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THE JULY ISSUE OF ESCAPE FROM AMERICA MAGAZINE IS OUT
Sample articles from this issue include:
How To Leave Home Without Losing Your Sanity: When we were 29, my husband Paul and I sold our home, had several yard sales, and bought two one-way tickets to Paris. Everybody thought we had lost it. The good news is that after 25 years as expatriates, we still have good relationships with our families. We still are close to many of our old friends. We miss them, and like to visit, and do go back to the States once a year. But for us, living in the US -- after so long living outside of it -- just does not work for us anymore. In fact, when we visit we often go through a period of culture shock. Everything seems to move so fast .Everyone is in such a hurry. There are so many choices. But therein lies the joy, as well.
Places To Do Business In Europe: According to the findings of the ranking done by Manager Magazine, even the top regions in Germany for doing business do not deserve to be called competitive when compared to more attractive regions in Europe for investment. There are two sorts of regions in Europe that offer -- at least by European standards -- top notch conditions for doing business. First, countries that have recently joined the European Union and are relatively advanced with their economic transformation -- e.g., Estonia, Poland, Hungary. Second, countries of the “Old Europe” like Ireland and Austria. In particular in the sector of simple services no region in Europe can compete with Estonia. In the sector of high technology Ireland turns out to be head and shoulders above the crowd.
Having Fun In Belize: Most people have a picture postcard image of their ideal beach vacation, replete with lounging and reading on sandy white beaches, sipping tropical drinks while gazing at a gorgeous sunset, after snorkeling in warm, turquoise waters. Well, welcome to Un-Belizable Belize during low season. (April to November) While many head to tropical escapes during the winter, I highly recommend that you summer in Belize.
Panama’s Chiriqui Highlands: When you want to get away in Panama and head for the hills to escape the heat, the sweat and the oily fumes of Panama City, the place to visit is the Chiriqui highlands. Chiriqui is the Panamanian province that lies along the border with Costa Rica. The highlands are not only beautiful but are in many ways the bread basket of Panama -- most of the vegetables that you buy in Panama City come from Cerro Punta and the best coffee in the country comes from the beautiful mountain town of Boquete. The province has a history -- not so strong -- of wanting to have independence from the main body of Panama. Other Panamanians say people from Chiriqui are boring, but they are not, just less crazy. The people from Chiriqui say that other Panamanians are lazy and that they would be better off if they were seperated from the rest of the country. Chiriqui is also the home of the Chirqui Land Company, an American company that had plantations in the Chiriqui town of Puerto Armuelles. The banana plantations in Chiriqui had wonderful American schools and so there has always been a strong bond between the U.S. and the people of Chiriqui.Issue table of contents here.
Web opens door to real estate for sale abroad.
The dream of escaping America has been around as long as, well, the American dream itself. Now, however, with real estate prices at an all-time high and America locked into an endless war on terrorism, the prospect of escape is more appealing than ever. Add to the picture job layoffs and spiraling deficits, and the idea of moving somewhere cheaper makes increasingly good sense. Whether you are an overworked wage slave who cannot afford a two-bedroom hovel, or a penny-pinching suburban mom or a glinty-eyed trust-fund baby, it might seem that buying foreign property could solve a host of divergent and sometimes contradictory problems.
In countries that disagree with American policies (i.e., most of the globe), for instance, you can feel as if you are no longer condoning American imperialism abroad. In poor nations, your American dollar can allow you to live like royalty. In places where English-speaking white culture does not rule, you can bask in cultural difference. And, all the while, you can become the proud homeowner of a property you could never have afforded back inthe United States.
It used to be that buying a property in another country wasonly for salty, do-it-yourself adventurers or jet-setting internationalists. You had to have contacts in the country where you wanted to buy, and you had to travel there (often repeatedly) to find a property and track down a native real estate agent. But now, thanks to a few savvy homegrown entrepreneurs, the dream of offshore living is only a click away.
In searching for international real estate, I discovered two great sites, each representing a different end of the financial spectrum. Unique Global Estates.com offers the largest database of U.S. and world properties worth in excess of $1 million, while EscapeArtist.com provides an encyclopedic research center to enable any regular Jane or Joe to buy in to the expat dream.More on this story here.
PURCHASING PROPERTY IN PANAMA
The following is general information on purchasing real estate in Panama. It is not to be construed as legal advice. The different categories of land make it imperative to engage professionals for more detailed information. Real estate laws on the mainland can be quite different than those on islands, coastal areas, and areas near national borders. All juridical processes in Panama are conducted in Spanish. For any real estate transaction in Panama, a contract written solely in English carries no legal weight, and is generally not recognized. All contracts for property must be in Spanish on a formal public deed, and signed before a public notary, in order to be legally enforceable and to be filed at the Public Registry.
Commodity investments and speculations, such as for noni and teak, require extreme caution. For these crops, proper growing climates and soil conditions are very specific. Teak is not native to Panama. Projections and assumptions about noni and teak involve highly uncertain factors such as availability, price, vagaries of season, changes in government, crop yields and quality. There are no guarantees.Link here.
BANK ROBBERY, IRISH STYLE
More than six years after RTÉ revealed that National Irish Bank, a subsidiary of National Australia Bank, had been defrauding many of its customers and encouraging and assisting others in evading taxes, the report of two High Court appointed inspectors was published last week. In what is seen as a damning indictment of the bank and its senior management, the inspectors concluded that corrupt practices were widespread throughout the bank. They confirmed that the bank routinely added “interest” and “fees”, over and above those correctly charged, to customer accounts to boost branch profits. It also confirmed that customers were encouraged to invest in “offshore” investment schemes so that money would be hidden from the tax authorities in this country. The illegal activity continued throughout the period under investigation by the inspectors -- 1988 to 1998.
In all, 19 senior bank executives have been implicated in the fraud, including the former chief executive, the former executive director, the former chief operating officer, and the former head of the financial advice and services division. None of the 19 currently works for the bank. While they were not all accused of initiating dubious practices they were cited for failing to correct problems when brought to their attention by internal and external auditors. Auditors KPMG also came in for criticism. They frequently highlighted the practice of topping up interest charges but never followed through. One manager responded by saying that he would comply, but not immediately as this would only alert customers to previous overcharging.More on this story here. Timeline of how the bank scandal unfolded is here.
FINANCIER JAILED FOR FLEECING SWISS BANK
Jürg Stäubli, a Geneva businessman who ran up debts of SFr250 million ($200 million), has been sentenced to 28 months in prison. Stäubli was found guilty of forgery and mismanagement but cleared of fraud in one of the biggest financial trials seen in Switzerland. Judge Jean-Pierre Lador said the defendant was guilty of serious offences, despite being cleared of fraud and fraudulent bankruptcy. Lador added that Stäubli -- who denied all the charges -- was a man of few scruples who had acted out of egoism and not wanting to lose face. He said the businessman had also tried to pervert the course of justice by stealing a CD-Rom from the office of one of the prosecutors.
The trial saw 100 witnesses give evidence and lasted two months, but the court spent a further three months deliberating Stäubli’s sentence. The Geneva Cantonal Bank, which loaned -- and lost -- huge sums of money at the hands of Stäubli, was awarded SFr80,000 in costs. It said it would start civil proceedings to recover the rest of its funds. But the court rejected the bank’s argument that it was the victim of fraud. The judge remarked that the bank should have been aware that the businessman was in financial difficulties after being alerted in 1990.More on this story here.
BRAZIL’S CENTRAL BANK: OUT OF THE FRYING PAN...
The Central Bank has suddenly found itself at the center of a row over allegations that its President, Henrique Meirelles, and one of the bank’s directors, Luiz Agosto Candiota, had concealed information from the tax authorities about their private banking affairs. This information appeared in the weekly newsmagazine Istoé and led to the abrupt resignation of Candiota, who claimed he had done no wrong. Meirelles also claimed to have done nothing unethical and has remained in place so far. President Luiz Inacio Lula da Silva, who was on a visit to Africa, publicly gave his backing to Meirelles, although press reports say he was angry on hearing about the allegations.
The timing of these developments -- a week following Finance Minister Antonio Palocci’s announcement that a bill would be laid before Congress to grant the Central Bank autonomy -- is highly suspicious, and suggests that someone decided to leak the information to embarrass the Central Bank leadership and, perhaps, Palocci himself. Maybe it was just coincidence but, in my experience, there is no such thing as coincidence in Brazilian politics. There are simply too many rivalries and old scores to be settled to believe in coincidence. A giant cupboard full of skeletons exists, which insiders can turn to when they want to intimidate, threaten or destroy their rivals. Central Bank presidents are easy targets, and Meirelles -- a former worldwide President of Bank Boston, part of the Fleet Boston group which recently merged with Bank of America -- must now be aware that his position is no longer secure. Pressure is growing on him to follow Candiota’s example and resign.
Should Meirelles lose his position, this would be a major setback, and not just for the Central Bank. It would create a political and economic crisis in Brazil. Lula would come under pressure from all sides to appoint a new president, who would be more willing to reduce interest rates and change the current tight monetary policy. Although interest rates have fallen by around 10% during Meirelles’ stewardship, the Central Bank has come under attack for failing to lower them even further.More on this story here.
RUSSIA DEEPENS YUKOS TAX PROBE
Russian tax officials have begun an audit of troubled oil giant Yukos’s 2002 accounts, raising fears that it could be issued with yet another tax demand. The firm already faces a $7 billion bill for 2000 and 2001, and a third demand for 2002 would lift the total higher still. News of the fresh audit took the gloss off a rare legal victory won by Yukos earlier on Monday, when a Moscow court quashed a $223 million fine imposed on the firm after it missed a payment deadline last month. The fine was issued in early July after Yukos failed to pay the $3.4 billion it owes for 2000 within the time set by the authorities. Bailiffs were reported to have extended that deadline until the end of August.
The court’s decision to scrap the fine, and the extension of the payment deadline, have given the firm some breathing space. However, Yukos has said it does not have enough cash to pay the bill for 2000, and cannot raise the money by selling assets, as most of these have been frozen by the authorities. The company has warned that it will be forced into bankruptcy unless the government agrees to let it pay over a number of years. Officials have so far not responded to its requests for a more flexible payment arrangement. Some analysts believe the government’s hard-line stance indicates that it aims ultimately to break Yukos up and sell it to smaller, less independent oil enterprises.More on this story here.
What the assault on Yukos means for Russian business, politics and power.
“It feels like we’re being toyed with -- like a baby seal being batted back and forth by killer whales.” Thus one Yukos employee describes the sensation inside the company that was once the alpha whale of the Russian oil industry, but is now gasping to stay afloat under a barrage of legal assaults. This week, while it became clearer that the firm could keep on pumping oil, less happily the tax ministry began looking for tax evasion in 2002 and 2003, to add to the nearly $7 billion it wants in back taxes for the previous two years. Last week prosecutors charged Leonid Nevzlin, one of Yukos’s main shareholders, who now lives in Israel, with conspiracy to murder.
Since the attack on Yukos and its then boss, Mikhail Khodorkovsky, began over a year ago, many have assumed that the goal was to punish him for his political influence-peddling, and probably to separate him from Yukos, but to leave the firm undamaged and in private hands. Yet recent announcements hint at a new plan, to break Yukos up and sell it off at artificially low prices, with the main production subsidiary, Yuganskneftegaz, perhaps going to the state oil firm, Rosneft (whose new chairman, Igor Sechin, is one of President Vladimir Putin’s closest aides). If that happens, says a gloomy Al Breach of Brunswick UBS, usually one of the most upbeat foreign analysts, “it would be hard not to conclude that the Kremlin’s key motivations are personal power and wealth.” Yet the end for Yukos has not yet come and may not for a while.
Mr. Putin may well have hoped for a quicker, quieter and tidier solution. But his aloofness (except for an occasional soothing but empty statement) as the battle with Yukos escalated has taught investors two things about him that they hoped were not true. One is that he would rather unleash full-blown market panic than back down and lose face. The other -- not yet proved, but increasingly suspected -- is that he is willing to allow some renationalization. This raises big questions. Are other firms safe? What is the state’s future role in the economy to be? And who will benefit?More on this story here.
BUSH’S OVERSPENDING PROBLEM
The Bush administration’s fiscal 2004 budget shows an admirable reform spirit in its pro-growth tax cut proposals, support for private Social Security accounts and government management initiatives such as competitive sourcing. But the administration has failed to tackle the serious overspending problem in the discretionary budget. Indeed, based on his first three budgets, President Bush is the biggest spending president in decades. For FY2004, discretionary outlays will rise 3.5%, which follows increases of 7.8% in FY2003 and 13.1% in FY2002. Non-defence discretionary outlays will rise 3.2% in FY2004 following increases of 7.9% in FY2003 and 12.3% in FY2002.
Rather than spending increases, the return to deficits and the coming cost explosion in elderly entitlement programs means that discretionary spending should be immediately frozen and major cuts identified. If discretionary outlays were frozen at the FY2003 level, the deficit would plunge to just $55 billion by FY2008 The administration has backed large increases in the defence budget -- from $306 billion in FY2001 to $390 billion in FY2004. Yet it has not offset those increases with an aggressive plan to reform non-defence spending by major program terminations, privatization and moving functions such as education back to the states. The following budget data highlight the continuing overspending problem in the U.S. federal government.More on thisr story here.
THE INTERNATIONAL MONEY TRANSFERS MARKET NEEDS A SERIOUS JOLT
The situation with Paypal and the other money-transfer alternatives for local customers throughout South America and Asia is so bad -- e.g., the Paypal requirement of having a local USA-based bank account to withdraw the money -- that it is no wonder that friendlier alternatives are appearing to give the services that these local communities are craving. The perfect service, however, has yet to appear, as hundreds of posts on the Paypalsucks.com forum seem to imply, showing shortcomings of just about every one of the mentioned services.More on this story here.
GIBRALTAR ANNIVERSARY CELEBRATIONS UPSET SPAIN
The presence of Britain’s Defence Secretary Geoff Hoon and a Royal Navy warship for Gibraltar’s 300th anniversary has sparked the latest tiff with Spain, which has yearned since 1704 to reclaim the strip of land that dominates the entrance to the Mediterranean Sea. The people who live in the British colony and resist any return to Spain planned to form a human chain around the cliff that juts up from the sea, dominating the strategic harbour and giving the place its nickname -- “El Penon”, or “The Rock”.
In an article published by the daily El Pais, Foreign Minister Miguel Angel Moratinos said the UK’s hold of the island is to the detriment of good relations with its EU partner, even as the Royal Navy prepares to celebrate three centuries of British rule over Gibraltar. “It is strange, in the 21st century, that the military occupation of part of one member state by another should be commemorated within the European Union,” Moratinos said.More on this story here and here. Guardian special report on Gibraltar here.
LUXURY VOTE SERVICE FOR BELGIUM’S U.S. EXPATS
US expats living in Belgium will not even have to leave their own homes to register to vote in this November’s Presidential elections, thanks to a new service. Volunteers from Democrats Abroad (DA), the expat wing of the US Democratic Party, are offering to visit unregistered voters in their homes and help them complete all of the paperwork needed to take part in the presidential poll. The offer is open to all unregistered US expats, whatever their political persuasion. To qualify for the free “at home” service, five US expats must group together and ask a DA volunteer to call.More on this story here.
USING BANK ACCOUNTS TO MAKE THE MOST OF REMITTANCES TO LATIN AMERICA
The $38 billion in emigrant remittances sent home to Latin America and the Caribbean from abroad last year would have been more fruitful if more bank accounts had been used to send and receive the money. These were the main recommendations of a seminar organized in Caracas by the Latin American Economic System (SELA) in Caracas, which backed programs encouraging migrants to open bank accounts in the countries where they live and work, and urging their families to open accounts for receiving the remittances at home.
Latin America and the Caribbean have nearly 550 million inhabitants and 250 million poor people, and “only 20% of the population have access to banks, whereas if the banking system opened up to the rest of the population, the savings rate would triple,” Manuel Orozco, a Nicaraguan with the Institute for the Study of International Migration (ISIM) at Georgetown University in Washington DC, told IPS. Private banks in the region “have oligarchic attitudes, they don’t actively attract clients, and loans generally go to the export sector or big companies. In many countries less than five percent of the portfolio is aimed at small and medium-sized businesses, which generate 30% of employment.”
Emigrant remittances to their home countries in Latin America and the Caribbean "have seen spectacular growth in recent years," said Lozano, who noted that they had climbed from $11.7 billion a year in 1995 to $38 billion-- review in 2003, while their contribution to regional GDP doubled in seven years. Nearly 40% of this mass of money goes to Mexico. More than half of all households in urban areas in Mexico have benefited from money sent home by relatives, mainly those residing in the United States. Other countries receiving large amounts of emigrant remittances are Brazil, ($5.2 billion), Colombia ($3.1 billion), El Salvador ($2.3 billion), the Dominican Republic ($2.2 billion), Guatemala ($2.1 billion), Peru ($1.3 billion) and Cuba ($1.2 billion). Haiti, the poorest country in the Americas, received almost $1 billion from nationals abroad -- or one-third of GDP and more than three times the country’s total export revenues, according to Orozco.
But sending the remittances -- mainly due to the cost of the bank transfer and money wiring procedures -- swallows up an average of 7% of each transaction, thus $2.7 billion of the $38 billion sent last year did not reach the recipients. “That’s why we need to open up the banking system to the wider public, and for this to happen banks must first create incentives for people to receive remittances, cut the cost of transactions, encourage savings and credit, and reinvest savings in the communities which use them,” Orozco maintained.More on this story here.
CHINESE BUSINESSES URGED TO USE DUBAI AS REGIONAL HUB
In a speech delivered to a delegation from the Shanghai Chamber of International Commerce, Dr. Ahmed Abdurrahman Al Banna, Deputy Director General of Dubai Chamber of Commerce & Industry (DCCI), pointed out that Chinese businesses will have access to 1.5 billion potential consumers in GCC (Gulf Cooperation Countires) countries, Iran, The Indian subcontinent, the Commonwealth of Independent States and Africa by distributing their products through Dubai.
China is already on of Dubai’s largest trading partners, with non-oil trade between the countries totaling some $4 billion in 2003, according to Dr. Al Banna. Dubai’s enormous oil revenues mean that the government has no need to raise income through direct taxation. With the exception of banks and oil companies no corporate income tax is payable by businesses in Dubai. There are also no withholding or capital taxes.More on this story here.
BOTSWANA PRAISED -- AND WARNED OF CHALLENGES AHEAD -- BY IMF
In its annual review of Botswana’s economy, the IMF has praised the country’s evolution from one of the world’s poorest nations to one of the best performing economies in Africa. However, Botswana still faces major challenges according to the IMF, namely the development of an appropriate social safety net and the diversification of the economy to support economic growth, which is expected to decelerate relative to the high rates experienced over the past 35 years.
During 2003/04, productivity gains in the diamond-sorting process led to higher-than-expected real growth of 5.4%, as diamond production surpassed the earlier expectation of 28 million carats to reach 30 million carats. Meanwhile, non-mining output growth is projected to maintain a 5% level for the second year in a row. The IMF directors noted that Botswana’s sound macroeconomic policies have contributed to sustained growth and single-digit inflation, which, together with strong institutions and prudent natural resource management, have helped place Botswana among the best-performing economies in Africa over the last three decades.More on this story here.
A DIFFERENT SORT OF OLIGARCH
Having got rich in Russia, Georgia’s new economy minister Kakha Bendukidze now wants to be the world’s most capitalistic politician.
Mr. Bendukidze, 48, made his name and fortune as an industrialist in neighboring Russia, putting together the country’s biggest heavy-engineering group, OMZ, before returning to his native Georgia in June of this year with a mandate to reverse more than a decade of post-Soviet decay. He insists that he was taken by surprise when Georgia’s president, Mikhail Saakashvili, and prime minister, Zurab Zhvania, offered him a ministerial job. But having said yes, he is cracking ahead, doing everything that businessmen must dream of making governments do. He says that Georgia should be ready to sell “everything that can be sold, except its conscience.” And that is just the start.
Next year -- if not sooner -- he will cut the rate of income tax from 20% to 12%, payroll taxes from 33% to 20%, value-added tax from 20% to 18%, and abolish 12 kinds of tax altogether. He wants to let leading foreign banks and insurers open branches freely. He wants to abolish laws on legal tender, so that investors can use whatever currency they want. He hates foreign aid -- it “destroys your ability to do things for yourself,” he says -- though he concedes that political realities will oblige him to accept it for at least the next three years or so.
As to where investors should put their money, “I don’t know and I don’t care,” he says, and continues, “I have shut down the department of industrial policy. I am shutting down the national investment agency. I don’t want the national innovation agency.” Oh yes, and he plans to shut down the country’s anti-monopoly agency too. Good luck, and he will need it. Mr. Saakashvili’s new government has taken over a country where half the population lives on less than $2 a day, relations with Russia are tense, and rebel regimes control two provinces. He insists that Georgia is a more “individualistic” place than Russia, and thus more receptive to reform. Georgians may take some persuading.More on this story here.
BERMUDA TURNING UP THE HEAT ON CRIMINALS
Bermuda’s financial services sector can expect increased regulation in the foreseeable future. The Bermuda Monetary Authority said that future legislative changes will include introducing formal standards for counter-terrorist financing procedures, in addition to further amendments to anti-money laundering legislation, the Companies Act and the various laws governing the insurance, banking, trusts, mutual funds and securities industries in Bermuda. In a wide ranging Press conference to present the Authority’s 2003 annual report, Cheryl-Ann Lister, chairman and CEO of the BMA said that international regulatory standards are continually changing and Bermuda had to be prepared to deal with those changes.More on this story here.
AFTER BABEL, A NEW EUROPEAN COMMON TONGUE. IT TURNS OUT TO BE ENGLISH
In the 17th century, educated people across central Europe could still communicate with each other in Latin. By the mid-19th century, the handiest language for a traveler through Mitteleuropa was the German spoken by the Habsburg monarchs who reigned over Hungarians, Czechs and many others. A little more than 100 years later, the dominant tongue was Russian. Now the region’s new language of choice for the 21st century is percolating upwards through the education system, and downwards from the business and political elite. It will be English, studied by three out of four secondary-school pupils from the Baltic to the Balkans.
Most central European countries have just joined, or are waiting to join, the European Union, and their accession is already reinforcing the dominance of English as a language for the EU as a whole. In central Europe, as in much of the world, knowledge of English has become a basic skill of modern life comparable with the ability to drive a car or use a personal computer. What has happened to the other main languages? A majority of central Europeans have eschewed Russian as firmly as they have rejected the communist ideology which was once articulated in that tongue.
German has languished partly because Germany has been shy about promoting its language and culture in a region ravaged by Hitler’s war. No such shyness has affected France -- but admiration for France’s culture does not translate into widespread use of its language. The rise of English as a lingua franca will not necessarily do much to diminish arguments over national languages within or between countries, in places like the Balkans or the Baltic states. But civil servants and committees within the EU’s institutions use three main working languages: English, French and German. French has long been fighting a losing battle against English for “market share” among the three, with German far behind. The arrival of more countries favouring English will threaten to render French almost as marginal as German.More on this story here.
SENATORS SEEK TO SNUFF OUT “SON OF BOSS” OFFENDERS
Sen. Chuck Grassley, chairman of the Committee on Finance, and Sen. Max Baucus, ranking member, have released details of their plans to revise anti-tax shelter legislation in a bid to ensure that several hundred taxpayers who used so-called “Son of Boss” tax shelters do not escape the taxes they owe. Grassley and Baucus plan to revise provisions in the Senate-passed Jumpstart Our Business Strength (JOBS) Act to extend the August 15 statute of limitations for Son of Boss investors who did not participate in the IRS’s voluntary settlement program. More than 1,500 individuals voluntarily disclosed under the recent IRS amnesty which also turned up 300 previously unidentified users of the scheme. IRS figures show that around 85% of known Son of Boss users agreed to settle ahead of the June 21 deadline. However, according to Grassley and Baucus, it would appear that many Son of Boss offenders remain at large.More on this story here.
PHILIPPINES LEADER TAKES AIM AT INCOME TAX EVADERS
When the Philippine Supreme Court revived a failed tax evasion case against one of the country’s richest men last month, it cited a legal doctrine that most American taxpayers know all too well. “The principle is well established,” the court said, “that taxes are the lifeblood of the government, and every citizen is duty-bound to pay taxes and to pay taxes in the right amount.” Even if the principle is well established, in the Philippines the practice is not. Rampant tax evasion lies behind the government’s nagging budget deficit, which last year totaled 200.4 billion pesos ($3.6 billion). In the last 12 years, public debt has ballooned to more than $60 billion, and economists say it is dragging down the Philippine economy.
Now, fresh from winning another six years in office in June’s election, President Gloria Macapagal Arroyo has promised to crack down on tax evasion and corruption as part of a plan to raise government revenues and erase the deficit by 2009. In late July, Mrs. Arroyo outlined eight measures, including higher taxes on petroleum products, alcohol and cigarettes; replacing taxes on net profits with a tax on gross income; and replacing the country’s widely abused value-added tax. Analysts and investors remain skeptical, largely because they have heard this kind of talk from Mrs. Arroyo before. Many analysts say Mrs. Arroyo is no match for the family-based patronage networks that control Philippine politics and the economy.More on this story here.
SPEAKER OF THE HOUSE TO PUSH FOR ELIMINATION OF IRS, REPLACE CURRENT TAX SYSTEM
A domestic centerpiece of the Bush/GOP agenda for a second Bush term is getting rid of the IRS, the Drudge Report has learned. The Speaker of the House will push for replacing the nation’s current tax system with a national sales tax or a value added tax, Hill sources tell Drudge. “People ask me if I’m really calling for the elimination of the IRS, and I say I think that’s a great thing to do for future generations of Americans,” Speaker of the House Dennis Hastert explains in his new book, to be released on Wednesday. “Pushing reform legislation will be difficult. Change of any sort seldom comes easy. But these changes are critical to our economic vitality and our economic security abroad,” Hastert declares in Speaker: Lessons from Forty Years in Coaching and Politics.
Rep. Ron Paul (R-Texas) proposed that the IRS be abolished in 1997. And in June 1998, the House voted for the Tax Code Termination Act, which would have terminated the IRS in 1998, but the bill died in senate committee.More on this story here, here, and here.
National sales tax not such a great idea.
Critics point out that everywhere a national sales tax has been instituted, it has eventually been turned into a Value Added Tax (VAT). The problem with VAT -- which adds a tax at every stage of production, paid for by the end-consumer -- is that it is hidden from the consumer in the price of retail goods, requires a huge bureaucracy to administer and is therefore easy for politicians to raise. None of the countries adopting a VAT dumped the income tax, as sales tax advocates hope the U.S. would do.
NCPA economist Bruce Bartlett notes that without the VAT it would have been harder for Europe’s social welfare states to create such extensive programs. Back in the 1960s, Europe’s taxes were about the same share of GDP as America’s. Now Europeans pay much more. Bartlett and other economists think a flat rate income tax is a better way to address the double and triple taxation on savings that finance investment and growth.More on this story here.
U.K. TAX AVOIDANCE GUIDE LEAVES FREELANCERS NO EXCUSE BUT TO COMPLY
Fresh tax avoidance guidelines have been launched by the Inland Revenue to provide a “certainty” for freelancers and small businesses unsure about August 1st legislation, governing disclosure rules. The Revenue has said clarifying disclosure rules on in-house and external financial instruments will provide a swifter response from authorities and a better system for its genuine taxpayers. It added that the aim of the help guide is to deter “contrived and artificial schemes whose main purpose is to avoid tax” -- by clearly showing the steps required for compliance.More on this story here.
U.K. tax scheme crackdown rushed and confusing, say accountants.
The UK government’s launch earlier this week of a crackdown on tax avoidance schemes was rushed, and has left many of the country’s businesses in some confusion as to what they must disclose to the Inland Revenue and when they must disclose it, according to accountants.More on this story here.
YOUR HOME, THE MOTHER OF ALL TAX SHELTERS
You can deduct mortgage interest and property taxes. And almost always, you can keep the gains when you sell your home. Now, thanks to rules made permanent in 2002 and some provisional rules, the IRS has gone and made your home potentially an even greater tax shelter than it was before -- especially if you use your home for your business. Let’s look at all the deductions and benefits you get when you pay homage to the mortgage gods and go into more debt than your parents earned in their lifetimes. We will start with the bread-and-butter breaks, and then hit the new wrinkles.More on this story here.
HEAD OF FRENCH EMPLOYERS’ FEDERATION URGES MAJOR REFORM OF WEALTH TAX SYSTEM
The head of Medef, Ernest-Antoine Seillière, warned that plans to introduce an amnesty on repatriated assets were doomed to failure unless the government overhauled the unpopular wealth tax. The ISF, introduced in the 1980s, is an annual levy on declared capital of more than €720,000 and is applied on a progressive scale from 0.5% to 1.2%. The tax is thought responsible for the flight of around €11 billion from France in the last five years, according to a parliamentary report.More on this story here.
COMMISSIONER: BIG-MONEY TAX EVADERS IN IRS CROSS HAIRS
After decades of criticism as the bane of the American taxpayer, the IRS underwent a makeover in a bid to portray itself as “service oriented”. In recent years, however, the agency has again come under fire, this time for neglecting its enforcement mandate. The latest bashing has come amid a wave of Wall Street scandals and one report after another of corporate tax evasion. Especially harsh criticism was leveled last year after various studies concluded that, despite the Bush administration’s tough stance against corporate wrongdoing, the agency was was auditing fewer corporations, small businesses and partnerships, but more individual taxpayers. The IRS attributed the decline in part to the explosive growth in tax shelters, which make audits more intricate and time-consuming.
Mark W. Everson was appointed IRS commissioner by President Bush in 2003. Prior to joining the administration, he was a chief financial officer at several large corporations, including Dallas-based SC International Services. In the 1980s, he held positions in the U.S. Information Agency and Justice Department, where he was deputy commissioner of the Immigration and Naturalization Service (now U.S. Citizenship and Immigration Services). While in Denver recently Everson spoke with editors and reporters of the Rocky Mountain News.
Select quote: “There are several enforcement priorities. One is to attack corrosive activities and noncompliance, particularly in the corporate and high-income arena. That’s because our surveys indicate that the vast majority of Americans, more than 80%, believe it’s especially important to get compliance in those areas. As you indicated, the IRS in the late 1990s wasn’t as active as it could have been on the enforcement side. But things have changed. We are aggressively pursuing abusive tax shelters and we have numerous criminal investigations under way, including probes into some of the more significant practitioners of tax-shelter abuse. ...More on this story here.
IRS oversight board calls for more cash to bolster enforcement.
The IRS Oversight Board called for more funds to help the IRS collect some of the estimated $311 billion a year in unpaid taxes, and counter a growing perception amongst taxpayers that most tax crimes go unnoticed. While the Board’s annual report praised IRS efforts to improve customer service, it was harshly critical of the “weakened and vulnerable IRS enforcement program” which it claimed is being exploited daily by those wishing to evade the tax law.
To illustrate the point, the Board revealed that in FY2003, the IRS was able to pursue only 18% of known cases of abusive devices designed to hide income, leaving an estimated $447 billion uncollected. The report also concluded that there is only one chance in four that the IRS will go after an individual who does not file a return.More on this story here.
U.S. BABY BOOMERS TO LEAVE $20 TRILLION LEGACY OVER NEXT 40 YEARS (THE FEDS WILL BENEFIT PLENTY)
According to a report published by Boston-based research firm Cerulli Associates, from 2001 through 2046 some $14.2 trillion will be inherited by the friends and relatives of those born between 1946 and 1964 in what has been described as a “demographic tsunami”. A further $5.8 trillion is expected to be donated to charity. While the focus of firms in the financial services industry has been on selling products that provide income throughout an investor”s lifetime, only a minority of firms have begun to focus on preserving the wealth that will inevitably be passed on, says Cerulli.
The issue is especially relevant given the uncertainty that surrounds the future of the estate tax. Ceruilli estimates that the federal government will likely succeed in getting its hands on $12.6 trillion of the babyboomers’ wealth as a result of the estate tax.More on this story here.
COURT GIVES IRS ACCESS TO CREDIT CARD PROCESSOR
A federal judge has granted the IRS the right to seek information from First Data Corp. about certain credit-card transactions the company has processed. The IRS wants the information as part of its crackdown on tax evaders. Specifically, the IRS wants information about holders of American Express, Visa and MasterCard credit cards that were issued by or on behalf of certain offshore financial institutions. The government listed more than 30 offshore jurisdictions, including Aruba, the Bahamas, Bermuda, the Cayman Islands, Hong Kong, Singapore and Switzerland.
The IRS said in a court filing that it believes those account holders “may fail, or may have failed, to comply with internal revenue laws.” The government is seeking the names of the account holders, their credit-card statements, their credit limit and information on when they opened their accounts.More on this story here.
THE GREAT TRUST REBELLION
Do you plan to keep secret from your children how much they stand to inherit? Would you like to make sure your money supports your descendants and not their ex-spouses? Do you want to cut estate taxes? If so, do not set up a trust in Kansas, Maine, Missouri, Nebraska, New Hampshire, New Mexico, Tennessee, Utah, Wyoming or the District of Columbia, says Denver asset-protection lawyer Mark Merric. If you already have a trust in one of those locales, move it, he adds. That is because these states have adopted in whole or in large part the new Uniform Trust Code.
The UTC was released in 2000 after six years of work by the National Conference of Commissioners on Uniform State Laws -- a group of lawyers, judges, legislators and law professors that makes recommendations to the states on statutes covering such areas as contracts and family matters. The document aims to replace the current muddle of state-specific trust law (most of it common law ad-libbed over the past two centuries by judges) with a consistent, comprehensive and up-to-date code. It covers everything from common “living” trusts to trusts for pets. Some lawyers consider the UTC a huge advance. But Merric and other renegades say the code compromises families’ privacy, endangers their estate plans and favors their creditors. The rebels are winning some battles. The UTC requires trustees to notify current and probable future beneficiaries of irrevocable trusts, including charities and even teenagers, about the existence of the trust. A current beneficiary has a right to find out exactly how much is in the trust.
In an effort to be flexible, the new code says a person who sets up an irrevocable trust, if acting in conjunction with all of the beneficiaries, can modify it later -- say, by changing the trust to let the kids take out more money at a younger age. Sounds reasonable. But the IRS might argue this means the person creating the trust retained so much power over the trust that its assets are part of his estate at his death. And because the new code gives certain creditors more ability to settle claims against beneficiaries by going after their trust assets, it could sabotage the tax planning behind multigenerational trusts.More on this story here.
INTERNET “PHISHING” SCAMS TARGETING BANKING USERS RISE IN JUNE
Online thieves are luring a growing number of Internet banking customers to fake Web sites in so-called “phishing” schemes intended to steal account information. Phishing attacks, which rely on fraudulent e-mails to beckon people to seemingly authentic Web sites, surged 19%, to 1,422, in June. The fast-growing scam may be more widespread than it appears because banks likely are not reporting all the attacks against consumers. Phishing attacks have risen precipitously since December, when just 116 attacks were initiated.
About 1.9 million people reported their checking accounts were breached in the past year, accounting for $2.4 billion in fraud, Gartner Inc., a technology research firm, said in May. An estimated 57 million people received a phishing e-mail last year. Citibank customers were targeted most often in June, with 492 separate e-mail scams directed toward its 1.6 million online banking customers. That was up from 370 e-mail attacks in May. Users of online auctioneer eBay also were popular targets of phishing attacks in June, and there were 285 separate e-mail scams directed at eBay customers, down from 293 in attacks in May. Each e-mail attack can include a barrage of more than 1 million messages. But online thieves are becoming more discreet. They are targeting fewer consumers at smaller banks in hopes of drawing less attention.More on this story here.
IRS issues warning on Caribbean “phishing” scam.
The IRS has renewed its warning about an identity theft scheme targeting non-resident aliens receiving US sourced income, which has recently surfaced in the Caribbean. The scheme uses fictitious IRS correspondence and an altered IRS Form W-8BEN, “Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding”, in an attempt to trick the foreign persons into disclosing their personal and financial data. The information fraudulently obtained is then used to steal the taxpayer’s identity and financial assets. Based on the number of Forms 1042-S that were issued last year, there are about 2.5 million non-resident aliens who receive US-sourced income according to the IRS.More on this story here.
BAHAMAS GETS BAD NAME IN INTERNATIONAL PRESS
The Bahamas is receiving a bad name in the international press with a number of high-profile cases pointing to the alleged use of this country as a place to hide ill-gotten gains or avoid paying taxes to other states. The list of unrelated cases is long and some of them stretch back prior to 2000, when the Bahamas overhauled its financial services legislation to protect its reputation. But many of these cases are now coming to light as the government continues to state its commitment to preserving the integrity of the local financial services sector.
One of the more widely reported cases that questioned the integrity of local banking institutions is the case involving former Chilean dictator Augusto Pinochet. According to The Observer in London, investigators believe that Riggs, a Washington-based bank with a branch in London, helped Pinochet set up two offshore shell corporations in the Bahamas.More on this story here.
IMPORTANT QUESTIONS TO ASK BEFORE ESTABLISHING A TRUST
Thousands of trusts have been settled by clients of private banks in Asia during the past 10 years. There is nothing like market uncertainty, a low interest rate environment, political instability, and even, war, to focus the minds of investors on protecting their assets. But thousands of new trusts have also brought significant change. Trust-related litigation is growing fast. New decisions continue to flow from international courts. And governments and tax authorities continue to restrict benefits previously enjoyed by trusts. International bodies chasing laundered money, and governments seeking to prevent tax evasion, have become increasingly suspicious of the use of trusts. So what are the pitfalls for new users? What questions should we ask ourselves?More on this story here.
UK LAWYERS ANGERED BY TRUST PROPOSALS IN EU MONEY LAUNDERING DIRECTIVE
Lawyers in the UK are up in arms about provisions contained in the third EU directive on money laundering which will require them to obtain identification from trust beneficiaries. Under the new proposals, which bring trusts under the same legislation which governs most other areas of the financial services sector, professional advisers will be required to obtain identification from beneficiaries who are set to receive more than 10% of a trust’s assets, a move likely to create significant confidentiality problems.
According to a Telegraph report, the directive’s treatment of trusts stems from the fact that outside of the UK and Ireland, where they are employed as straightforward estate planning vehicles, trusts are not widely used in Europe, and are often viewed as a method of hiding taxable assets from the government.More on this story here.
GOOGLE ME NOT: KEEPING SECRETS OFF THE WEB HAS BECOME A BIG BUSINESS
Type the right words into Google and up comes a trove of files documenting an acrimonious divorce between two business executives in San Diego. Support payments are calculated based on a $450,000 income. The husband accuses the wife of being a “shop-a-holic”. He lists all her possessions, including furs worth $15,000. He is eager to finalize the divorce, because, as he writes, he was to marry again in June. All this is personal, private information, no longer even up on the original Web site, yet stored by Google for everyone to see, including friends, family and business associates who enter in the divorced couple’s names.
As Web pages pile up like garbage in a landfill -- 1 billion will go up this year -- sensitive, defamatory, confidential or embarrassing information is increasingly finding its way into search results. The search industry is raging, with $1.5 billion in revenue expected this year, up 150% from 2003. Search engines can store results in their “cache” for between a month and forever. As archiving improves, it will get harder to clean up what has been revealed. Rarely are leaks intentional -- somebody at work might post a file on a server to download at home, a wrongly configured server might make too much of a hard drive searchable or a Web site’s password-protection might be flimsy enough to be accessible to search engines.
Google recognizes the Web’s power to publicize and offers Web masters a simple interface to remove their own pages from its index. (Type “remove” into Google to get started.) Foundstone, an Internet security company, has developed a tool called SiteDigger that piggybacks on Google to point up information leaks. Point it at a site or an entire domain, such as .edu, and it generates a list of e-mails, log-in screens, database errors and source code, all of which are classic ways to gain entry onto a server. The free tool is a nice way to attract business for Foundstone, and also a scary reminder of how much information is out there. Systems integration company Science Applications International offers a product called Open Source Monitoring that scans the Web, newsgroups, Listservs and any other public forums for names and trademarks. Companies use it as an early warning system for hackers, stock manipulators, disgruntled employees and bad-mouthers.More on this story here.
CENSUS BUREAU GIVES HOMELAND SECURITY DATA ON ARAB-AMERICANS
The Census Bureau has provided specially tabulated population statistics on Arab-Americans to the Department of Homeland Security, including detailed information on how many people of Arab backgrounds live in certain ZIP codes. The assistance is legal, but civil liberties groups and Arab-American advocacy organizations say it is a dangerous breach of public trust and liken it to the Census Bureau’s compilation of similar information about Japanese-Americans during World War II. The tabulations were produced in August 2002 and December 2003 in response to requests from what is now the Customs and Border Protection division of the Department of Homeland Security.
Hermann Habermann, deputy director of the Census Bureau, said such cooperation was standard practice. “We are required to provide information to other federal agencies,” he said. “This is not a cabal calculating secret tabulations.” But Mr. Habermann also expressed concern over application of the data. Census tabulations of specialized data are legal as long as they do not identify any individual.More on this story here.
KOREAN U.S. VISA APPLICANTS TO GO THROUGH MANDATORY FINGERPRINTING SCANS
With interview exemptions for Korean U.S. visa applicants set to be largely canceled starting next week, all Koreans applying for U.S. visas will have to submit mandatory fingerprint scans at the U.S. Embassy in Korea starting late August. Moreover, it will be possible to make interview appointments for non-immigrant visas only through the Internet. Previously, one could do so over the phone. Only those applicants under 14 with at least one parent who is a U.S. visa holder, those over 80 years old, or those Korean government officials (and their accompanying family members) who are visiting the U.S. on official passports would be exempt from the visa interviews. Currently, those under 16 and those over 55 are exempt from interviews.More on this story here.
CYBERSLEUTHS TRACK DAME PORTER’S MILLIONS
Computer forensics played an important role in Westminster City Council’s fight to recover the £36 million surcharge imposed on Dame Shirley Porter for her role in the 1980s “homes for votes” scandal. Evidence unearthed by forensics experts at Vogon International helped city law firm Stephenson Harwood in tracking Dame Porter’s assets. The case ended successfully for Westminster City Council when a £12 million mediated agreement was reached, which was paid on 1 July.More on this story here.
EASY VoIP WIRETAPS COMING SOON
Virtually everything done via TCP/IP, with the (for now) exception of instant messaging, is on its way to becoming wiretap-friendly, thanks to a tentative 5-0 decision by the US Federal Communications Commission (FCC). Due to relentless lobbying and fear-mongering by law enforcement outfits and the companies that sell surveillance equipment to them, all broadband communications, including VoIP, will have to be modified to allow the Feds to patch in easily and immediately, in order to comply with the 1994 Communications Assistance to Law Enforcement Act (CALEA). VoIP schemes that work only between computers will not be affected.
Instant messaging is also exempt, although the Feds lobbied ruthlessly for its inclusion, and will no doubt continue until the government finally gives it to them. Encrypted VoIP is available, but only through pricey services geared towards corporate clients. It is possible that the FCC action might result in the development of inexpensive encryption solutions for more basic VoIP services.
The new technology has posed some challenges to surveillance. Unlike the telephone service, which sends a steady electronic voice stream from caller to receiver over a wire, the Internet telephone service sends out bursts of data packets that are disassembled on one end of the conversation and reassembled on the other, just like e-mail and instant messaging. FCC officials said that in the coming months they also expected to consider potential privacy issues raised by trying to monitor Internet-based conversations of suspects without also listening in on other conversations. A previous effort by the FBI to monitor e-mail, called Carnivore, raised an outcry of criticism by privacy and civil liberties groups who said the surveillance equipment could tap into communications not subject to wiretap warrants. The commission also determined that the law enforcement requirements applied to the popular “push to talk” services, a walkie-talkie-like service.More on this story here and here.
U.K. HOME OFFICE PROHIBITS HAPPY BIOMETRIC PASSPORTS
The Home Office says all new passport photographs must be of an unsmiling face with its gob firmly shut because open mouths can confuse facial recognition systems. It issued the new guidelines as part of the move towards biometric passports. The new rules come into immediate effect. Getting computers to recognize faces is notoriously difficult. The theory sounds simple: the system marks each face it encounters on common reference points -- the eyes and the tip of the nose for instance -- and compares those with faces in its database.
The reality is that it is actually very difficult to do: the angle of each face to the camera must be close to identical to get a good comparison, extra shadows of a face can throw off the reference points, and it seems, teeth are also an overwhelming challenge. Even once these obstacles have been overcome, the accuracy is often low.More on this story here.
PATRIOT ACT USED IN MARIJUANA SMUGGLING CASE
According to the indictments, an undercover agent with U.S. Immigration and Customs Enforcement infiltrated the smuggling organization, often acting as a middle-man and taking the money from the Washington state residents into British Columbia. The 15 each were charged under the Patriot Act with one count of bulk-cash smuggling. Nine others were charged earlier with international money laundering and marijuana trafficking under a separate law.
It has long been illegal to take more than $10,000 out of the country without reporting it. But the Patriot Act strengthened that law and “took it out of just being a reporting violation to be a smuggling, trafficking type of offense,” Assistant U.S. Attorney Todd Greenberg said. The crime carries a maximum penalty of five years in prison and the forfeiture of the illegally transported money. Although the Patriot Act was passed after the Sept. 11 terrorist attacks as a way to thwart terrorism, there is no indication these defendants are connected to terrorism, Greenberg said.More on this story here.
CITING GOVERNMENT “BLACKLIST” POLICY, ACLU REJECTS $500,000 FROM FUNDING PROGRAM
In a letter sent to the head of the Combined Federal Campaign, which administers charitable donations from federal and state employees to more than 2,000 non-profits, the American Civil Liberties Union said that it would reject $500,000 in contributions from private individuals rather than submit to a government “blacklist” policy. “It is increasingly clear that the Patriot Act and the government’s ‘war on terror’ are threatening the ability of America’s non-profit charities to do their essential work,” ACLU Executive Director Anthony Romero said in a letter to campaign director Mara Patermaster. “By requiring non-profit charities to check their employees against a ‘black list’ in order to receive donations from the CFC, you are furthering a climate of fear and intimidation that undermines the health and well-being of this nation.”
Romero said in the letter that legal advice his group had received indicates that they were not required to check employees against the list, and they would never have participated in the program if they thought otherwise. But after Patermaster said in a New York Times interview that the ACLU could be excluded from the program for “violating the government’s policy,” the ACLU took decisive action.More on this story here.
ANOTHER F.B.I. EMPLOYEE BLOWS WHISTLE ON AGENCY
In early 2002, ace undercover F.B.I. agent Mike German got word that a group of Americans might be plotting support for an overseas Islamic terrorist group, he proposed to his bosses what he thought was an obvious plan: go undercover and infiltrate the group. But Mr. German says F.B.I. officials sat on his request, botched the investigation, falsified documents to discredit their own sources, then froze him out and made him a “pariah”. He left the bureau in mid-June after 16 years and is now going public for the first time -- the latest in a string of F.B.I. whistle-blowers who claim they were retaliated against after voicing concerns about how management problems had impeded terrorism investigations since the Sept. 11 attacks.
“What’s so frustrating for me,” Mr. German said in an interview, a copy of the Sept. 11 commission report at his side, “is that what I hear the F.B.I. saying every day on TV when I get home, about how it’s remaking itself to fight terrorism, is not the reality of what I saw every day in the field.” Mr. German refused to discuss details of the 2002 terrorism investigation, saying the information was classified.
Law enforcement officials have become increasingly concerned that militant domestic groups could seek to collaborate with foreign-based terrorist groups like Al Qaeda because of a shared hatred of the American government. This has become a particular concern in prisons. Some officials remain somewhat skeptical of Mr. German’s claims. But several prominent senators who have been privately briefed on the case in recent weeks said they were troubled by what they learned.More on this story here.
THE REVOLUTION OF 1800 AND THE USA PATRIOT ACT
In this election year, there are significant parallels between the USA PATRIOT Act of 2001 and the Alien and Sedition Acts of 1798. Enacted in the aftermath of the September 11th attacks, the PATRIOT Act has augmented the power of federal authorities to pry into the affairs of innocent Americans. In the summer of 1798, the United States Congress passed and President John Adams signed similar legislation. At base, the Alien and Sedition Acts prohibited criticism of the federal government and gave President Adams the power to deport any alien he viewed as suspicious. Americans found guilty of sedition faced prison terms of up to five years and hefty fines. In certain circumstances, aliens remaining in the United States could be imprisoned “so long as, in the opinion of the President, the public safety may require.”
This legislation made a mockery of the First Amendment and deprived aliens of basic due process of law. The Alien and Sedition Acts were the federal government’s first direct assault on American civil liberties. From this assault and the response, we can learn lessons relevant to our own time. As is often the case with illiberal legislation, the Acts were a product of temporary Strum und Drang. In the 1790s, a number of Americans feared the democratic excesses of the French Revolution would be exported to the United States. They believed that French agents were plotting the destruction of the Constitution and the overthrow of the Adams administration. Fearing revolutionary France, many Americans at first supported the Alien and Sedition Acts. In Thomas Jefferson’s words, the people were “made for a moment to be willing instruments in forging chains for themselves.” But the Federalists attacks on civil liberties were soon met with opposition.
To combat the Acts, Thomas Jefferson and James Madison drafted the Kentucky and Virginia Resolutions. In these Resolutions, Madison and Jefferson accused Congress of exceeding its powers and declared the Alien and Sedition Acts void. Times were so tense that Madison and Jefferson hid their authorship because they feared prosecutions under the dreaded Sedition Act. The Acts were seen as such a danger to liberty that there was also some discussion of resisting the measures by force and secession.
Fortunately, drastic measures were not needed because the people had a very powerful weapon at their disposal: the ballot box. In addition, Jefferson and the Republican Party posed quite a contrast to Adams and the Federalist Party. In the so-called “Revolution of 1800," the Republicans won a 24-seat majority in the House of Representatives and Jefferson was elected to the presidency. Upon taking office, Jefferson suspended all pending prosecutions under the Sedition Act and pardoned those convicted under the unconstitutional Act. Jefferson would later boast how this revolution was brought about not by the sword, “but by the rational and peaceable instrument of reform, the suffrage of the people.”
Civil libertarians have been very critical of the PATRIOT Act, believing that the balance between liberty and power has tipped too far toward the latter. But, with an election around the corner, the American people can have the final say on this question. Well, not quite. Unlike 1800, the people are given no meaningful choice. Senator John Kerry, the President’s only real challenger, voted in favor of the PATRIOT Act and authored some of its provisions. According to the Kerry campaign, the problem is not with the PATRIOT Act itself, but with those enforcing it, i.e., Attorney General John Ashcroft. When both parties offer the people candidates with indistinguishable views on issues relating to fundamental liberties, the franchise is an impotent weapon.More on this story here.
POLITICAL CORRECTNESS VS. PASSENGER SAFETY?
One positive thing seems to have resulted from the harrowing experiences described by Annie Jacobsen aboard Northwest Flight 327, where 14 Syrian men behaved in a bizarre, menacing way on a June 29 flight from Detroit to Los Angeles, and similar stories reported by this newspaper: the start of a long-overdue debate on whether political correctness is putting the traveling public in jeopardy. Navy Secretary John Lehman, a member of the 9/11 commission, objected to a federal policy subjecting airlines to fines if they subjected more than a fixed number of Arab males to added questioning during security checks. Secretary of Transportation Norman Mineta’s office complains that his department is getting a bum rap, and that no such policy exists.
There does not appear to be a formal quota system in place for screening passengers. But a considerable body of evidence suggests that, beginning in the Clinton years and continuing after September 11, something no less troubling has taken hold: a mindset and series of practices that discourage the use of common sense in deciding who should be permitted to board a plane. Much of this is outlined in the remarkable testimony delivered before the Senate by Michael Smerconish, an attorney and radio talk show host from Philadelphia. Mr. Smerconish recounted a discussion he had with Herb Kelleher, founder and chairman of Southwest Airlines, in which Mr. Kelleher said that random screening (the silliness which often subjects small children and elderly passengers to added security scrutiny, known as secondary screening) was instituted by the Clinton Justice Department, which was concerned about equality of treatment.
DOT stated earlier this year that “secondary screening of passengers is random or behavior based. It is not now, nor has it ever been based on ethnicity, religion or appearance.” This raises an interesting question for Mr. Mineta: Given the reality that the September 11 hijackers had ethnicity, religion and appearance in common, does it make sense to ban any consideration of these factors in deciding who may board a plane?More on this story here.
GIVE ME LIBERTY, OR GIVE ME PEPPERONI?
Watching the Democratic National convention, we felt a peculiar kind of nostalgia. We longed for mud, for dirt... for the real earth beneath our feet... something solid upon which to stand. And something to throw. Gone are the days of the old-fashioned political brawl... the horse-trading in smoke-filled rooms... and the sudden and surprising twists of politics that emerged from it. Gone too are the colorful characters that used to brighten up political conventions -- the booze-soaked, sweat stained, cigar-chomping power brokers... and the home-town favorites who were put up by the local delegates. Gone, too is any trace of heartfelt emotion or human intelligence.
In its place is a staged event even duller and more insipid than regularly scheduled TV. We did not think it was possible. But even though the future of the world’s only super power is at stake, and by extension the future of this entire tattered ball itself, the Democrats managed to make the selection of their candidate as entertaining as an orgy of dead geese. Part of the problem is the quality of the leading Democratic candidate himself. We do not mind that he is a charlatan -- but we do mind that the person he pretends to be is even less appealing than the person he really is. Again, we did not think it was possible. Nor did we think it was possible for the Democrats to put together a ticket less fetching than the Republicans’. Yet, they have done it.
Let’s face it, dear reader, no matter who wins in November, we are losers all of us, in for another quadrienne of grief and buffoonery. Americans have chosen as their champions two of the least attractive homo sapiens since Tyson faced McNeeley. Both the men, and the process that put them where they are, are frauds. But Americans love fraud and self-delusion. They take up one flim-flam after another as if they were free drinks. In the investment markets, a man gets what he deserves. But in politics, he gets what his idiot neighbor deserves. Someone who has actually thought deeply about issues is not only alien to him, but offensive. The complexities and ironies of the situation bewilder and annoy the lumpenvoter. So, he turns for comfort and assurance to the simple-minded candidate with the simple-minded opinions. The depressing spectacle in Boston should not surprise anyone. The whole nation is enjoying a make-believe world. No one wants to break the spell.More on this story here.
20 MONTHS AND 585 PAGES WASTED -- YOUR GOVERNMENT AT WORK FOR YOU!
Reading through the official 9/11 report, I quickly lost my focus -- apparently emulating the 9/11 commission over the past 20 months. The 9/11 Commission “discovered” the main problem is not technology or information or even leadership -- it was the government rule-set. The rules they used did not allow our Jabba the Hutt commanders in Washington to properly predict and then respond to the millions of possibilities that constitute daily reality. If only the government could have more rules and regulations, more mandates and controls, if only we could centralize control, things would be much better, so says the 9/11 Commission. One wonders if the entire commission was not secretly replaced by pod people from the old Soviet Central Committee.
I naïvely expected more constructive and useful information in the report. A detailed discussion of FBI whistleblower Coleen Rowley and how her observations and actions led to change would be nice. She merited a brief mention in footnote 94. That is all. I expected to hear how WTC 7 collapsed. The leaseholder of the building told the media it was “pulled”. I expected to see more discussion of the mechanics of that presumably unplanned demolition in the evening of 9-11 as well as the collapse of the both 110-story towers, both impacted differently, both falling almost identically. Do we have an engineering design flaw no one knew about? It did not come up in the report.
The Commission concluded that the FAA was not really capable of giving the military what it needed to know. Things have certainly gone downhill since 1999, when Payne Stewart’s twin engine Learjet quietly drifted off its flight plan, and was escorted by military jets from Eglin AFB and Tyndall AFB in Florida, ANG out of Tulsa, and out of Fargo, for several hours across several states before it ran out of gas and crashed in South Dakota. The difference was that Stewart was just a guy in a single private plane off course with no explanation, while on 9-11, it was one, no two, wait -- three, I mean four jumbo passenger jets. Unlike Stewart’s plane which simply left its flight plan and was unresponsive, the FAA actually had hijack warning on AA 11 at 8:19 a.m., UA 175 at 8:52 a.m. After two hijack warnings, AA 77 made an unauthorized turn at 8:54 a.m. The Herndon Control Center knew UA 93 was hijacked at 9:34 a.m. In 1999, more military jets were on the job watching a lone Learjet over the Midwest than in the 2001 response to multiple hijacks on the densely populated East Coast.
The report refers to the many cell phone calls that were made from the speeding airplanes, yet most people who have tried to do this find that reception, cell switching software, and other factors often prevent even a connection, much less a conversation. The 9/11 commission should have taken the opportunity to clear up that technological debate. It did not.
Having walked from the Pentagon into the vivid sunlight the morning of 9-11, to stare in disbelief with thousands of my coworkers at the burning gash in the structure, I’d like to understand more about the events of the day itself. Clearly, it was only me who lost focus. Political Darwinism requires that governmental failure must not only occur, but that the failure be massaged into a form unrecognizable by the most dangerous adversary (the people, of course), and thus perpetuated. Seems like the 9/11 Commission did their duty after all.More on this story here.
On 9/11, all failed but rugged individuals.
I read the description of the hijackings on 9/11 in the commission report and one thing is clear. Everyone failed on 9/11 to prevent the hijackings and subsequent attacks -- the government and the highly-regulated large corporate airlines and their employees who had responsibilities for preventing hijackings or defending against hijacked planes -- everyone failed, except the passengers and crew of United Airlines Flight 93.
Facing dangers most of us will never face, and displaying courage few of us possess, they forced the terrorists to crash the plane in a field in Pennsylvania. The terrorists had been a mere 20 minutes from Washington D. C., where they certainly would have tried to murder thousands of people. The lone individual, facing impossible odds and certain death, acting jointly and spontaneously with his like-minded brethren and sisthren, rose to the challenge. The paper pushers failed; the cart pushers prevailed.More on this story here. Home page for for the Flight 93 National Memorial here.
THE (DEVASTATING) CONSERVATIVE CASE AGAINST GEORGE W. BUSH
Theodore Roosevelt insisted that, “To announce that there should be no criticism of the president, or that we are to stand by the president, right or wrong, is not only unpatriotic and servile, but is morally treasonable to the American people.” With that in mind, I say George W. Bush is no conservative, and his unprincipled abandonment of conservatism under the pressure of events is no statesmanship.
William F. Buckley’s recent retirement from the National Review, nearly half a century after he founded it, led me to reflect on American conservatism’s first principles, which Buckley helped define for our time. Beneath Buckley’s scintillating phrases and rapier wit lay these principles, that: political and economic liberty were indivisible, government’s purpose was protecting those liberties, the Constitution empowered government to fulfill its proper role while restraining it from the concentration and abuse of power, and that its genius lay in the Tenth Amendment, which makes explicit that the powers not delegated to government are reserved to the states or to the people. More generally, American conservatives seek what Lord Acton called the highest political good: to secure liberty, which is the freedom to obey one’s own will and conscience rather than the will and conscience of others. Although sometimes the State has a duty to impose restrictions, they are best removed as soon as possible. Thus American conservative politics championed private property, an institution sacred in itself and vital to the well-being of society. It favored limited government, balanced budgets, fiscal prudence and avoidance of foreign entanglements.
More subtly, American conservatism viewed human society as something of an organism in itself. This sense of society’s organic character urged the necessity of continuity with the past, with change implemented gradually and with as little disruption as possible. Thus, conservatism emphasized the “civil society” -- the private voluntary institutions developed over time by passing the reality test, i.e., because they work -- such as families, private property, religious congregations and neighborhoods -- rather than the State. In nearly every sense, these institutions were much closer to the individuals who composed them than the State could ever be and had the incidental and beneficial effect of protecting one’s personal liberty against undue intrusion from governments controlled by fanatics and busybodies, that which Edmund Burke presciently called the “armed ideologies”, and thus upheld our way of life.
But the policies of this administration self-labeled “conservative” have little to do with the essence of tradition. Rather, they tend to centralize power in the hands of the government under the guise of patriotism. If nothing else, the Bush administration has thrown into question what being a conservative in America actually means. Deficit spending, crony capitalism, corporate welfare, huge spending programs designed to pander to the senior citizen vote ... none of this is conservative.
Even worse than this extravagance are the administration’s unprecedented intrusions into our constitutional privacy rights through the Patriot Act. If it does not violate the letter of the Fourth Amendment, it violates its spirit. And who can trust any law enforced by John Ashcroft, who single-handedly transformed a two-bit hubcap thief like Jose Padilla first into a threat to national security and then, through his insistence that Padilla, an American citizen, could be held without charges, into a Constitutional crisis? All this stems from Bush’s foreign policy of preemptive war, and there is nothing conservative about war. By contrast, business, commerce and trade, founded on private property, created by individual initiative, families and communities, has done far more to move the world forward than war. Yet faith in military force and an arrogant belief that American values are universal values still mold our foreign policy nearly a century after Woodrow Wilson. George W. Bush’s 2000 campaign supposedly rejected Wilsonian foreign policy by articulating both the historic Republican critique of foreign aid and explicitly criticizing Bill Clinton’s nation-building. Today, the administration insists we can be safe only by compelling other nations to implement its vision of democracy.
This neo-conservative policy rejects the traditional conservative notion that American society is rooted in American culture and history -- in the gradual development of American institutions over nearly 230 years -- and cannot be separated from them. Instead, neo-conservatives profess that American values, which they define as democracy, liberty, free markets and self-determination, are “universal” rather than particular to us, and insist they can and should be exported to ensure our security. This is nonsense. The qualities that make American life desirable evolved from our civil society, created by millions of men and women using the freedom created under limited constitutional government. Only a fool would believe they could be spread overnight with bombs and bucks, and only a fool would insist that the values defined by George W. Bush as American are necessarily those for which we should fight any war at all.
Anything beyond the limited powers expressly delegated by the people under the Constitution to their government for certain limited purposes creates the danger of tyranny. We stand there now. For an American conservative, better one lost election than the continued empowerment of cynical men who abuse conservatism through an exercise of power unrestrained by principle through the compromise of conservative beliefs. George W. Bush claims to be conservative. But based upon the unwholesome intrusion into domestic life and personal liberty of his administration and the local governments who imitate it, George W. Bush is no conservative, no friend of limited, constitutional government -- and no friend of freedom. The Republic would be better served by his defeat in November.More on this story here.
THE METHODOLOGY OF AUSTRIAN ECONOMICS
Praxeology is the distinctive methodology of the Austrian school. The term was first applied to the Austrian method by Ludwig von Mises, who was not only the major architect and elaborator of this methodology but also the economist who most fully and successfully applied it to the construction of economic theory. The method is, to say the least, out of fashion in contemporary economics as well as in social science generally. Praxeology rests on the fundamental axiom that individual human beings act, that is, on the primordial fact that individuals engage in conscious actions toward chosen goals, as opposed to purely reflexive, or knee-jerk, behavior. The praxeological method spins out by verbal deduction the logical implications of that primordial fact.
In short, praxeological economics is the structure of logical implications of the fact that individuals act. This structure is built on the fundamental axiom of action, and has a few subsidiary axioms, such as that individuals vary and that human beings regard leisure as a valuable good. Any skeptic about deducing from such a simple base an entire system of economics, I refer to Mises’s Human Action. Furthermore, since praxeology begins with a true axiom, A, all the propositions that can be deduced from this axiom must also be true. For if A implies B, and A is true, then B must also be true. Let us note that praxeology does not assume that a person’s choice of values or goals is wise or proper or that he has chosen the technologically correct method of reaching them. All that praxeology asserts is that the individual actor adopts goals and believes, whether erroneously or correctly, that he can arrive at them by the employment of certain means.
Why are the means of deduction verbal rather than mathematical logic? Without setting forth the comprehensive Austrian case against mathematical economics, one point can immediately be made: let the reader take the implications of the concept of action as developed so far in this paper and try to place them in mathematical form. And even if that could be done, what would have been accomplished except a drastic loss in meaning at each step of the deductive process? Mathematical logic is appropriate to physics -- the science that has become the model science, which modern positivists and empiricists believe all other social and physical sciences should emulate. In physics the axioms and therefore the deductions are in themselves purely formal and only acquire meaning “operationally” insofar as they can explain and predict given facts. On the contrary, in praxeology, in the analysis of human action, the axioms themselves are known to be true and meaningful. As a result, each verbal step-by-step deduction is also true and meaningful; for it is the great quality of verbal propositions that each one is meaningful, whereas mathematical symbols are not meaningful in themselves.More on this story here.
LEFT AND RIGHT IN THE SAME SORRY RUT
The country is polarized, we are told. Bush-haters versus Clinton-haters. Mel Gibson versus Michael Moore. Red states versus blue states. Liberals and conservatives read different books, watch different networks, go to different churches. But liberals and conservatives have more in common than you might think. Both believe in government magic. And they want you to believe in it too. They want you to believe the president can be Superman, Santa Claus and Mother Teresa all rolled into one and that he can cure poverty and racism, keep kids off drugs and keep families together. Magical thinking is cute among children. But adults should know that the world is complicated and that legislative actions often fail, or backfire, or have unintended consequences or disappear into bureaucratic sinkholes.
Both ignore history. Liberals look at the 20th century’s grand experiment of capitalism versus socialism and somehow conclude that what the U.S. needs today is more socialism. National health insurance, a more centralized educational system, government regulation for our most dynamic industries -- in every case ignoring the historical triumph of competition and freedom. Conservatives think government can restore the world of the 1950s, ignoring the most basic lesson of history: Things change. Both respond to special interests. Both involve the nation in unnecessary wars. And the No. 1 way liberals and conservatives are alike: Both think they can run your life better than you can.More on this story here.
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