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THE NEW CHINESE COUNTERFEIT GAME
International pressure on China to stop its counterfeiters is producing an unexpected twist. Rather than just copying another company’s product, many Chinese businesses are filing patents and claiming other intellectual property rights to the counterfeits locally, in effect becoming the legal owners, at least in China. Companies in the counterfeiting industry, which make everything from knock-offs of Calloway golf clubs and Zippo lighters to brand-name clothes and DVD players for a small fraction of their price in the West, may then even sue foreign companies for ostensibly stealing their patented products. Whereas counterfeiters used to hide from the law, they now use the law to strengthen their position, legal and trade experts say.
“Chinese industry has a phrase for it,” said Xiang Wang, an intellectual property lawyer at the Shanghai office of the international law firm White & Case. “They call it ‘a Great Wall of Patents.’” Some companies will copy or slightly modify foreign patents and file them under a kind of Chinese protection -- a utility or design patent -- that is not thoroughly examined under the current Chinese patent system, so they are granted quickly and easily, Xiang said. Part of the strategy is to profit by outlasting China’s time-consuming legal appeals process when foreign companies accuse them of infringing on their intellectual property. Also, many businesses are using advances in technology in new ways to skirt copyright laws.
The result, studies say, is that counterfeiting and piracy problems in China, affecting both domestic and foreign brands, are worsening.Link here.
AMERICA’S UNSUSTAINABLE BOOM
Many people were relieved when they saw how mild the 2001 recession was -- it did not even technically count as a recession. Of course, given how lousy the labor market has been since then most people still feel that the economic downturn was a lot sharper than those numbers would indicate, and that the following expansion was a lot slower than the official numbers would indicate. Still, given the bursting of the great stock market bubble of the late 1990s, the 2001 recession was indeed surprisingly mild even if the official numbers underestimate its severity somewhat. Compared to Japan in the 1990s and even more so America in the 1930s, America today has seemingly absorbed the bursting of a stock market bubble seemingly well. Or have the problems simply been mostly postponed?
There are some bright spots in the American economy. The corporate sector is looking much stronger than it looked in the late 1990s. The government sector has, under the presidency of George W. Bush, seen its financial balance weaken to its worst levels since his father was president. Including state and local governments, the total government deficit are at roughly 4.5% of GDP compared to the surplus of 1.3% of GDP in 2000. In time there will have to be spending cuts and/or tax increases to curb the deficit. This means that the government sector is likely to be a continued drag on the economy, inhibiting improvement of corporate and household balance sheets from current levels. But the sector that poses the biggest threat to the economy is the household sector which is spending and borrowing at an unsustainable level.
The household savings rate, over 10% of disposable income in the early 1980s, is now at a record low of only 1%. At the same time household debt has risen steadily, from roughly 65% of disposable income in the early 1980s, to 80% in the early 1990s, to 95% in 2000, to 114% in the second quarter of this year. Mortgage debt relative to disposable income has risen from just over 40% in the early 1980s to 85% today. Record low savings and record high debt levels means that there is a substantial risk of a downturn in the household sector. Household real estate asset values have risen from the 135%-150% range of disposable income that it used to fluctuate within until 2000, to a record 184% of disposable income. If housing prices fall back to their historical mean of slightly above 140% of disposable income, meaning a decline of house prices of more than 20%, then one fourth of all home owners would have their home equity wiped out and in many cases go bankrupt. This would result in a financial crisis deeper than the one associated with the stock market bubble.
Foreign central banks financed more than 60% of the U.S. current account deficit and nearly the entire increase in government debt so far this year. They do this to avoid a sharp increase in the value of their currencies against the dollar, which would deal a heavy blow against their export industries. But this is in itself an unsustainable situation. Only if either Asian countries accept a sharp appreciation of their currencies or if the U.S. adopts a much tighter monetary and/or fiscal policies can the situation be prevented from getting worse. But as both solutions would create temporary downturns in the world economy, it is doubtful that the politicians in either Asia or the United States will be willing to face up to them. The conclusion is that Alan Greenspan and George W. Bush did not prevent the stock market bubble of the late 1990s from turning into a crisis. They only postponed it.Link here.
HOW ARAFAT CHEATED HIS OWN
Yasser Arafat was a ruler without a country presiding over an impoverished people, many of them refugees. But while posing as the austere champion of a future Palestinian state, Arafat was secretly accumulating a fortune in Swiss bank accounts and hidden assets spread across the world’s leading tax havens. Since his death on Thursday, more details have emerged of the chaotic, unregulated and corrupt workings of the Palestinian Authority that Arafat and his inner circle controlled like a fiefdom.
Former chairman of the Palestine International Bank Issam Abu Issa describes corruption as the cancer that permeated Arafat’s administration, allowing him to reward his cronies with huge cash gifts and to siphon off foreign aid money either for his own use or other hidden projects. “Rather than use donor funds for their intended purposes, Arafat regularly diverted money to his own accounts,” Issam claims in an article published in the latest edition of Middle East Quarterly.
Issam sought Arafat’s help to establish the bank in Gaza in 1995. But as the PIB grew more popular, Issam met increasing resistance from Arafat’s inner circle, particularly his self-styled economic adviser Mohammed Rashid. “Arafat and top PA officials did not respect the rule of law. Many were corrupt,” Issam said. “Arafat’s men flagrantly displayed corruption. Arriving penniless in Gaza and the West Bank from exile in Tunisia, many PLO members amassed wealth, built villas in Gaza, Ramallah, Amman and other places and sent their children to the best schools in the United Kingdom and United States.”Link here.
Detectives to trace Arafat secret fortune.
The Palestinian Authority has approached American investigators to trace bank accounts, stocks, bonds and real estate owned by the late Yasser Arafat and his close relatives and aides. Palestinian sources said the firm of financial detectives Scots-Morseby was contacted while the Palestinian leader was fighting for his life at a military hospital west of Paris. According to sources, the decision was taken after Arafat’s wife Suha and his chief financial adviser Muhammad Rashid refused to produce a full report on secret funds held on behalf of the Palestinian Authority.
Craig Mason, a specialist in tracing slush funds and fighting money laundering, says Arafat’s finances have been built in a deliberately complicated way to make detection and identification difficult. “For all we know he may have transferred a good part of his fortune to his widow and other family members long before his death,” Mason suggests.
According to the British Weekly Observer one reason why Suha did not allow the Palestinian leadership to see her dying husband in his hospital room was her fear that they might persuade Arafat to sign a will giving away all his fortune to the Palestinian Authority. French sources, however, offer a different version. They claim that Suha wanted to negotiate a package for herself before allowing access to Arafat.
It may take years before the extent of Arafat’s business interests is established. He himself acknowledged full ownership of two companies, both headquartered in Tunis. One of the companies is a major shareholder in cellular telephone networks in Algeria and Tunisia. Mason says it took investigators more than 10 years to trace only part of the fortune of Ferdinand Marcos, the late Philippine dictator. Work on tracing the fortune of the late Zaire despot Mobutu Sese-Seko is expected to continue for at least another 10 years.Link here.
Progress in tracking Sadam’s assets reported on.
Testimony before the Senate by Juan Carlos Zarate, Assistant Secretary Terrorist Financing and Financial Crimes U.S. Department of the Treasury, on allegations of fraud pertaining to the United Nations Oil-For-Food Program, and the U.S. government’s continuing efforts to identify, freeze and repatriate Iraqi assets around the world.Link here.
Spain asks UK: where is the illicit Pinochet cash?
As victims of Augusto Pincochet in Spain target him with a civil suit for genocide and torture, the Spanish Government is asking its British counterpart and the governor of the British Virgin Islands, the Carribean tax haven, for more information about the movement of the former dictator’s ill-gotten cash. On October 19, the Spanish courts declared an international embargo on his assets and is in the process of having this enforced worldwide.
Having been arrested in London in 1998, Pinochet was allowed to fly back to Chile by Foreign Secretary Jack Straw in March 2000 on health grounds which were widely thought to be bogus. The Spanish prosecutors are inviting the British, Chilean and US Governments to comply with their treaty obligations on penal matters and freeze Pinochet’s assets on their territory.
A fair chunk of Pinochet’s assets, estimated to be between $50 million and $100 million, are known to have been sent to the British Virgin Islands. Other sums were lodged in the London branch of Riggs, a United States bank in Piccadilly. One of the most notorious U.S. depositories for his cash was the Riggs Bank in Washington, where Pinochet is provisionally estimated to have put €10.3 million.Link here.
PUTIN TELLS BUSINESSES TO GET USED TO PAYING TAXES
President Vladimir V. Putin warned Russia’s business elite to “get used to paying taxes and observing the law,” but he also sought to allay investor fears that the Kremlin might be preparing new attacks on Russian business. Speaking at the annual meeting of the Russian Union of Industrialists and Entrepreneurs, Russia’s main business lobby, Mr. Putin sought to counter the fallout from the Kremlin-backed attack on the oil giant Yukos, which has been severely weakened by the government’s pursuit of $18.4 billion in back taxes. The Yukos affair has prompted capital flight and investor anxiety about the commitment to property rights in Russia.
Mr. Putin also pledged that the state would not try to reverse the results of the country’s controversial 1990’s privatization auctions, under which government assets were sold for pennies on the dollar. Yukos, Russia’s largest oil producer, was founded by the billionaire Mikhail B. Khodorkovsky, who built the company through such oil and gas privatizations. Mr. Khodorkovsky has been in a Moscow jail for more than a year on charges of fraud, embezzlement and tax evasion. He indicated to the gathered executives that no further Yukos-scale investigations were coming, though he never once mentioned Yukos or Mr. Khodorkovsky.
Mr. Putin also said, in a remark apparently directed at state bureaucrats, that the investigation of “major cases in business, including tax cases, should not be regarded as a signal to seek threats to state interests in every newly established company.” Mr. Putin’s assurances followed news last week that TNK-BP, the British-Russian oil venture half owned by BP, owed $87 million in back taxes. But the tax inquiries were routine, according to TNK-BP executives, and amounted to a slap on the wrist compared with Yukos’s mounting tax bills.Link here.
STATES AND CITIZENS ARE SLOWLY DRIFTING APART
When George W. Bush declared war on terrorism, he pitted a sovereign state against a concept and sent national armies to fight in the borderless territory of ideology. The subsequent three years turned those tables: countries have had to recognize that some of their citizens belong on both sides of the battleground, while terrorists have exploited people’s traditional ties to individual countries. Citizenship laws of the early 20th century were intended to avoid such dilemmas, which are now symbolized most vividly by the case of Margaret Hassan, the aid worker now believed to have been murdered by her kidnappers in Iraq.
Irish by birth, British by upbringing, Iraqi by marriage and a world citizen by virtue of her commitment to the poor, Hassan was stranded for weeks between the countries whose passports she carried. Although she lived in Iraq for 30 years, converted to Islam and, according to her husband, considered Iraq her “native land”, she was British as far as her captors were concerned -- and, living as an Iraqi outside Baghdad’s fortified Green Zone, an easy target. Thus, while her fellow Iraqis protested her kidnappers’ actions, Hassan made video pleas to her fellow Britons. Her family, in efforts to help, even offered a third way of classifying her. “She is Irish, not British,” her husband said. In the end, none of it mattered.
The threat of war once lent value to a system that guaranteed individuals the rights and responsibilities of membership of a single state. As David Martin, a law professor at the University of Virginia, noted, “However much one could tolerate complex and layered loyalties in times of peace, war may demand an unquestioning obedience.” This war has not provided much evidence that duality leads inevitably to duplicity, as the most fervent critics of multiple citizenship contend. But it has served to highlight the anomalies inherent in belonging to more than one culture.
The old world order, in which citizenship acted as a sort of global cataloguing system, assigning individuals to countries, has broken down and it is hard to imagine how to repair it. Today, diaspora has become destiny. We are mobile, intermarried, mongrel. More than 100 countries (including the US and UK) accept some form of multiple citizenship. The weakening bond between sovereign state and citizen has been accompanied by the rise of the human rights regime, which diminishes some concerns about the protections of citizenship because it supposes that all human beings, regardless of their citizenship, deserve basic rights. Not all countries abide by those notions, as Iraqi exiles will tell you. But by elevating the notion of “personhood” over “citizenship”, universal rights mean that states can no longer treat their own citizens as they want and, insofar as they do, others have the right to complain.Link here.
AMERICANS IN CANADA
Canada accepts more immigrants per capita annually than even the U.S., and, like Americans, Canadians view their country as fundamentally shaped by immigration. In recent decades, the majority of immigrants to Canada have come from Asia, Africa, and the Middle East. Only about four or five thousand Americans annually, officially immigrate to Canada, mostly because of marriage or family ties.
My wife and I left the home and life we had built in the U.S. in the middle of our careers and while we were starting a family -- unlike many ex-patriot Americans who are often young, single people seeking excitement, or well invested, pensioned retirees looking for the next adventure in life. In a sense, we gave up a lot to make a new start in Canada at this stage of life. We have paid a price in sacrificing the close contact we were accustomed to with family and friends, and, to an extent, the loss of some of the financial security we had built since finishing college. In the balance though, we have gained much more in personal growth and through the incalculable reward of living life on our own terms.
We traveled to many places around the U.S. and overseas, but it was many years before our travels took us across the Bay of Fundy, to Nova Scotia. That was five years ago, and it was love at first sight. We knew then and there that we would someday make Nova Scotia our home. Canada is a good choice for Americans for a number of reasons. The two countries are very similar so there is less of the culture shock associated with moving overseas. We found the differences to be rather subtle. I find the cooler summer temperatures here in the Maritimes much to my comfort.
What remains most striking to us is the sheer size of the country. In a way, its vastness is a defining characteristic of Canada, the largest (geographically speaking) country in the world, with a population a tenth of that of the U.S. Unless you move to a large city like Toronto or Vancouver, you will frequently find yourself entirely alone. You can drive for miles without encountering another car. A word about the health care system. It is often heard in the U.S. that the universal healthcare system in Canada is unwieldy and inefficient. This is quite simply not our experience. All in all, the differences are in most respects no more than we would have expected when moving from one state in the U.S. to another and in time become unnoticed.
Canada welcomes immigrants from America. The decision to move to a different country is a large one. For people who are in the middle of careers and family, the decision is even more intimidating. Some people may feel that the moment for such a major life change has passed them by. The immigration process is long and difficult, full of anxiety and frustration. We recommend that people proceed with their dreams whatever they may be.Link here.
RETIRING IN PANAMA
We have been retired five years, so now what? A lot of water has passed under the bridge and we look back to see what has occurred and what we expect to happen in and around our beautiful highland west slope community. As there are many articles and inter-net sources including our site to tell us how great Panama is, we will just cover the changes and additions that have occurred and what we expect to happen that may affect you as a retiree or having a second vacation home in Panama.
Panama by far has the most generous retirements benefits offered anywhere and there are those who worry that this may happen in Panama but very unlikely. One must remember that these liberal benefits were created for the Panamanian retiree and not specifically for foreigners and we as guest, reap this golden harvest of savings. The government encourages foreign retirement in Panama because they understand that the economic trickle down affect goes to the lowest level and impacts the countryside (know as the interior) to far greater extent than tourism. In the last five years, there has been a tremendous influx of tourist and retirees from all over the world. There is no doubt, that in the very near future, Panama will surpass Costa Rica in tourism and retirement.Link here.
Relocating to Panama as a forest investor.
Panama has become a new hot spot for U.S. citziens and expats from around the world. With the Law 24 of 1992 called “Financial and Forestry Incentives”, the Panamanian government granted incentives for foreigners to acquire residency by purchasing land designated for reforestation. The goal is to renovate the once-rich natural resource of Panamas tropical forests, which are decreasing at high rates. This visa is particularly attractive for those who want to live in Panama year round and who do not qualify for a “retiree’s visa” and want to avoid the lengthy process of obtaining an “investor’s visa”. The visa is granted to any foreigners who have invested their own capital (minimum $40,000) in Panama in a business conducting reforestation activities.Link here.
Spend your Spring Semester at FSU-Panama.
Are you a university student who has thought about spending your Spring Semester abroad? Would you like to go to a place with a beautiful tropical climate, flora and fauna like no other on earth, and with one of Latin America’s most developed business infrastructures? If you have, then you should think about spending your Spring Semester abroad at FSU-Panama. FSU-Panama is located in Panama City, Panama and has been in operation since 1957.Link here.
YOUR NEXT TAX HIKE
A few days after the election President Bush made it clear he sees no reason to back down on any of his promises -- including the one to make his tax cuts permanent. Yet Bush’s resoluteness aside, there are people like Robert Gordon, president of investment firm Twenty-First Securities, musing that when it comes to taxes, the news from now on is likely to be unpleasant. “I wish there were a derivatives market in tax rates. I’d buy higher rates and make a fortune,” says Gordon. It will take some time, he says, “but tax rates will go up. The question is not if, but when.”
The current 15% top tax on dividends and long-term capital gains is the lowest for gains since 1933 and the lowest for dividends since 1916. The 35% top rate on salary and other ordinary income is well below its historic average. But danger signs are evident. In the short term millions of Americans face a federal tax hike, already programmed into the tax code, from the alternative minimum tax. Without any new legislation, that is, the AMT burden for middle-class taxpayers is in for a huge expansion between 2005 and 2006. And over the long haul, tax increases seem all but inevitable, what with the growth of Medicare costs, the approaching bulge in Social Security recipients and the demonstrated inability of even a conservative Republican Congress and President to control the urge to spend.
Gordon suggests investors take a cue from Microsoft, which is parting with $32 billion of its cash hoard in a special dividend next month. “Make hay while the sun shines,” he counsels. The sun will continue to shine for a while, at least for people who can escape the AMT. Here is a guide to how and when you may be asked to pay more.Link here.
If a tax overhaul has winners, it will also have losers.
The American tax system is too complicated. It is a drag on the economy because it does so little to encourage saving and investment. The tax rate paid by affluent, productive people is so high that they have little incentive to take on extra work. More middle class families each year are stuck with paying the steep alternative minimum tax. Those views are at the heart of President Bush’s determination to overhaul the tax system, with the stated aim of making it simpler, fairer and more conducive to economic growth.
Reaching that goal is a daunting prospect, even though every important politician and presumably every taxpayer would like to get there. The reason is that “for every winner, there are bound to be losers,” said Ronald A. Pearlman, an assistant treasury secretary under President Ronald Reagan who was instrumental in developing the last thorough overhaul of the tax laws, in 1986. The president says the changes over all will be “revenue neutral” -- meaning they will raise as much revenue as the current tax structure does. So if some people pay lower taxes, others must pay more.Link here.
More loophole lobbyists, please.
In his first post-election press conference, President Bush said he wanted tax reform that was “fair without tax loopholes for special interests” and that was also “revenue neutral”, i.e., would not cause a reduction in total tax revenues. Republicans in the U.S. House of Representatives, said the AP, favored “a flat tax that gets rid of deductions”, while other “conservative” tax reformers argue for reduced income tax rates that are “paid for” by “eliminating or scaling back tax deductions”. To call such proposals “socialistic” is no exaggeration, for the underlying premise of all such talk is that the state has a “right” to all income that is produced, and that “loopholes” deprive it of some of that income and should therefore be eliminated. This is, in fact, the premise behind all forms of direct taxation, including the income tax.
Academic economists -- even some of those who call themselves “free market” economists -- argue that by creating tax deductions, taxpayers are induced to spend time learning how to take advantage of those deductions, which often requires the employment of tax accountants or lawyers. The existence of tax deductions also spawns lobbying efforts for even more deductions. The problem with all of this, say the academic economists, is that, compared to an ideal world of a simple (uniform) tax system, there is said to be a tremendous amount of “deadweight loss”, which is also sometimes called “social cost” or social waste. All of that time spent trying to avoid taxes could have alternatively been spent producing goods and services, and is thus (supposedly) a drain on the economy.
Such rhetoric is ideologically loaded despite the economics profession’s laughable argument that it is an example of scientific objectivity. For the underlying premise is that the government has taken too little of the citizens’ income, and that “simplifying” the tax code, and taking more of the income of the citizens, would somehow be “efficient”. But private individuals always spend their own money more efficiently than politicians and bureaucrats do. Thus, the absurd premise of the economists’ argument is just the opposite of the truth: that “efficiency” can be obtained by letting government bureaucrats spend more of the citizens’ hard-earned income. (The notion that this argument is ideologically neutral is even more absurd).
As Murray Rothbard pointed out in “The Myth of Tax Reform”, “Every economic activity that escapes taxes and controls is not only a blow for freedom and property rights; it is also one more instance of a free flow of productive energy getting out from under parasitic repression. That is why we should welcome every new loophole, shelter, credit, or exemption, and work, not to shut them down but to expand them to include everyone else ...”
The “fairness” argument against tax deductions is the worst kind of utopian, egalitarian nonsense. Proponents of a free and prosperous society should not complain about the alleged “unfairness” of tax deductions, but should work instead to see to it that more and more citizens can enjoy them. “Mainstream” typically argue that if tax deductions are given only to some industries but not all of them, then such policies will lead to more resources flowing to those industries than would be the case in a genuinely free market where no tax deductions at all existed. But they omit the crucial point, said Rothbard: “If investment, energy, or other [tax] credits or deductions are abolished, resources will not automatically go into more productive areas; instead, they go into government, via higher taxes [and] will simply be wasted, thrown down the rat hole of unproductive and profligate government spending.” The academic economists usually ignore this argument completely and, indeed, they tend to ignore the entire expenditure side of the government’s budget whenever they discuss tax policy. This allows them to pretend to be “objective” when in fact they are anything but.
It does not take a political genius to recognize that any “Give up your deductions, and we will reduce your income tax rate” proposals can never be anything but a giant bait-and-switch scheme. In 1986, once most deductions were eliminated, the state proceeded in the next seven years to raise the top income tax rate from 28% to 39.6%, and institute an “alternative minimum tax” that was not indexed for inflation, so that today it ensnares millions of middle class Americans. This is the oldest tax trick in the book, and was first played when the income tax was adopted in 1913.
With Washington increasingly abuzz with talk of tax reform, Americans should expect to be bombarded with all of the same old myths about the evils of tax “loopholes”, the alleged imperative of “tax fairness”, and the desirability of “revenue neutrality”. All of this rhetoric merely masks the fact that taxes will be going up, making citizens poorer and the economy weaker, while the state continues on as one gigantic, overbloated parasite.Link here.
CHALLENGES REMAIN FOR IRS ON ENFORCEMENT, SAYS GAO
While the Government Accountability Office’s recent report on the accounts of the IRS welcomed new measures by the Tax-Exempt and Government Entities Division to tackle the spread of tax avoidance schemes, it noted that challenges remain for the IRS on the enforcement front. According to the GAO, the IRS TE/GE division has identified a number of abusive transactions which include municipal bonds, government urban development programs, S-Corporation employee stock plans and consumer credit counselling organizations, among others. The report observed that one of the major steps taken by the IRS in its fight against the proliferation of these schemes is the creation of a steering committee which coordinates and communicates the division’s efforts in identifying abusive tax shelter schemes.
In its unqualified opinion on the IRS accounts for the fiscal years 2003 and 2004, the GAO praised the “continued extraordinary efforts of IRS senior management and staff to compensate for serious internal control and financial management deficiencies.” However, the report noted that the agency’s most serious weaknesses remained in its continued reliance on outdated automated systems “whose numerous limitations render IRS unable to develop cost-based performance or other information to support informed decision making throughout the year.” The government watchdog also suggested that abusive transactions remain a “continuing challenge” which is given a “very light enforcement priority” by the IRS.Link here.
INFORMATION EXCHANGE A BACKDOOR PLAN FOR TAX HARMONIZATION
Tax competition exists when people can reduce tax burdens by shifting capital and/or labor from high-tax jurisdictions to low-tax jurisdictions. This migration disciplines profligate governments, largely because politicians realize that they will have less money to redistribute if they scare away the geese that lay the golden eggs. Tax competition also rewards nations that lower tax rates and engage in pro-growth tax reform, thus creating a virtuous global contest for better tax policy. High-tax nations despise this liberalizing process, and they advocate tax harmonization so that taxpayers are subject to similar tax rates no matter where they work, save, shop, or invest. The geese are less likely to flee, after all, if all nesting sites are equally unattractive.
The good news is that tax competition has been winning, both substantively and politically. On the substance side, major reforms like the Reagan/Thatcher tax cuts, the Irish corporate tax rate reduction, and the Russian flat tax have compelled other nations to implement similar “supply-side” changes -- albeit often with great reluctance. On the political side, the tax harmonization schemes of the EU and the OECD have been either defeated or stymied. Perhaps even more important, high-tax nations failed in their efforts to stick anti-tax competition provisions in the proposed EU Constitution.
But this silver cloud may have a dark lining. Having failed to impose tax harmonization through the front door, politicians from high-tax nations are trying to sneak in the back door. Specifically, they want low-tax nations to act as deputy tax collectors by collecting the private financial data of nonresident investors and then sharing that information with foreign tax authorities. The foreign tax authorities, not surprisingly, want this information so they can tax flight capital. Having failed in their efforts to explicitly harmonize tax rates, both the EU and the OECD are now advocating this policy of “information exchange”.
Opponents of tax competition deny that information exchange is a form of harmonization. They argue, for instance, that harmonization only exists when all nations have the same tax rates. This is a misleading assertion. Identical tax rates are a sufficient condition for harmonization, but not a necessary condition. Tax harmonization exists whenever individual taxpayers face the same tax rates regardless of where they work, shop, save, or invest. That happens if all nations rig tax rates at the same level, to be sure, but it also exists when taxpayers are unable to benefit from lower tax rates in other jurisdictions because their home government has the ability to track -- and tax -- flight capital.
Information exchange is just as misguided as the more direct forms of tax harmonization. Creating an OPEC for politicians would undermine economic reform and shield governments from much-needed competitive pressure.Link here.
Defunding the O.E.C.D. could hurt war on terror and tax evasion, senators contend.
Sen. Chuck Grassley (R-Iowa), chairman of the committee, and ranking Democrat Max Baucus (Montana) of the Senate Finance Committee say a provision included in a spending bill could impede U.S. efforts to combat financing of terrorism. The lawmakers this week called on appropriators to take out the language. The provision in question would cut funding to the OECD if it “engages in efforts to encourage information exchange between national tax authorities about the investment activities of foreigners in their country,” the lawmakers said.
The lawmakers say that the OECD -- which has 30 member nations, including the U.S. -- is a key instrument in pursuing the country’s tax-policy goals. They said that the provision would have a chilling effect on cracking down on tax evaders, which cost the economy billions and “compromise the competitiveness of those U.S. businesses that play by the rules and hurt honest taxpayers who must make up the lost revenue.”Link here.
NEW TAXES FOR BRITISH VIRGIN ISLAND IBC’S IN 2005, PER OECD/EU MANDATE
The people of the BVI will be getting new tax laws as of January 2005, and efforts are being made to bring the territory in line with international rules and regulations. According to Deputy Chief Minister and Minister of Finance Ronnie Skelton, the territory’s financial services sector is one of the two economic strongholds, providing funding for well over half of the government’s operating budget which is said to be in excess of $100 million annually.
International Business Companies (IBCs) pay annual fees based on their net worth to locate in the territory but pay no income tax. Local companies pay a 15% tax on profits, and individuals are taxed based on their income. The EU and OECD are maintaining the view that the BVI’s tax policies create an unequal and prejudicial tax regime within the same jurisdiction. “Under the new international rules, agreed to by the United Kingdom government, the BVI is no longer permitted to allow IBCs to operate here tax-free, while we impose income taxes on other businesses,” the Finance Minister said. With the coming system, instead of taxing income, the government will now impose payroll taxes on local companies and individuals.
IBCs will now face higher annual fees based on company worth. The increases will be capped at 20%. Local companies also will have to pay more in annual license fees, but it was unclear as of yet what that increase will be.Link here.
BVI set to abolish corporate income tax.
The British Virgin Islands Minister of Finance, Ronnie W. Skelton, has announced that local firms will pay no income tax from 2005 as part of the jurisdiction’s efforts to eliminate tax discrimination between the offshore and local sectors. “Under the new international rules, agreed to by the UK government, the BVI is no longer permitted to allow IBCs to operate here tax-free, while we impose income taxes on other businesses,” Mr. Skelton stated last week.
As a consequence of this reform, undertaken to satisfy international bodies such as the OECD and the EU, from 1st January the 15% corporate tax will be abolished for local businesses, while the current income tax system for employees will also disappear. However, in its place, a new payroll tax is to be levied at a rate of 16%, although the first $7,500 of income will remain tax free. Furthermore, local firms will be required to pay annual licence fees, while IBCs will face a maximum 20% rise in their annual licence fees.Link here.
BVI representatives woo Miami professionals.
British Virgin Islands’ business leaders and government officials see Greater Miami as a hot spot for discussing changes to their country’s financial laws and new services. The idea is to sell Miami accountants, corporate lawyers, bankers and financial advisers on the benefits of doing business offshore in the hopes that they would recommend the services of the BVI to their clients.
Just over 22,000 people make their home on 16 of the 36 islands of the British territory east of Puerto Rico and depend largely on tourism, which accounts for about 45% of its GDP. What is less widely known is the countr’qs reputation for attracting wealthy U.S., Latin American and Asian investors who want to manage their assets overseas. Since it created its International Business Companies Act 20 years ago, the British Virgin Islands has attracted about 500,000 foreign companies to its offshore registry.
The country is the 4th-largest offshore center for captive insurance, a financial service that allows businesses to create their own insurance funds to protect against liabilities, and one of the fastest-growing markets for mutual funds. But the growth has not come without a staunch international backlash. The BVI, like other offshore financial centers, has faced heavy criticism in recent years from multinational groups who say the tax systems create unfair competition for the rest of world and cause steep revenue losses for foreign governments. Groups like the EU and the OECD pressured these international centers, sometimes with threats of economic sanctions, to alter their practices towards foreign investors and businesses. But officials from the BVI say the criticism has served to strengthen their financial services.
A key BVI product was the VISTA trust, a product named for the Virgin Islands Special Trusts Act, which circumvents normal trust practice and allows owners (sic) to make decisions without the approval of trustees.Link here.
SWISS BANKERS SAY CITY OF LONDON IS “A MONEY-LAUNDERING PARADISE”
Swiss Bankers’ Association president Pierre Mirabaud criticized the financial capital for practicing banking secrecy through the back door. In an interview published in the Swiss newspaper Berner Zeitung, Mirabaud singled out British trust law as the culprit. This allows the people administering a trust to remain anonymous, which, according to the president, permitted London to carry out a banking secrecy of sorts. The British Bankers’ Association, when contacted, said it viewed Mirabaud’s comments “with interest”.
“London has one of the best regulated banking sectors in the world,” said spokesman Brian Capon. “Banks have stringent and enforceable anti-money laundering procedures in place and regulators require banks to undertake detailed ‘know your customer’ checks for every customer,” he added.
Mirabaud also described the exchange of information between authorities in different countries as a “farce”. “Any investigations [into wrongdoing] by the authorities are fruitless because the [British] banks do not really know their clients,” said Mirabaud. The opposite was true in Switzerland, said Mirabaud. Defending the country’s banking secrecy laws, he stressed that Swiss banks knew their customers well and the latter were entitled to their privacy.Link here. January 2002 report from Center for Freedom and Prosperity finds dirty money is more likely to be laundered in high-tax nations than tax havens -- link to report.
THE OFFSHORE LIFE OF A SOVEREIGN INDIVIDUAL
“George Spelvin” had figured out how to live the “good life” in the U.S.A. (as much as the law now allows), with his own unusual versions of ironclad asset protection and personal and financial privacy. But in time as freedoms diminished, George concluded greener pastures beckoned offshore. So he made the leap and now lives in the Republic of Austria, where he is exploring new opportunities in his continuing journey toward individual sovereignty. George left the U.S. to get away from, among other threats, the PATRIOT Act, snooping financial police and property confiscation by civil forfeiture. Austria, with far greater respect for privacy, seemed a logical choice. And he likes Austria’s historic respect for property rights. No one there can be deprived of property unless it was wrongfully acquired and then, only after conviction in a criminal proceeding with proof of guilt beyond a reasonable doubt.
George is smart enough to know that an American who obeys U.S. tax laws cannot escape all tax obligations by going offshore. George knows that the U.S., unlike most other nations, imposes taxes on its citizens, no matter where they live. But before he left the good old USA, George sat down with his tax advisors and did some serious planning to avoid legally the extremely high Austrian income taxes, as well as reduce (to the max) his U.S. tax obligations.
With proper planning, George will pay Austrian income tax only on income that he actually brings into Austria. He arranged to have a foreign corporation he controls pay his salary to meet his expenses and any Austrian tax on that income is credited against his U.S. tax obligations. In addition, and happily for George, he probably will not have any U.S. income tax obligations because, for a U.S. person living offshore, the first $80,000 of income earned offshore is tax-free under U.S. law. George’s foreign corporation, his employer, also can pay for his medical and dental insurance and contribute to an IRS-qualified pension or profit-sharing plan -- all U.S. and Austrian tax free.
George loves Austrian privacy. Browsing the Internet (just as he did in the United States, using up-to-date firewall, virus protection and “anonymizing” software) he came across the website for the Austrian Post. He was somewhat surprised to read, “Postal secrecy is irrevocable… the contents of your letter shipment cannot be re-routed, stored or recorded.” U.S. mailmen can double as government spies. A friend of his revealed that someone she knew was being audited because Austrian tax authorities suspected he was under-reporting income. “Why don’t the tax collectors just get a copy of his bank records to check income,” George asked, innocently. “Nein! They can’t,” she said, “He must give them permission, and he won’t. And they don’t have enough evidence against him to go to court and force the bank to lift bank secrecy and disclose the information.”
“At last,” George thought to himself, “I’ve found a truly civilized country.”Link here.
PIONEER OF SHAM TAX HAVENS SITS DOWN FOR PRE-JAIL CHAT
Jerome Schneider, the nation’s best-known seller of fraudulent offshore banks, said in an interview that he had helped hundreds of rich Americans evade taxes, including actors, celebrities and business owners. Mr. Schneider, who pleaded guilty in February to conspiring to help his clients evade the tax laws, said that he expected “every single one” of his clients to be prosecuted or sued for the taxes they evaded. He said clients sought to evade taxes on incomes ranging from $100,000 to $40 million, though most were from a third to half a million dollars.
Mr. Schneider, 53, spoke in a cramped hotel room here under the watchful eye of three IRS criminal investigators, who said nothing but smiled broadly at times as he answered questions and named clients and associates. The IRS set up the interview with Mr. Schneider but did not interfere with it. Under the terms of his agreement with the government to plead guilty, Mr. Schneider may not make any public comments about his former clients “without prior consent of the government.” In return for his cooperation, he is expected to serve no more than 24 months in prison.
Mr. Schneider said he always reported his full income to the I.R.S. and never personally used an offshore bank to hide income. Clients paid as much as $60,000 to “acquire” an offshore bank, which consisted of nothing more than pieces of paper to create the appearance of legitimate business activity, he said, confirming the accusations in the government indictment. “Every one of my clients knew full well what they were getting into, including the potential to be prosecuted,” he said, detailing how they signed contracts, were advised by lawyers and were told that if tax authorities ever caught onto them they could go to prison. “They understood that,” he contended.
Mr. Schneider, 53, who lives in Vancouver, British Columbia, was the picture of a successful businessman, dressed in a knit shirt, gray wool slacks and black loafers, his graying hair clipped short, his face framed by horn-rimmed glasses. He began the interview by describing his conduct in terms of helping people, but when pressed he said, “Yes, I am a criminal.” Asked about the millions of dollars he earned setting up offshore banks, he replied, “It is gone, all gone.” Since he has held himself up as the world’s leading expert on hiding money offshore, how could one know for sure if Mr. Schneider really is broke? The IRS agents listening to the question put their hands to their mouths to repress grins.Link here.
HELVETIAN SWAN SONG?
Switzerland’s October accession to the Schengen Treaty, which allows for a passport-free movement of people across European borders, has been portrayed as a sure sign of better days ahead for EU-Swiss relations. But in fact, the Swiss accession was preceded by exceptional acrimony. It has exposed the EU as a bully set on destroying tax competition in Europe and forcing all countries in its orbit into a job-destroying high-tax regime. The Swiss will be allowed freedom of movement across Europe in exchange for sacrificing their tax autonomy. The agreement shows the extent of power asymmetry between the EU and non-EU countries in Europe, and points to difficult days ahead for the independence of the Helvetian Republic.
The relationship between the EU and Switzerland has always been marked by ambivalence. The Swiss recognize the need to trade and cooperate with Europe, but wish to preserve their national independence. Swiss cantons, jealously guarding their autonomy from encroachments by Bern, the Swiss capital, are loath to cede it to bureaucrats in distant Brussels. Not surprisingly, in a nationwide referendum three years ago, Swiss voters overwhelmingly refused a motion, backed by the socialist New European Movement, to start negotiations about Switzerland’s entry to the European Union. The motion was defeated by 77% to 23%. The pro-EU campaign failed to carry a single canton of the Swiss federation.
Switzerland’s deteriorating position vis-à-vis the EU has become apparent as a result of a dispute over taxes. Switzerland has been a place of refuge for over-taxed European citizens for decades. That presented a growing problem for western European politicians, whose populist domestic policies resulted in out-of-control public spending and growing budget deficits. In pursuit of more revenue, they decided to make it more difficult for European taxpayers to shelter their savings from high taxes. Switzerland resisted the pressure to tax the savings of those Europeans who held Swiss bank accounts for 15 years.
Switzerland has been forced to allow the governments of the EU member states access to information about EU citizens’ Swiss bank account deposits. Under the euphemism of “information sharing,” Swiss banks will be required to inform on the amount of money the EU citizens hold in Swiss bank accounts, or else will have to assess a 35% tax on the EU citizens’ savings, 75% of which will be repatriated to the appropriate EU governments. In exchange, German police will no longer harass Swiss traders and travelers -- at least for now. The EU is likely to continue to tighten its suffocating embrace of the Helvetian Republic, with Norway and Iceland surely to follow. That is a bad news for both the long-suffering taxpayers of Europe and the freedom-loving people of Switzerland.Link here.
AIRLINES ORDERED TO EXPOSE DATA
Homeland security officials accidentally revealed that the Transportation Security Administration will soon officially order America’s airlines to turn over a month of passenger data to test a new passenger screening system. The final rule ordering the airlines to provide data on all June 2004 domestic flights will be issued formally on Monday by the TSA. The airlines must comply by November 23.
The TSA announced in late September its intention to order all 72 domestic airlines to turn over the passenger records -- which can include credit card numbers, phone numbers, addresses and health conditions -- in order to stress-test a centralized passenger screening system called “Secure Flight”. Currently, passengers are screened by the airlines, which check itineraries against a set of watch lists provided by the government. The TSA hopes to reduce the number of people flagged incorrectly by performing the checks itself using data fed to it by the airlines and a centralized terrorist watch list.
Over 500 citizens and organizations commented on the order, most expressing opposition to the planned test and the system itself. Civil liberties advocates strongly opposed the order, citing privacy concerns and the proposed use of commercial credit databases to verify passengers’ identification. The airline industry’s response, published after the comment period officially ended, was less visible, but was not much more supportive than most of the other comments. The airlines prefaced their criticism by saying they wanted to work with the TSA, but went on to contend that the order would be expensive and would force them to choose between complying with an American anti-terrorism program or rejecting European privacy laws -- which could potentially prevent them from flying there.Links here and here.
TINY ANTENNAS TO KEEP TABS ON U.S. DRUGS, OTHER GOODS
The Food and Drug Administration and several major drug makers are expected to announce initiatives that will put tiny radio antennas on the labels of millions of medicine bottles to combat counterfeiting and fraud. Among the medicines that will soon be tagged are Viagra, one of the most counterfeited drugs in the world, and OxyContin, a pain-control narcotic that has become one of the most abused medicines in the U.S. The tagged bottles -- for now, only the large ones from which druggists get the pills to fill prescriptions -- will start going to distributors this week, officials said.
Experts do not expect the technology to stop there. The adoption by the drug industry, they said in interviews, could be the leading edge of a change that will rid grocery stores of checkout lines, find lost luggage in airports, streamline warehousing and add a weapon in the battle against cargo theft. “It’s basically a bar code that barks,” said one expert.
Wal-Mart and the Department of Defense have already mandated that their top 100 suppliers put the antennas on delivery pallets beginning in January. Radio tags on vehicles and passports could become a central tool in government efforts to create a database to track visitors to the United States. And companies are rushing to supply scanners, computer chips and other elements of the technology.
The labels are called radio-frequency identification. As in automated highway toll collection systems, they consist of computer chips embedded into stickers that emit numbers when prompted by a nearby radio signal. In a supermarket, they might enable a scanner to read every item in a shopping cart at once and spit out a bill in seconds, though the technology to do that is still some distance off. For drug makers, radio labels hold the promise of cleaning up the wholesale distribution system, where most counterfeit drugs enter the supply chain, often through unscrupulous employees at the small wholesale companies that have proliferated in some states.
Initially, the expense of the system will be considerable. Each label costs 20 to 50 cents. The readers and scanners cost thousands of dollars. But because the medicines tend to be very expensive and the need to ensure their authenticity is great, officials said, the expense is justified. Costs are still far too high for individual consumer goods, like the amber bottles that pharmacies use to dispense pills to individuals. But prices are expected to plunge once radio labels become popular, so drug makers represent an important set of early adopters.Link here.
ACLU, ALLIES DENOUNCE NATIONAL ID CARD PLAN IN INTELLIGENCE REFORM BILL
The American Civil Liberties Union joined with organizations from across the political spectrum to run a full-page open letter advertisement in the Washington Times, asking the conference committee on intelligence reform to remove the national ID provisions from its final 9/11 intelligence reform legislation. The conferees are currently working to reconcile the House and Senate versions of the bill.
“When groups this diverse unite against an issue, it is clearly about poor policy -- not partisan politics,” said Laura W. Murphy, Director of the ACLU Washington Legislative Office. “A national ID is a bad idea. It would strip Americans of their rights to privacy while doing nothing to protect America from future terrorist attacks.” The ad urges the committee to remove provisions from the final intelligence reform package that would create a national ID card. A national ID card, the open letter says, would create an unprecedented invasion of the privacy rights guaranteed by the Constitution and would allow the government to constantly monitor everyone with a driver’s license or identification card.
A national ID card would do little to stop terrorist attacks and would cost billions of dollars to develop and implement. Similar attempts to create a national ID were rejected by every Congress and Administration that has considered it since President Ronald Reagan. In addition, the creation of a national ID card system would not prevent the use of faulty documents, such as birth certificates, to obtain government ID. Such a system would not have thwarted the September 11 hijackers, many of whom reportedly had identification documents on them, and were in the country legally.Link here.
Beware the “Lame Duck” Congress.
In the midst of all the election hoopla, one thing remains certain. Congress will return for a final, end-of-the-year session on November 15. This is the most dangerous time of the year -- a time when bad bills become bad laws with little fanfare from a distracted media and populace. Adding to this dangerous mix is a “lame duck” Congress full of soon-to-be-former representatives and senators, eager to strike one last legislative blow before they pack their bags and leave. In short, this is the time of year when grassroots activists and champions of liberty must be most vigilant. Their activism is often times all that stands between tragedy and triumph. Beware the lame duck Congress and beware the following legislative nightmares that are targeted for passage in the dark of night, including:
National ID Card -- Many issues are important, but this is the big one. John McCain has once again wandered off the reservation. Under the guise of fighting terrorism, he and many other Big Brother proponents in the House and Senate are pushing hard to pass a back-door, de facto, national ID program. The prospects here are downright frightening. McCain and his cohorts want to standardize state drivers’ licenses at the federal level and link all state drivers’ databases. This monstrous power-grab by the federal government would create the very real possibility of adding technology such as radio frequency identification chips to driver’s licenses, thereby enabling Big Brother to track every movement a licensee makes.
Invasive Species -- If you have foreign weeds, grass, trees, or shrubs on your property (and you most certainly do) you are in trouble. Under “Invasive Species” provisions currently sitting in the Senate’s version of the Federal Transportation Bill, your property could quickly become the target of radical environmentalists and bureaucrats. Imagine the Endangered Species Act on steroids. Now multiply its devastating effect on property rights by ten. That should give you a pretty good idea of what “Invasive Species” legislation will mean for property owners in every state, county, and city in this nation. “Invasive Species” is the radical greens’ and international socialists’ key to controlling every square inch of land in the U.S.Link here.
EU CROSS-BORDER CASH FLOWS MAY SOON BE MONITORED
People carrying more than €10,000 across the EU’s external borders may soon be monitored in a bid to crack down on money laundering. If passed, the new laws will mean that travelers coming in and out of the EU will have to declare large amounts of cash to customs authorities. Border officials will be able to seize any undeclared money and proceedings will be started against the traveler. According to the commission, the €10,000 threshold is high enough to save the majority of travelers and traders from disproportionate administrative formalities.
The proposal is, “designed to prevent laundered money from reaching criminals and terrorists while at the same time not unduly interfering with the legitimate traveler,” said tax and customs chief Frits Bolkestein. A joint operation by EU customs authorities monitoring cross-border cash movements over €10,000 during a six month period in 1999 to 2000 revealed total cash movements of €1.35 billion.Link here.
ASHCROFT DECRIES COURT RULINGS
Attorney General John D. Ashcroft said that federal courts have endangered national security by ruling against the Bush administration on issues related to the war on terrorism. In his first public remarks since he announced that he would resign, Ashcroft told a meeting of conservative lawyers that court decisions limiting President Bush’s powers are part of “a profoundly disturbing trend” in which the judicial branch is injecting itself into matters that should be up to the executive branch.
“The danger I see here is that intrusive judicial oversight and second-guessing of presidential determinations in these critical areas can put at risk the very security of our nation in a time of war,” Ashcroft said in a speech at the Federalist Society’s national convention. He added later, “Our nation and our liberty will be all the more in jeopardy as the tendency for judicial encroachment and ideological micromanagement are applied to the sensitive domain of national defense.” Ashcroft did not identify specific cases, but his remarks appeared to be aimed at recent decisions rejecting arguments that the president should not be subject to significant judicial review in matters related to national security or interpretations of the Geneva Conventions.
Although Ashcroft has been willing to engage in rhetorical combat throughout his nearly four-year tenure, such an open attack on the judiciary by a sitting attorney general is unusual. The comments came two days after Bush nominated his chief counsel and longtime confidant, Alberto R. Gonzales, to replace Ashcroft, who has said he will remain in the job until a successor is confirmed. Gonzales, 49, is also known as a strong proponent of executive branch authority. He is expected to be confirmed by the Senate, but not before Democrats on the Judiciary Committee question him on his role in administration policy on detentions, torture and other terrorism-related issues.Link here.
ACLU says Ashcroft statement shows clear disdain for rule of law.
The nation’s top law enforcement officer today expressed his clear disdain for the rule of law. The Bush Administration and its Attorney General nominee should immediately denounce today’s comments by outgoing Attorney General John Ashcroft.Link here.
ISLE OF MAN LIBEL BATTLE SHEDS UNFLATTERING LIGHT ON ATTITUDE TOWARDS FREE SPEECH
Rarely can two opponents have been so unequally matched in a libel fight. The heavyweight plaintiff is a property developer, Albert Gubay, based offshore on the Isle of Man, and reportedly worth £650 million. Mr. Gubay, who has by no means a spotless reputation, is attempting to have an impoverished lampoonist, Roly Drower, thrown into the island’s antiquated Victoria Road jail, for refusing to disclose his sources. He is proceeding against Mr. Drower under the self-governing island’s idiosyncratic laws, for posting rude remarks about him on a small Isle of Man website. On manxman.com, Mr. Drower published denunciations of the island government, which is beset by property scandals.
Thanks to what one media lawyer calls the Isle of Man’s neanderthal approach to libel, Mr. Gubay has already had Mr. Drower’s computers seized, and subjected him to a six-month gagging order which prevented him even from explaining to his family what was happening to him. The collision highlights that the Isle of Man has no equivalent of the 1981 English law protecting journalists from revealing sources, and has failed to bring into force its own Human Rights Act, despite passing one three years ago under pressure from the UK.
Gubay has achieved what seems to be a legal world first by persuading a Manx judge to issue a draconian search, seizure and gagging order against Mr. Drower, as well as an order he reveal his sources. A London media specialist lawyer said, “I have never heard of anyone getting such an order before in a libel case.” Mr. Drower says he is performing a public service by ventillating allegations about the island’s ruling groups. He insists he will not reveal his sources, and says he is being harassed to bankrupt him. The local paper, the Manx Examiner, he says, refused to even cover the hearings, although they were the most sensational story on the island for decades.Link here.
BRITISH BANKS UNDER PRESSURE TO OPEN MORE NEW ACCOUNTS
Laws forcing banks to widen account access could be introduced if uptake is not improved, the government has said. An estimated 1.9 million UK households -- one in twelve -- do not have access to a bank account. The pre-Budget report is expected to set targets for uptake and may create a fund to tackle financial exclusion. The government may also relax rules on identity -- brought in to address money laundering concerns -- which can make it hard for people to open accounts. Stephen Timms, financial secretary to the Treasury, said legislation could be used as a “backstop” if the banks failed to act.Link here.
WHAT DO POLICE DEPARTMENTS REALLY DO?
Reader feedback over the months confirms, sadly, my suspicion that many of our countrymen these days are all too willing to embrace the notion that police should not be restrained by such archaic notions as any “right to privacy”, so long as they are pursuing “lawbreakers” in good faith. I went to grade school in the 1950s, and remember our school reader including a tale of Officer Brown -- I seem to recall him as a beaming, somewhat portly figure twirling an innocuous nightstick as he strolled down the sidewalk, tipping his hat to one and all -- helping little Suzy rescue her cat from a tree. Does anyone still believe this is what policemen actually do?
Stephen Davies’s excellent research on “The Private Provision of Police During the Eighteenth and Nineteenth Centuries”, in the 2002 book The Voluntary City: Choice, Community, and Civil Society, reveals what modern government police forces were set up to do. Largely in a delayed response to the French Revolution, their job was “social policing” of the urban working class, wading into the slums on behalf of the ruling elite, inventing new “crimes” for which they could threaten the residents with arrest, thus breaking up any incipient movement toward social revolution before it could bloom. The creation of government police forces thus did not and does not diminish crime rates, and was never expected to. In fact, the professor finds it generally increases reported crime rates. This makes sense if we stop to think what modern police forces actually do.
Today our land is now occupied by large, professional, overlapping paramilitary “police forces” that have to keep busy, ginning up manufactured “crime waves” and filling the prisons (we now have the highest incarceration rate in the world -- and many of those inmates have never hurt anyone), in order to justify their ever-burgeoning budgets.Link here.
CURTAILING THE PATRIOT ACT
Americans have been bombarded with constant prophecies of impending gloom and doom from government sources on nearly a daily basis since 9-11. The word “terrorism” has been used so often it has lost its impact and we are desensitized to it. We have repeatedly been reminded to be “vigilant” to the point we simply ignore the warning color code. But worst of all is the ill-named Patriot Act. This Orwellian legislation has virtually stripped Americans of their individual liberties and turned the nation into a police state. Three years of unrelenting pessimism and oppression has caused a national collective depression.
Over time, each new government infringement has piled upon the last depositing a huge weight on our shoulders. Protections granted us under the Constitution are being swept downstream faster than we can paddle to save them. Just when hope that things would get better was diminishing, a rainbow appeared across the darkened sky. A federal judge overturned a key provision of the Patriot Act declaring it unconstitutional and a violation of First and Fourth Amendments as it pertains to wide scale seizure of private records and restriction of free speech.
The knowledge that there are still judicial men of ethics and honor who still value freedom and guidelines of the U.S. Constitution brings hope to a horizon that appeared to be quickly disappearing. U.S. District Judge Victor Marreo has given the American business community a voice again by overturning wrongdoing within a government run amuck. Judge Marreo’s decision on behalf of freedom is a good start but the Patriot Act is so tyrannical that much more work needs to be done. As oppressive and illegal provisions of the Patriot Act are banished, collective depression can begin to ease and we may be able to see the beginnings of a rainbow of hope.Link here.
THE MOST “FEARED” POLITICIAN ON WALL STREET?
In recent years there has been no doubt about which politician is most feared by Wall Street -- namely, New York State Attorney General Eliot Spitzer. And all indications are that he will be a formidable candidate for governor in New York in 2006. If you have been looking for an aspiring politician with a superb sense of irony, Mr. Spitzer is your man. He has advanced his own career interests by pursuing the public’s interest, concerning conflicts of interest in high finance. Mr. Spitzer is arguably New York’s most successful David vs. Goliath story since Fiorello la Guardia took on Tammany Hall. From research analysts to investment bankers, from mutual fund managers to insurance companies, from the world’s biggest brokerages to the New York Stock Exchange, he has so far won every fight he has started. On his web site he will inform you that, “For a guy who makes $151,000 a year, he’s brought in well over $2 billion. Not a bad employee.”
How did he uncover this much corruption in that many places? More simply than you might think. He realized that, copious laws against it notwithstanding, financial conflicts of interest had become an accepted way of doing business. Everyone was doing it, literally. Mr. Spitzer went after the offenders with the deepest pockets and applied the statutes at his disposal to the letter.Link here.
EMPIRES AS AGES OF RELIGIOUS IGNORANCE
Especially now with the U.S. election results, many pundits appear rather taken aback by the increasing evidence of George W. Bush’s “faith-based” presidency -- his “true-believer” confidence that if you just “believe,” all things are possible. Those who have this faith believe they can transcend the reality that circumscribes the actions of those who lack such belief. In his October 17th New York Times article, “Without a Doubt,” Ron Suskind recounts a conversation with a senior Bush adviser in the summer of 2002, who noted that people such as Suskind were “in what we call the reality-based community.” When Suskind attempted a reply, the adviser replied: “That’s not the way the world really works anymore. ... We’re an empire now, and when we act, we create our own reality. ... We’re history’s actors ... and you, all of you, will be left to just study what we do.”
This “arrogance of power” is right out of the imperial doctrine of Theodore Roosevelt, which was once called “pure act”, or in a larger sense, the “action principle” of fascism. Clearly, any empire’s administration believes that it is not constrained by the reality of the same “Law” that applies to the rest of society. But, what is perhaps most significant in the events recounted by Suskind and in the election results is not President Bush’s confident, unquestioning faith that he is “God’s instrument,” but the blind faith of his fundamentalist followers. What is less understood is that all of the great empires in history have been characterized by a decline of reason and an increase in super-naturalist faith, combined with a belief in the empire with the emperor holding God’s “mandate” on earth.
As Western Civilization emerged out of the ruins of the western part of the Roman Empire, we evolved to America on the periphery of the European core -- pragmatic, Calvinist, fundamentalist (certainly not showing much influence of such natural-law thinkers as Thomas Aquinas), with America believing itself an exception to history (a messianic vision often shared by the periphery). Given that historical context, American writers began to talk as early as 1828 of some U.S. leaders as Caesars. While the Founders sought to separate the State and religion, we never quite had a theocracy, but rather a state where formal governmental leaders were heavily influenced by religious ones. And so, with the growing corrupt, corporate-state empire based in America today, religionists have put themselves forward as one of the key corporate entities in that structure, and the fundamentalists have found their man in George W. Bush.
The decline of the U.S. empire has been evident for some decades now. With the plurality of those who voted in the recent presidential election saluting “Hail George”, let us observe that the presidency of George W. Bush may well mark the turning point of exceptional acceleration of that process.Link here.
Last gasp of U.S. hegemony.
Sometimes it is difficult to fathom the mind of Mr. Market. After the Congress Party won the Indian election, the stock market plunged. After U.S. President George W. Bush’s re-election was confirmed, markets everywhere were almost dancing with joy, seemingly oblivious to $50-a-barrel oil prices, the bloody mess in Iraq, the threats from al-Qaeda, America’s jobless recovery and its yawning deficits.
TV’s talking heads were jubilant, declaring that a victory for tax cuts that would boost economic growth and send Wall Street and other markets soaring. Perhaps it was the hallucinatory effect of the election slogans that had many voters believing that God and American guns could keep gays and terrorists at bay while restoring peace, harmony and prosperity to the world. The reality is that Bush will be forced to make hard choices, and the American people will have to face pain for their profligacy. For the rest of the world, U.S. difficulties will bring hardships.
But while the rest of the world has the potential to recover, this is the beginning of the end of U.S. hegemony. It will be a tougher new world that emerges, but as with the British Empire or Ancient Rome, there is nothing God-given or eternal that says Washington must rule the world forever.Link here.
Living in a fantasy world.
In the West, the best-known story about a “perfect” world is that of the Garden of Eden. I find it interesting there is an angel with a flaming sword preventing us from returning to it. There is wisdom to our being barred -- or actually, to our barring ourselves. The story may be just a myth, but myths that last millennia always have great truth in them; in this case, there is no perfect world, one without evil. We are barred from it by our flawed human nature. The only place a perfect world exists is in fantasy, in our imaginations. That is important, so important I use recognition that fact as one way to distinguish between those who want to rule others and those who do not.
Generally, those who want to rule others are leftist, and those who do not are true rightists. The true right barely exists today, except for some libertarians, paleo-libertarians, and paleo-conservatives. The idea that “neo-conservatives” are right-wing is a complete joke. Perhaps Robert Heinlein said it best: “Political tags -- such as royalist, communist, democrat, populist, fascist, liberal, conservative, and so forth -- are never basic criteria. The human race divides politically into those who want people to be controlled and those who have no such desire. The former are idealists acting from highest motives for the greatest good of the greatest number. The latter are surly curmudgeons, suspicious and lacking in altruism. But they are more comfortable neighbors than the other sort.”
A true “conservative” understands that for all the good in human nature, it is still corrupt, still fallen. Problems can be ameliorated, but never completely eradicated. Leftists, on the other hand, have a hard time understanding the fact that there is no perfection. As the late Erik von Kuehnelt-Leddihn commented, leftists do not merely misunderstand human nature, they “don’t understand it at all.” In my opinion, it is because they are lost in their fantasy worlds of perfection, one they believe attainable through what they think are their god-like abilities. The word “hubris” accurately describes such a viewpoint, a viewpoint which involves the belief that humanity can -- and should -- be shoveled around like gravel. In dwelling in the fantasies created by their monstrous egos -- another name for hubris -- Karl Marx and his followers tried to remove evil and bring perfection to the world, and instead bought catastrophe. In trying to bring harmony, they instead brought butchery.
All attempts by humans to bridge the unbridgeable chasm between the fantasy world of Perfection and the real world of Imperfection create not a Heaven on earth, but a Hell. It is the source of the archetypal horror story: chaos intruding into the natural order, evil attacking good. This is what happens when people commingle fantasy and reality. Every attempt in history has borne out the truth that the fantasy of a perfect society should stay only in our minds. During the 20th Century, those attempts cost the lives of up to 200 million people.
I believe much of today’s world is based on fantasy. As such, I think the modern world is overwhelmingly “leftist”. They want a return to the Garden of Eden, utterly ignoring that flaming sword. Rightists are the same way in wanting a perfect world, but they understand it cannot be done. They content themselves with working towards a better world, and in trying to make their lives better. They understand the comment about raging about the speck in someone else’s eye while ignoring the log in their own.
Unfortunately, a leftist cannot tell the difference between fantasy and reality. In their minds, it is always somebody else’s fault, and that someone else is going to pay for it but good. One of the most dangerous examples today are the neo-conservatives, who in my view are leftists who live in a very dangerous fantasy world, one they believe they can impose on reality, no matter how many millions of pieces on the chessboard get knocked off or destroyed. Just as bad as the neo-conservatives are the Evangelicals, who want the perfect world -- the Utopia -- in which Jesus comes back and ends the world. This is why they are allied with the neo-conservatives. Is this attempt to bring Heaven on earth -- through war and slaughter -- not a left-wing fantasy? Has not religion always considered the attempt to bring Heaven to earth one of the greatest blasphemies?
Using history as a guide, I believe it is possible to predict the future, not specifically, but in a general way. There will be no “draining of the swamp” in the Middle East. There will no “end to evil”. We are now involved in wars which will accomplish nothing except to make us the focus of the hate of those we attack. Such are the end results of a world based on fantasy. It is a very old problem, and one that probably will always be with us.Link here.
Still trying to hustle the East.
Now it is not good for the Christian’s health
to hustle the area in brown
for the Christian riles and the Aryan smiles
and it weareth the Christian down
“And the end of the fight
is a tombstone white
with the name of the late deceased --
and the epitaph drear:
‘A fool lies here
who tried to hustle the East!’” -- Rudyard Kipling
The foreign press seems to have taken to the U.S. grunt in Iraq as if he were John Wayne fighting the Apache. But the foreigners root for the Apache in films, and for the Iraqi in real life. In a contest of David vs. Goliath, who takes Goliath’s side? That is one of the perverse curiosities of this world: You go to all the trouble to get on top of it, only to amuse your friends by falling off. Iraqis are overwhelmingly outgunned. It is amazing they fight at all. For every one American they bring down, nearly 50 of their own men get stretched out. Newspaper photos typically show GIs in some compromising position. They are either torturing prisoners, kicking dead bodies, or shooting unarmed Arabs.
It was not the first time people tried to do good in the Near East. It the end of the 11th century, Europeans decided to bring the blessings of Christian governance to the towel heads. Nine hundred years later, Democracy was the good that the do-gooders hoped to do. The crusades of the 11th, 12th and 13th centuries were doomed from the beginning. The crusaders had the will and the weapons to kick Arab butts; what they lacked was a reason for doing so. Christianity was already firmed rooted in the Holy Lands... as it had been for more than 1,000 years, even though Jerusalem had fallen to the caliph Omar Ibn al-Khattab in February of 638. Amin Maalouf, in a delightful little book, The Crusades from the Arab Point of View, tells us how it happened, and shows us remarkable parallels between now and then.
Once a public spectacle gets underway, its initial intentions, premises and causes are soon lost. Events take on their own logic and run to the end. There is no stopping them, no arguing with them, no trying to make sense out of it, or trying to salvage a purpose to justify the expense. Quo fata ferunt. Public spectacles of the financial and political sort begin in comedy and end in farce. Those that involve armies and war typically begin as farce and end in tragedy. Nothing can be done to change the course of history; all the individual can do is to try to recognize when the spectacle nears its end ... and slip out the exit while it is still open.
When the crusaders arrived in the Holy Land, they found a place of general religious tolerance -- there were churches next to synagogues down the street from mosques. The also found a region that was divided into hundreds of political units where loyalties and alliances shifted as fast as the desert sands. The Muslim world posed no threat to the Christian West, it was too disorganized, unable to protect itself, and incapable of projecting much in the way of military power ... until the crusaders arrived.
Back in the Homeland, 2004, most Americans have persuaded themselves that their troops are doing God’s work in the land of the ancient Mesopotamians. God means for the Iraqis to be free and democratic, they believe. Thus has the whole nation become a giant OJ Simpson jury ... unable to imagine that their homeland boys could be doing anything but good. Pictures were exhibited on national television, clearly showing a U.S. marine gunning down a wounded prisoner. A poll, that circulated on the Internet the next day, revealed that crowd back home was fully behind its troops -- three out of four people thought the Iraqi had it coming.
This is a Public Spectacle, with no place for ambiguity, subtlety or irony. The mass of Americans has lined up in favor of the war against Iraq as if it were the Superbowl, and they were backing the home team; it asks no questions, and feels neither guilt nor shame. It sees no need to apologize and fears no danger of retribution, neither from man or God himself.Link here.
THE IDEA TRAP
Your country is falling apart. Unemployment and inflation are sky high. World war is on the horizon, and there are riots in the streets. But never fear: An election is coming up! The incumbent will be thrown out for his failed policies. And the challengers will surely have the bright new ideas the country needs to turn itself around. Or will they? Perhaps amidst all this the confusion, the people will hand the reins of power over to irresponsible demagogues, and conditions will go from bad to worse. This worry is hardly far-fetched. When do the “crazies” start to get a serious political hearing? Only after a country is already going down the drain.
If we look around the world, there is a lot of circumstantial evidence that bad performance is not self-correcting. One of the most important facts about economic growth is that, on average, poor countries do not catch up to rich countries. The main reason seems to be that poor countries consistently have bad policies. Many of these countries are democracies. But they almost never elect a candidate on the theme “We need to copy the policies of more successful countries like Hong Kong and Singapore, and turn our backs on our failed national political tradition.”
Thus, the least pleasant places in the world to live normally have three features in common: 1.) low economic growth, 2.) policies that discourage growth, and 3.) resistance to the idea that other policies would be better. I have a theory to explain this curious combination. Imagine that the three variables I just named -- growth, policy, and ideas -- capture the essence of a country’s economic/political situation. Then suppose that three “laws of motion” govern this system. The first two are almost true by definition: 1.) Good ideas cause good policies, and 2.) Good policies cause good growth. The third law is much less intuitive: 3.) Good growth causes good ideas.
The third law only dawned on me when I was studying the public’s beliefs about economics, and noticed that income growth seems to increase economic literacy, even though income level does not. In other words, poor people whose income is rising -- like recent immigrants -- have more than the average amount of economic sense; rich people whose income is falling -- like the Kennedy family -- have less.
This bare-bones model has a surprising implication: There is more than one outcome with staying power. The good news is that you can have favorable results across the board. Good ideas lead to good policy, good policy leads to good growth, and good growth reinforces good ideas. The bad news is that you can also get mired in the opposite outcome. A society can get stuck in an “idea trap”, where bad ideas lead to bad policy, bad policy leads to bad growth, and bad growth cements bad ideas. Once you fall into this trap, all it often takes is common sense to get out. But when people are desperate, common sense gets even less common than usual.Link here.
15TH ANNIVERSARY OF THE FALL OF THE BERLIN WALL CELEBRATED
Fifteen years ago this month, the world witnessed the downfall of Communism’s greatest symbol. As guards stood by, Berliners gathered before the Wall that had scarred their city since the 1960s and, taking Ronald Reagan’s advice to Mikhail Gorbachev, began tearing it down. In the span of centuries, 15 years is not a long time. It is extraordinary, however, how quickly awareness of Marxist regimes has faded from public memory. Millions of people know about the Nazis’ atrocities. Relatively few have heard of the millions imprisoned, tortured, and murdered by Communist systems. Even fewer know about the faithful Orthodox, Protestant, and Roman Catholic Christians who suffered at the hands of Marxist oppression.
What people do know is that Communism was an economic disaster. As early as the 1920s, wiser economists argued that command economies could never work. It was simply impossible, they noted, for a group of planners to know all the information about supply and demand conveyed in free economies through the price mechanism. Still, despite its economic deficiencies, Communism lumbered along, held in place by corruption, apathy, and, above all, fear. Though often unable to access even basic material essentials, millions remained cowed by the terrorist methods employed by Communist regimes -- methods that define them as being as criminal as the Nazis.
It is tempting to believe that Communism’s economic woes were responsible for its collapse. Communism’s persistence in North Korea and Cuba, however, suggests that an economic system mired in stagnation is no guarantee that tyrants will lose power. In this light, we begin to understand that 1989 represented not simply admission of Communism’s economic bankruptcy. More fundamentally, Communism’s collapse throughout Central-East Europe was the result of a moral revolution.
Fifteen years later, freedom in Europe is again under siege. Western Europe’s economic decline surely reflects many European governments’ unwillingness to take economic liberty seriously. Political liberty is also under attack from what is nothing less than a secularist-fundamentalism that permits former Communist officials to become EU commissioners, while treating Christians who politely but firmly refuse to disguise their faith as if they are the equivalent of Osama Bin-laden. Clearly, while the EU is a long way from degenerating into the Communist systems of yesteryear, totalitarian tendencies remain alive and well throughout Europe.
But if Communism’s demise teaches us anything, it is that people of hope have reason to believe that liberty grounded in the truth about man consistently overcomes its opponents -- be they of the Marxist, Nazi, or secularist-fundamentalist variety. For authentic liberty gives rise to life, while totalitarianism is the path to death. And life enables us to flourish as we ought. A culture of death, by contrast, carries the seeds of its self-destruction.Link here.
THOU SHALT NOT KILL
That seems simple enough. God gave the Commandment to Moses without qualification. No fine print. No, Thou Shalt Not Kill UNLESS …. Nope, apparently God did not consult Bush, Ashcroft, & Co., before issuing this order, ummm, some time before they came along. For my disadvantaged readers in D.C., I would like to explain that this order from God appears in the Ten Commandments that were delivered to Moses somewhere on a mountain in a Middle-Eastern desert thousands of years ago. That is a long, long time ago ... way before television.
Sometime in the last week of October this year, a nice looking fellow came knocking on the door. I thought he might be lost, not an unusual occurrence in these mountains during the deer season, but no, he was hunting for voters, not deer. I told him I was not interested. Not good enough. Then I told him that if I ever needed a president, I would buy one. He did not laugh. I was about to throw him out when, just for fun, I asked him about his candidate’s position on the war in Iraq. Apparently that was a touchy subject, because he began by declaring that he was an ordained minister. So what? On his authority, he declared that this was a holy war.
I let him rant for a minute, then I said, “Thou shalt not kill”. Enraged, he was out of his chair in a second, screaming, “You’re one of them!” I never found out what one of them was, because this time I did throw him out. This encounter was unique in my experience, and I cannot say it proves anything. Yet I keep seeing a similar attitude expressed in the media, and it makes me wonder.
Lying, cheating, stealing, coveting, and killing are all forbidden in the Ten Commandments, and yet all of these forbidden actions are practiced by our elected political government, the leaders of which call themselves Christians. Why does this fraud stand unchallenged by the churches? What do they expect to gain by aiding and abetting a direct contradiction of their own law?Link here.
DEMOCRACY IN QUESTION
John Zogby, president of the polling firm Zogby International, told IPS he has been calling it “the Armageddon election” for about a year. Independent presidential candidate Ralph Nader believes the Republican Party was able to “steal it before election day”. Facts suggest something went very wrong on November 2. Speculation focuses upon a number of questions -- purposeful miscounts, anomalies surrounding electronic voting (e-voting) machines, particularly the optical scan types; and numerous reports of voting “irregularities” in heavily Democratic areas.
“What they ‘do’ is minorities,” Nader said, highlighting the thrust of Republican efforts, “and make sure that there aren’t enough voting machines for the minority areas. They have to wait in line ... for hours, and most of them don’t. There are all kinds of ways, and that’s why I was quoted as saying, ‘this election was hijacked from A to Z,’” Nader told IPS.
Zogby was concerned about the difference between some of the exit polls (surveys of individuals who have just cast ballots) and the official vote counts. On November 10, University of Pennsylvania Professor Steven F. Freeman, whose expertise includes “research methods,” compiled an analysis entitled “The Unexplained Exit Poll Discrepancy”. The document was prepared in view of the unusually large differences between what exit polls had predicted and the recorded vote tallies. His findings suggest Democratic challenger Senator John Kerry should have received far more votes than he did.
In three of the key battleground states -- Florida, Ohio and Pennsylvania -- Freeman’s analysis states the odds of Kerry receiving the percentage of votes recorded, given the exit poll findings, were less than three in one thousand, per state. Freeman also determined that the odds of any two of these states simultaneously reaching their stated vote tallies were “on the order of one-in-a-million,” and the odds of all three states arriving at the vote counts they did “are 250 million to one.”
“Something is definitely wrong,” said Zogby.
Highlighting both the expected accuracy of exit polls and the significant disparity that Kerry’s defeat illustrated, Republican consultant, commentator and Fox-TV News regular Dick Morris wrote an article, “Those Faulty Exit Polls Were Sabotage”, suggesting a pollster conspiracy to swing the election for Kerry. In doing so he, perhaps inadvertently, provided ammunition for arguments from the opposite side -- that the exit polls were correct but the final results were fudged. “Exit polls are almost never wrong,” argued Morris, and in 10 of the 11 key states they had predicted significantly fewer votes for Republican President George W Bush than he was eventually credited with. Morris observed that outside the United States, exit polls are often used to provide a check on official vote counts, in his words, “to foreclose the possibility of finagling with the returns.” Zogby, whose firm was not among those that provided network TV coverage of the election, described the possibility of either incompetence or fraud causing the controversial deviation as “impossible”.Link here.
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