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DEMONIZING DUAL CITIZENS
A year after Samuel Huntington’s book Who Are We? portrayed Hispanic immigrants as the greatest threat to U.S. national unity, Stanley Renshon has written a book that is likely to once again stir up suspicions toward the foreign-born – particularly those who have gone a step further by becoming naturalized citizens while maintaining citizenship in their countries of origin. In The 50 Percent American: Immigration and National Identity in an Age of Terror, Renshon, a professor of political science at the City University of New York, argues that dual citizens have a “shallower attachment to the American national community.”
In Renshon’s mind, “the question of American national identity and the strength of our attachments to the American national community are … in an age of terrorism … perhaps the most important domestic national issue facing this country.” The danger, Renshon contends, is that dual citizens have been brought up outside the U.S. and their attentions are divided between their adopted home and their countries of origin. According to Renshon, attachment to a nation is patriotism, something which dual citizens critically lack.
What Renshon is really searching for, as was Huntington before him, is a rationale for why immigrants today threaten the long-term national interests and viability of the U.S. But to find one, Renshon pursues arguments that defy common sense and reveal a bizarre generalization that all immigrants are potentially terrorists. Renshon would throw away any positive impact that a naturalized citizen’s American experience might have on his land of origin. Renshon, a psychoanalyst, goes on to argue that dual citizens are unable – without the help of government – to create the emotional connections which are the basis for national attachment. He recommends that government create welcome centers, offer free English classes and improve civic education in schools for the new arrivals. In other words, immigrants need professional help to make up for their inability to create sufficient attachments to the world in which they live. In Renshon’s world, dual citizens sound like potential sociopaths.Link here.
CHINA’S WAR CHEST
In October Thomas Schelling shared the Nobel prize in economics for his discoveries about game theory, which is the analysis of strategy in contexts like poker, nuclear war and business competition. Unremarked upon by the Royal Swedish Academy of Sciences were Schelling’s simple truths of economics. These boil down to tricky points in accounting, something not likely to thrill most journalists or Swedish economists.
One of Schelling’s truths involves the balance of payments. It balances. For example, the U.S. imports more goods and services than it exports. Double-entry bookkeeping ensures that this current account deficit is offset by a capital account surplus. The surplus means that this country exports more assets (like Treasury securities, shares of Amazon, or deeds to farmland) than it imports. The simple truth is that the current account and the capital account sum to zero in countries with floating exchange rates.
While economists can declare by fiat that the U.S. current account and capital account must sum to zero, it is another matter to make pronouncements about the direction of causation between these two accounts. It can go either way. During the first half of 2005 the U.S. current account deficit was a breathtaking 6.4% of GDP. The dollar and bond bears repeatedly cited the deficit number to support their gloomy prognostications. For them, changes in the capital account respond passively to changes in the current account. The bears were proved wrong, suggesting that the direction of causation was running from the capital account to the current account. This explains why we could run a huge trade deficit without any collapse in the foreign exchange value of the dollar.
Most journalists, and almost all politicians, line up with the dollar bears in fixating on the trade deficit rather than on the capital surplus. And they blame that deficit on China. According to the China-bashers, the U.S. is a victim of Chinese mercantilism. As they tell it, China has kept its currency, the yuan, undervalued to promote export-led growth. To “prove” this assertion they point to China’s rapid buildup of foreign exchange reserves. What will be surprising to the anti-China politicians is that in 2004, the reserve accumulation was due only in part to trade. The bigger contribution came from capital transactions: Investors in other countries poured money into China to build factories, accounting for 29% of the foreign reserve growth.
Currency speculators accounted for 37%. These are people betting that the yuan will be revalued upward to please the folks in Washington, D.C. The speculators send dollars and euros and yen off to China, getting yuan chits in return and contributing to the pileup of dollar, euro and yen assets in Beijing. Think of the delicious irony here. The very meddling in currency matters from Capitol Hill is driving an increase in foreign exchange holdings by China. There is no denying that $769 billion is a big number. But still – and here is another surprise for my friendly congressman – it is not big enough. Add all up all the impending requirements and you have needs for foreign reserves in the neighborhood of $1.3 trillion. Only halfway there. Stop complaining.Link here.
China economy “growing at 9.5%”. Will it continue?
China is likely to post 9.5% economic growth for the second half of 2005, slowing to 8.5 to 9.0 percent in the full year of 2006, a senior government economist said. In Beijing, investment bank CLSA said on that its Purchasing Managers’ Index for China fell to 50.1 in October from 50.9 in September, the lowest reading in the 19-month history of the survey and showing only marginal growth in manufacturing. The index is designed to give a timely snapshot of China’s manufacturing economy. A reading of the index above 50 indicates expansion while one below 50 shows contraction. New orders, output and stocks of purchases rose slightly, but employment continued to fall and delivery times shortened, weighing on the index.
Eric Fishwick, CLSA’s deputy chief economist, said the survey showed growth had all but petered out, giving the lie to the bullishness of official figures that showed third-quarter GDP was up 9.4% on a year earlier. “In reality the conditions facing Chinese manufacturers continue to deteriorate,” Fishwick said. “Orders, from both China and overseas are slowing and, as manufacturers are having to keep tight control of product inventory, this is resulting in a sharp slowdown in production growth.” He said the profit environment was unfavorable, with input prices rising – albeit at a reduced pace – but output prices still falling. Employment was shrinking. “In this environment Beijing will be looking for avenues to stimulate growth. Expect lower rates and a weaker renminbi during 2006,” he said.Link here.
OECD says corruption threatens Chinese economy.
The severe and widespread nature of corruption in China is becoming a major source of social discontent and poses a threat to the legitimacy of the country’s leaders, according to experts at the OECD. Researchers at the Paris-based think-tank, which released its first comprehensive survey of China’s economy earlier this month, also said that the problem posed a threat to the country’s economic progress.Link here (subscribers only).
SWISS INTERIOR MINISTER SEES LONG LIFE FOR BILATERAL EU TIES
Interior Minister Pascal Couchepin says Switzerland is unlikely to become a full member of the EU within the next ten years. He said the current policy of bilateral accords with Brussels would remain a priority for some time to come. “I bet you that the policy of bilateral treaties will go a long way. There is no other political option,” said Couchepin.
Foreign Minister Micheline Calmy-Rey says Switzerland should consider a special type of EU membership as one of several strategic options. She said a status quo in relations with the EU was unrealistic.Links here and here.
$60 OIL A BONANZA FOR PRIVATE BANKERS, ISLAMIC SECTOR INCLUDED
Private bankers are giddy with excitement – to the degree that private bankers ever are – as they vie for the business of the newly rich and the newly richer resulting from $60 oil. “We’re seeing a growth situation in the Middle East that’s a once-in-a-lifetime opportunity,” said Mark Morgan, chief officer of Citigroup Global Wealth Management for the Middle East, based in Dubai. Morgan compares the current wealth accumulation in the Gulf region to the epic fortunes created by the industrial revolution in Britain and America a century ago. “This is when the dynasties of the next 50 and 100 years are being created,” he said by telephone.
Oil wealth has long sought out the services of private bankers in discreet financial centers like Geneva, Luxembourg, and London. Now, the private bankers are coming to their customers. Despite rules that effectively bar them from participating in the region’s booming stock and real estate markets, banks including Citibank, ABN AMRO, and Barclays have recently founded or expanded their private banking offerings across the Gulf region. Dubai is experiencing the greatest influx, while the established banking center in Bahrain, and rapidly internationalizing centers in Qatar and Kuwait, are also eagerly courting banks. Although still in its infancy, the Islamic banking sector, governed by Shariah law, has also gained from the wealth explosion.
Wealth accumulation has taken on a new intensity worldwide, wealth management reports say. But oil has pushed the Gulf region to the forefront of private banking growth. ABN AMRO has reported 50% revenue growth for the last three years from its private banking Gulf division, and profit growth has been even higher, said Gilles Rollet, ABN AMRO’s chief executive for private banking in the Middle East. According to the latest world wealth report by Merrill Lynch and Capgemini, millionaires in the Gulf region controlled $1 trillion in 2004, up by nearly 30% from 2003.
Morgan, of Citigroup, who set up the bank’s first private banking office in the region only 18 months ago, is now planning its 4th office there, in Kuwait, after opening in Dubai, Abu Dhabi and Bahrain. Fortis, Julius Baer, and Standard Chartered are all also actively expanding in the region, while LGT Bank, the private bank of the ruling family of Liechtenstein, plans to open an office in Bahrain by the end of this year. “We’ve found that wealthy people the world over look the world over,” Morgan said. “The best opportunities are now on their doorsteps.”Link here.
BUSH TO VISIT LATIN AMERICAN NATIONS
President Bush and the thousands of demonstrators protesting his visit to Argentina that will begin Thursday have a common goal of reducing poverty, but the test for Bush will be whether he can convince others in the hemisphere to support his solution. Bush says nations can band together to create jobs through free trade but he needs to overcome tough resistance from other nations in the Americas. Working to resolve their differences will be a major thrust of his first trip to Argentina, Brazil and Panama.
It will be a tough sell. He has not been able to achieve a Western Hemisphere trade agreement, thousands of anti-American demonstrators have gathered for his arrival and leftist Venezuelan President Hugo Chavez is waiting to challenge him on the issue at the Summit of the Americas. Bush, Chavez and leaders of 32 other nations are gathering in the seaside resort of Mar del Plata, Argentina, for the summit that begins Friday. Chavez has indicated he plans to lead a “final burial” of Bush’s plan for a giant free trade area that would include all countries in the Western Hemisphere except Cuba.
Bush said he is still committed to free trade as a way to lift people out of poverty. “Grants and loans pale in comparison to the amount of good that can be done as commerce develops at all levels of government, at all levels of society, as a result of trade," Bush said in an interview with Latin American journalists. While Bush appeared resigned to the obstacles stopping the FTAA, he said he is shifting his focus to world trade talks. Those negotiations also are being held up by thorny farm trade policies, which Bush acknowledged is a very difficult issue.
Chavez is trying to use his disagreements with Bush to boost his profile internationally. The constant critic of the “imperialist” U.S. government that he claims is plotting to kill him or overthrow his government has praised plans for massive anti-Bush protests that organizers hope will draw 50,000 to the streets outside the summit.Link here.
Americas free trade zone is “stalled”.
U.S. President George W Bush has admitted that plans for a 34-nation free trade zone in the Americas have stalled. The Free Trade Area of the Americas (FTAA), planned for this year, would have covered 800 million people with an annual output of $14 trillion. But Mr. Bush said the global trade talks known as the Doha round, due to end by 2006, were now more important. He was speaking as leaders of the 34 countries prepare to meet in Argentina for a 2-day summit opening on Friday. “The FTAA has stalled, I agree,” said Mr. Bush, acknowledging that disagreements between the U.S. and other major nations in the Americas had derailed the original timetable. However, he added that World Trade Organization (WTO) talks aimed at securing a new global free trade pact by the start of 2006 now had to take precedence over the FTAA.
The idea of the FTAA, which was intended to cover the whole hemisphere except Cuba, was originally put forward at the first Summit of the Americas in Miami in December 1994. However, differences between the U.S. and Brazil over how to proceed, the 2001-2 economic crisis in Argentina and the rise to power of FTAA opponent Hugo Chavez in Venezuela all disrupted the timetable.Link here.
OUTSOURCERS IN INDIA FIGHT FOR SKILLED LABOR
A few weeks ago, Sierra Atlantic, an outsourcing company that specializes in writing business software, did something unusual. It invited employees at its Hyderabad office to bring their spouses to work. There, counselors offered sessions on better relationships, good parenting and work-home balance. Sierra Atlantic’s “Bring Your Spouse to Work” and “Bring Your Parents to Work” programs are among the new benefits and strategies that outsourcing companies in India are using to retain employees in an increasingly competitive market for skilled English speakers.
Annual salary increases of 10% or more are now the norm in India’s outsourcing industry, which supplies workers who write software code, answer customer service calls, conduct legal and equity research and do engineering design for overseas corporate customers. But despite rising pay, outsourcing companies are facing annual attrition rates of 15% to 30% in their Indian labor force, compared with 10% attrition at outsourcing companies in Eastern Europe and between 7.5 and 15% in China, according to industry experts.
Labor shortages and employee turnover are affecting other high-growth sectors in India, like financial services, retail and airline industries, but nowhere is it as pronounced as in the outsourcing area, valued at $17.2 billion a year. “High turnover, rising wages and a shortage of suitable talent in India’s most popular offshoring destinations are proving to be bottlenecks,” said Diana Farrell, director of the McKinsey Global Institute, an economics research firm based in San Francisco. Nandan Nilekani, chief executive of Infosys Technologies, the second-largest outsourcing company in India after Tata Consultancy Services, said that employee turnover was now one of the biggest challenges for the growing Indian outsourcing industry.
Competition has become more intense as demand rises faster than the supply of trained workers. Even with higher pay, Indian engineers are still paid a quarter of what their U.S. counterparts earn, which is what has driven the outsourcing boom. According to the National Association of Software and Service Companies, a trade group in India known as Nasscom, the country produces three million college graduates every year, of which 350,000 are engineers. “It is great raw material, but only 30 percent of this pool is ready to plunge straight in and deliver,” said Kiran Karnik, president of Nasscom. Improving the quality of that pool, Karnik said, is on the industry’s “A-list of challenges”.
The problem of employee turnover is even more acute for outsourcing companies that offer lower-skilled back-office work like call-center services. Once trained, those lower-paid workers tend to hop from job to job. Some outsourcing companies in that sector are reporting a complete turnover of employees in the span of a year. Frances Karamouzis, a research director at Gartner, said that while growth in the outsourcing business would continue in the near future, the attrition problem would “be looked upon as the early signs of the limits and boundaries around the India model.”Link here.
U.S. ECONOMY MAY BE FAILING GREENSPAN TEST FOR STABLE PRICES
At a 1996 Federal Reserve meeting, Chairman Alan Greenspan gave his definition of price stability: when consumers and executives do not have to worry much about inflation when making decisions. By that standard, the U.S. economy may be failing his test. “I don’t think under Greenspan’s definition we have price stability,” said Allen Sinai, president of Decision Economics in New York. The Fed “may be more than willing to trade off less growth for price stability getting back in line.”Link here.
AUSTRALIAN TAX MAN TRACKS DOWN OFFSHORE TAX CHEATS
The tax office has tracked a further 187 people suspected of hiding income in offshore tax havens, with 10 facing possible criminal charges. Tax Commissioner Michael Carmody revealed that the cases were pinpointed with the help of credit card companies and banks. They were uncovered in addition to 511 potential offshore tax avoidance and fraud cases identified earlier this year by the tax office and Australian Crime Commission as part of the Operation Wickenby investigation.
Ahead of the October 31 deadline for income tax returns, Mr. Carmody also promised to crack down on corporate bosses and executives who were failing to declare income tax. Mr. Carmody revealed 200 “high profile” business people, public servants and entertainers were behind in their tax returns. “We are expanding examination of people in these industries,” Mr. Carmody said. Targeting individuals who head “major public corporations”, the tax office used a company’s own website to identify the chief executives and board members. Information on the website was then matched with tax office records, according to a new enforcement strategy.
Sportspeople were also singled out by the commissioner for habitually lodging late – 229 cricketers, basketball, netball and football players have attracted attention from the tax office this year.Link here.
IRS OFFERS SETTLEMENT TO TAX-SHELTER USERS
The IRS said it will let more than 4,000 taxpayers reduce tax penalties if they acknowledge using tax shelters that the agency deems abusive. The offer gives the taxpayers until January 23, 2006, to submit settlement papers with the IRS. The proposed deal covers 21 transactions, a wide spectrum of tax shelters that the IRS said were marketed to wealthy individuals, large corporations and small businesses. Under the settlement, taxpayers would have to pay 100% of taxes owed and interest on unpaid taxes, along with either one-quarter or one-half of applicable penalties. The penalties could be reduced in cases when the taxpayer disclosed the shelter to the IRS or got advice from an independent tax adviser.
The IRS has identified more than 4,000 taxpayers who used the tax shelters, and the tax collectors say they continue to find additional users through shelter promoters and taxpayer audits. “People entered into these deals often at the behest of lawyers and accountants peddling flaky tax products,” said IRS Commissioner Mark Everson. “We’re offering taxpayers a quick, quiet and cost-effective way to put these deals behind them.”
Everson said the IRS does not have an estimate of how much money the U.S. Treasury lost to these tax shelters, but “it runs into the billions of dollars.” Sixteen had already been listed as potentially abusive shelters. The remainder include two transactions involving charitable contributions that may not be abusive, depending on the circumstances. The shelters flourished in the 1990s at a time when the IRS had stepped back from its investigative functions and cut enforcement resources.Link here.
COURTS SAY A 3% TOLL TAX IS BEING WRONGLY COLLECTED. SO SUE US, SAYS IRS
Since early 2004 seven federal district court judges and one appeals panel have ruled that the IRS has wrongly collected a 3% federal tax on “toll telephone service”, and awarded large refunds. So has the IRS backed off? Don’t be silly. The IRS says, in effect, if you do not like it, sue us.
This is a tax that refuses to die. It was first passed in 1898 as a luxury tax to fund the Spanish-American War. Antitax pols consider it an anachronism, and in 2000 Congress passed a bill to kill it and the $6.5 billion a year it now raises. But President Clinton vetoed the bill. Now, fed-up companies are suing – and winning 100% refunds. In October a district judge awarded Hewlett-Packard a $6.2 million refund, plus interest. Earlier, Honeywell, AOL, OfficeMax, Fortis, Reese Brothers and Amtrak won smaller amounts. More big companies – including Wal-Mart, Home Depot, JPMorgan Chase, PNC Bank, MBNA, United Technologies and Eaton – have filed suit.
The government’s main argument goes like this: “Toll telephone service” is defined in the law as service billed by distance and time. That seems to exempt long-distance service that is charged at a flat rate per minute, as most is these days. But the IRS says the “and” in the 1965 rewrite of the statute can be read as an “or”, which renders the law ambiguous, thus requiring a judge to discern Congress’ intent, which was to tax long-distance calls. As for consumers and small businesses, good luck.Link here.
OECD URGES HIGHER TAXES IN AMERICA – INCLUDING A EUROPEAN-STYLE VAT
The Center for Freedom and Prosperity Foundation and several members of the Coalition for Tax Competition condemned the OECD for its recent “Country Survey” of the U.S – wherein the bureaucracy suggests that higher taxes are desirable and that America should adopt a value-added tax. This is not the first time the OECD has tried to interfere with American public policy. Earlier this year, the OECD endorsed a scheme pushed by the UN to increase U.S. foreign aid spending by 450% – from about $15 billion to more than $80 billion per year. And over the last 7 years the OECD’s Committee on Fiscal Affairs has pursued a tax harmonization agenda that is contrary to the interests of the U.S. and other low-tax countries.
Notwithstanding these radical views, the OECD receives about 25% of its budget – more than $60 million – from American taxpayers. Public policy experts have reacted to the OECD’s most recent assault against free market policy. “Here we go again. Once again the OECD is pushing on the U.S. their Euro-centric, anti-American economic policies. It is time for the President and Congress to re-evaluate America’s annual subsidy to the OECD. In fact, we should cut our contribution greatly, or zero it out all together,” said Andrew Quinlan, president of the Center for Freedom and Prosperity Foundation.
Karen Kerrigan, president of the Small Business & Entrepreneurship Council, stated, “By endorsing a VAT for the United States, the OECD has again demonstrated that it is a pro-big government European bureaucracy. American taxpayers should not be subsidizing an organization that reflects the statist vision of high-tax welfare states such as France.”Link here.
NO MORE MORTGAGE WRITE-OFF?
Is there really any chance that Congress could take away mortgage interest, and state and local property and income tax deductions from homeowners? A presidentially appointed bipartisan commission is expected to urge precisely that when it delivers its final report to the Bush administration. The mortgage-interest deduction, which allows write-offs on first and second loan amounts up to $1.1 million, would be scrapped and replaced with a 15% credit on sharply limited mortgage amounts. Deductions for state and local property and income taxes would be eliminated altogether. The 15% credit would only be for mortgages up to a $300,000 to $350,000 ceiling. Interest on home-equity loans no longer would be tax-deductible.
In exchange for these losses of tax benefits, the advisory panel would eliminate the alternative minimum tax (AMT), add $100,000 to the current $500,000 tax-free exclusion on home sale profits, lower capital-gains tax rates, cut the number of tax brackets and provide a variety of other simplifications to the federal tax code. President Bush and the Treasury Department are expected to study the panel’s recommendations and then include at least some of them in a budget proposal to Congress early in 2006.
But let’s get real here. Nobody seriously believes that the president or Congress – all elected politicians – would do anything to reduce tax benefits for their largest and most potent constituency, right? Is the mortgage interest deduction not sacrosanct, politically untouchable, carved in marble on Capitol Hill? Ditto for write-offs of local property taxes and income taxes? Imagine the screams of pain from homeowners in high-cost, high-tax states including California, New York, Massachusetts and much of the East Coast. That is all certainly the conventional political wisdom and may indeed prove correct. Even the president told the advisory panel in January that he would oppose any tax changes that would hurt homeownership.
Case closed? Dead on arrival? Maybe, but not quite.Link here.
Goodbye, My Sweet Deduction
There are no cows more sacred in the tax code than the deductions for mortgage interest and property taxes. Together, they add up to at least a $75 billion annual subsidy for housing and homeowners. President Bush, in establishing his advisory panel on tax reform, specifically asked the group to preserve support for home ownership. So it was quite a shock that the panel, which released its final report this week, concluded that it had no choice but to significantly trim the home mortgage deduction and eliminate state and local tax deductions if it wanted to find a way to simplify the income tax.
By combining that move with a variety of other measures, the panel was also able to bury the alternative minimum tax, a complex tax originally intended to prevent the wealthy from escaping taxes that is now starting to hit millions of otherwise ordinary upper-middle-class families who have a typical range of itemized deductions and personal exemptions. The panel had a powerful rationale behind its proposal. Many economists say the real estate subsidy is one of the tax code’s most unfair features, overwhelmingly benefiting the affluent and pulling investment from the rest of the economy into the housing sector.
But for millions of homeowners, what no doubt matters most about the plan is how it affects their bottom line. And for many of them, especially those living in houses in expensive markets in California and the Northeast, the answer is clear. If it becomes law, the value of their homes will almost certainly fall. The pain that would be caused by putting an end to deductions for mortgage interest and property taxes explains a lot of the motivation behind the attacks that greeted the panel’s proposals.
The plan by the presidential panel would reduce the mortgage deduction on homes in two ways. First, it would limit the amount of the mortgage eligible to be deducted, cutting it from the current cap of a little more $1 million to as low as $227,000 in cheaper housing markets like Springfield, Ohio, to as high as $412,000 in places like New York and many of its suburbs. Second, families would receive a credit equal to 15% of the interest paid on a mortgage below the cap, rather than a deduction that can be worth as much as 35% for taxpayers at the high end of the income scale.
Just about everybody involved in the housing and real estate market has raised objections to this proposal. In a statement, the National Association of Realtors estimated that home prices across the nation would fall by 15%, with “a devastating effect on the nation’s housing economy.” The Mortgage Bankers Association called the proposals “a tax increase for a lot of working Americans.” Even supporters of the changes acknowledge that house prices would fall. “Almost any economic analysis will conclude that there will be some downward effect on prices, especially at the top of the market,” said James Poterba, an economist at the M.I.T. who is on the president’s panel. “The question is how large it will be.” The elimination of the deduction for state and local taxes, including property taxes, also has the potential to bring down house values, especially in high-tax states like New York, California and New Jersey, where homes are selling at record-high prices.Link here.
A TEMPORARY TAX BREAK COULD MAKE 2005 THE YEAR OF GIVING GENEROUSLY
Do you plan to make a big gift to charity some day? Do it now. Maybe. Congress has created a significant, temporary, tax break. Cash donations made to most public charities from August 28 through December 31 can be used to offset up to 100% of your 2005 adjusted gross income, up from the normal 50% limit. While the increase was passed in the name of Hurricane Katrina relief, it can be used for any charitable purpose. You can even honor an old pledge, so long as you deliver the cash by December 31. “It’s a window of opportunity,” says Robert F. Sharpe Jr., a Memphis, Tennessee lawyer and planned giving consultant.
About that “maybe”, “For some people it’s an opportunity that shouldn’t be taken,” warns Laura Peebles, a charitable giving guru at Deloitte Tax in Washington, D.C. After all, if you donate more than you can deduct in a given year, you can carry the deductions forward for up to five years. Before deciding whether to elect the temporary Katrina break (you can donate and not use it), you will need to consider your future giving plans, expected income, possible federal tax law changes, state taxes and even the alternative minimum tax. One more relief act for CPAs.
Only cash donations qualify for the temporary break. The donation of stock or other appreciated property to a public charity can, as usual, offset a maximum of 30% of your income. Combining all the different limits gets tricky.Link here.
GIFT GIVING IS A USEFUL SAVING TAXES DEVICE. UNDERSTAND THE RULES
President George W. Bush’s bipartisan tax-reform panel’s recommendations are expected to simplify federal tax laws, though it appears as if the estate tax repeal has been put off indefinitely. But even though the estate tax has not been permanently repealed, there are significant but gradual changes to estate and gift taxes through 2010, thanks to the Economic Growth and Tax Relief Reconciliation Act of 2001, with a few taking effect January 1, 2006. Bottom line, if you were planning to make gifts this year, by all means go ahead and do so. But know that Uncle Sam will let you give even bigger gifts next year.
Some Americans may be surprised to learn they have an estate large enough to be subject to estate taxes. But by the time a person accounts for his or her home, investment portfolio, retirement accounts and life insurance, it does not take long for an estate to add up to a seven-figure amount. Beginning January 1, the U.S. federal estate tax exemption will increase to $2 million, up from $1.5 million, which bodes well for people with large estates or whose homes have tremendously increased in value during the recent real estate boom. If your spouse is a U.S. citizen, you are entitled to transfer an unlimited amount of assets tax-free. In addition, any assets transferred to a surviving spouse do not count against the estate tax exemption.
On top of that, on January 1 the maximum estate tax rate will decline to 46%, down 1% from 2005. This will apply to estates worth more than the $2 million that is exempted. As recently as 2002, the maximum estate tax rate was 50%. Of course, a person can give away gifts during his or her lifetime without incurring any gift tax liability, up to a limit.
In fact, making gifts during your lifetime is a really smart thing to do if you can afford it. Starting Jan. 1, the gift tax annual exclusion will allow a person to donate, gift-tax-free, $12,000, up from the current limit of $11,000. A married couple can jointly gift $24,000 to any individuals they choose, including grandchildren, without incurring any taxes. The amount is tied to inflation and is therefore likely to be increased again in the future. “It is amazing how powerful the annual exclusion can be as an estate tax savings device, not to mention its potential for income tax savings, asset protection and probate avoidance,” says Stephan R. Leimberg, chief executive of Leimberg and LeClair, an estate and financial planning software company.
An annual exclusion is permitted only for “present interest” gifts, says Leimberg. A gift is considered present interest when the person receiving the donation has immediate, unfettered and ascertainable use, possession or enjoyment of the gift when it is made. “Conversely, no exclusion is allowed for future interest gifts, those in which the possession or use or enjoyment of the gift is restricted or deferred – even for a moment. Future interests include reversions and remainders.” You can make such gifts to friends, family members or any other person you select, regardless of citizenship. You can give to your children and their spouses, as well as grandchildren and their spouses. The recipient will not have to pay any taxes on the gift.
In addition to the annual gift tax exclusion, there is a 100% exclusion when you make direct payments for someone’s – anyone’s – medical bills or tuition expenses. The payments must be made directly to the medical care provider or the educational institution. You also can give gifts to qualified charities – regardless of amount – without any gift tax. Giving to charitable organizations at your death can reduce your estate taxes. For each dollar that you give away in this manner, your taxable estate is reduced by one dollar.
In 2011, the tax rates and exemption amounts will revert back to the rules in place before the 2001 tax act. While Bush is working hard to repeal the estate tax permanently, it is impossible to say definitively what the tax laws will be like in 2011. As it stands now, after 2010 the maximum estate tax rate will increase to 55% while the estate tax exemption will decline to $1 million. So give early, and give often.Link here.
RISING EUROPEAN MONEY TIDE FLOWS TO ASIAN COFFERS, THANKS TO EU TAX DIRECTIVE
Asia’s private bankers are a happy lot. Not only are they working in a region where booming economies are churning out millionaires faster than the millionaires can hire private bankers, but they are also on the receiving end of an accelerating inflow of money from Europe. Since July 1, the 25 member nations of the EU have agreed under a new regulation, the European savings tax directive, either to share with each other information on residents’ cross-border savings income or levy a 15% withholding tax, which is to rise to 20% in 2008 and 35% from 2011 onwards. The withholding tax option is also being applied, on a “voluntary” basis, in dependent tax havens such as the Isle of Man, the Channel Islands, the Cayman Islands, the British Virgin Islands and the Netherlands Antilles, as well as in several neighboring European financial centers, including Switzerland, Liechtenstein and Monaco.
Hard data are virtually impossible to come by in this traditionally secretive sector. But Roman Scott, director of the Boston Consulting Group in Singapore, estimates that the new levy could cause at least €1 trillion, or $1.2 trillion, to flow out of Luxembourg and Switzerland alone into other financial centers around the world, with a “significant” amount coming to secure Asian tax havens like Singapore and Hong Kong. Compared with a total of about $35 trillion held by European private investors, and a world total of $85.4 trillion, this would be a relatively small outflow number, Scott said. Still, it puts some extra butter on Asian wealth managers’ daily bread.
There is a “perception by European investors that the offshore management centers in Europe have become overly accommodating to the pressure of the EU,” said Rolf Gerber, chief executive of LGT Bank in Liechtenstein (Singapore). “Whether this is true or not can be debated, but it's all about perception.” Mr. Scott said the levy had helped trigger a “psychological shift in investors minds.” Investors were reading it as a signal that the EU was cracking down and showing zero tolerance for tax avoidance, he said. Still, like many other Asian private bankers, Renato de Guzman, the chief executive of ING Asia Private Bank, said he believed that the strength and growth potential of Asian markets was the main attraction for European money flowing into Asian havens like Singapore and Hong Kong.Link here.
SAVERS FIND AN OFFSHORE HAVEN IN LUXEMBOURG
Savers are finding ever more creative ways to dodge a Europe-wide crackdown on offshore tax havens that came into force on July 1. The latest escape route, dreamt up by Swiss private banks, uses a type of Luxembourg-based investment firm called a Sicav (société d’investissement à capital variable). The schemes are not subject to the EU savings-tax directive, which ordered member states to share information about people who live in one country but earn savings income in another, in a bid to combat tax fraud.
However, three countries – Austria, Belgium and Luxembourg — are doing things differently for a transitional period. Rather than share information with other EU members, they will levy a so-called withholding tax – initially 15% – if the saver lives in a different country. Most of the tax will then be paid to the person’s country of residence, although you may have to pay additional tax up to your highest rate. Switzerland and traditional British offshore centers such as Jersey, Guernsey and the Isle of Man have adopted similar measures.
Savers can avoid the withholding tax if they can prove that they are not subject to tax, or if they authorize their bank to share information. Some unit trusts that invest in cash or bonds are caught, as are open-ended investment companies (Oeics). These are similar in structure to unit trusts, but are more flexible. While the Luxembourg-based version of an Oeic, the Sicav, escape the savings directive, they do not avoid tax entirely. A better option might be an insurance bond.Link here.
LET’S GO OFFSHORE
And so it came to pass that that the OECD and FATF black-listed much of the Caribbean region’s offshore financial services sector as “a bad egg”, traditionally robust banana and sugar exports were “dead”, tourism was growing but in some markets reaching saturation or stifled by poor infrastructural facilities, telecoms deregulation has failed to deliver call center jobs (or much else), “foreign aid” to the region is flat or down, whilst the “brain drain” of locals to the “developed” world is alive and well. To top it all off, we are now going into only the middle of a 10 year cycle of increased hurricane and storm seasons and so vulnerable to impact. Which community can sustain such shocks?
How will the Caribbean countries sustain and manage such shocks since most of the economy runs on these key industries, and can be brought to its knees by a devastating storm? To my mind, there are four major industries that we now or will soon be depending on to offer jobs to the thousands of kids annually coming onto the job market, for the foreseeable future: Telecoms and ICT (information & communications technology), bananas and sugar, tourism, and international financial services. There are also two sub-sectors: agriculture (excluding bananas and sugar which I do not consider “dead”), and manufacturing, which I think will never produce much more than that required for local consumption, if anything at all, with a few exceptions. Local (i.e., regional) consumption of local agriculture and manufactured goods by rising standards of living and populations, influxes of “ex-pats” and foreign investors and by the growing tourism sectors will keep efficient suppliers and producers happily in business.
It is easy for some to brush off the “offshore” industry with visions of tax evasion, money laundering, tax havens and other such nefarious activities stuck in their heads, but like everything else, it is not that simple or true. In our small Caribbean islands, these bad things happen sometimes, though relatively rarely, but the global clean-up of legislation and compliance has put the modern regional offshore industry on a sound footing. Please note by the way, that most of the “naughty” activity that went on and indeed sometimes goes on, in fact does not go on in some small Caribbean island, but in New York, Miami, Paris, Toronto, Hong Kong, Singapore, London and other major cities.
Death and taxes are the two things “you cannot escape” they say … and it is true. However, while there is not much we can do about death (outside of diet and exercise, so to speak), there are a few things we can do about taxes. For example we can become elected officials and pass legislation to reduce the size and cost of Global Government and all of its attendant waste and inefficiencies. Yeah, right!
Or we can lobby the global elected officials as many do, notably the U.S. flat-tax guru Steve Forbes, and whilst a noble long-term cause, how long will that take? Death might work its magic before we can. Or one can go offshore. Not physically anymore. It does not matter where you live, work or play. “Offshore” is like the proverbial grass pasture being greener on the other side, but like every patch of grass, its really only green where you water it.Link here.
THE WEALTH PUZZLE: THERE IS A LOT OF MONEY SOMEPLACE, BUT WHERE?
The IRS estimates, from records obtained from credit card companies, that one to two million U.S. citizens have offshore bank accounts. If they are using them to avoid taxes, it is at least in part because the government encourages them.
Any effort to understand economic inequality in America runs into an anomaly. While the last two decades or so have seen a massive shift in income to the very top of the economic ladder (usually described as the top 0.05%), this shift appears to have resulted in no significant increase in wealth for this top fraction. Wealth includes all of the assets that people own, homes and other real estate, cash, financial assets, minus any debts owed. One would expect that as income increases, wealth would also, at least to some extent, increase. What makes this so puzzling is that the size of the income gain realized by the top fraction is literally of historic proportions. Its scale is breathtaking. Yet some of the best research on the question has found that between 1986 and 2000 top wealth shares “did not increase significantly”.
The idea that this huge shift in income does not show up in the best estimates of wealth held by those with the largest incomes is hard to accept. What we do know is that there has been a large movement of assets to offshore tax havens. It is, of course, impossible to know with certainty how much wealth has slipped away, not just from the IRS’s, but from anyone’s, ability to keep track of it. But there is evidence that there might be enough of it to explain some of the wealth vs. income anomaly.
In October of 2000, the IRS asked the major credit card companies for their records of accounts in Caribbean tax havens that were routinely used for transactions in the U.S. From the records obtained from the credit card companies the IRS estimated that one to two million U.S. citizens may be using such accounts. Most were thought to have incomes that would put them in the top one percent. The IRS admitted that it was overwhelmed by the results of the credit card investigation. It simply lacked the resources to pursue all of the likely tax evasion. The same investigation turned up dozens of companies involved in the promotion of offshore tax avoidance schemes. In April of this year the IRS announced that it had obtained over 100 injunctions against the promoters of such schemes.
The IRS has also pursued the use of tax avoidance schemes involving the transfer of stock options or restricted stock to family controlled entities. Under these schemes corporate executives, sometimes assisted by the corporations, transfer stock options to related entities created for the purpose of receiving the options and avoiding taxes on compensation income. In February the IRS announced the settlement of cases involving 42 corporations, a large number of corporate executives, and over $700 million in unreported income. Again, presumably because of a lack of resources, the IRS is resorting to an amnesty program. There have been no published estimates of how much the other purveyors of such schemes may have cost the U.S.
The limited ability of the IRS to deal with large complex cases is not an accident. And it certainly is not a matter of laziness, stupidity, or the inherent ineptitude frequently attributed to the government by a certain type of politician. Rather, it is a matter deliberate policy. In his book, Perfectly Legal, David Cay Johnston describes the deliberate measures taken to gut the IRS’s enforcement powers, including hearings on IRS “abuses” that were simply a hoax. Efforts on this scale, involving a major Senate committee, do not come out of nowhere. One must ask, for whose benefit was this elaborate fandango performed? One thing for certain is that it was not done on behalf of the average middle class taxpayer. The notion that ordinary citizens organized themselves and marshaled vast amounts of political influence in a cause that facilitated tax evasion by the very rich defies good sense. It had to have been inspired by people who had a very great deal at stake.
After all this, financial reporters are still left with more questions than answers, questions fueled more by doubts and suspicions than credible data. There is a lot of digging to do. Our immediate concern must not be with the ideological issues. Rather it must be focused on the economic risk created by the huge shift of income to a tiny fraction of the population and the accompanying stagnation of middle class income. And this risk must be seen in the context of a whole panoply of risky policies, particularly federal tax policy. The risk is in underestimating the potential downside presented by this situation.Link here.
LET THE SAVER BEWARE
Will Brussels bureaucrats ever let go of European citizens’ financial privacy? If Laszlo Kovacs has his way, the answer is no. The EU commissioner for taxation and customs union wants to discontinue the “anomal”q of privacy for tax purposes. Switzerland’s decisive role in the implementation of the EU’s Savings Directive by setting up an anonymous withholding tax on savings income for EU residents instead of exchanging information has obviously opened the European Commissio’qs appetite for more. Austria, Belgium, and Luxembourg, which were able to temporarily adopt the same system, had better watch out.
Unsurprisingly, the EC and Kovacs claim they are not against financial privacy or tax competition. As a former communist apparatchik in Hungary and a current vice-chairman of the Socialist International, the EU commissioner just does not believe in low taxes. “An overall high tax burden may not be a deterrent to productive investment,” he tells us. So Kovacs is all for “banking secrecy”, but only “as long as it does not stand in the way of proper exchange of information, particularly for purely tax purposes.” In other words, keeping your finances private is fine if tax authorities can access your bank accounts and show them to each other. Not a prime specimen of Aristotelian logic there.
Kovacs’s dialectical skills go beyond this. A large part of the EU’s tax policies are not aimed at “harmonizing” tax rules. Oh no … it would be a mistake to think so. “Rather, we try to ensure the coordination of tax policies.” The present lack of “coordination” of tax systems, Kovacs informs us, is “an invitation to tax planning and tax avoidance”. Sound familiar? In any case, it is reason enough for him to also travel in the near future to Hong Kong and Singapore “to see if they are prepared to adopt measures equivalent to the Savings Directive.” This, according to the EU tax chief, would contribute to “the proper taxation” of EU residents on their deposits in these countries. Well, everybody needs a mission.
But our “coordinating” globetrotter does not limit himself to exchanging information on your private financial matters. Kovacs is working on a “common consolidated” (not “harmonized”!) corporate taxation base to become law in three to four years. Regardless of whether the retained model will look like the simple Slovakian system or than the Byzantine German one, centralizing the tax base is a dire prospect for competition, especially in the face of places like Dubai, which do not apply any taxes.
It is terribly unfashionable to take sides with Switzerland in these matters. Does the “fat little country” at the heart of the continent not only get what it deserves for refusing to cough up its “dues” for the grand vision of “constructing” Europe? Many opinion makers in competing financial centers such as London and New York cannot resist a binge of schadenfreude whenever the Swiss are expected to surrender to some new legislation or soft law on financial privacy or tax practices. As if wealth creation was a zero-sum game. Europeans and others, however, have no reason to rejoice. The issue here is not so much about an additional fraction of a percentage point of economic growth as a result of “tax competition”. It has more to do with every European’s fundamental right to his or her own property. There is no rationale for suppressing a person’s legitimate freedom of exit from bloated EU welfare states and horrendous tax burdens
Will Switzerland go wobbly this time? It is unlikely. Pro-EU sentiment is decreasing every day, including within government. In 2001, 76.8% of voters chose not to open negotiations for EU entry. That proportion is now believed to be closer to 90%. Further, the EU needs to reach unanimity for most decisions on tax matters. Despite peer pressure, some member governments in Central and Eastern Europe show no intention to fully go along with Kovacs’s plans. But the prevailing complacency toward the Commission’s proposals points to a real challenge: The moral case for tax competition, exit options, and respect for property rights has rarely been so pressing in Europe.Link here.
Single EU corporate tax base proposal is still on the cards.
EU Tax Commissioner Lazlo Kovacs intends to press ahead with the presentation of legislation to create a single European corporate tax base, despite strong opposition from five member states. Mr. Kovacs has reportedly revealed that he plans to put forward his proposals next year, with the intention of legislating on the matter before his mandate ends in 2009. Although the UK, Ireland, the Czech Republic, Estonia and Slovakia are opposed to any move towards corporate tax harmonization, Mr. Kovacs stated that he is prepared to leave them outside the scheme, and move forward under the auspices of an “enhanced cooperation” initiative. “We don’t think we should waste time trying to convince the other five,” he explained.Link here.
RFID HAS POTENTIAL TO INVADE PRIVACY
Radio frequency identification (RFID), which I have previously described as a transformational technology (along with nanotechnology) has the potential to also be a means of tracking us to unprecedented levels. That is why many security experts have called for strict controls and legislation on the use of the technology before companies and governments roll it out fully. That is why consumer protests led supermarkets in the U.S. and the UK to stop using the technology at the retail level. Faced by this blockage the RFID industry is just now getting around to drawing up voluntary ethical guidelines on the use of the technology. But until voluntary measures are made mandatory, I am not going to rely on the good will of companies.
Such rules include requiring companies to inform consumers when an RFID device is attached to a good, or giving people the ability to disable or remove RFID tags when they do not want to be tracked. RFID is an automatic identification method using radio frequencies. The technology relies on RFID tags, small objects that can be attached to or incorporated into a product, animal or person. The tags contain tiny antennas to enable them to receive and respond to radio-frequency queries from an RFID transceiver. Tags can be passive, which do not require a power source, or active, which do. The active tags have a longer range and larger memories than passive tags and hence have more privacy implications. Governments, of course, are highly interested. The latest is the Bush administration, which last week announced that all U.S. passports would be implanted with the chips starting in October, 2006.
The RFID tags will hold personal information including the name, nationality, sex, date of birth, place of birth and digitised photograph of the passport holder. Eventually, the government wants to add additional digitized data such as “fingerprints or iris scans”. The UK and Germany have announced similar plans. It is interesting to see how the U.S. government says it has addressed privacy concerns. “It will only permit governmental authorities to know that an individual has arrived at a port of entry – which governmental authorities already know from presentation of non-electronic passports – with greater assurance that the person who presents the passport is the legitimate holder of the passport.”
In my job as a food industry editor, I reported about a South African company, Trolley Scan, which claims it has invented a scanner that can read multiple RFID tags at a distance of 100 metres. What is more, the scanner was able to pick a single transponder out from a crowd of about 1,000 at a time, allowing users to accurately locate objects among multiple targets. While this is great for warehouse logistics, it is bad news for “antiskimming material” that is built for less powerful scanners. More promising is the inclusion of cryptographic keys inside the chip. The RFID chip will only release its contents only after a reader authenticates itself as being authorized to receive the information.Link here.
To RFID or not?
Is RFID a cure-all or false security for your out-of-stock losses? What is the real return on RFID investment? After Wal-Mart Stores’ recent mandate requiring RFID tagging by 100 of its suppliers down to the level of cases and pallets, it has now presented new information in a study that may be a challenge to their suppliers and to a larger world. The trial results were positive, but it turns out that not everyone is sold on the results and on RFID’s ability to generate real bottom-line profits.
Wal-Mart conducted a 29-week study to analyze out-of-stock merchandise at 12 stores equipped with RFID and 12 stores without RFID technology. The study – according to Wal-Mart – was independent, conducted by researchers from its hometown University of Arkansas. Wal-Mart reports their out-of-stock items were replenished with RFID three times faster than with the old bar code technology. For Wal-Mart, which is always looking to squeeze the last dime out of any of its operations, that could transfer into a still undisclosed savings. At least for the moment, though, any such savings would be for Wal-Mart alone. All of this is good news for Wal-Mart, but not necessarily such good news for all of its suppliers.
“Unfortunately for manufacturer and distributors selling to large retailers, RFID has a much lower return on investment for them than for their retail customers,” says Steve Banker, an analyst at Medford, Massachusetts-based ARC Research, a leading research and analyst group dealing with supply chain, logistics and manufacturing. “The situation is more difficult because the technology is immature, and the quality and reliability of current tag shipments reflect that immaturity.” The ARC Advisory Group talked to 24 companies that were actively investing in Electronic Product Code RFID.
Above all, the costs still make the process an expensive idea, especially for suppliers. This may mean that Wal-Mart will have a difficult time getting everyone to play ball with all tagging at the pallet and case level. Still, some big Wal-Mart suppliers are prepared to play ball – if only to understand better how to make the technology work on a mass scale.Link here.
BUSH ADMINISTRATION PUSHING DOMESTIC SURVEILLANCE ENVELOPE
Secret wiretaps. Seized bank records. Unconsented physical searches. Secret computer tracking. Enter the ever-growing government world of domestic spying. A recent Washington Post report stated, “The FBI has conducted clandestine surveillance on some U.S. residents for as long as 18 months at a time without proper paperwork or oversight, according to previously classified documents to be released today. Records turned over as part of a Freedom of Information Act lawsuit also indicate that the FBI has investigated hundreds of potential violations related to its use of secret surveillance operations. … [FBI] agents obtained e-mails after a warrant expired, seized bank records without proper authority and conducted an improper ‘unconsented physical search,’ according to the documents.”
The Post report quotes David Sobel, general counsel for the Electronic Privacy Information Center as saying, “We’re seeing what might be the tip of the iceberg at the FBI and across the intelligence community. It indicates that the existing mechanisms do not appear adequate to prevent abuses or to ensure the public that abuses that are identified are treated seriously and remedied.”
This writer has previously attempted to warn his readers regarding the way this administration seems obsessed with trampling America’s basic liberties under the rubric of national security. Americans should be very concerned when any administration, Republican or Democrat, is willing to disregard or even suspend the Constitution and Bill of Rights-for any reason – and that is exactly what the Bush administration seems determined to do! However, the Bush administration does not seem content to routinely abuse our right to privacy. It has also publicly called for the suspension of Posse Comitatus and for the U.S. military to take charge of domestic emergencies.
I believe it is urgent that the American people, especially people calling themselves conservatives, become cognizant of the many attempts by the Bush administration to eviscerate the constitutional protections of our liberties. We must not allow this, or any, administration to undo this remarkable experiment in liberty. It is incumbent upon all Americans to remember that any government that is unwilling to conduct itself according to the enumerated principles contained within the Declaration of Independence, the Bill of Rights, and the U.S. Constitution is a rogue government deserving neither our submission nor support!Link here.
NEW SOUTH AFRICA LAW WILL ALLOW PHONES TO BE TAPPED
A new law will allow telephones to be tapped and e-mails to be intercepted in the fight against crime, the Department of Justice and Constitutional Development said. Spokesperson Lesley Mashokwe said while the Interception of Communications and Provision of Communication-Related Information Act allows for the lawful interception of communications, this can only be done after authorization by a judge especially designated to perform that function. “While the Justice [and Constitutional Development] Minister, Brigitte Mabandla, has yet to appoint a judge, the Act is in operation at the moment,” said Mashokwe. “However, for the Act to be a success, it requires the cooperation of the private sector, especially telecommunication service providers, as well as individual owners of cellphones.”
Mashokwe said the Act places a duty on telecommunication service providers to obtain and keep information on their clients, should this be required for detecting or investigating serious crimes. “In order to control the lawful use of cellphones and SIM cards, the Act requires that lost, stolen or destroyed cellphones and SIM cards be reported at any police station. Failure to do so will constitute a criminal offence.” He said provisions of the Act requiring the registration of cellphones and SIM cards will come into operation by the end of the year.
Law-abiding citizens have no reason to fear that their right to privacy would be compromised in any way, assured Mashokwe.Link here.
GERMANY INTRODUCES U.S.-REQUIRED BIOMETRIC PASSPORT
Germany has become the first EU member state to comply with tougher U.S. passport regulations. Dubbed “ePas”q, the new German passport including biometric features became mandatory for travelers on November 1. Biometric passports, which digitally store facial features unique to every single person, will become mandatory for all travelers to the U.S. from European “visa-waiver” countries – states without a visa obligation – from October 2006. The updated German passport comes with a concealed radio frequency identification (RFID) chip that stores personal information such as name and date of birth, as well as a digital facial image of the holder.
A facial recognition system measures and records the distance between the bearers’ mouth, eyes, nose, forehead and chin – features that are unique for each person. Checks at airports allow facial features to be compared with what is stored in the passport ensuring people are who they say they are. From March 2007, the chip will also store a scan of the holder’s left and right index fingerprints. Iris scans can be added to the document at a later stage.Link here.
Most of the provisions of the USA Patriot Act, including access to library records, were supposed to “sunset” this month, five years after the law’s passing. Instead, both the House and the Senate have already voted to renew the entire act, with only minor revisions. While they are at it, they would like to add some decidedly unpatriotic amendments to expand the death penalty.
These new amendments would let prosecutors shop around for another jury if the one they have is deadlocked on the death penalty, triple the number of terrorism-related crimes eligible for the death penalty, and authorize the death penalty for a person who gives money to an organization whose members kill someone – even if the contributor did not know that the organization or its members were planning to kill.
The Patriot Act was enacted during what President Bush called “a state of emergency”. It was not even read by most of the members who voted for it. But the whole point of the sunset clause was to allow Congresspeople to actually read the bill and debate it in calmer times. Now, the Act is effectively being made permanent with little or no debate or discussion. Still, the House and the Senate are still in negotiations over the final wording of the bill and so it has not been made final yet.Link here.
Patriot Act developing decidedly un-American tilt.
In the name of fighting terror, some lawmakers have gone overboard with amendments to the U.S.A. Patriot Act. For example, Rep. John Carter, R-Texas, would let federal prosecutors shop for another jury if the first panel deadlocked on a death sentence. The very notion is absurd – jury shopping for death – and the amendment should be stripped from the Patriot Act reauthorization bill. Carter’s measure would allow prosecutors to empanel a second jury and argue for death if at least one person on the original jury voted for the death penalty.
Such measures increase the chances of executing the innocent. They weaken the U.S. fight against terror and give other countries reasons to stop supporting the anti-terror campaign. These amendments have no place in the Patriot Act and should be removed.Link here.
JUDGES QUESTION PATRIOT ACT IN LIBRARY AND INTERNET CASE
A panel of federal judges in Manhattan raised questions about secrecy provisions in the nation’s antiterrorist act, expressing concerns that the act indefinitely silences those swept up in investigations. The judges of the U.S. Court of Appeals for the Second Circuit heard arguments in two cases involving a Connecticut library group and a New York Internet service provider, who were asked to provide information about their patrons in relation to government counterterrorism investigations.
The judges did not immediately rule on the matter. But by their questions, the judges seemed skeptical of arguments by a Justice Department lawyer who said it was within constitutional limits for the government to prevent recipients of such requests from ever speaking about them. “The troubling aspect from my standpoint is it’s without limit,” Senior Judge Richard J. Cardamone said while questioning the government’s lead lawyer, Douglas Letter, about the nondisclosure provision in what is known as the USA Patriot Act. “There’s no end to how long you have to keep this secret.”
Plaintiffs in the New York and Connecticut cases received what are known as national security letters from the F.B.I., asking them to turn over information about their patrons in the course of federal counterterrorism investigations. The letters routinely bar recipients from publicly disclosing anything about the requests. The New York plaintiff is a small Internet service provider whose name has been concealed in court filings to avoid running afoul of the Patriot Act. In September 2004, Judge Victor Marrero of U.S. District Court in Manhattan sided with the Internet service provider in finding that the expanded powers that the federal government received to issue national security letters, through the Patriot Act, violated the First and Fourth Amendments. His decision has been stayed pending the government’s appeal.
The federal government has also sought to suppress the identity of the Connecticut plaintiff. But a variety of court records show it to be Library Connection, a consortium in Windsor, Connecticut, that serves as the back office for several libraries. Though the Connecticut plaintiff is also challenging the constitutionality of the national security letter that it received, it has pressed for immediate relief to allow its officers and directors to testify in Washington on whether Congress should reauthorize the Patriot Act.
On Sept. 9, Judge Janet C. Hall of U.S. District Court in Bridgeport, Connecticut ruled that the provision barring public disclosure violated the Connecticut group’s right to free speech. Judge Hall also said that the federal government had failed to meet the burden of proof needed to argue that national security interests warranted overriding those constitutional rights. But her decision was stayed by the appeals court, pending its own review of the case. In urging the appeals panel to overturn the two lower court decisions, Mr. Letter said that the New York judge “had it exactly backwards” and that the Connecticut judge had “turned herself into a national security expert.”Link here.
ACLU challenges Patriot Act.
The American Civil Liberties Union urged the 2nd Circuit Court of Appeals to uphold two separate lower court rulings that whittle away at provisions of the U.S. Patriot Act that allow the FBI to secretly demand public information from public libraries and Internet service providers. At issue are two challenges brought by the ACLU in New York and Connecticut regarding a surveillance provision that was dramatically expanded by Section 505 of the Patriot Act.
The Patriot Act requires public libraries, universities, Internet service providers and any other type of communication provider – including telephone companies – to comply with secret “national security letters”, or NSLs, from the FBI. Those letters can ask for information about subscribers – including home addresses, what telephone calls were made, email subject lines and logs of what Web sites were visited. Companies or institutions that receive these letters are not suspected of any wrongdoing, but the Patriot Act provisions in question prevent them forever from telling anyone that the FBI demanded records.
Judge Victor Marrero, a U.S. District Judge in the Southern District of New York, struck down the entire NSL statute on Sept. 29, 2004, saying “democracy abhors undue secrecy”. In the ruling, the court said that the unlimited gag imposed by the NSL law violates free speech rights under the First Amendment. The court also said that the FBI’s demands for records without giving recipients of NSLs an opportunity to test the validity of the request in front of a judge is a violation of the Fourth Amendment’s protection against unreasonable searches and seizures.
In the Connecticut case, the ACLU is representing a member of the American Library Association that possesses sensitive information about library patrons, including circulation records and records relating to Internet usage. The ACLU argued that the gag law limits free speech, especially at a time when Congress is debating the expansion of the Patriot Act, which expires at the end of this year. In its lawsuit, the organization said it had the right to describe its experience to Congress in general terms – without disclosing details of the NSL. A federal district court agreed that the First Amendment permitted such general disclosure, but the 2nd Circuit did not.Link here.
FRENCH OFFICIAL PRESENTS ANTI-TERROR BILL
France’s interior minister presented a long-awaited anti-terrorism bill to Cabinet, rejecting allegations that it would trample on civil liberties. The bill would stiffen prison sentences for convicted terrorists, allow police to monitor citizens who travel to countries known for terror training camps, and broaden the use of surveillance cameras. Interior Minister Nicolas Sarkozy, who has led the effort to strengthen France’s laws against terrorism in response to the July bombings in London, rejected claims the proposed measures will create a police state.
Similar concerns have been raised by legal experts and activists in the U.S. about the Patriot Act, which authorized expanded surveillance of terror suspects, increased use of material witness warrants to hold suspects incommunicado and secret proceedings in immigration cases. “My job is to ensure the safety of people,” Sarkozy told reporters following the Cabinet meeting.Link here.
LOOKING FOR TERRORISM IN ALL THE WRONG PLACES
Four years after the attacks of September 11th 2001 put the “war on terror” at the top of George Bush’s agenda, political pressure from America, Britain and, more recently, the UN, has resulted in this: scores of bankers, fund managers, accountants and solicitors on the lookout for terrorists around the world. “Money is the lifeblood of terrorist operations,” declared Mr. Bush. “We’re asking the world to stop payment.” Tony Blair has beaten the same drum more loudly since the attacks in London on July 7th. Governments from Australia to Bangladesh and Paraguay have ratcheted up their political rhetoric too. Yet deadly attacks keep coming – most recently in Bali, Indonesia on October 1st.
The private sector bears the major burden of the effort to choke off funding for terrorists. Banks and other financial institutions are scanning their customer accounts more carefully for signs of suspicious people and transactions. Accounts have been frozen and foreign banks have been cut off from doing business in dollars if America is not satisfied that they are properly sharing information.
Millions of prospective and current customers are hampered by tougher compliance standards. To open an account or transfer money these days means numerous demands for identification – a passport or driver’s licence with a photograph. Customers have grown used to delays in gaining access to their own money. There are growing requirements for disclosure of detailed information on business directors and funding sources. All this means additional fees. Expatriate executives, international-exchange students and low-wage workers wiring money to their families abroad have been most affected. The compliance costs for financial institutions are substantial.
Graham Dillon of KPMG, a consultancy, says anti-money-laundering technology is focused on identifying suspicious transactions that bear little resemblance to those typically used by terrorists. He contends that current technology could be reconfigured to check for things that better fit the profile of terrorist financing – liquidating accounts, for instance (what one might expect of a suicide-bomber) or purchasing high-risk materials. But he is not aware of institutions doing this now. “There’s a high probability that institutions have not learned from Madrid, 9/11 or the London bombings in relation to re-enhancing their systems against terrorist attacks,” he says.
Meanwhile, the compliance staffing and services industries are booming. The result has been a veritable flood of data on customer transactions deemed suspicious. Ironically, the welter of paper has prompted some authorities to ask financial institutions to file fewer, better quality reports. Without sufficient resources to process the reports, backlogs mount and many cases are never carefully reviewed. In developing countries, law enforcement is too corrupt or inefficient to process them all.
Banks comply with the rules for two primary reasons: fear of sanctions, and worry about their reputations. Should they fail to toe the line, the Patriot Act essentially cuts off foreign institutions from business relations with America. That provision “scared the living daylights out of the rest of the world”, says a security consultant. In more zealous places like America and Britain, the dragnet requires the filing of suspicious activity reports by lawyers, accountants and insurance companies as well. Las Vegas casinos are screening high rollers. Even yacht brokers and jewellers have been told to report buyers who try to pay with big rolls of cash. Yet all this effort has yielded depressingly few tangible results.
For KPMG’s Mr. Dillon, the resources already spent on the effort have handed a victory to the terrorists. “The cost to our global economy is so large, they’ve already had the effect they wanted,” he says. “The increasing costs of compliance and technology are a form of terrorism. We’re damaging ourselves.”Link here.
AMNESTY INTERNATIONAL ON TERROR LAWS: DANGEROUS. ILL-CONCEIVED. AN ASSAULT ON HUMAN RIGHTS
Tony Blair’s plans for tough new anti-terror legislation have been subjected to a damning critique by Amnesty International, as MPs prepared to debate the measures. In a submission to MPs, Amnesty International denounced the proposals to increase police powers of detention and make a new offence of the glorification of terrorism. It called them “ill-conceived and dangerous”, amounting to an attack on “the independence of the judiciary and the rule of law”.
The organization’s onslaught – in the strongest language it has deployed against the Blair Government – came as ministers braced themselves for sustained opposition to the Terrorism Bill when it is debated in the Commons. The Bill has already been condemned by senior judges, lawyers and civil liberties groups. A potentially powerful combination of opposition and rebel Labour MPs are preparing to vote against plans to give police powers to hold suspects for up to 90 days without trial – denounced as effective internment. They also plan to oppose the creation of an offence of “glorifying” terrorism.
Amnesty’s attack comes after a recent warning from Lord Carlile of Berriew, the Government’s terror watchdog, that 90-day detention could breach human rights law. The submission to MPs states, “Since the war on terror was declared by the U.S. government in 2001, the UK authorities have mounted a sustained attack on human rights, the independence of the judiciary and the rule of law.” It warned that the Bill contained “sweeping and vague provisions that undermine the rights to freedom and expression and association, the right to liberty, the prohibition of arbitrary detention, the rights to the presumption of innocence and fair trial.”
Amnesty International added, “One proposal is to introduce a crime that involves the ‘glorification of terrorism’. Such terms are broad, vague and subjective. They have no legal clarity and can, therefore, be used arbitrarily to restrict human rights, including freedom of expression.” It said the measures proposed after the bombings in London on 7 July were “inconsistent with the UK’s obligations under domestic and international human rights law and that, if enacted, they would lead to severe human rights violations.”
The organization made clear its alarm at the potential for new powers to be abused. It said, “Once any government begins to ‘sacrifice’ human rights in the name of security, it is not long before individuals pay the price.” It said the anti-terror measures across the world had led to dissent being stifled and allowed the state to commit human rights abuses. Its report said evidence of that trend was already apparent in Britain “with peaceful protesters who have been subjected to police action under legislative provisions originally introduced to purportedly counter terrorism.” Amnesty condemned Mr. Blair’s 12-point anti-terror plan, saying, “Every element of which signalled further assaults on human rights, particularly for those identified as Muslims, foreign nationals and asylum-seekers.” It said government statements linking the terrorist threat with foreigners were “encouraging xenophobia, racism and faith-hate crimes”.Link here.
SWITZERLAND RETURNS MONEY TO ANGOLA
The Swiss authorities have signed an agreement that will lift blocking orders on four bank accounts and return $21 million (SFr27 million) to Angola. The funds are to go directly towards humanitarian projects in Angola, in the first such agreement of its kind. The agreement follows an investigation by a court in Geneva. The money was originally frozen in connection with a Swiss investigation into French businessman Pierre Falcone, who was suspected of helping Angolan officials embezzle part of the African country’s debt repayment to Russia. The case was closed in December 2004 after it was established that no irregularities occurred in the settlement of the debt. Justice authorities cleared Falcone of all charges that he was part of a criminal organization operating in Geneva, Moscow and the Angolan capital, Luanda.
Switzerland has agreed with Angola that the money will be used for humanitarian projects to help the African nation’s people. “The funds shall be used for projects that will benefit the most vulnerable sections of Angolan society,” the foreign ministry said. “The projects selected will be in priority areas such as reconstruction, the establishment of hospital infrastructure, basic professional training, water supply and local capacity building, notably in the reintegration of displaced persons.” The foreign ministry did not disclose to whom the bank accounts belonged.
The Swiss investigation concluded that the restructuring of Angola’s total $2.9 billion debt to Russia – in which Falcone played an active role through his company Abalone Investments Ltd. – was a legitimate transaction and that no criminal offence was committed.Link here.
LIBBY’S INDICTMENT: THE START OF A COUNTERREVOLUTION?
Lewis “Scooter” Libby, chief of staff to vice president Richard B. Cheney and assistant to the president, has been indicted for a cover up. As U.S. attorney Patrick Fitzgerald made clear at the October 28 press conference announcing Libby’s indictment, he believes Libby “went before a federal grand jury and lied under oath repeatedly and fabricated a story about how he learned this information, how he passed it on.” By obstructing Fitzgerald’s investigation, Libby has prevented Fitzgerald and the grand jury from finding out who leaked the name of the covert CIA agent, Valerie Plame, and why.
Libby did not lie, commit perjury, and obstruct justice for no reason. As Fitzgerald made clear, these are serious crimes. For a high government official to commit such crimes, the crime being covered up must be very serious indeed. Those who have been following Bush’s invasion of Iraq know what that crime is. They also know who are the guilty parties. The crime is the falsification of intelligence in order to deceive Congress and the American people.
Unless America has lost its soul, Libby’s indictment is the first step in the unravelling of a criminal conspiracy of high treason. Fitzgerald’s continuing investigation could serve as the counter-revolution that overthrows the neo-Jacobin coup engineered by the neoconsevative cabal. Despite his failure as president, Bush might survive the housecleaning with a deal that leaves his father and Brent Scowcroft in de facto control of the White House. The elderly members of the old Republican establishment are all that remain of the GOP’s credibility.Link here.
THE FRIVOLITY OF EVIL
When prisoners are released from prison, they often say that they have paid their debt to society. This is absurd, of course. Crime is not a matter of double-entry bookkeeping. You cannot pay a debt by having caused even greater expense, nor can you pay in advance for a bank robbery by offering to serve a prison sentence before you commit it. Perhaps, metaphorically speaking, the slate is wiped clean once a prisoner is released from prison, but the debt is not paid off.
It would be just as absurd for me to say, on my imminent retirement after 14 years of my hospital and prison work, that I have paid my debt to society. I had the choice to do something more pleasing if I had wished, and I was paid, if not munificently, at least adequately. I chose the disagreeable neighborhood in which I practiced because, medically speaking, the poor are more interesting, at least to me, than the rich. Their pathology is more florid, their need for attention greater. Their dilemmas, if cruder, seem to me more compelling, nearer to the fundamentals of human existence. No doubt I also felt my services would be more valuable there. Perhaps for that reason, like the prisoner on his release, I feel I have paid my debt to society. Certainly, the work has taken a toll on me, and it is time to do something else. Someone else can do battle with the metastasizing social pathology of Great Britain, while I lead a life aesthetically more pleasing to me.
My work has caused me to become perhaps unhealthily preoccupied with the problem of evil. Why do people commit evil? What conditions allow it to flourish? How is it best prevented and, when necessary, suppressed? Each time I listen to a patient recounting the cruelty to which he or she has been subjected, or has committed (and I have listened to several such patients every day for 14 years), these questions revolve endlessly in my mind. No doubt my previous experiences fostered my preoccupation with this problem. My mother was a refugee from Nazi Germany. Later, I spent several years touring the world, often in places where atrocity had recently been, or still was being, committed.
Still, all these were political evils, which my own country had entirely escaped. I optimistically supposed that, in the absence of the worst political deformations, widespread evil was impossible. I soon discovered my error. Of course, nothing that I was to see in a British slum approached the scale or depth of what I had witnessed elsewhere. Yet the scale of a man’s evil is not entirely to be measured by its practical consequences. Men commit evil within the scope available to them. Some evil geniuses, of course, devote their lives to increasing that scope as widely as possible, but no such character has yet arisen in Britain, and most evildoers merely make the most of their opportunities. They do what they can get away with. In any case, the extent of the evil that I found, though far more modest than the disasters of modern history, is nonetheless impressive.
Perhaps the most alarming feature of this low-level but endemic evil, the one that brings it close to the conception of original sin, is that it is unforced and spontaneous. No one requires people to commit it. In the worst dictatorships, some of the evil ordinary men and women do they do out of fear of not committing it. The evil is freely chosen. Not that the government is blameless in the matter – far from it. Intellectuals propounded the idea that man should be freed from the shackles of social convention and self-control, and the government, without any demand from below, enacted laws that promoted unrestrained behavior and created a welfare system that protected people from some of its economic consequences. When the barriers to evil are brought down, it flourishes – and never again will I be tempted to believe in the fundamental goodness of man, or that evil is something exceptional or alien to human nature.
But while the welfare state is a necessary condition for the spread of evil, it is not sufficient. After all, the British welfare state is neither the most extensive nor the most generous in the world, and yet our rates of social pathology – public drunkenness, drug-taking, teenage pregnancy, venereal disease, hooliganism, criminality – are the highest in the world. Something more was necessary to produce this result. Here we enter the realm of culture and ideas. For it is necessary not only to believe that it is economically feasible to behave in the irresponsible and egotistical fashion that I have described, but also to believe that it is morally permissible to do so. And this idea has been peddled by the intellectual elite in Britain for many years, more assiduously than anywhere else, to the extent that it is now taken for granted. There has been a long march not only through the institutions but through the minds of the young. When young people want to praise themselves, they describe themselves as “nonjudgmental”. For them, the highest form of morality is amorality.
There has been an unholy alliance between those on the Left, who believe that man is endowed with rights but no duties, and libertarians on the Right, who believe that consumer choice is the answer to all social questions, an idea eagerly adopted by the Left in precisely those areas where it does not apply. The consequences to the children and to society do not enter into the matter: for in any case it is the function of the state to ameliorate by redistributive taxation the material effects of individual irresponsibility, and to ameliorate the emotional, educational, and spiritual effects by an army of social workers, psychologists, educators, counselors, and the like, who have themselves come to form a powerful vested interest of dependence on the government. With 40% of children in Britain born out of wedlock, and the proportion still rising, and with divorce the norm rather than the exception, there soon will be no electoral constituency for reversal.
Ultimately, the moral cowardice of the intellectual and political elites is responsible for the continuing social disaster that has overtaken Britain, a disaster whose full social and economic consequences have yet to be seen. A sharp economic downturn would expose how far the policies of successive governments, all in the direction of libertinism, have atomized British society, so that all social solidarity within families and communities, so protective in times of hardship, has been destroyed. The elites cannot even acknowledge what has happened, however obvious it is, for to do so would be to admit their past responsibility for it, and that would make them feel bad.
There are pleasures, no doubt, to be had in crying in the wilderness, in being a man who thinks he has seen further and more keenly than others, but they grow fewer with time. The wilderness has lost its charms for me. I am leaving – I hope for good.Link here.
THE STATE EVISCERATED
Robert Higgs’s Against Leviathan: Government Power and a Free Society reviewed
Reading Robert Higgs’s magnificent collection of essays leaves one puzzled. Higgs is the foremost American economic historian who writes from a free-market perspective. His analysis of government failure and malfeasance rests on a combination of theoretical acuity and mastery of empirical data unmatched since the passing of Murray Rothbard. Why, then, are there so few Higgsians? Why do so many intellectuals embrace the statist disasters that Higgs ruthlessly and mordantly demolishes?
Are the supporters of the state gripped by Hegel’s illusion that the State is the march of God on earth? Most are not that delusional. They recognize at least some of government’s crippling deficiencies. Joseph Stiglitz, a Nobel laureate in economics who is sympathetically inclined toward socialism, remarked after his service with the Council of Economic Advisers, “I had expected lower standards of evidence than would be accepted in a professional article, but I had not expected that the evidence offered, would be, in so many instances irrelevant, and that so many vacuous sentences … would be uttered.” Stiglitz, like so many of his colleagues, has not given up on government. Why not? They think that however imperfect an instrument, government is needed. Exactly this Higgs denies.
Is not government necessary to remedy the inequalities that the free market allows? Higgs responds by asking, is equality always a good thing? He gives numerous examples when it clearly is not. If, e.g., rich older people began dying in great numbers, or people developed an aversion to education, equality would increase, yet everyone not a follower of Pol Pot would acknowledge these trends to be undesirable. Higgs contends that “economists and other intellectuals routinely compare the income or wealth distribution between times or places and judge the differences good or bad, depending on whether the measured degree of inequality is less or more, without giving any consideration to why the differences exist.”
But is not inequality sometimes bad? Higgs responds with a list of 19 dire consequences of attempts to redistribute income. Such programs, e.g., make society more contentious. Groups struggle with one another to get benefits, and taxpayers view as enemies those who receive the money that has been taken away from them. “Less and less does the society constitute a genuine community. Rather, it becomes balkanized into bellicose subgroups regarding one another as oppressor and oppressed.”
Suppose that the defender of government retreats to his last battle station. Do we not need government at least to preserve law and order? Higgs asks in response an imaginative question. If we lived without government at all, could the situation conceivably be as bad as the present? Governments have killed millions. Is it not the height of folly to entrust our safety to this institution? If Higgs’s view of government is right, a further question arises: why is government so bad? Our author’s answer is two-fold. First, those in government are too often evil power seekers, with no concern for the public welfare they hypocritically claim to advance. Those trusting souls who would reject what Higgs says as cynical must confront his next point. Even with the best will in the world, government could not carry out the formidable tasks it undertakes.
Higgs has no sympathy for those who look to democracy as a means to limit Leviathan. If Higgs is cynical about what Hans Hoppe has called “the god that failed”, democracy, no one can doubt his commitment to liberty. He rejects with contempt the arguments of the “cliometricians” that pre-Civil War slavery was efficient. He agrees with Jeffrey Hummel that “efficiency is a welfare concept that presupposes the existing property-rights regime. In this light, finding that slavery was efficient amounts to little more than finding it benefits thieves when legal conditions allow them to get away with it.”Link here.
ARE WE SLOW LEARNERS?
“That’s not the way the world really works anymore. … We’re an empire now, and when we act, we create our own reality. And while you’re studying that reality – judiciously, as you will – we’ll act again, creating other new realities, which you can study too, and that’s how things will sort out. We’re history’s actors … and you, all of you, will be left to just study what we do.” ~ A senior Bush administration adviser, 2002
A large number of Americans believe we are an “Exception to History” – brighter, richer, and just all around more Providentially Blessed, even when it appears this year with respect to wars, hurricanes, and just plain corruption and lies, that our leader may have lost the “Mandate of Heaven”. It may be that we are just, as a People, simply slow learners! Even if you teach all of the people all of the time, some folks just do not learn very quickly, that the top of the stove is often hot to the touch. It appears, at times, that we even elevate one of these slow learners to the presidency, in order to better teach the rest of us by his example!
A number of historians, going back to the ancient empires of old, have remarked on a seeming 300-year cycle of the high tide of imperial power. At this point, what remains, is to speculate whether our Empire will even make it into that less than charming circle.Link here.
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