 600 RICHEST AUSTRALIAN CITIZENS
The Australian Tax Office uses magazine rich lists to keep tabs on Australia’s wealthiest people, sources say. Lists such as BRW magazine’s annual stocktake of the nation’s wealthiest individuals are a source of pride for Australia’s wealthy elite, but there are risks attached. The list is one of the best public sources about the wealthy for a Tax Office desperate to stop tax evasion.
The Tax Office uses the list and other public information to develop its own bigger list of Australia’s wealthy elite, the Rich 600. It also rates the wealthy according to their risk to the nation’s revenue. To get on the Rich 200 requires a minimum wealth of A$85 million (US$57 million).More on this story here.
Canberra’s tax take increases.
The Australian government’s tax take has swelled to a near-record level as a share of economic activity, soaring to 25.9% of GDP in 2002-03. On the definition adopted by the Bureau of Statistics and international authorities, figures released by Treasurer Peter Costello show the Commonwealth collected $194 billion of taxes in 2002-03, up $16 billion -- or 9 per cent -- from a year earlier.
As a share of GDP, Commonwealth taxes rose a full percentage point, from 24.9 to 25.9%. This compares to just 23% of GDP when the Coalition took office in 1996. Most of that shift, however, reflects changes in statistical definitions and the replacement of state taxes by Commonwealth ones. The real tax rise under the Coalition has been more like 1 per cent of GDP than the 2.9% the figures show.More on this story here.
Australian PM hints that further tax cuts are possible.
Prime Minister John Howard has raised hopes of a pre-election tax cut by suggesting that the threshold at which the top rate of income tax kicks in is too low, and should be raised. Currently, the top tier of income tax applies on earnings above $62,000 (apx. US$41,600) per year, but Mr Howard thinks this threshold should be increased to a salary level of $75,000 (apx. US$50,000) per year.
The Howard administration has been under pressure for some time to lower taxes after Treasurer Paul Costello delivered what most considered a somewhat less than generous tax cut averaging $4 per week in the last budget. This pressure has been intensified by the government’s announcement of a $7.5 billion budget surplus for the previous financial year, well above the Treasury’s previous estimate.More on this story here.
CALIFORNIA FRANCHISE TAX BOARD: CONFESS NOW OR PAY BIG LATER
California taxpayers participating in the federal “Voluntary Compliance Initiative for Offshore Tax Shelters” have until October 15 to amend their state income tax returns and pay all tax, penalties and interest to avoid civil fraud penalties and state prosecution, the FTB warned Wednesday. The FTB says it will not pursue civil fraud penalties or criminal prosecution for taxpayers participating in the IRS’s offshore initiative who also choose to correct their state tax returns.More on this story here.
THE CATO INSTITUTE ASKS, IS OUR ECONOMIC FREEDOM ERODING?
Are you more or less free in your economic life than you were 20 years ago? The question is not trivial because economic freedom is highly correlated with real per capita income and is a necessary component of fundamental liberty. The question was one of the topics debated among a group of the world’s leading economists last week at a meeting of the Mont Pelerin Society.
Government taxing, spending and regulating erode economic freedom. There are those who argue that, at least in the United States, total government taxing and spending has not grown as a share of gross domestic product (GDP) over the last 40 years (it has fluctuated between approximately 28% and 33% of GDP), and so we need not worry. In most countries, government taxing and spending as a share of GDP has risen, but in others, like Ireland, it has dropped sharply (giving the Irish the highest real growth in the European Union). Unfortunately, governments in almost all countries are taxing and spending well above the growth and general welfare maximizing rates.
Even more disturbing is the fact government regulation is growing rapidly in virtually every country. A recent study by the Mercatus Institute of George Mason University and the Weidenbaum Center at the Washington University in St. Louis found direct federal government regulatory spending had grown to $30.1 billion in 2002, but the total cost of regulations on the economy is estimated to be $843 billion (or almost a third of direct federal outlays).
Despite some very encouraging signs toward economic freedom, the U.S. and most of Europe are becoming less free. As Robert Higgs noted in a paper presented at the meeting, “ ... all sorts of economic, environmental, health and safety, and social regulations continue to spew out of Washington and Brussels, among other places. In addition, however, the U.S. government especially requires ever more uncompensated information collection and reporting by its subjects in order to slake the Surveillance State’s insatiable craving for the most minute details of everyone’s conduct. ... Simultaneously, the state and local governments, as well as various international bodies, continue to pour out endless streams of their own regulations, all of which entail resource costs and sacrifices of citizens’ liberties.”More on this story here.
The Cato Institute’s response to North Korea’s nuclear announcement.
“North Korea said Thursday it is using plutonium extracted from spent nuclear fuel rods to make atomic weapons, a move that could escalate tensions on the Korean peninsula and raise the stakes in Pyongyang’s standoff with the United States,” The Associated Press reports. “The United States and its allies are trying to persuade North Korea to give up its nuclear programs. Pyongyang says it will do so only if the United States signs a nonaggression treaty, provides economic aid and opens diplomatic ties.”
According to Ted Galen Carpenter, Cato’s vice president for defense and foreign policy studies, America should reduce its presence in South Korea and Japan and give those countries the green light to begin developing nuclear weapons of their own. Carpenter expressed those views in a Cato report, Options for Dealing with North Korea.More on this story here.
PRIVACY AND CIVILISATION
When the U.S. Supreme Court voted in Lawrence v. Texas (2003) to overturn criminal sodomy statutes nationwide, the conservatives railed-predictably-against the “right of privacy” that the decision seemed to imply. They dissented in favor of “states’ rights” and “federalism” -- as if there could be a right for any state to abrogate the freedom of individuals to engage in private consensual sexual activity. When I heard their dire warnings that this would lead to mass social degeneration -- to the legalization of prostitution, bigamy, gay marriage, narcotics, and so forth -- I wanted to shout out loud: Bring ‘em on! If only such a ruling could decriminalize what Robert Nozick once called all “capitalist acts between consenting adults”, privatizing even the marriage contract, American society would have taken a giant leap forward.
While I do not pretend to be a constitutional scholar, I am persuaded by Randy Barnett (Justice Kennedy’s Libertarian Revolution, Working Paper Series, Boston University School of Law) that the majority decision in the Texas sodomy case did not depend upon any “right of privacy” as such; rather, it provided “an important step in the direction of a more balanced protection of liberty ...” Philosophically speaking, however, there is no contradiction between a “right of libert”q and any“qright of privacy”. And neither of these rights is possible without private property rights.
Ayn Rand objected to the conservatives’ desire to censor or otherwise erode people’s freedom to choose their sexual associations “precisely because [sex] is a value, an exception-making value that requires privacy” (Thought Control, part 3, 22 October 1973). Rand argued, however, that “a clear definition of the right to privacy ... cannot be discussed outside the context of clearly defined and upheld individual rights.” But when such rights are “being evaded, denied, negated and violated by the dominant philosophical theories and political practices of our time,” it is no wonder that so much confusion surrounds the concept of privacy (Letters of Ayn Rand, 622).
Rand understood that privacy was much more than a right. It was a requirement of human cognition and civilization. Rand’s claim that “[t]here is no such thing as a collective brain” is an implication of the fact that “the process of reason” is “the primary act” that human beings must perform in the privacy of their own minds.
It is a tragic, ironic twist that some conservatives have posed as the guardians of capitalism and civilized culture in their fight against moral decay. But in failing to grasp the inextricable link between privacy and civilization, they are no friends of either. And in their struggles against privacy, they stand on the side of barbarism.More on this story here.
DATA-MINING ADVISORY GROUP AT DEPARTMENT OF DEFENSE MAY CONTINUE WORK
The independent advisory committee established to examine privacy concerns with the development of data-analysis technologies at the Defense Department is leaning toward recommending that it be made permanent, as suggestions mount that such research be continued. But details of the committee’s composition remain to be worked out, committee members said after a two-day meeting of the Technology and Privacy Advisory Committee (TAPAC).
Meanwhile, the committee is “seeking clarification” of reports that research for a Terrorism Information Awareness (TIA) project at the Defense Advanced Research Projects Agency (DARPA) may be transferred to other agencies, TAPAC Chairman Newton Minow said after a Tuesday meeting of the committee.
Out of concern for citizens’ privacy, Congress stopped TIA funding in the fiscal 2004 Defense appropriations bill still to be signed by the president. Minow said the committee is interested in reports that some TIA functions will be transferred to the Army Intelligence and Security Command (INSCOM). INSCOM conducts foreign intelligence work, which Congress agreed to let continue TIA-like activities.More on this story here.
U.K. SOLICITORS MUST “SHOP” SUSPECTED TAX DODGERS
Solicitors who suspect their clients of tax evasion are now required to report them to the authorities without telling the clients they have done so. The requirement is an unexpected result of tough new laws on money laundering, which came into force over the summer. The Law Society initially expressed surprise at this interpretation of the money laundering rules, but later agreed that it did in fact appear to be the case.
A spokesman added: “We would of course expect all solicitors to play safe and report any suspicions if they arise. They’ve got to remember that they are simply reporting a suspicion. They are only drawing the attention of the authorities to a possible crime.” However, he added that he sympathised with the reaction of one solicitor who expressed alarm at having to conceal her actions from a client. She said that the new rules could deter clients from revealing information about their private affairs that could prove useful to their case.
The maximum punishment for failure to observe the new requirements, imposed when a fraud is found to have taken place, is 14 years in jail.More on this story here.
SUCK IT IN AND STOP SUING AT THE DROP OF A HAT, SAY U.K. JUDGES
To an expatriate accustomed to the excesses of American trial lawyers and the courts that indulge them, it is a novel notion -- a panel of senior British judges says it is high time people stop whining and start to take responsibility for their own actions. In an opinion decrying the culture of blame and compensation creeping across the Atlantic, the judges said it is time to stop belly-aching when your coffee is too hot. Time to stop crabbing when you trip on a cracked sidewalk. It is time, they said, to stop suing at the drop of a hat.
The scolding came in an opinion in the case of John Tomlinson, who in 1995 was paralyzed when he ignored No Swimming signs and dove into a lake in Cheshire County. The judges agreed that Mr. Tomlinson suffered a terrible tragedy, but refused to accept the idea that the county was to blame and should pay up. “It is not, and never should be, the policy of the law to require the protection of the foolhardy or reckless few (and therefore) to deprive, or interfere with, the enjoyment by the remainder of society of the liberties and amenities to which they are right entitled,” the Appellate Committee from the House of Lords opined.
The judges are not the only ones concerned about the expansion of what here is called “the compensation culture”. Scurrilous lawsuits make headlines almost daily. A woman sues a travel agent after a coconut falls on her head on a remote beach. A homeowner who shoots and wings a burglar breaking into his house is then sued by the criminal. A cop sues a widower because he was traumatized by seeing the man’s wife die in a car crash. You can’t make this stuff up.
The mere fear of these lawsuits, warranted or not, is tangible enough to be quickly sapping the country of some of the things that make it so special. For a father of three young children coming from America, one of the more remarkable things over here is the playgrounds. A new adventure playground in Central London’s Holland Park, for example, is full of the sort of amusements that can -- and probably do on occasion -- smash little fingers, sprain little ankles and bloody little noses. There is a massive tire swing with room for about half a dozen kids. There are rope swings and a spider web-like maze of wires and platforms dangling four feet off the ground. All sorts of things that make a playground great; things that would never fly in America.More on this story here.
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