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(Especially noteworthy articles’ headings highlighted in gold.)
LEAVING U.S. TAXES, AND YOUR CITIZENSHIP, BEHIND
About the time you reach for your 43rd cup of coffee and the tax forms start to dance menacingly in the air, you probably share a common daydream with most tired tax filers: What if I could just leave the country and be done with the IRS forever? Sweet dream. The problem is, unless you are well-heeled enough to afford top-drawer international tax advisers on both ends and start to plan your break years in advance, the IRS is going to have its hooks in you for 10 years after you trade allegiances.
Even if you manage the money limbo and escape with most of your assets, there is no guarantee you will be welcomed back into the United States even for a short visit, especially if you managed to land on the IRS list of folks who fled to avoid taxation. What is worse, if you fail to secure citizenship in another country before handing over your U.S. credentials, you could suddenly find yourself the proverbial man without a country, and you do not want to go there. “Anyone who gives up their citizenship in the U.S. without first establishing citizenship in another country is an absolute fool,” says Vernon Jacobs, an international tax adviser in Prairie Village, Kansas. “Even refugees are citizens of some country.”
Although the number of people who actually toss in their American citizenships each year has always been minuscule, when their net worth runs into the billions, Capitol Hill tends to take notice. As a result, Congress passed two laws in 1996 that amounted to an alley beating for would-be taxpatriates.More on this story here.
IMPORTANT NEW BOOK ON GOING OFFSHORE AVAILABLE ONLINE
Protecting Our Legacy: A 21st Century Approach to Wealth Preservation & Restoring Liberty, by Ronald Holland, is a new online -- and soon to be published print -- book is not the usual “go offshore for all the wrong reasons” kind of book. Rather he presents an objective look at the potential benefits and risks to affluent investors when they invest offshore in major money centers. He also makes the case why terrorism threats against the United States and American markets make it prudent and necessary today to diversify outside these markets, the dollar and American financial institutions.
He urges existing and new offshore investors to be compliant, follow the reporting and disclosure rules and do their own due diligence on foreign products and financial firms in order to build safe, protected wealth outside their home country jurisdictions. He further describes the attacks on confidentiality and privacy since 9/11 and makes the unusual case that investors and offshore financial institutions need to go even further in know your customer and client rules than required by the US Patriot and Homeland Security Acts in order to protect financial institutions and clients.
Ron makes that case that offshore diversification and wealth preservation planning is far more important in this new century of lost privacy, reportable, transparent structures and full disclosure than ever before due to old traditional risks to wealth, new government and regulatory threats and the new terrorism threat to markets and financial institutions.Book begins here.
THE TRUST PROTECTOR IN THEORY AND PRACTICE
Many advisors and sophisticated clients have heard of the term “trust protector”, but very few know exactly what such a person or entity does or why they should have one in their trust. This article will help define what a trust protector is, outline the uses (and abuses) of naming a trust protector, and provide a general guideline for using them, focusing on standard domestic trusts.
It is difficult to precisely define the position of a trust protector. Black’s Law Dictionary does not have a definition for a trust protector. Neither do many treatises on trusts. The concept is certainly well-known, though, if not well defined -- especially in the foreign trust arena. Tax Management Portfolio describes the trust protector as a third party vested with powers to modify a trust that the grantor is unable or unwilling to retain personally, which may include the ability to change trustees, regulate trust investments, amend the trust, change beneficiaries, change situs or revoke the trust and cause funds to revert to the grantor. A trust protector is generally an individual, or a committee, with a special power over the trust or over the trustee, but with no day-to-day fiduciary responsibilities.
First, why do people consider having such a person or power? In three words, control, flexibility and security. Foreign Asset Protection Trusts have long used trust protector provisions because people are naturally reticent about naming a foreign trustee and prefer provisions to enable changing the trustee and changing jurisdiction to a country more favorable to debtors/defendants. Remember that generally you cannot be trust protector of your own trust and still have any asset protection benefits, despite what many offshore “experts” claim. If the courts find that you keep unlimited power over the trust or trustee, they will naturally consider the funds to be under your control.More information here.
Peter Protector in Trust Neverland -- The Real Story of the Trust Protector
The authors of this article write that the definition of of a protector could be condensed to “A protector is a powerholder.” They warn that the “nascent superflexibility” of the position carries with it the potential to reverse the traditional concept of a settlor thoughtfully establishing a trust in favor of a protector who undertakes his own periodic spring cleaning and revision of trust provisions. “Thus, planners and settlors should be extremely discrete and circumspect in the granting of powers to the protector, and should understand the consequences of each protector power.”
Besides legal protection, tax, and other consequences, the nature of the relationship between the protector and the trustee is of paramount importance -- in particular is the former deemed to be a fiduciary? They reasonably conclude that “[T]he thoughtful drafting of provisions to govern the protector is not for the uninitiated.”Complete article here (PDF file).
NEW SOFTWARE SEEKING STATE TAX SCOFFLAWS
Tax scofflaws, beware! A pack of digital bloodhounds may be on your trail. State revenue agencies across the nation are hunting for tax evaders with new high-tech tools: computer programs that mine an increasing number of databases for clues on the finances of people and businesses. If your name is flagged, expect a letter or a call.
In Massachusetts, for example, the state tax agency can scan a U.S. Customs and Border Protection database of people who paid duties on big-ticket items entering the country -- so anyone who fails to pay the state the required 5% “use tax” gets flagged. The state has also tried comparing motor vehicle registration data with tax returns, looking for people who might be driving Rolls Royces or Jaguars but declaring only a small income, Revenue Commissioner Alan LeBovidge said. “Activities that would have previously taken them years of work can now be done within seconds,” said an analyst.
The new tools have reaped hundreds of millions of dollars in increased tax collections, officials say. But the government’s growing sophistication at collecting and scrutinizing data about taxpayers is sounding alarms among privacy advocates. A definitive list of states using the technology is lacking, but Massachusetts, Texas, California, Washington, Virginia, Iowa and Florida are known to be leaders in the trend, which began in the late 1990s. The IRS is also using the techniques.
Tax officials say many of the databases they use have been available to them for years -- but it has never been so easy to integrate and analyze them. The Massachusetts system mixes databases from the IRS and Customs, along with state motor vehicle, incorporation and professional licensing records. The state tax agency says it uses other databases, but will not name them. Massachusetts and several other states claim, however, that their agencies did not buy information from the sometimes-controversial vendors that aggregate and sell vast amounts of personal data about individuals.More on this story here.
ID CARDS: A GUIDE FOR TECHNICALLY-CHALLENGED PM’S
Why is the UK sleepwalking into an ID scheme that has not been discussed, but that is nevertheless somehow moving ahead at full steam? And, for that matter, why is Europe doing so? The United States? The world? One of the other major components of Blunkett’s standard “we might as well do it anyway” presentation is the incontrovertible fact that Europe has standardised biometrics for ID roadmapped, and that the US will be requiring biometrics on passports shortly. But there is one little nagging question -- how did biometrics become the accepted, logical, inevitable international standard for ID in the first place?
Well, it’s obvious, is it not? If your fingerprints are found at the scene of the crime, then you almost certainly did it, didn’t you? And similarly, other apparently unique characteristics such as your iris, your DNA and so on can prove conclusively who you are, where you are, and where you have been.
Given that the alleged free world is already barreling down this route with little or no sign that anybody has paused to think it through, we do not hold out a great deal of hope that they will do so now, meaning they are all going to have to learn the hard and expensive way. But just in case there is the odd politician out there still prepared to consider the possibility that it does not stand to reason, we here propose a short, readily-understood Register explication of why it does not, and why, if we do not wake up very soon, we will end up spending several billion on proving to ourselves it does not.More on this story here.
AN EVENING WITH DR. RON PAUL
Samuel Adams once observed how “it does not require a majority to prevail, but rather an irate, tireless minority keen to set brush fires in people’s minds.” I do not know how irate he is, but Dr. Ron Paul (R-Texas) is surely among the leaders of a tireless minority in our time. If liberty by some chance does return to American soil in our lifetimes, we will doubtless have Dr. Paul to thank for having laid part of the groundwork over the past couple of decades. On April 2, Dr. Paul spoke to a crowded conference room in Columbia, South Carolina. The event, entitled “An Evening With Ron Paul,” was hosted by the South Carolina Libertarian Party.
Dr. Paul suggested that as central government attempts to expand, spending money it does not have, the looming financial crisis will eventually force it to scale back both its overseas and domestic efforts. “One day we’re going to wake up, and have less warfare and less welfare … because we’re going broke!” He noted our skyrocketing national indebtedness. “Time is short, and we don’t know when the crisis is coming,” but “[w]hen we run out of money, we will have to come home.”
The bottom line, for Dr. Paul, is the U.S. Constitution. He refuses to vote for any piece of legislation that is not explicitly authorized by the Constitution. Of course, Dr. Paul’s words often fall on deaf ears among his colleagues. The suspicion of concentrations of power on which this country was founded is just about gone. Beginning one step at a time, first with Lincoln, then with the Progressive movement, the rise of the Federal Reserve banking system and the IRS, the first world war, and continuing into the Roosevelt era, more and more people have assumed that expansionist government is good, and not a menace to a free people. Yet mounting evidence suggests that expansionist government is simply in over its head. Whatever the central government touches, it ruins.
I should note in closing that although “An Evening With Ron Paul” was well-publicized in the sense that press releases were sent out to all local media well in advance, not a single representative from any mainstream media outlet showed up. The mainstream media, of course, simply blacks out events such as this.More on this story here.
DOMINICA -- A SENSUAL DREAM
Dominica is unique among the Caribbean islands. Its rugged topography offers the adventuresome visitor a variety of challenging treats. It is impossible to go anywhere in Dominica without taking a little walk at the end of which is a stream, a viewpoint or some other natural site. Rivers, valleys, hills and mountains literally cover this “Garden of the Caribbean” where paint artists claim to be able to identify over a hundred shades of green.
Dominica’s Carnival is steeped in tradition. The local Kubuli beer is a favorite as are the fresh fruit juices and cool coconut water. And the food? Stuffed bakes, chicken in all styles, braff or pelau, fig and codfish or breadfruit and smoked herring.More on this story here.
Business and second citizenship opportunities in Dominica.
The Commonwealth of Dominica is an independent English speaking island state situated between the French islands of Martinique and Guadeloupe. Dominica has a pleasant climate, particularly during the cool months from December to March. It is certainly one of the most beautiful countries of the Caribbean. Covering an area of almost 800 square kilometres, it supports a population of more than 65,000, including about 3,000 of the last surviving indigenous Carib people in the Caribbean.
Dominica offers good opportunities for investors and manufacturers. The workforce is well-educated, English speaking and friendly. Other advantages include tax breaks of up to 15 years, repatriation of profits, economical supply of electricity, and the possibility of tax-free entry of produced goods into the US market. Substantial European import benefits also apply. Due to the mountainous terrain only about a quarter of the island is cultivated, but the very rich soil produces substantial domestic and export crops. Organic agriculture is being encouraged and has great potential on this still untouched island.
The economy is largely based on agricultural exports including bananas, citrus, coffee, cocoa, coconut products and oil, tropical fruits, fruit juices and copra. Other exports are fish and various manufactured products including rum, soap, and timber. Due to a scarcity of white sandy beaches, Dominica never underwent the typical Caribbean conversion to a holiday island. However, tourism is an increasingly important sector of the economy, and luxury and eco-tourism are being encouraged.
Several independent nations have adopted programs which allow the acquisition of citizenship via a direct contribution to the state. Of those currently available, the Economic Citizenship Programme of Dominica is one of the most attractive. It has operated successfully since 1991, and it is based on a solid legal foundation in the Constitution of Dominica. For an individual (who can include spouse and up to two dependent children under the age of 18) a direct, one-time contribution of $50,000 has to be paid to the Dominica Government. As a citizen of Dominica you can live and work in Dominica at any time. You are not liable to taxation in Dominica on any income earned outside of Dominica. Most importantly, you will be able to travel on your Dominica passport without visa to more than 90 countries, including the U.K., Switzerland, Sweden, Hong Kong, and many others.More information here and here.
BILL FORBIDDING OFFSHORE OUTSOURCING OF CONFIDENTIAL INFORMATION PROCESSING INTRODUCED
Your tax records, your bank and financial data, your medical files, your legal cases, your social security number are all private, confidential information. Once upon a time, the workers who came in contact with this information worked exclusively in the United States. But increasingly, Americans who process this important data are being laid off and their jobs are going to workers in Russia, India, New Zealand, South Korea, Pakistan, Thailand, Mexico, the Philippines, Israel, China and Ireland.
Confidential tax materials, X-rays and MRI scans, doctors’ notes, loan applications, credit information, bank records, income statements, and social security numbers are shooting around the globe. What happens if that overseas worker steals your identity or sells your information? Unfortunately, American law carries no weight outside the United States. Scam artists can have a field day when privacy information is dumped offshore.
Information critical to homeland security is also at risk. For example, one company is offshoring engineering information about California’s power grid. What if these blueprints of facilities and technical specifications fall into the hands of terrorists? Sue the company after the fact? California Senate Bill 1492 would ensure that no work involving information that is private, confidential, privileged or essential to homeland security is performed at a worksite outside of the United States.More on this story here.
THOMAS PAINE’S THE CRISIS: WORTHWHILE READING IN 1776 AND TODAY
The Crisis is a collection of articles written by Thomas Paine during the American Revolutionary War. In 1776 Paine wrote Common Sense, an extremely popular and successful pamphlet arguing for Independence from England. The essays collected here constitute Paine’s on-going support for an independent and self-governing America through the many severe crises of the revolutionary war. General Washington ordered that the first essay be read to the troops at Valley Forge, on Christmas eve, shortly before the crossing of the Delaware.More on this story here.
DETAILS OF PHONY TRUSTS IN IRS ACTION
IRS and Justice Department officials last week began arresting people connected with the Aegis Co., a suburban Chicago firm that the IRS alleges has for the past decade been marketing phony domestic and foreign trusts through which some 650 wealthy clients hid hundreds of millions of dollars in income. The IRS put the government’s tax losses at $68 million, which it said makes this one of the largest such schemes the agency has encountered. The eight individuals indicted were associated with marketing the scheme or advising clients, rather than clients themselves. Six others were indicted earlier, the IRS said.
According to the IRS, the scheme dates to 1994 and involved trusts sold primarily to self-employed people for fees from $10,000 to $75,000. The trusts were variously dubbed “common law business organizations”, “business trusts” and “CBOs”. The suspects helped transfer the clients’ businesses, homes and other assets into these trusts, or to trust bank accounts, the IRS said. They then allegedly helped their clients file tax returns for the trusts on which they deducted ordinary living expenses such as household utility bills, repairs and lawn maintenance costs for the clients’ personal residences, which had been designated the trust’s “world headquarters”.
Other devices included sham charitable deductions, including write-offs of vacations to Hawaii under the guise of seeking potential charities to which to contribute, the agencies said. The wealthiest clients were helped to transfer or appear to transfer assets offshore, and through a series of trusts back again, so that the owner continued to have access to them, the agency said.
Michael Vallone, an Aegis founder and its executive director, was charged with 37 counts, including filing false tax returns, tax evasion, wire fraud and mail fraud. Also charged were five others associated with the company, Edward Bartoli, Robert W. Hopper, Timothy Shawn Dunn, William S. Cover, and David E. Parker. Prosecutors are asking a court to order forfeiture of $4.1 million from Vallone, Bartoli, Dunn and Cover. They also seek forfeiture of Vallone’s home, Dunn’s home, Indiana real estate owned by Dunn and three Lincoln limousines and a Lotus auto also owned by Dunn.More on this story here and here.
INTERESTING INTERVIEW WITH PRO-TAX NEW YORK TIMES REPORTER
Award-winning NYT reporter David Cay Johnston’s recently published book Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich - and Cheat Everybody Else has been an immediate bestseller. John Kerry took two days off of campaigning in February to read it. Ralph Nader to Lou Dobbs have endorsed the book. The book argues that the myth that the rich are heavily taxed to benefit everyone else is untrue and that the middle class and the upper middle class -- those making $30,000 to $500,000 -- are heavily taxed to subsidize the super rich. And further, the tax burden for the richest Americans has been falling sharply while everyone else’s has risen.
Perfectly Legal shows how the IRS has been cut in size and then handcuffed, ordered to go after the working poor and to ignore tax cheating by the politically connected rich. And it names names throughout. In a 2-part interview Mr. Johnston discusses his findings.
[W.I.L.’s appraisal: Based only on the interview, we see grave defects in Mr. Johnston’s philophical premises (for starters he should be made to write “Taxation is theft” 1,000 times on a blackboard), his reasoning vis a vis history and economics, and his apparent faith in democracy and the political process. Nevertheless, his book appears exemplary and valuable in its exposure of the corruption of the current system and how the politically connected steal from the politically undefended. Unfortunately he seems utterly unaware of the possibility that those manifested defects lie in the very nature of centralized state power -- that the institution is flawed in its essence and is thus beyond reform.]Part I here, Part II here.
JAPAN’S BUST: AN AUSTRIAN CRITIQUE OF THE FED’S EXPLANATION
Athanasios Orphanides’s recent Fed paper touches on aspects of Japan’s extended economic slump (his basic thesis: the Bank of Japan should have done more). This paper served as a reminder of the inadequacies and limitations of mainstream analysis in explaining Japan’s long economic winter. Fortunately, though long unrecognized and unappreciated by the mainstream, there is a good framework for understanding the Japanese boom and bust. As it happens, that sequence was a classic business cycle as predicted by Austrian theory.
The Austrian analysis begins with the boom. Unsustainable booms begin with the creation of money and credit not supported by underlying capital. It begins with interventions in the world of money. In older days, it was easier to see that money creation beyond what was covered by specie was false capital, but in the modern anchorless and credit-soaked economy, the distinction is theoretical and much harder to detect. Nonetheless, this false capital does not create wealth. However, its creation does impact interest rates and influences the pattern of production away from what it otherwise would have been -- hence the creation of instability and of an underlying tension.
Monetary expansion cannot go on indefinitely or without consequence. The bust, then, is the period where market forces tack back toward where they would have gone without the fog of monetary intervention leading them astray. This requires liquidation of projects and businesses that no longer appear profitable. Workers and capital are redeployed to more profitable lines. This is a painful process, no doubt, but inevitable and salutary. The economy cannot grow again on a firm sustainable base until the old bad investments are liquidated. Each bust or recovery has its own unique features, but the essential characteristic is that the bust is curative and necessary to get the economy back on track.
Any delay or prevention of the necessary spadework of the bust only promotes further unsustainable circumstances and will aggravate the downturn. As we will see below, the Bank of Japan and the Japanese government did everything but let the market self-correct. The monstrous malaise suffered by Japan was entirely of its own making. And consistent with Austrian theory, these interventions have only slowed the recovery and hampered the market’s self-corrective process.Link here.
THINKING UNTHINKABLE THOUGHTS
Theologian Charges White House Complicity in 9/11 Attack
There is nothing the least bit wild-eyed or hysterical about David Ray Griffin. In person, he is disarmingly calm, and speaks in the unflappably precise and deliberate style of a lifelong academic. Which is exactly what Griffin is. A respected philosopher of religion at the Claremont School of Theology since the 1970s and longtime Santa Barbara resident, Griffin is now raising questions that even President Bush’s harshest critics are afraid to think, let alone ask aloud.
In his latest book, The New Pearl Harbor -- released just two weeks ago -- Griffin all but accuses the Bush administration of taking a dive on September 11 and giving al Qaeda terrorists an unobstructed shot at the World Trade Center. According to Griffin, a case can be made that the Bush administration arranged the attack, or allowed it to happen. He is aware that he may be dismissed as a conspiracy nut, but given the “transcendent importance” of the issue, Griffin is willing to assume that risk and has taken to repeating Michael Moore’s line on the subject: “Personally, I’m not into conspiracy theories except those that are true.” I met with Griffin over coffee to discuss his book and the September 11 investigation. The following is an edited account of the conversation.More on this story here.
WHY PROTECT PRIVACY? BECAUSE LARY HOWARD’S STORY COULD BE YOURS
Those who wonder why average, law-abiding Americans should worry about the government grabbing more power to poke into the private corners of our lives should consider the case of Lary Howard. Howard, 56, of Canton Township, Michigan is a Livonia middle school teacher whose professional record is unblemished and whose public personal conduct is above reproach. Not the kind of guy who should ever have to worry about peeping through the wrong side of jail cell bars. Except that Howard has a bit of a pornography fetish. Howard isn’t proud of his predilection -- who would be? -- but he practiced it in the privacy of his own home.
“It certainly isn’t something I’d want my students to know about.” But now they do. On February 26, Canton police kicked down Howard’s door and with guns drawn arrested him and hauled him off to jail. They also seized his computer with its dirty little secrets. The charge: Child endangerment and possession of child pornography; six counts, each carrying a potential 20-year sentence. You can imagine what those charges will do for the career of a school teacher.
The evidence against Howard was delivered to police on a computer disc by his ex-wife at the end of a very bitter divorce. Canton police enlisted an expert, who initially decided that among the images on Howard’s computer were some that might be children. Howard swears he only visited adult sites that guaranteed their models were of legal age. After 26 days of hell, prosecutors agreed and dropped the charges. It is a lot easier to dismiss a criminal case than it is to restore a reputation.More on this story here.
OFFSHORE CORPORATIONS: DISMANTLING THE HYPE
The actual process of going offshore is simple. It is purposely kept convoluted and obscure so that the average client believes they need expensive advice. An IBC is a paper interface that acts to separate an individual from direct ownership of assets. The fact that the IBC is a legal entity means that it can conduct business, just as if it were a man, or a group of men. One might say that the IBC has all of the rights that a man does, but actually an IBC has more rights (greater liberties in the world of commerce). The man might be from Libya and be subject to very strict Libyan and Islamic laws. The IBC may be Panamanian and have no such restrictions on its business behavior. If the Libyan man benefits directly or indirectly from the activities of the IBC he can do so without being attached to the IBC. In fact a man can control an IBC even if he does not own it, but we will get to that in a moment.
What is crucial to understand is that an IBC is a legal entity that can conduct business and that it can do so on an international scale. There are residual benefits of this process that are important byproducts. An IBC operates under the laws of the jurisdiction in which it was formed (just as if the man lived there). Each jurisdiction has a different set of laws, and much of the hoopla on typical asset protection websites involves the differences between these laws.
Panamanian IBC’s are gaining favor because most of the former British Colony tax havens have rolled over on their clients, revealing, if not all, more than should have been revealed. Unless you are a multi-million dollar corporation, Panama is the jurisdiction of choice. Panama is a 100% Tax Haven: Non-resident Panamanian IBC’s and Private Interest Foundations do not pay tax on any of their income (as indicated below), nor do they have any reporting requirements to the Panamanian government. What is crucial to understand is that this also applies to anything owned by the IBC, including real estate, a Panamanian brokerage account, a website, a boat, a business, or you name it. An IBC is usually formed by a board of directors, and in many cases owned by a large group of stock holders. Most, but not all, offshore IBC’s are closely held IBC’s that are not publicly held. Some have dozens of owners who are partners, some are only owned by one person.More information here.
EX-I.R.S. AGENT ADMITS AGENCY CONCENTRATES INTIMIDATION, CONFISCATION ON LITTLE GUYS
For nearly 13 years, until October 2003, I was a tax collector for the IRS. I was a field officer, spending the majority of my time making unannounced visits to businesses and individuals who owed federal taxes. I never expected a warm reception and rarely did I receive one. And whose doors did I knock on? The carpet installer, the day-care center operator, the Wal-Mart clerk, the carpenter, the print shop owner. The majority of the taxes I collected were from the small-business owner with fewer than 20 employees. I long ago lost count of how many weed-choked fields I have trudged across to inspect some broken-down piece of farm equipment; how many musty warehouses, dilapidated mobile homes, cluttered shops and offices reeking of sweat and that peculiar odor of human desperation I have sat in; the number of ill-educated tradesmen, struggling entrepreneurs and desperate homemakers I have interrogated, demanding the impossible and promising the full fury of my federal power when my demands could not be met.
The individuals and businesses I encountered during my career did not have an army of tax lawyers, certified public accountants and lobbyists to guide and protect them. Most netted less than $30,000 per year. Most operated out of rundown store fronts in tired strip malls. Most were honest people who knew my arrival was the death knell of their American dream. It should come as no surprise: the I.R.S. goes where the money’s owed, and the money is owed by the little guy. When the service was reorganized in the late 1990’s, it moved collection personnel to the small business/self-employed division; the other compliance division, which handles medium and large businesses, has no collection employees at all. Squeezed between a complex tax code that favors big business and an agency that marshals the entirety of its resources against him, the little guy does not stand a chance. He does not have the money to pay or to find a way out of paying.
Reforms notwithstanding, inside the service the bully culture endures. The truth is that most I.R.S. employees fear their employer more than the average taxpayer does. Most middle- and upper-level managers rose to power long before 1998, men and women (but mostly men) who learned as front-line employees the spoils of civil service (promotions and awards) come in direct proportion to the amount of power they exerted over taxpayers, invariably in the form of confiscation. As my on-the-job trainer informed me early in my career, if I wanted to advance my career in the I.R.S., I had to seize assets. And it did not matter what I seized -- the I.R.S. could always make equity.
Thus those who wield true power within the I.R.S. -- the elite who determine policy, organization and procedure -- perpetuate the culture of fear and intimidation, for it is the only way of life they have ever known. Fear and intimidation got them where they are -- why should they change? Congress can rewrite the laws, but it cannot change human nature or the nature of power. The result is some of the worst collection statistics in the agency’s history and a decimated, demoralized rank-and-file squeezed between the demands of the bullies above and the rights of its “clients” below.
Only the little people pay taxes, Leona Helmsley once said. It is true. Our government makes sure of it.More on this story here.
IDENTITY CARDS THREATEN LAW-ABIDING CITIZENS MORE THAN THEY THREATEN TERRORISTS
Their introduction would signal the end of privacy -- and of England
The arguments in favor of identity cards are empty and false. The Prime Minister says there are no civil liberty issues involved in their introduction, when he means that nobody in his gutless Cabinet is prepared to put up a principled fight on this issue. He himself does not know what liberty is. Nor, clearly, does David Blunkett, who is planning to introduce legislation that could force everyone in Britain to have identity cards within five years. The Metropolitan Police Commissioner, Sir John Stevens, says he wants ID cards to combat terrorism and illegal immigration and urges us to accept his case because he is a senior policeman.
The matter is supposed to be more urgent than it was because of the recent mass murder in Spain. The obvious fact -- that Spanish citizens have carried identity cards for years -- does not seem to have occurred to those pushing identity cards as a means of protecting us from terrorists. Nor do they seem to have considered that most of the 11 September hijackers were in the USA on perfectly valid visas. Professional terrorists, often with the aid of state sponsors, can usually be guaranteed to have the most convincing papers of anyone in the passport queue, and the cleanest records. It is you and I, normal human beings, who are the ones likely to be held up because some computer is convinced that our eyeballs do not match the records (the fabled biometric scanning technology is actually nothing like as infallible as its promoters claim).
As for illegal immigrants, the most significant thing about them is that once they are here it is all but impossible to send them home under existing international law. The government knows this but prefers to keep quiet about it. It is the failure to halt undocumented migrants at the frontier that needs to be remedied, a task which the government simply shirks. Identity cards are not even a substitute for a proper immigration policy. They are a wicked attempt to use New Labour’s own failure to justify a nasty attack on freedom. The other great argument, that compulsory registration would in some way combat crime, is similarly vacuous. What difference would it make? There is no evidence that it has any effect on crime levels in any of the many countries where cards are already compulsory. Too many of our politically correct police prefer to pursue the co-operative middle class than to confront actual, frightening wrongdoers. It is easy to guess who will be asked for papers and who will not, if they are ever imposed upon us.
The case for cards simply does not add up. It never has. That is because its real purpose is one nobody would ever vote for -- a profound change for the worse in the relation between the individual and the state. As things stand, any official has to justify himself to us. We need have no business with the state provided that we act within laws, which we have ourselves created to govern ourselves. The power that identity cards give to officials -- to interrogate, obstruct and pry -- is limitless, and they will use it.More on this story here.
A national ID Card would make the U.S. less safe, says security technologist.
As a security technologist, I regularly encounter people who say the United States should adopt a national ID card. How could such a program not make us more secure, they ask? The suggestion, when it is made by a thoughtful civic-minded person, often takes on a tone that is regretful and ambivalent -- yes, indeed, the card would be a minor invasion of our privacy, and undoubtedly it would add to the growing list of interruptions and delays we encounter every day; but we live in dangerous times, we live in a new world ... It all sounds so reasonable, but there is a lot to disagree with in such an attitude.
The potential privacy encroachments of an ID card system are far from minor. And the interruptions and delays caused by incessant ID checks could easily proliferate into a persistent traffic jam in office lobbies and airports and hospital waiting rooms and shopping malls. But my primary objection is not the totalitarian potential of national IDs, nor the likelihood that they will create a whole immense new class of social and economic dislocations. Nor is it the opportunities they will create for colossal boondoggles by government contractors. My objection to the national ID card, at least for the purposes of this essay, is much simpler: It will not work. It will not make us more secure.
In fact, everything I have learned about security over the last 20 years tells me that once it is put in place, a national ID card program will actually make us less secure. My argument may not be obvious, but it is not hard to follow, either. Security must be evaluated not based on how it works, but on how it fails. It does not really matter how well an ID card works when used by the hundreds of millions of honest people that would carry it. What matters is how the system might fail when used by someone intent on subverting that system: how it fails naturally, how it can be made to fail, and how failures might be exploited. When someone asks me to rate the security of a national ID card on a scale of one to 10, I cannot give an answer. It does not even belong on a scale.More on this story here.
JUST WHAT DOES IT TAKE TO KILL A PROPOSED REGULATION?
An independent study says a proposed IRS regulation will drive $87 billion out of U.S. banks and raise interest rates. The report also confirms that the agency abused the regulatory process.
The IRS’s proposed interest reporting regulation (REG-133254-02) will cause significant and measurable damage to the U.S. economy. This is the finding of a study on the economic consequences of the proposed IRS rule completed by Dr. Jay Cochran of George Mason University. The 15-page report, entitled “An Economic Analysis of the Proposed IRS Rules Governing the Reporting of Deposit Interest Paid to Nonresident Aliens”, estimates that more than $87 billion of capital will be withdrawn from US financial institutions if the regulation is finalized. The study also warns that interest rates will rise and that the regulation will have an adverse effect on investment and the value of the dollar.
House of Representatives Small Business Committee Chairman Congressman Don Manzullo, an outspoken critic of the proposed rule, said, “Capital is the life-blood of small business, which is why I strongly oppose the IRS interest-reporting regulation. The Mercatus study provides additional evidence that this Clinton-era scheme will cause capital flight if it is ever implemented. As Chairman of the Small Business Committee, I once again call on the IRS to withdraw this burdensome regulation.”Link here. Study report here (PDF file).
WHAT DOES THE IRS DO WITH YOUR INTIMATE FINANCIAL DETAILS? A LOT
Did you file intimate financial details with the Internal Revenue Service yesterday? Have you ever paused to wonder what happens with that sensitive information after it gets to the P.O. Box in Memphis or Puerto Rico? According to the Congressional Joint Committee on Taxation, a lot happens. The JCT publishes information provided by the IRS on how many times each year IRS shares taxpayer information with others. According to the Disclosure Report for 2003 released earlier this month, the total for last year was 3,744,087,686 -- more than ten times for every man, woman and child in the United States.
Now, about two-thirds of that total is accounted for by disclosure to the individual states. The report says these 2.4 billion disclosures are to state tax authorities for the purpose of administering state tax laws. Why the states need more than eight data-dumps for each person living in these United States is unclear, however. More than 61,000 disclosures were made to criminal investigators in various federal agencies and US Attorney offices, up more than 30% from 2002.
Last year, the General Accounting Office of the Congress found IRS computer systems to be ludicrously insecure and vulnerable to hackers. In 2000, Privacy Journal caught the IRS signing taxpayers up for junk mail. Congress closed a loophole in 1997 that let thousands of IRS employees “legally” “browse” through taxpayer records at will, subject to the occasional administrative slap on the wrist, but no criminal sanction. If you believe the practice stopped in 1997, we have swampland in Florida for sale you might be interested in.
MANY AMERICANS IN THE DARK ABOUT PATRIOT ACT PROVISIONS FOR SNOOPING
The Patriot Act has already changed the lives of many Americans in the wake of September 11 and, as I tell my college students, if renewed and strengthened it could alter the way almost all of us live. Polls routinely show most Americans do not have a clue as to what the Patriot Act is, or if they do, about 70% of those surveyed think it is just fine and dandy. Civil libertarians and many members of Congress complain the 30-month-old legislation is just the opposite.
The law has a lofty and stirring acronymic title “Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism”. For those of you barely paying attention, notice what the first letters of the main words spell out. Some bureaucrat got paid good taxpayer money for thinking this up. The 350-page law was passed in a hurry with lots of adrenalin-laden speeches just six weeks after the Sept. 11 disaster to give the law enforcement community new capabilities in preventing further terrorist acts. But members of Congress and their staffers had little time to study the language, and they insisted it be subject to “sunse”q provisions so anything wrong in it could be corrected after a few years. Plenty of Republicans and Democrats alike think there are lots of things wrong with the Patriot Act. It could morph into a key issue in this year’s presidential election campaigning.
In plain terms, the standards for legally snooping on anyone in this country are waaaay more lenient than they used to be, and permission to do so is waaaay easier to get. Permission to surveil suspicious religious or political groups without evidence of suspected wrongdoing is simply obtained under the Patriot Act. Opponents have also noted the FBI and other agencies have been using the Patriot Act as an investigative cudgel to scoop up evidence in cases not even remotely connected to terrorism. Section 314 of the Patriot Act states the law can be applied to behavior “that may involve terrorist acts or money-laundering activities.”
Note the clever and judicious placement by bill-drafters of the word or in that sentence. The FBI, for instance, has seized upon it to probe accusations of political corruption and money-laundering -- most notably involving a Las Vegas strip club owner’s attempt to influence local officials to loosen laws that restrict the ability of patrons to touch nude dancers. Terrorism?More on this story here.
FRAUD, BUREAUBABBLE AND INTIMIDATION
A few years back, the FBI was exposed for the astonishing malfeasance, lack of professionalism and reckless abandon of scientific discipline ascribable to its once world-renowned forensic crime laboratory. Shortcuts and political expediency on the part of the laboratory were exposed. Even the failure of basic safety procedures relative to laboratory testing of explosives, explosive devices and propellants, partially destroyed the FBI laboratory back in 1987.
And in 2001, it had been reported that the FBI “lost” 449 weapons. Now even though the FBI uses standard government accounting, probably a nebulous, trackless contractor-installed system no one can figure out and tantamount in effect to no accounting at all, its ramshackle complexity was able to determine that of the 449 firearms missing, 265 firearms were lost and 184 were stolen. Stolen? Isn’t the FBI the premier federal police agency of the most powerful nation on Earth, and yet common thieves stole their guns?
The FBI’s failings have been recognized as far back as 1987, and even prior. False evidence and political expediency have sent known-to-be innocent people to prison for virtual life sentences to protect criminal informants relative to “more important” cases and convictions. An article by veteran journalist Phil Brennan, The Federal Bureau of Investigation -- A Legendary Department in Rotten Decay, posted May 23, 2001, documents the decline of the “bureau” recognized three full years ago. And Brennan noted and documented this decline four months before 9-11.
It is becoming increasingly obvious, that anything involving the FBI should be viewed at the highest level of distrust. Just as they did with the investigations into TWA Flight 800 and American Airlines Flight 587, that crashed in Far Rockaway, Queens, they are now doing with the 9-11 Commission -- the FBI is leading the way in stifling and suppressing evidence, blocking the testimony of witnesses, intimidating and smearing witnesses, and serving as the administrations’ personal bodyguards and damage control agency. In short, what we have is a politicized secret police! Reading through William Shirer’s Rise and Fall of the Third Reich, many examples of such secretive maneuvers by Nazis Herbert Himmler and Joseph Goebbels parallel the operations and manufactured news events -- propaganda -- of the Bush administration and its secret police.More on this story here.
STEALING MAY BE EASY, BUT HIDING GETS HARDER
Fill in the blank: Corrupt dictator plus ill-gotten gains equals _____. Well, historically, one answer would have been “Swiss bank account”. But over the past few years Switzerland, with its 350 banks managing $2.3 trillion in private investments, has been trying to persuade outsiders that the days of shady dealings with suitcases of cash and numbered accounts are over.
Recently, Transparency International, a Berlin-based anticorruption advocacy group, produced a tally of riches accumulated by the world’s most notorious kleptocrats. So the question now is, Where can a bad guy stash the national loot these days? Terrorists, drug dealers, gun runners and political leaders siphoning the patrimony of hungry citizens all need havens for sums of cash.
Not surprisingly, Switzerland has no wish to be associated with the list of “non-cooperative” countries in international efforts to block the flow of illicit funds, and its bankers say they have been tightening their controls since 1977. That does not alter the fact that Switzerland’s bank secrecy laws, dating to 1934, impose far fewer obligations to report customers’ affairs than laws elsewhere. But as the enforcement of regulations on illicit money has tightened, Swiss banks have become more cooperative with investigators.More on this story here.
FIRST FOREIGNERS, THEN AMERICANS
When Congress passed the Patriot Act in 2001, it granted law enforcement authorities unprecedented surveillance powers. Lawmakers approved the act not only because of the crisis of 9/11, but because it was aimed primarily at foreign nationals. Most Americans believed the powers would never be applied to them, according to Georgetown University law professor David Cole. But Cole says history shows that once the American government goes after foreigners, it is only a matter of time before it turns the same laws on Americans.
A graduate of Yale Law School, Cole is a volunteer staff attorney at the Center for Constitutional Rights and teaches at Georgetown University Law Center alongside Patriot Act author Viet Dinh, who has called Cole “the Clarence Darrow of his generation” for his defense of underdogs. Wired spoke with Cole about his new book, Enemy Aliens, and efforts to revise the Patriot Act.More on this story here.
INTERESTING OBSERVATIONS FROM MARCH OFFSHORE PILOT QUARTERLY
The OECD has yet to master the fine art of plucking feathers.
Gabriel Makhlouf, chairman of the OECD’s fiscal affairs committee and a former tax inspector, is leaving the OECD committee after 4 years during which time the question of harmful tax competition has become a major international issue. He has been, inevitably, a target of criticism, especially from professional offshore practitioners, because he initiated a policy of “naming and shaming” recalcitrant jurisdictions by issuing blacklists. Two years before the blacklists started in 2000, the OECD had published a report calling for a crackdown on tax havens.
In March, 2000, after Mr. Makhlouf’s appointment, a second OECD report was published which, this time, contained demands, rather than suggestions, specifically on the related subject of banking information. It accused 35 jurisdictions of harming trade and investment because of bad tax policy. In September, 2003, as disagreement continued, Switzerland and Luxembourg (with support from Austria and Belgium) blocked agreement at the OECD for access to banking information from 2006 onwards.
The action by the dissident 4 presents Mr. Makhlouf with an impossible situation because all decisions by the OECD’s fiscal affairs committee are reached by consensus and the 4 member countries cannot be forced to comply. The 2006 deadline is no longer a certainty for the offshore jurisdictions and the Committee’s chairman has accepted that the OECD, perhaps, should have taken a less aggressive position from the start. He agrees that more speaking softly and less stick-wielding will probably result in greater progress. But the chasm between the OECD and the offshore jurisdictions remains and, to add to the already complex situation, several other international bodies, including the United Nations, are now competing for influence on international tax policy. Jean Baptiste Colbert observed that the collection of taxes was a skill and consisted of so plucking the goose as to get the largest number of feathers with the least hissing. To say that the feathers of the offshore jurisdictions have been, at the very least, ruffled, is to put it mildly. Expect a lot more hissing.
Where you stand depends on where you sit.
Adam Smith, the protagonist of free-market capitalism, held a dim view of joint-stock companies. He saw them as synonymous with greed and corruption. After all, in the 1720s, John Law’s Mississippi Company ruined the economy of France, the world’s most prosperous country at the time and in the United Kingdom the collapse of the South Sea Company caused nearly as much damage. Today, America has nearly 5.5 million companies and not much seems to have changed from the days when one corporate baron, John D. Rockefeller, was a symbol of “fraud, deceit, special privilege, gross illegality, bribery coercion, corruption, intimidation or outright terror” according to the author of that vituperative prose, the journalist, Ida Tarbell.
Since the earliest business known to have multiple shareholders existed in the middle of the 13th century, companies have been at the center of scandals often because the people managing them forgot the fiduciary relationship between themselves and the shareholders. As Adam Smith observed over two centuries ago, they are “managers rather of other people’s money than of their own.” The fact that business managers today use offshore financial services centers in their structuring does not transfer the root cause of criminal activities by some managers to those centers. Even so, those offshore centers have been seen as renegades much like Atlas, a rebel against the gods, who was punished by Zeus by having to bear the burden of carrying the heavens on his shoulders; the offshore centers seem destined to shoulder the blame of corrupt practices, regardless of where they originate.
Offshore jurisdictions have become the whipping boy of bureaucrats such as the EU’s Internal Market Commissioner, Frits Bolkestein, who has said that the “role and regulatory control of offshore centers needs to be tightened” following the Parmalat scandal. Ida Tarbell would have appreciated the EU commissioner’s flamboyant style, especially when he goes on to say that scandals such as Parmalat are symptomatic of a corruption of financial markets likened to the “corrosive drip of a leaking fuel tank”. His gaze from within his bureaucratic bubble is firmly fixed offshore where he sees the threat to transparency, especially, persisting. Maybe the EU bureaucrat is unaware of Delaware (stockholders are not revealed to the state) and nor, perhaps, of either Nevada where the law is silent on bearer shares or Wyoming where they are allowed. Panama, in fact, based its own corporate law on Delaware’s, but Mr. Bolkestein might not appreciate that fact. Ah, the corrosive drip of bias.More on this story here.
THE STATE OF SOUTH AFRICA
South Africa struggles to rebuild.
An estimated 17,000 science and technology workers left the country between 1994 and 2001 -- years of tense uncertainty in South Africa and unprecedented boom elsewhere, according to the country’s latest brain-drain study. But while previous studies have cast grim scenarios of a crippled economy feeding downward spirals of crime, poverty and societal dysfunction, a recent one found that the country’s science and technology sectors are actually looking quite healthy. The government’s latest emigration figures show the brain drain to be as pervasive as ever. Teachers, doctors and nurses in particular are often in critically short supply.More on this story here.
Racism holds South Africa back.
Before the arrival of multiracial democracy in South Africa in 1994, the country’s unequal education policies had barred most non-white South Africans from competing for the best jobs. A decade on, South Africa uniquely straddles the developed and developing worlds, with a wealthy minority enjoying living standards comparable to Spain’s while coexisting with an impoverished black majority. Despite the growth of a sizeable black middle class, old racial divisions are largely reinforced by continuing economic inequalities. No other country except Brazil has such disparities of wealth. This schism is particularly apparent in South Africa’s burgeoning technology industry, which remains largely white.More on this story here.
Entrepreneurs seeking riches from the poor.
In Africa, there is a huge demand for simple technologies that can be used by people who lack access to banks, phone lines, credit cards and computers that Westerners take for granted. Living in the only country on the continent that has a modern infrastructure -- even while most of its citizens remain firmly entrenched in poverty -- South African entrepreneurs are in a unique position to develop and deliver these products to Africa’s poor, says Raven Naidoo, a founder of Radian, a small technology-consulting firm.More on this story here.
WHY MEN FOLLOW MASTERS
History has born out that Thomas Jefferson was wrong when he wrote that all men came into this world with certain “unalienable rights”. As it turns out, “life, liberty, and the pursuit of happiness” have proved to be nothing more than the pipe dreams of a generation of crackpots, traitors, and rebels, men we would now call “terrorists” and “insurgents” because they dared shoot at an occupying army, its mercenaries, and its collaborators. Servitude is now ingrained, in vogue, and even laudable behavior among many.
For Americans, servitude to the nation-state commenced with the Union victory over the Confederate States. The permanence of war for empire and government-created economic crises in the twentieth century has accelerated the enslavement of Americans. Hordes of bureaucrats now enforce the will of the tyrannical state, depriving Americans of their life, liberty, and property with increasing impunity. Troubling as this evolution of history has been, it would not have been possible without the cooperation of Americans to make it happen.
To discover why Americans, who loudly and regularly proclaim to the world that they are the “freest” people on earth, have been willing participants in their own enslavement for several generations running, we must look to an obscure sixteenth-century text.More on this story here.
IT IS THE THOUGHT THAT COUNTS FOR THE GUILTY
You have just been arrested for robbing a shop with a shotgun and dragged to the local police station. A sergeant takes a cloth helmet bristling with electrodes and pulls it over your head. Pictures of the crime scene are flashed before you on a computer screen: an image of the shopkeeper victim, a picture of a man standing in the store, a photo of the gun used in the hold-up. You remain silent -- but to no avail, for your brain has already revealed your complicity by emitting tiny electrical signals as each image matches your own memories of the robbery that you recently committed.
It sounds fantastic. Nevertheless, such scenes have already been played out in lawyers’ offices and police stations in the United States as the fledgling technique of brain fingerprinting has been introduced to solve crimes. Success suggests that in the near future criminals may betray their guilt not through physical evidence but through their own unconscious thoughts. “People remember the major events in their life, even a serial killer,” said Lawrence Farwell, the inventor of brain fingerprinting. “That tends to have a solid record in the brain.”
Unlike discredited lie-detecting techniques, which measure changes in breathing, heart rate and other variables to determine if suspects are trying to deceive their interrogators, brain fingerprinting is designed to discover if specific information is stored in a person’s brain. The technique exploits the fact that the brain emits an electrical signal known as a P300 exactly 300 milliseconds after it is confronted with a stimulus that has special significance to that individual -- for example, a victim’s face.More on this story here.
EMPIRE OF DIRT
“What I don’t understand,” Elizabeth began a conversation on our last day in Rome, “is why the barbarians -- the Huns, the Goths, the Vandals and so forth, wanted to destroy the empire? They could see that people lived better inside the empire than outside... I mean, they had central heating, warm baths, art... and just look at all those beautiful buildings. Wouldn’t it have made more sense for them to join it, rather than tear it down?”
We had no answer, save resignation. “Yes, well, you might as well ask why the Romans went to all the trouble to build up their empire in the first place? Wouldn’t it have been much more reasonable to enjoy life here in Rome...?” And here we offer readers a history of the rise and fall of the world’s greatest empire.
Empires, like bubble markets, end up where they began. Rome began as a town on the Tiber, with sheep grazing on the hills. A bull market in Roman property lasted about 1000 years -- from 700 B.C. to about 300 A.D., when temples, monuments and villas crowded the Palatine (the most important of the Seven Hills of ancient Rome). Then, a bear market began... which also lasted at least 1000 years. As late as the 18th century, Rome was once again a city on the Tiber... with sheep grazing on the hillsides, amid broken marble columns and immense brick walls. They had been built for a reason... but no one could recall why.More on this story here.
INCIPIENT SIGNS OF SANITY IN FEDERAL COURT’S MEDICAL MARIJUANA RULING
The federal judiciary is getting better and better at protecting states’ rights under Article X of the Bill of Rights, and the most recent decision by U.S. District Judge Jeremy Fogel in San Jose, California confirmed what a previous federal appeals court found, being that where no commerce is involved, the federal Controlled Substances Act that bans Marijuana has no jurisdiction. When the previous appeals court decision was handed down, Congress made an end run around Article X by claiming federal law can use the Commerce Clause of the Constitution to ban certain substances.
A little history is required here to bring you first-time readers up to speed. Back when Prohibition was enacted, Congress wisely passed a constitutional amendment giving the federal government the power to ban the manufacture and distribution of alcohol. They did that because they had to. The Constitution does not give the federal government the power to regulate a substance like alcohol, and Article X simply states that if the Constitution does not explicitly give the federal government such a power, then that power is the exclusive province of the individual states.
But when Congress decided to ban certain substances like Marijuana and other drugs, they did not pass a constitutional amendment giving them that right. Instead, they claimed they already had that right under the Commerce Clause, since they had the right to regulate commerce anyway, and because most “illegal” drugs are assumed to have been “sold”. Well, that little end run has cost the feds dearly, and this decision confirming the previous appeals court ruling spells real trouble for the feds in the future.More on this story here.
CHINA HEADED FOR A CRISIS?
China’s economy is overheated, its banks are shaky, and hot money continues to pour in. Can the new leaders rein in a runaway financial system? The world has known for months that China is white-hot. What the world was not expecting was that it would keep getting hotter. The government of President Hu Jintao and Premier Wen Jiabao has been signaling since last summer that it is time to ease up on growth. People’s Bank of China (PBOC), the central bank, has said it wants to crack down on reckless lending. But the numbers remain explosive. On April 15, Beijing revealed that the economy grew 9.7% in the first quarter; the target was 7%. First-quarter loan growth grew 21% over last year, and the broadest measure of the money supply, or M2, rose 19.2%. Fixed-asset investment -- spending on plants, equipment, roads, and other infrastructure -- is up 43%. The average in Asia is more like 20%. Inflation of 2.8% does not look too bad -- until you consider that a year ago it was under 1%.
The system is clearly out of whack. Yes, China is regarded as a country with first-world manufacturing prowess, the planet’s workshop. But that industrial might is hitched to a broken, third-world financial system. When the heat turns up, things can get ugly. And because it is so big, an overheated China takes on enormous global importance. Not since the boom-bust cycles of the fast-growing U.S. economy in the 19th century has the world seen such a phenomenon.
A runaway China -- or a China hit by a temporary but dramatic crash -- would have far more impact on the global economy than it would have had 10 years ago, when the mainland had its last great crisis of overheating. That is why Beijing’s ability to engineer a soft landing is possibly the most important issue in global finance this year. If the government can slow down growth to, say, 7%, commodity prices will ease worldwide, pressure on the yuan will subside, and Beijing will keep generating jobs for the 10 million Chinese who enter the workforce every year.More on this story here.
THE NEOCON’S REAL AGENDA
Oh, how the neocons are squirming, and turning somersaults over Iraq, a performance the sight of which would be almost a pleasure to behold if not for the steep price of admission. Every bit of bad news, over the months, all the indications of impending disaster, have been routinely dismissed by National Review’s writers as due to “media bias”, the consequence of an antiwar conspiracy to hide the real truth about our supposed success in Iraq. But suddenly there appears an abyss….! Having pushed America into the Iraqi abyss, the neoconservatives blame others for making the prescient point that the only direction we can go is rapidly downward. Of course, they bear no responsibility.
The National Review solution is blood and iron. Reconciled to the reality -- that our crusade in Iraq is a futile one -- the last remnants of what had once been the conservative movement are reduced to the simple pleasures: “dealing harshly” with their perceived “enemies”. Especially their enemies on the home front. And that, I am afraid, is really the whole point.
The rising tide of bloodshed, the spiraling costs, the atmosphere of anticipatory terror in which we all live -- what is it all for? I would suggest that, of all the items at the top of the neoconservative agenda -- the defense of Israel, the elimination of the so-called “Vietnam syndrome”, the goal of “benevolent world hegemony”, as Bill Kristol describes the goal of American foreign policy, the defeat of an amorphous “terrorist threat” that seems to include any and all who resist the advance of American power -- the real goal is much closer to home. What the neocons are after is the final overthrow of our old republic, and the completion of the transition to Empire.
Who are these guys, anyway -- and what do they believe? This small but very influential sect of public intellectuals traces its origins to the radical left-wing of American politics. They started out as Trotskyites, morphed into Scoop Jackson Democrats, and, in the 1980s, found themselves in the right wing of the Republican party. Their theme, as long as the cold war lasted, had always been a bellicose foreign policy, animated by an obsessive hatred of their old enemies in the Kremlin. Adrift in the post-cold war era, the neocon movement seemed to wither on the vine, and was fast losing ground to a new “isolationism”. The Republican leadership opposed the Kosovo war, and was critical of every one of Bill Clinton’s foreign adventures. Many conservatives were close to endorsing non-interventionism in principle. Then came 9/11. The US, they argued Krauthammer had to seize this moment before it passed. Global hegemony was within our reach: we had only to reach out and grasp it to realize all the dreams of Alexander, Caesar, and Napoleon combined.
It is on the home front, however, that the real battle is being waged, and it is on this battleground that the neocons show their true colors. The Jacobins were the most radical -- and bloodthirsty -- faction of the French Revolution, and when they gained power they set up the guillotine in the public square, created a police state, and launched a furious pogrom that ended only when Robespierre met his end on the very guillotine to which he had condemned thousands. As the Robespierre of the neocons, George W. Bush is leading the charge to abridge if not abolish the Bill of Rights -- and sweep away the last remnants of constitutional government in America.More on this story here.
IRS ISSUES ABUSIVE TRUST TAX AVOIDANCE SCHEMES WARNING, TOOLKIT
The IRS is cautioning the small business community and public in general about schemes that create “sham” trusts in an attempt to evade federal taxes. Generally, a trust is a form of ownership that separates responsibility and control of assets from the benefits of ownership. Sham trusts deliberately hide the true ownership and control of the trust assets and income in order to avoid correct federal taxation rules.
In abusive trust schemes, bogus or inflated expenses are often charged against trust income. After the deduction of these expenses, the remaining income is distributed to another trust, and the process is repeated. The result of the distributions and deductions is a decrease in the amount of income ultimately reported to the IRS.
These schemes may be promoted with domestic components, offshore components, or a combination of the two. Often, the trusts involved in the scheme, whether foreign or domestic, are vertically layered with each entity distributing income to another layer. Nondeductible or bogus expenses are often charged against the income throughout the layers. No economic purpose or substantial change in the economic relationship is present, although they give the appearance the taxpayer or small business has given up control of the assets when in reality they have not. The result of these arrangements is intended to substantially reduce the amount of income reported to the IRS.
Taxpayers and/or small business owners should be aware that abusive trust arrangements will not produce the tax benefits advertised by their promoters and that the IRS is actively examining these types of trust arrangements. Furthermore, taxpayers, small businesses and/or the promoters of these trust arrangements may be subject to civil and/or criminal penalties.Complete advisory here. IRS “Abusive Scheme Toolkit for External Stakeholders” here. IRS “Abusive Offshore Tax Avoidance Schemes -- Glossary of Offshore Terms” here.
WASHINGTON’S BIGGEST CRIME PROBLEM
Federal criminal law has overstepped its proper bounds, prescribing draconian punishments for offenses that should be handled at the state level or that should not be considered crimes at all. During the last century, especially in the last three decades and in the aftermath of the September 11 attacks, Congress has made federal crimes out of an astonishing array of behavior, much of which is already prohibited by state law, could be better addressed with civil penalties, or is considered wrongful not because it violates anyone’s rights but only because Congress says so.
When Congress creates a federal penalty for actions traditionally prosecuted at the state level, it violates the core constitutional principle of federalism, which prohibits Congress from legislating on local matters. Such laws also burden the federal court system, promote selective prosecutions, and stack the deck against defendants. In addition to duplicating state law, Congress has created derivative offenses, such as racketeering and mail fraud, an approach that makes convictions easier to obtain because the offense consists mainly of otherwise innocuous behavior.
Getting even further from the essence of criminal behavior, many federal laws impose criminal sanctions for so-called public welfare offenses. These laws often do not require a “guilty mind”, or mens rea, which historically has been an essential element in common law crimes. Indeed, public welfare “crimes”, such as violations of environmental regulations or insider trading laws, need not involve even unintentional harm to third parties. The overreaching of federal criminal law is especially troubling because institutional and procedural features of the federal system invite prosecutorial abuses, make convictions easier to obtain than in state systems, impose harsh mandatory sentences even for nonviolent acts, and result in disparate treatment of similarly situated defendants.More on this story here.
AIRPORT SECURITY FAILURES USED TO JUSTIFY DEFECTIVE CAPPS-II SNOOP SYSTEM
Recent government reports on the failure of American airport screeners to detect threat objects at security checkpoints may provide ammunition for proponents of the controversial Computer Assisted Passenger Prescreening System (CAPPS II) database solution, which is currently stalled by myriad snafus too numerous to mention.
CAPPS II is one of the worst possible solutions to airport security. It will not prevent terrorists from flying; rather, it will increase the probability of another successful attack using commercial aircraft. The reason is painfully obvious: a group can very conveniently use the system to pre-screen its members and discover which of them have profiles that result in extra scrutiny. Thus CAPPS II is a superb tool for terrorists to use in assessing airport defenses. The closer CAPPS II comes to achieving its stated goals, the more effective it will become as a terrorist tool. So it is indeed good that its development is going poorly. The problem, however, is that the recently publicized failures among human screeners will provide rationale to rush it into service.More on this story here.
PANAMA’S CANAL NEEDS AN UPGRADE. CAN ITS POLITICIANS DELIVER ONE?
The Panama Canal charges the very biggest liners around $250,000 per passage. But with as little as two feet to spare on each side, it can be a tight squeeze. With up to 38 big ships passing through it each day, the 90-year-old waterway is now at the edge of its capacity. Still more worryingly for its operators, those locks are too narrow to handle today’s biggest container vessels (of a size undreamed of by the canal’s engineers), many of them carrying Chinese exports. So Panama is increasingly missing out on some lucrative custom. To survive, the canal needs to grow. Whether it does so will partly be determined by whoever wins Panama’s presidential election on May 2nd.
About one-third of Panama’s GDP comes from canal-related revenues. And the current debate about the canal’s future will entwine it and the Panamanian government still further. Politicians on all sides seem to acknowledge that investing in the canal is “the manifest destiny of Panama’s geography”. Yet whoever wins will have a tough job selling the plan to the public. It might involve creating lakes to supply water to the new, bigger locks, and flooding land and displacing some of the poorest people in Panama. Activists and churches are already rallying to their cause. And the next government will have to champion the enlargement while staying strictly out of the canal’s finances.More on this story here.
SEARCHING FOR VALUE... AND COMING UP SHORT
In an environment of money printing and excessive liquidity, which leads to strong debt growth and high asset inflation, real bargains and truly distressed assets could be a thing of the past until such time as an economic or financial accident again creates value in one or another asset class. I mention this because when I look around the world at equities, bonds, commodities, and real estate, I find it increasingly difficult to identify assets that meet my criterion of being “great values” that I would feel comfortable in just putting aside and waiting to appreciate substantially at some point in the future.
Moreover, I get the feeling that, with very few exceptions, most assets will be available at lower prices sometime in the next few years. Take as an example New Zealand. A few years ago, assets in New Zealand and the cost of living there were extremely low because of a depressed N.Z. dollar and an overbuilt real estate market. But now, with the N.Z. dollar having doubled in value against the U.S. dollar, I found on a recent visit to this remote but scenic country that prices were almost as high as in the United States. A few years ago, Australia was a real bargain compared to the United States, but today property prices in Sydney are as high as, or even higher than, in New York, and the cost of living is close to that of the United States -- again, partly because of the strength of the Australian dollar against the U.S. dollar.
If we recall colleague Richard Strong’s prediction in 1996 that in the future U.S. stocks could be valued as highly as Japanese stocks were in the late 1980s, I think it is conceivable that assets such as real estate, equities, commodities, or even bonds could continue to appreciate and reach much higher prices than I have been expecting. At the same time, I am fully aware that not one single credit-driven asset inflation has ended “harmoniously” and led to “the best of all possible worlds”; instead, these inflations have always been followed by a severe bust and financial crisis, which then erased most, or even all, of the previous gains.
I was leaning toward the view that in 2004 some assets would continue to increase in value, while others, such as bonds, would begin to fall by the wayside and enter longer-term bear markets. Upon further consideration, I am now increasingly concerned that sometime in the near future“qeverything” could begin to unravel! Whereas in the past I have had the tendency to dismiss Robert Prechter and Gary Shilling’s deflation scenario as unlikely, I now feel that the current universal asset inflation will be followed by a serious bust and asset deflation, which will kill consumption in the United States. But when? I must admit I am at a loss as to when this bust will occur.Link here (scroll down to Marc Faber piece).
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