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A FRESH LOOK AT COSTA RICA FOR RETIREMENT
For many years, Costa Rica has been touted as one of the top retirement havens in the world. With a stable democracy, growing economy, government friendly to foreigners and tropical climate, as well as incredible natural beauty, it rightly earned the phrase, “the Switzerland of Latin America.” Is this still true today? Are retirees still coming here? Should they still consider Costa Rica?
To many people, there appear to be less expensive retirement destinations such as Panama or Nicaragua. To others, Costa Rica has become too touristy. Still others believe Costa Rica is overrun with “gringos”. I want to debunk these notions, and others, and suggest that Costa Rica is still a terrific place to retire, or to start new life in if you are not yet retired, particularly if you choose your location and activities carefully.
Can I afford Costa Rica?
I have been living in Costa Rica for about a year and a half but have been in and out the country frequently since 1989 and based my extensive travel throughout the country in conjunction with my “Boomers in Costa Rica Retirement Tours”, I have found that there are still inexpensive areas in which to live, particularly if you stay away from the close-in suburbs of San Jose. Take, for example, the wonderful city of San Ramon in Alajuela province, an agricultural town of 70,000, situated on the northwest edge of the Central Valley. Home to three former presidents including “Don Pepe”, who abolished the army in 1948 and set in motion the basis for today’s robust democracy, San Ramon offers a peaceful environment in which to live yet it offers all of the services of a larger city. It is also only 40 minutes to the international airport in Alajuela, one hour to San Jose and 40 minutes to the Pacific Coast.
San Ramon also offers a wide variety of lots for building one’s retirement dream home, either in the mountains or stunning ocean view properties. Prices for land remain low with some lots as inexpensive as $15,000 for a one-quarter to one-half acre lot, to $75,000 for an incredible ocean-view lot on 2.25 acres. With another $60,000 to $75,000, you can have an incredible ocean view lot and house, complete with all the services you need, for under $200,000. If you can do without ocean views, you will pay even less – perhaps around $100,000 or so for a nice lot and home. Property taxes are only 0.25% of the registered value of your property. I paid $66 in property taxes for an entire year! If renting is more your style, you can still find nice two-bedroom, modest homes for rent for under $200/month. Low housing costs combined with very low prices on food and utilities makes San Ramon an excellent bargain.
The towns of Grecia, Sarchi, Atenas and Puriscal offer excellent value as well. You just need to know where to look or link up with an experienced and knowledgeable local or gringo to help you out. Eating out costs perhaps a $1.50 for breakfast, $2.00 for lunch, and then, splurging for dinner, perhaps $4-6. Of course, if you visit some of this country’s wonderful outdoor markets, you will find the freshest meats, fruits and vegetables, and can cook for yourself and spend even less.
What about medical care?
Some foreigners living in Costa Rica complain that the medical system here is overcrowded and it often takes hours to see a doctor. Yes, in some areas there are less doctors per capita than in the U.S. but but not everywhere, and often times relates to people who have elected to get on the “CAJA” system, which is the most basic health insurance program, run by the government, to which most Ticos belong. Once you leave the San Jose area, even if you are on the CAJA, the lines lessen and more often than not, you will form a great relationship with an English-speaking doctor who is well-trained, and in some cases, will even make house calls. There are also other privately-run programs that allow you to see any doctor and even these programs are much less expensive than insurance programs in the states. Costa Rica also has several outstanding hospitals that provide the same level and quality of service that you would find in the U.S.
What about all the tourists?
Costa Rica certainly is a well-traveled tourist destination, with over 1 million visitors a year. If you visit the beaches at Manuel Antonio, the rain forest of Monteverde, or Arenal Volcano during the dry season, yes, you will see many North Americans and Europeans. However, living here, particularly in towns such as San Ramon or Grecia, you would hardly know it is the tourist season. Actually, visiting tourist destinations during the off-season is a significant benefit of living here, particularly given that prices are significantly less than during the high season.
Costa Rica does count among its residents some 40,000 North Americans, mostly from the U.S. They come for a variety of reasons from wanting to leave their corporate careers for more meaningful work to just wanting to retire and enjoy a slower, relaxed pace of life that Costa Rica offers. While these expatriates are scattered throughout Costa Rica, most of them live in the suburbs surrounding San Jose such as Escazu, Santa Ana and Cuidad Colon. Quite a few ex-pats live in beach communities up and down the Pacific Coast while a smaller number of people live on the Caribbean coast. However, many people are beginning to take note of the smaller towns in the Central Valley. These towns and pueblos offer a relaxed pace of life, reasonable property prices and an overall lower cost of living. So, you can live in Costa Rica and not feel overrun by gringos or the high prices in other parts of the country.
Historically, Costa Rica was a country primarily attractive to retirees. Many people have made the successful transition from a corporate career in the states to running a bed and breakfast, managing a surf shop, offering tours, investing in real estate, and more much. Costa Rica is a very business-friendly country and the opportunities here are still endless.
Like any developing country, particularly one with a rainy season for part of the year, and with trucks and cars sharing the same, often two-lane road, it can be hard to maintain the roads in perfect condition all the time. Fortunately, under the new administration of Nobel Peace Prize winner, President Oscar Arias, significant steps are being taken to address these concerns. Costa Rica has come a long way in infrastructure improvements, and it is only getting better.
While one can get by without knowing much Spanish, you will have a better experience if you try to learn at least some key words, phrases and sentences. In addition, befriending a Tico will go a long way in helping you get things done here. I could not get by without my “Tico connections” and my Spanish is getting better all the time.
There are poor people here but it is nothing like the abject poverty found in Nicaragua or Honduras. Costa Rica also has not experienced the gang warfare that is rampant in El Salvador, Nicaragua, and Honduras. Housing and land may be much cheaper in these countries, but is it worth paying less to live if you experience power cuts for six to eight hours each day (as is the case in Nicaragua lately) or more importantly, live in fear? I have also found that the people are much more welcoming to us gringos than in other countries in the region, and do not just befriend us for our money. They are very hard working, genuinely interested in learning about North Americans, and for us, it is not hard to integrate into Costa Rica society. They are friendly people indeed!Link here.
EXPATS TO REMIT $100 BILLION TO CARIBBEAN AND LATIN AMERICA BY 2010
Remittances to Latin America and the Caribbean will continue to grow in coming years and will surpass $100 billion a year by 2010, according to the Inter-American Development Bank’s Multilateral Investment Fund (MIF). However, according to MIF Manager Donald F. Terry, this growth is not a cause for celebration for the IDB and the MIF, because it reflects the fact that the region cannot generate sufficient income opportunities to prevent millions of people from migrating. Nevertheless, he said, remittances will continue to flow and already exceed both foreign direct investment and overseas aid to Latin America and the Caribbean, helping millions of families to escape poverty. “The challenge for the countries in this region, and for institutions such as the IDB and the MIF, is to find ways so these flows may have a greater development impact by offering migrants and their families more options to get more out of their money,” Terry stated.
The IDB and the MIF support programs to expand the economic impact of remittances by encouraging financial institutions to handle these flows so that people who send or receive money transfers may build credit histories and gain access to services such as savings accounts, insurance, pensions and business and housing loans.
The MIF will also support a new program launched by the International Fund for Agricultural Development (IFAD), which will establish a $10 million facility to finance projects to cut the cost of making money transfers to remote rural areas around the world. Latin American and Caribbean countries last year received some $62.3 billion from its migrants, mostly in North America, Europe and Asia. The total was 14% higher than the amount for 2005, said Terry.
At $23 billion, Mexico was by far the top recipient of remittances, followed by Brazil at $7.4 billion and Colombia at $4.6 billion. Several countries received slightly more or less than $3 billion – Guatemala, El Salvador, the Dominican Republic, Ecuador and Peru. For 2007, Terry concluded, the MIF expects remittances to Latin America and the Caribbean to rise to around $72 billion.Link here.
TELECOMMUNICATIONS PEACE BREAKS OUT IN BVI
CCT Global Communications, which currently holds the only mobile phone services licence in the British Virgin Islands, has signed an Interconnection Agreement Memorandum of Understanding (MOU) with monopoly fixed-line provider Cable & Wireless. There had been a war of words between the companies pending the issue of new “unitary” licences under the BVI’s recently liberalized telecommunications regime. CCT Director Meade Malone had accused C&W of predatory behavior, asserting that C&W had attempted to drive CCT into bankruptcy, continued to charge it interconnection rates above its own retail tariffs, and had disrupted CCT’s network by testing a wireless communications system over the same frequencies used by CCT.
Cable & Wireless chief executive Vance Lewis responded that “All efforts we have undertaken have been done with government approval and within legal and ethical boundaries. Government owns the frequency, and all of this was accomplished with the understanding that a license was to be received by the end of January 2007.” The new licences were indeed supposed to be issued by the end of January, the moment when C&W’s 40-year monopoly licence expired. But the government appears to be unable to make up its mind over how many new licences to issue, so that the BVI’s new Telecommunications Regulatory Commission has been forced to give extensions to existing licence holders, including C&W and CCT.
“With the signing of this MOU completed, this paves the way to an open and level playing field in the BVI” explained Vance Lewis. “The remaining obstacle is the issuance of unitary licenses for those operators who will be allowed to provide telecommunications services. We are pleased we have been able to accomplish this without all of the acrimony that has occurred in other markets. As previously announced, we are ready!” Other applicants for licences include BVI Cable TV, Digicel and Virgin Live Media.Link here.
HOUSE PRICES CONTINUE THEIR CLIMB IN JERSEY AND GUERNSEY
Housing specialist Skipton reports that average house prices have moved forward in both Jersey and Guernsey, with prices in Guernsey now 11% higher than at the end of 2005, while in Jersey, the rise was a healthy but more modest 6.5% against the previous year.
Nigel Pascoe, Director of Lending for Skipton Guernsey and Skipton International, the lending specialists commented, “The data presents a mixed picture, but underlines the importance of looking at longer term annual trends, as one quarter’s data can seem out of step. Annually, on both Guernsey and Jersey, prices have been rising at a steady rate. However, there has now been two UK Base Rate rises since August last year and this is bound to have had an effect on both transaction volumes and average prices. We will need to wait until at least April this year before we can see what effect the last UK base rate rise in January will have on the traditionally buoyant Spring buying season this year.”
Average prices in Guernsey now stand at £310,650 in the local market. In Jersey the average house price now stands at £360,000. While not directly comparable, the two figures give a relative picture of prices on the two islands. Annually, the rise of 6.5% in Jersey compares well to a rise of 2.7% for 2004 to 2005. In Guernsey, the rate of rise has been more pronounced, with average prices doubling in the period from the start of 2000 to the present.
The Guernsey and Jersey data reveals some interesting facts when set in the context of the UK as a whole. Local market prices in Guernsey and Jersey average prices are now higher than both the London average of £296,000 and the South West average figure of £213,000Link here.
THE TROUBLE WITH INDIA
When foreigners say Bangalore is India’s version of Silicon Valley, the high-tech office park called Electronics City is what they are often thinking of. But however much Californians might hate traffic-clogged Route 101, the main drag though the Valley, it has nothing on Hosur Road. This potholed, four-lane stretch of gritty pavement – the primary access to Electronics City – is pure chaos. Cars, trucks, buses, motorcycles, taxis, rickshaws, cows, donkeys, and dogs jostle for every inch of the roadway as horns blare and brakes squeal. Drivers run red lights and jam their vehicles into any available space, paying no mind to pedestrians clustered desperately on median strips like shipwrecked sailors.
India’s high-tech services industry has set the country’s economic flywheel spinning. Growth is running at 9%-plus this year. The likes of Wal-Mart, Vodafone, and Citigroup are placing multibillion-dollar bets on the country, lured by its 300 million-strong middle class. In spite of a recent drop, the Bombay stock exchange’s benchmark Sensex index is still up more than 40% since June. Real estate has shot through the roof, with some prices doubling in the past year.
But this economic boom is being built on the shakiest of foundations. Highways, modern bridges, world-class airports, reliable power, and clean water are in desperately short supply. And what is already there is literally crumbling under the weight of progress. In December, a bridge in eastern India collapsed, killing 34 passengers in a train rumbling underneath. Economic losses from congestion and poor roads alone are as high as $6 billion a year, says Gajendra Haldea, an adviser to the federal Planning Commission.
The infrastructure deficit is so critical that it could prevent India from achieving the prosperity that finally seems to be within its grasp. Without reliable power and water and a modern transportation network, the chasm between India’s moneyed elite and its 800 million poor will continue to widen, potentially destabilizing the country. Jagdish N. Bhagwati, a professor at Columbia University, figures GDP growth would run two percentage points higher if the country had decent roads, railways, and power.
India today is about where China was a decade ago. Back then, China’s economy was shifting into overdrive, but its roads and power grid were not up to the task. So Beijing launched a massive upgrade initiative, building more than 25,000 miles of expressways that now crisscross the country and are as good as the best roads in the U.S. or Europe. India, by contrast, has just 3,700 miles of such highways. China’s lead in infrastructure is likely to grow. Beijing plows about 9% of its GDP into public works, vs. New Delhi’s 4%. And because of its authoritarian government, China gets faster results.
Blame it partly on India’s revolving-door democracy. Political parties typically hold power for just one 5-year term before disgruntled voters, swayed by populist promises from the opposition, kick them out of office. In elections last year in the state of Tamil Nadu, for instance, a new government was voted in after it pledged to give free color TVs to poor families. Then there is “leakage” – India’s euphemism for rampant corruption. Nearly all sectors of officialdom are riddled with graft, from neighborhood cops to district bureaucrats to state ministers. Corruption delays infrastructure projects and raises costs for those that move ahead.
While the laws of supply and demand would argue that India’s infrastructure gap can be filled, that logic ignores the corrosive effect of the country’s politics. Unless the nation shakes off its legacy of bureaucracy, politics, and corruption, its ability to build adequate infrastructure will remain in doubt. So will its economic destiny.Link here.
India’s banks are seen as antiquated and unproductive.
Hundreds of bank branches can be found in India’s capital nestled behind metal grates in concrete buildings and tucked down alleyways off busy thoroughfares. Many of the offices are jockeying for attention with battered signs and offers of high rates for deposits and low-rate loans.
India’s drive to become a global economic powerhouse faces a huge roadblock in its inefficient, largely state-controlled financial system, analysts say. Two-thirds of India’s banking business is conducted through less than 5% of its branches, and its growing corporate sector has headed overseas for financial advice and loans. Consultants at McKinsey estimated that some $48 billion could be added to India’s annual gross domestic product, bringing its growth rate on par with China’s, if India’s financial system was made more productive.
Powerful bank unions and politics, though, are making that impossible, and the issue is coming to a head in the next few weeks. An umbrella group of nine bank unions is calling for a nationwide strike at the end of this month to voice a litany of complaints, including pressure to merge.
The legacy of banks as tools for social reform is colliding with India’s accelerating economic growth. An estimated 70% of Indian citizens are still not part of the banking system, while bureaucracy and inefficiencies are countering the benefits from faster growing parts of the economy, say political leaders and economists.
Despite India’s big and rapidly growing middle class, and the global ambitions of its corporate sector, its banks remain tiny and their focus local. As the country’s fast-growing corporate sector takes off, the banks are being left behind. Ultimately, state and local banks may not be able to compete, leaving the country with a two-tiered system, with the largest companies and richest individuals putting their money elsewhere, the gloomiest critics say.Link here.
BIG BUSINESS STILL OPPOSES MAKING PUERTO RICO THE 51ST U.S. STATE
Do not want to it to lose its tax-free commonwealth status.
The 108-year-old push to make Puerto Rico the 51st state is thriving on the Caribbean island. But powerful U.S. business interests continue to trump local politics, making it less likely than ever, experts say. More than half of Fortune 100 companies operate there, with billions invested in factories and trained workers. Eli-Lilly, Abbott Laboratories and others, including Microsof and Coca-Cola, do not want to lose Puerto Rico’s tax-free commonwealth status, politicians and academics say.
At a congressional hearing set for this week, corporate lobbyists are expected to remind statehood advocates that the lure of cheap labor and low taxes available in Singapore, India and elsewhere would intensify if Puerto Rico’s status changed. “The commonwealth (status) offers so much benefit to the major players influencing the decision,” says Edwin Melendez, a professor of urban policy and management at the New School in New York who studies Puerto Rico’s economy.
Like past hearings, this one is expected to be crowded and boisterous, with interest groups debating competing proposals that would give the island’s nearly 4 million residents another chance to vote on statehood. The desire for statehood goes back to the U.S. seizure of Puerto Rico from Spain in 1898. Residents on the island 1,000 miles off Florida’s coast gained U.S. citizenship in 1917, but they cannot vote for president and have no voting representation in Congress.
The island’s tax-free status remains a key factor for big business. Puerto Rico Senate President Kenneth McClintock, a statehood advocate, says the firms will not leave an educated, loyal and skilled work force. Eduardo Bhatia, who runs the Washington office for Puerto Rico’s governor and whose $1 million annual lobbying budget is triple that of McClintock’s, disagrees. U.S. companies stay because they have reregistered as controlled foreign corporations and still pay no federal taxes as long as the profits remain offshore, he says. Numerous companies with Puerto Rican operations declined comment on the subject or did not return calls.
Advocates argue statehood would increase investment and eliminate the stigma that the island is a third-world entity. “U.S. investors see it as something foreign, something Spanish, something Caribbean,” says McClintock. Puerto Rico is “foreign” for tax purposes only, Bhatia counters. Statehood is not needed to offer “psychological” reinforcement, he added.
Companies continue to expand there. Last year drug maker Amgen said it planned to invest $1 billion over four years in new and existing plants. The “global supply of our principal products is significantly dependent on the uninterrupted and efficient operation of these Puerto Rico facilities,” Amgen’s annual report said. Amgen declined to detail Puerto Rican operation profits. Foreign profits before income taxes in 2006 were about $2.33 billion, more than half the total pretax profits.
The island’s tax breaks are not limited to profits. Horacio Aldrete, a director at Standard & Poor’s, said statehood could eliminate Puerto Rico’s rare “triple tax-exempt” status. Puerto Rican bond income is exempt from federal, state and local taxes.
Puerto Ricans have voted against statehood in three nonbinding referendums over the past 40 years. In 1998, when the last vote was held, more than 46% of voters favored statehood, while more than 50% opted for none of the choices, effectively maintaining the status quo. The White House says Puerto Ricans should decide. “Financial incentives for the core investors, the people moving the economy, it’s not clear why they would want a move to the left or right,” Melendez says.Link here.
TAX EVADERS WERE ON WORLD ECONOMIC FORUM’S AGENDA
In January, a panel at the World Economic Forum in Davos, Switzerland said that companies who pay little or no tax in large, developing economies are keeping tax rates high. The panel on business regulation and taxation entitled “How Red is Your Tape?” examined the so-called informal sector or black economy, which includes companies that evade their taxes. It encouraged legitimate businesses to lobby governments to move faster in bringing the black economy into the legitimate economy. Such a move could result in lower corporate tax rates overall as the tax burden is more equally distributed across all businesses. The panel suggested incentives such as phasing in full tax payments while informal companies adjust. High levels of tax evasion put more pressure on legitimate corporate taxpayers to make up the shortfall.
Figures from one panelist indicated that 70% of workers in the BRIC countries of Brazil, Russia, India and China fell outside government control and do not pay any taxes at all. The panel revealed that, in 2003, the informal economy accounted for 42% of Brazil’s GDP, against 32% in 1990. In Russia, the total was 49%, against 38% in 1990. It accounted for 26% in India, up from 21% in 1990, and for 16% in China, against 11% in 1990. In India, according to another participant, 43% of the workforce is in the informal sector, which accounts for 47% of the country’s exports.
The panel did concede that gathering precise data in many countries is difficult, if not impossible. It identified tax as a key driver in the growth of the informal economy. One panellist claimed that, in a BRIC country, a company conforming to all tax regulations can expect to pay around 80% of its annual profits in tax. Other panellists claimed that countries are hampered in development plans and in creating education and health programs, because large parts of their economies are outside the taxation system and provide no revenue to government coffers.Link here.
GIBRALTAR AWAITS EUROPEAN COURT DECISION ON TAX REGIME
Gibraltar’s Chief Minister Peter Caruana travelled to Luxembourg last week where he gave oral evidence at the court hearing of Gibraltar’s tax case against the EC in the European Courts. In this case the Gibraltar Government and the UK Government are challenging an EU Commission’s decision to the effect that under EU law Gibraltar is not entitled to have a tax regime different to the UK’s.
“This oral hearing is very much the final stage of this litigation,” Caruana commented. “Under the EU court system the exchange of written arguments is the main part of the procedure. The oral hearing is quite brief. It’s a different system to ours. During the written argument stages Gibraltar has formulated and submitted an impressive array of arguments, all of which are supported by the recent landmark ruling by the European Court of Justice in the Azores case. We are thus confident in the merits of our case.”
In the Azores case the ECJ had to determine the principles that apply in deciding whether a tax regime is in breach of state aid rules on grounds of Regional Selectivity. Portugal had permitted the legislative assembly of the Azores to cut rates of income tax by as much as 30% in 1999 in recognition of the unique structural difficulties of its economy. However, under EU state aid rules, member states are only permitted to grant special tax regimes to certain regions or industries if they are proportionate and in keeping with the current tax system in place in that country, in the interests of maintaining a level tax playing field.
But according to Gibraltar, the ECJ’s decision “fully vindicates” its own arguments before the Court as to why it is entitled to have a separate and different tax regime to that of the UK. Gibraltar has been attempting to overhaul its company taxation system by introducing a new regime which will replace the mainstream 35% corporate tax and tax-exempt company forms with a payroll tax and a business property occupation tax, both of which will be capped at 15% of profit. However, this plan has been blocked by the EU’s decision that the jurisdiction effectively constitutes part of the UK, and therefore such a tax regime would breach EU state aid rules.Link here.
LONDON TOPS FINANCIAL CENTER LEAGUE, BUT TAX CONCERNS PERSIST
New research has put London at the top of an index comparing the competitiveness of 46 of the world’s financial cities. The Global Financial Centers Index (conducted on behalf of the City of London Corporation) showed London and New York as the only two truly global financial centers, ahead of the two Asian centers of Hong Kong (3rd place) and Singapore (4th place). Zurich was in 5th place, just ahead of Frankfurt.
London is currently ranked ahead of New York by five points and, according to the research, led in all five areas of competitiveness – people, business environment, market access, infrastructure and general competitiveness. However, the report highlighted widespread concerns about the UK tax regime, relative to its competitors, adding to the growing body of anecdotal evidence cited by the country’s business leaders that companies are increasingly looking to more tax-favorable jurisidctions from which to operate. The Institute of Directors has recently warned that the UK’s tax burden is fast approaching a “tipping point”, while the Confederation of British Industry has similarly called on the government to end the slide in the UK’s tax competitiveness.
The GFCI shows a change in emphasis regarding the areas of competitiveness. Currently, the regulatory and tax environments are judged to be the biggest contributors to overall competitiveness. It also highlights the changing nature of Asian financial market, with Hong Kong rated 3rd and considered to be a real contender to become a global financial center. Singapore falls in 4th place, with the emerging markets of Shanghai (24th place) and Beijing (36th place) some way further down the table.
Other key findings from the research show that Shanghai and Tokyo are unlikely to be global centers, but Hong Kong seems the most likely Asian city to emerge – assisted by a strong regulatory system and a well-skilled financial services workforce. However, the future of Asia is still the “subject of conjecture” according to the report. The report also found that commercial property prices in London are not currently hindering competitiveness in financial services, although the London is falling behind other cities when it comes to the development of its transport network.
The GFCI is the first of what will be a biannual index of competitiveness for 46 world financial centers, charting how they rate relative to each other on an ongoing basis. The index brings together the results of online surveys completed by financial services leaders and 47 separate indices of competitiveness. Further surveys will follow, incorporating greater geographical coverage and additional instrumental factors.Link here.
UK BETTING FIRMS ANTICIPATE TAX CHANGES
Britain’s betting and gaming industry expects Finance Minister Gordon Brown to impose a number of tax changes when he delivers what is likely to be his last budget this week. Analysts say Brown will try to tempt online casino gaming firms like PartyGaming and 888.com, currently based in offshore tax havens such as Gibraltar and Cyprus, back to Britain and within reach of the UK tax man with a new, low tax.
Expectations for the new tax rate range between 2 and 15% of revenue, although companies will also have to take into account the tax implications of paying their staff if they relocate back to Britain. The move could lure online firms looking to rebuild their reputations in the aftermath of last year’s decision by the U.S. to effectively outlaw Internet gambling.
One gaming executive, who asked not to be named, told Reuters that firms would jump at the chance to move if the tax rate was right and if they thought the UK government would back them up as they look to overcome opposition to online gaming in other countries. However, Betfair Managing Director Mark Davies told a recent conference online firms with well-known brands would not feel a UK domicile was necessary to prove their respectability and would need a bigger carrot.
The move could also disgruntle traditional bricks and mortar casino operators, whose profits can currently be taxed by as much as 40%. However, Brown could raise the level at which firms are taxed at the highest rate as Britain gets ready to build a new wave of larger casinos.Link here.
HONG KONG TAX CUTS AIMED AT MIDDLE CLASS
The 2007-08 Hong Kong Budget aims to return some wealth to the middle class, who bore the brunt of tax increases during harder times, according to Principal Assistant Secretary for Financial Services and the Treasury Kenneth Cheng. Cheng told news.gov.hk that in the last few years, when Hong Kong had financial challenges and the Government’s fiscal situation was tight, the middle class was the most taxed. Noting the revenue surge was mostly brought by those tax increases, Cheng said the 2007-08 Budget has proposed a series of tax relief measures, in particular to those who paid the most during that difficult time.
From 2007-08, the marginal tax rates and tax bands will be reverted to the 2002-03 levels. A waiving of 50% of the 2006-07 salaries tax or tax charged under personal assessment will be offered, subject to a HK$15,000 (US$1,920) ceiling per assessment. The child allowance will be raised to HK$50,000 from HK$40,000 for each child, with the introduction of an additional HK$50,000 allowance for each child born during the year. In other words, the total child allowance for a new-born child will be HK$100,000 in the year of birth.
Cheng said among the 1.35 million taxpayers in 2006-07, 40% had an annual income of HK$200,000 to HK$400,000. Their tax bills due in January next year will be reduced 70% on average, depending on their family profile. “For a single taxpayer who does not have child or new-born child allowance, if their monthly salary income in 2006-07 is HK$30,000 (US$3,840) and the amount of provisional tax paid is the same as the amount of final tax liability for 2006-07, the tax bill due in January 2008 will be 52% less, from HK$38,900 to HK$18,700 after the Budget proposals,” he stated. Cheng pointed out taxpayers earning HK$200,000 to HK$400,000 (US$25,600 to US$53,200) a year contributed 13.6% of the salaries tax assessed. After the proposed tax concessions are implemented, the figure will be lowered to 12.2%. Unlike the tax rebate exercises in 1999 and 2003, the measure proposed this year will be reducing the amount payable in the tax bill, instead of making refunds of tax previously paid.Link here.
CANADA TAX MOVE THREATENS BUSINESSES ABROAD
A federal budget proposal that prohibits firms from deducting interest on foreign-related loans puts Canadian companies’ ability to compete globally at risk, tax experts warned. The change was described as one of the “most significant” developments related to tax law governing international financing in more than 30 years. If passed as envisaged, experts say, it will raise the cost of capital for Canadian companies with business abroad and hinder their ability to execute foreign acquisitions.
Canadian banks, they add, are at particular risk because they could be in danger of losing domestic business clients. These clients may opt to seek better financing terms from lenders in countries where they own foreign assets. “It really is huge,” Karen Atkinson, a Toronto-based tax partner at Ernst & Young, said, adding she was on the phone most of yesterday advising frustrated clients. “In essence, you are penalizing Canadian companies for financing their growth outside of Canada.” Banks and insurance companies are reviewing the proposal, spokesmen said. But Bay Street sources said financial institutions are convinced the issue is much bigger than Finance has calculated.
“People are hugely concerned and see this as a huge issue,” said one source. “The estimate in the budget of $40-million is way too low. It is hundreds and hundreds of millions, possibly up to a billion dollars. It will really have a huge impact on any Canadian company doing business abroad. It’s much bigger than the bureaucrats in Finance estimated and there is a sense that the Minister was not aware of the full scope of it.”
The government promoted tax fairness in its budget. Part of the fairness plan included a proposal to end the practice of allowing corporations to deduct interest to fund business operations abroad. The budget said the measure is expected to generate $10-million in federal revenue in 2007-08 and $40-million in 2009-10 – projections that experts said are likely on the low side. “The Canadian tax system recognizes the expense but not the corresponding revenue,” the budget said in describing the current scheme. “Canada’s existing tax rules permit this mismatch, and multinational corporations have used it to their advantage.” As a result, the budget said, “taxpayers are indirectly subsidizing” companies’ international operations.
Lawyers at Law firm Osler Hoskin & Harcourt say the current tax regime has been justified until now on the basis that it preserves Canada’s international competitiveness by permitting its multinationals to expand internationally in a tax-efficient manner. The budget said the change was necessary to crack down on companies that use tax havens to avoid paying tax. It is possible, through a complex set of transactions, for a Canadian company to get interest on loans deducted in two countries through the use of a low-tax regime, such as Barbados.
“There were certain abuses the government was trying to deal with, but it seems to me that, as they tend to do, Ottawa has created legislation that is overreaching,” said Michael Goldberg, a Toronto tax lawyer with Minden Gross.
Jack Mintz, a taxation expert, said larger Canadian companies, such as banks and insurers, may be able to reduce the increased costs this proposal entails through a process known as cash damming. Under this scheme, the company would borrow money to finance domestic operations and use cash flow generated in Canada to fund foreign affiliates. Otherwise, the proposal, as it stands, would have a big impact on large foreign acquisitions because of the debt incurred and the inability to shift that amount owing offshore, he said.Link here.
IRS POSTS REGULATIONS THAT GIVE EXPATS A BREAK
When was the last time the IRS actually did something nice for U.S. taxpayers? About three weeks ago, actually. The IRS issued an obscure notice on February 23, 2007. This notice promises to make life a little easier, tax-wise, for many of the more than three million U.S. citizens working outside the U.S.
Sadly, the U.S. is the only major country that taxes citizens on their worldwide income, wherever they live. This creates considerable difficulties for U.S. citizens working abroad, not to mention the employers who might want to hire them.
Put yourself in the shoes of a company in a country like, say, Dubai. You live and work in a booming economy, where you have a huge demand for foreign workers, and zero taxes. You have a position opening up in the data processing department that will pay the equivalent of $100,000. You are looking at three top candidates. The first two, from Sweden and Japan, will not pay any taxes at all in Dubai because they are considered nonresidents in their respective countries. But the U.S. candidate will likely demand more compensation, because he will be taxed by the U.S. on his income (although not all of it, as you will learn momentarily). So taxing foreign earned income makes U.S. citizens less competitive in the global marketplace. Thanks, Congress. And thanks Supreme Court, too, since more than 80 years ago it upheld global taxation.
Fortunately, there is a silver lining. U.S. citizens who live abroad may exclude up to $82,400 of annual compensation from their income and can also exclude or deduct certain housing expenses. If you are a U.S. citizen living abroad with your spouse, both of you can exclude up to $82,400 each year, for a total “foreign earned income exclusion” of $168,400 annually. Fringe benefits that are nontaxable to a U.S.-based employee, like health insurance or retirement plan contributions, are also nontaxable overseas.
You must qualify under one of two tests to be eligible for this foreign earned income exclusion (FEIE): the bona fide residence test or the physical presence test:
Under either test, you must prove that you have a new tax home outside the U.S. For example, you live in a jurisdiction that can tax your income on the basis of residence or other ties. However, there is no requirement that you live in a country that imposes an income tax.
Congress tries to squash foreign earned income exclusion - and fails!
It might seem only fair that since the U.S. forces its nonresident citizens to pay income tax, it would provide some measure of relief via a mechanism like the FEIE. But that has not stopped congressional demagogues from regularly demanding that it be scrapped. In virtually every congressional session over the least five years, they introduce a bill requiring Americans who work and live in other nations to pay tax on their worldwide income.
There is another provision of the U.S. Tax Code that says if, while abroad, you earn income that is subject to foreign taxes, then you may apply those taxes as a credit towards your U.S. tax bill. But there are problems with foreign tax credits. One problem is that they do not apply to all types of taxes. Another hitch is that eliminating the FEIE would make U.S. citizens even less competitive in the global marketplace than they already are. Nonetheless, in 2006, our enlightened Congress, spearheaded by Sen. Charles Grassley (R-Iowa), made significant changes to the FEIE to make it less attractive. In some cases, U.S. citizens working abroad will see their taxes go up $30,000 or more!
IRS extends a helping hand.
But the IRS stepped in to rescue U.S. expatriates on February 23. The agency gave a huge break to expats living in areas with high housing costs. Specifically, they increased housing exclusion allowances in dozens of locations. U.S. citizens working in China and India will see the biggest increases, along with those working in several suburbs of London. In some cases, expats working in these locations could see their tax bill fall by several thousand dollars.
Charles Grassley and his congressional killjoys may try their best to eliminate or further restrict the FEIE exclusion again this year ... and the IRS may not be willing to come to the rescue again if they do. However, in this era of big government, Big Brother and increasingly onerous taxation, I will take what I can get.Link here.
IRS WARNS TAXPAYERS TO STEER CLEAR OF “FRIVOLOUS” ARGUMENTS
The IRS has issued guidance identifying dozens of frivolous positions that taxpayers should avoid when filing their tax returns. The guidance lists 40 positions which have no basis for validity in existing law or which have been deemed frivolous by the U.S. Tax Court or other federal court.
The IRS warned that if these or other frivolous positions are contained in a tax return, taxpayers could face a $5,000 penalty – 10 times the previous maximum. In 2006, Congress increased the the penalty to $5,000. The increased penalty amount applies when a person submits a tax return, or other specified submission, and any portion of the submission is based on a position the IRS identifies as frivolous. IRS Notice 2007-30 contains a list of frivolous positions that will trigger the increased penalty amount. Four revenue rulings issued in conjunction with the notice address specific frivolous claims often made to the IRS. The revenue rulings center on the false contentions that:
The revenue rulings are designed to emphasize the adverse consequences to taxpayers who fail to file returns, or fail to pay taxes based on an erroneous belief in any of these frivolous arguments. The IRS said that it continues to investigate promoters of frivolous arguments and to refer cases to the Department of Justice for criminal prosecution. In addition to tax and interest, those who file frivolous income tax returns may be subject to civil penalties of 20% or 75% of the underpaid tax. Those who pursue frivolous tax cases in court may face an additional penalty of up to $25,000.Link here.
IRS Data Book shows boost in audit activity.
The IRS collected more than $2.2 trillion in tax and processed over 228 million returns in the fiscal year 2006, the agency has announced. The latest IRS data book shows that over 80 million returns, including 54.3% of individual income tax returns, were filed electronically in FY 2006. Over 108 million individual income tax return filers received tax refunds, totaling $243 billion. In FY 2006, the IRS spent an average of 42 cents to collect each $100 of tax revenue.
The figures show that the IRS boosted its audit activities with regard to both individual and business taxpayers last year. Nearly 1.3 million individual income tax returns were examined in FY 2006, more than double the number examined in FY 2000. Examinations of business tax returns grew for the second year in a row, reaching over 52,000 in 2006.
Total corporate tax receipts collected by the IRS last year equaled almost $381 billion, 16% of all revenues received by the agency. Total employment taxes, at almost $815 billion, accounted for 32.4% of all revenues, while individual income taxes, at 1.2 trillion, accounted for a little under half (49.1%) of total revenues. Just under $29 billion was collected in estate and gift taxes, or 1.1% of the total revenue haul.Link here.
MANY U.S. TAXPAYERS ARE MISSING OUT ON EASILY-OBTAINED PHONE TAX CREDITS
The U.S. National Association of Tax Professionals says that many taxpayers are inexplicably failing to take at least the standard deductions allowed for excess federal telephone excise tax they paid on their phone bills. Three in every ten taxpayers are not taking the standard credit – offered in 2006 only – for telephone excise tax, according to IRS Commissioner Mark W. Everson.
“I recently took on a new client who is an engineer for a national oil production company,” states Michael Womack, an NATP member from Oklahoma Cit. “His wife has a small sideline business producing piece work for an electronics firm and works out of their home. Being the busy professional that he is, he was content to take the standard TET deduction. But his wife took the time to run a tape of the amounts they had actually paid from March 2003 through July 2006. Wow! What a difference. Because she took the time to “do the math” they are now looking at a deduction of $153.24.”
Given how easy it is for individuals to choose the standard credit amount, it is hard to understand why they would elect to forego the credit altogether. Unlike some of the other deductions and credits that were extended too late to be included on tax forms, there is a line for claiming the telephone excess tax on federal Form 1040s. The IRS also devised a simple Form 1040EZ-T for those taxpayers who do not have to file a tax return for other reasons, but wish to receive this tax credit. Claiming the standard amount telephone excise tax credit realistically could not be much easier.
A majority of taxpayers have paid federal excise tax on their long-distance phone calls between March 1, 2003, and July 31, 2006, the time period to which the refund applies. If you have already filed and missed out on the credit, you can file an amended tax return until April 15, 2010. Based on feedback from taxpayers who have chosen to request their telephone records to calculate actual amounts paid, the majority of phone service providers are gladly providing copies of past invoices at no charge, and often within only a few days of the request. To reduce preparer expenses, request the copies and add up the amounts paid ahead of an appointment.Link here.
U.S. SENATE FINANCE LEADERS QUESTION IRS POLICY ON OUTSOURCING RULE WRITING
U.S. Senators Max Baucus (D-Montana) and Chuck Grassley (R-Iowa), Chairman and Ranking Republican Member of the Senate Finance Committee, are questioning a new IRS plan to outsource the writing of some agency rules. The IRS recently announced its intention to ask “interested parties” to provide research and even draft proposals for new procedures and regulations for administering tax policy and implementing tax legislation. In letters requesting more information from the Treasury Inspector General for Tax Administration, J. Russell George, and from the IRS’s chief counsel, Donald L. Korb, Baucus and Grassley expressed concern that this will allow outside groups to have undue influence on policies that affect American taxpayers.
“In the end, the IRS needs to run the IRS. And with $345 billion in legally owed taxes going uncollected every year, it would seem that the IRS might need to ride closer herd on its rules, rather than farming them out,” said Baucus.
“We don’t need K Street lawyers writing enforcement regulations to help their clients create tax shelters. That would be worse than a camel’s nose under the tent. It would be the whole caravan. ... We might as well have the Justice Department let defense counsels write sentencing guidelines. If the IRS is that short on resources, the commissioner needs to tell Congress,” Grassley remarked.Link here.
GRASSLEY URGES TOUGHER OVERSIGHT OF NONCASH CHARITABLE CONTRIBUTIONS
Sen. Chuck Grassley, ranking member of the Committee on Finance, has expressed concern over the findings of a new government report showing that compliance problems involving noncash charitable contributions persist. The report by the Treasury Inspector General for Tax Administration (TIGTA) found that in a recent 9-month time period, 101,000 taxpayers could have claimed $1.8 billion in unsubstantiated noncash contributions. “That’s amazing,” Grassley remarked. “Equally as bad is that 20% of taxpayers or their preparers failed to comply with reporting requirements for non-cash contributions.”
In recent years, the legitimacy of the values placed on some noncash donations, such as clothing, has been questioned by the IRS and Congress. As a result, Congress passed legislation that created additional reporting requirements to substantiate the value of some of these donations. Individual taxpayers are required to file a Noncash Charitable Contributions form if their charitable deductions claimed for noncash contributions exceed $500. The amount of substantiation to be provided increases as the value of the deduction increases. However, the report found that currently, taxpayers who may not be entitled to deductions for noncash contributions are reducing their tax liabilities and may receive refunds regardless of whether they provide the required substantiation.Link here.
TAX HAVEN NON-SENSE AND DECEPTION
There seems to be a huge amount of non-sense and some outright deception about the impact of tax havens and the alleged abuse of tax havens. The following comments are offered as an attempt to provide some balance to the arguments of those who rail against U.S. persons with foreign income, particularly in a so-called tax haven.
The U.S. imposes an income tax on the world wide income of our citizens and permanent residents, regardless of where the income is earned. If it is earned in a country that also imposes income taxes, the U.S. provides for a tax credit to avoid double taxation. But if the income is earned in a country that has no income tax (or a low rate of tax), the U.S. collects a tax on that income as if it were earned in the U.S. We do allow for a limited exemption from U.S. tax for earned income in foreign countries – but most of the U.S. citizens who work outside the U.S. pay substantial taxes to foreign countries. The tax credit is not allowed on foreign excluded income, so that apparent tax break does not really cost the U.S. any significant loss of tax dollars.
U.S. corporations that operate in multiple countries are permitted to defer tax on income earned in a low tax country so long as the income is reinvested in the business and not used as passive investments. This is done to partially compensate for the disadvantages imposed on U.S. companies in competing with companies based in other countries.
Many decades ago, it was legal and possible to move assets offshore and to invest them on a tax-free basis until the money was returned to the U.S. But various laws have removed those tax breaks. If a U.S. investor opens a foreign bank account and buys various offshore investments, the U.S. investor is obligated by law to pay taxes on the income earned by those investments. Many times, the U.S. investor is encouraged to put his assets into a foreign corporation or an international business company (IBC) and to make the investments through the corporation or IBC. But the U.S. tax law already requires the U.S. shareholder of a foreign corporation to pay taxes on the income of a foreign investment holding company or a foreign corporation controlled by U.S. persons.
Some people seem to believe that the use of a foreign trust is some kind of tax shelter, but it is not a legal way to avoid taxes. The U.S. person who puts assets into a foreign trust that has any current or future U.S. beneficiary is obligated by law to report the income earned by the foreign trust and to pay taxes on that income.
Virtually every other country in the world imposes income taxes on a territorial basis. Income earned in their country is taxable. Income earned outside their country is not taxable. But the U.S. insists on taxing the income of its citizens, permanent residents, corporations, partnerships, trusts and estates no matter where the income is earned.
Those politicians who rail against alleged losses of tax revenue because of tax havens are either not aware of the scope of the U.S. tax laws, or are intentionally dispensing non-sense to pander to the public’s lack of awareness of the current system. The only people who are evading taxes offshore are outright crooks and those who are not concerned about complying with the U.S. tax laws. More laws will have no impact on those who choose to ignore the existing laws. Claims that closing up tax haven loopholes will somehow generate revenue to be used for domestic spending is political propoganda that is totally contrary to the facts. We do not need more laws to prevent tax evasion offshore. We have more than enough laws already.Link here.
IRS ADMITS ST. VINCENT TO THE QUALIFIED INTERMEDIARY PROGRAM
New IBC and LLC Acts being refined as well.
The IRS has admitted St. Vincent and the Grenadines to its qualified intermediary program, and is now displaying a listing that details the KYC (know your customer) standards applicable in St. Vincent and the Grenadines. The publishing of this attachment means that the IRS recognizes the anti-money laundering laws of St. Vincent as of an equivalent standard of those of the USA and means that the U.S. authorities are open to doing business with St. Vincent financial intermediaries.
Other news from the jurisdiction includes a new International Business Companies Act, an ongoing boom in tourism, and a new LLC Act which enables segregated cells:
CHANGES IN BVI REGULATIONS AND COURT SYSTEM ATTRACTIVE TO GLOBAL BUSINESSES
On the heels of big changes from the Virgin Islands Special Trusts Act 2003 and the BVI Business Companies Act 2004, the British Virgin Islands continues to enhance the business environment for financial institutions and corporations. Walkers, the leading global offshore law firm, reports that new legislation that is on the horizon, specifically private trust company legislation and the Legal Profession Bill, along with the development of the Caribbean’s first Commercial Court and the appointment of a Managing Judge for the Eastern Caribbean Supreme Court, will all contribute to the BVI’s position as a leading offshore financial center.
The substantive private trust company legislation came into force on 15 January 2007 and the enactment of subsidiary regulations specifying which companies will be exempt is imminent. Under the newly enacted legislation, certain private trust companies may be exempted from licensing requirements and other provisions of the Banks and Trust Companies Act. Unremunerated BVI private trust companies which do not offer their services to the general public will be able to apply for these exemptions, according to the Commission.
“These regulatory changes will enhance the BVI’s attractiveness as a jurisdiction for the incorporation and use of private trust companies,” Christopher McKenzie, Partner and head of Walkers’ private client department in the BVI, said. “These developments are extremely positive news for estate planners and will promote more structures that use both a trust governed by BVI law and a BVI private trust company as trustee by striking the right balance between the level of regulation versus the level of exemption.”
Private trust companies enable family-controlled structures to be established, offer trustees the benefits of limited liability and perpetual existence which are usually the features of corporate vehicles, and can lessen the tax burden by moving the liability from the settlor to the trust company.
Another important step that the BVI Government is taking is the development of the first Commercial Court in the Caribbean, as part of the Eastern Caribbean Supreme Court, which celebrated its 40th anniversary last month. The BVI Government has also introduced the Legal Profession Bill, which models legislation that onshore jurisdictions have used to regulate their legal professions. Walkers stated that it has already seen the impact of these changes through an increase in major institutional work for the BVI office, including sophisticated, high-value corporate transactions and complex international litigation cases.Link here.
IRS ISSUES WARNING ON PROLIFERATION OF FAKE WEBSITES
Sites attempt to garner information with which to steal taxpayer’s identity and assets.
The IRS has warned taxpayers to beware of a proliferation of websites that contain some form of the Internal Revenue Service name or IRS acronym within their address, and may be being used for fraudulent purposes. In a statement issued this week, the IRS reminded taxpayers that the official IRS government website is www.irs.gov, and warned them not to be fooled into thinking similar websites with a .com, .net, .org or other designation in the address are the genuine agency website.
Because .com, .net and .org are such common parts of internet addresses, taxpayers may automatically or inadvertently type these extensions, instead of .gov, into the address line of their web browser when trying to find the genuine IRS Web site, the agency has noted. Although the IRS website offers interactive features, the tax or private financial information that these features ask the taxpayer for is extremely limited. The IRS reminds consumers who access unfamiliar sites, or sites which they have never dealt with before, that they should never reveal any personal or financial information, such as credit, bank account or PIN numbers, without verifying the validity of the site.
The IRS also reminds consumers to be alert to an ongoing internet scam in which consumers receive an email informing them of a federal tax refund. The email, which claims to be from the IRS, directs the consumer to a link – often a website resembling the IRS website – that requests personal and financial information, such as Social Security number and credit card information. This scheme is an attempt to trick the email recipients into disclosing their personal and financial data. The practice is called “phishing” for information. The information fraudulently obtained is then used to steal the taxpayer’s identity and financial assets. The agency warned taxpayers who receive an unsolicited email purporting to be from the IRS that they should never click on any links in the message, open any attachments or provide any personal or financial information to the sender.Link here.
LIFE WITH BIG BROTHER
People who opt out of Britain’s “voluntary” scheme must “forgo the ability” to travel abroad.
British citizens who refuse to provide personal details for the planned “voluntary” national identification card have been told they will be denied passports and be unable to leave the U.K. James Hall, CEO of the Identity and Passport Service, the agency charged with running the National Identity Scheme to provide ID cards to all residents of the UK, confirmed many privacy advocates’ fears when he revealed those who opt out of the program will be unable to obtain or renew travel documents.
Hall made the revelation during a national “webchat” where questions were submitted by the public. In response to a questioner asking what would happen to those who refused to join the nearly $11 billion program, Hall answered, “There is no need to register and have fingerprints taken – but you will forgo the ability to have a passport.” Phil Booth, of the privacy-advocacy group NO2ID, told the London Daily Mail, “The idea that ID cards scheme is voluntary, and people can opt out, is a joke. ... It stretches the definition of voluntary beyond breaking point. They will go to any length to get personal information for this huge database. Who knows what will happen to it then?”
The ID-card bill only advanced through Parliament after assurances were given that those who needed a passport and did not wish to participate in the National Identity Scheme would have the choice to opt out.Link here.
WINDOWS VISTA – ARROGANCE AND STUPIDITY
Upgrading to Windows Vista has been banned by the U.S. Department of Transportation, the National Institute of Standards and Technology, the Federal Aviation Administration, technology giant Texas Instruments and other corporations and government agencies. These organizations are evaluating their options, but overseas it is turning into a stampede to get out of Microsoft software. School districts in the U.S. are starting to move entirely to Linux rather suffer the cost of upgrading Windows. Schools making this move have been surprised how easy it is and how much money is saved.
Leading computer maker HP is reporting “massive deals for Linux desktops” with corporate clients. Runner-up computer maker and long time faithful Microsoft ally Dell has been overwhelmed by demand and has started developing Linux desktop preloads for their notebook and desktop computers. Even that great bastion of the status quo, the Wall Street Journal, has published an article under the title “Linux Starts to Find Home on Desktops” (Business Technology, 13 March 2007).
Small business and consumer demand for computers with Windows XP is very high, but Microsoft has moved swiftly to make sure they cannot get it. No sane person wants Vista, so Microsoft is making sure they have no choice. It has becoming clear people are going to be holding on to their XP machines as long as they can. Chip manufacturers in particular face a damaging glut of memory and CPU chips because the anticipated Vista upgrade demand is not materializing. One gigabyte of RAM memory is the practical minimum for Vista (except Home Basic which will run in 500 megabytes).
Basically, Vista was designed with almost no consideration for the needs of Microsoft’s customers. Vista and its companion programs, Office 2007 and Internet Explorer 7, offer precious little Windows users want beyond what is in Windows XP, but plenty they do not want, including a confusing new user interface. Vista’s much ballyhooed security has already been shattered in various ways, and Microsoft’s “One Care”, intended to protect Vista from malware, has scored at the very bottom in independent tests of anti-malware programs. Microsoft’s DRM (Digital Rights Management) features not only interfere with your enjoyment of entertainment media you have purchased, but force you to have a much more powerful and expensive machine just to achieve XP level performance.
Why did they do this? Most new features originally planned for Vista were dropped in favor of one – a draconian DRM scheme. See my editorial “Vista – Broken by Design” for the details. All other features were of lower priority and the needs of customers were disregarded if they conflicted with DRM. Microsoft hopes to parlay secure DRM into a monopoly on distribution of so called “premium content”. Once they have lured the studios into the deal and established the monopoly they can dictate terms to the studios the way Apple dictated terms to the record companies based on the iPod success, but on a much larger scale.
Microsoft is depending on the unbounded greed of the media moguls to pull this off, but word is the moguls are starting to wonder if DRM is a good idea after all. It is causing them a lot of trouble, has done nothing to stop piracy, and has caused tremendous ill will and bad publicity. Clearly ill will is of no concern to Microsoft. A recent patent filing reveals they have a whole lot more pain and expense planned for you in the future.
Every business should be taking a long hard look at moving to Linux. Yes, there will be costs involved, and employees will gripe initially, but those who have done this find an overall cost savings. I find it hard to recommend Apple. Applications are limited and it is a closed proprietary environment run by a person of proven greed. It seems like jumping from the frying pan into the fire.
I understand that many small businesses are dependent on specialty software the publishers of which support only Windows, even if it will actually run on Linux. It is time to start pressuring them for Linux versions and/or support. If you happen to be such a software publisher, it is time for you to take a good hard look at producing Linux versions yourself. Microsoft has already killed a huge segment of the commercial software industry and you are on their list. Sooner or later it is your turn.Link here.
THE CONFESSION BACKFIRED
The first confession released by the Bush regime’s Military Tribunals – that of Khalid Sheikh Mohammed – has discredited the entire process. Writing in Jurist, Northwestern University law professor Anthony D’Amato likens Mohammed’s confession to those that emerged in Stalin’s show trials of Bolshevik leaders in the 1930s.
That was my own immediate thought. I remember speaking years ago with Soviet dissident Valdimir Bukovsky about the behavior of Soviet dissidents under torture. He replied that people pressed for names under torture would try to remember the names of war dead and people who had passed away. Those who retained enough of their wits under torture would confess to an unbelievable array of crimes in an effort to alert the public to the falsity of the entire process.
Mohammed’s confession of crimes and plots is so vast the AP reports that the Americans who extracted Mohammed’s confession do not believe it either. It is exaggerated, say Mohammed’s tormentors, and must be taken with a grain of salt. In other words, the U.S. torture crew, reveling in their success, played into Mohammed’s hands. Pride goes before a fall, as the saying goes. Mohammed’s confession admits to 31 planned and actual attacks all over the world, including blowing up the Panama Canal and assassinating presidents Carter and Clinton and the Pope. Having taken responsibility for the whole ball of wax along with everything else that he could imagine, he was the entire show. No other terrorists needed.
Reading responses of BBC listeners to Mohammed’s confession reveals that the rest of the world is either laughing at the U.S. government for being so stupid as to think that anyone anywhere would believe the confession, or damning the Bush regime for being like the Gestapo and KGB. If there was anything remaining of the Bush regime not already discredited, Mohammed’s confession removed any reputation left.
The most important part of the Mohammed story is yet to make the headlines. Despite having held and tortured hundreds of detainees for years in Gitmo, and we do not know how many more in secret prisons around the world, the U.S. government has come up with only 14 “high value detainees”. In other words, the government has nothing on 99% of the detainees who allegedly are so dangerous and wicked that they must be kept in detention without charges, access to attorneys and contact with families.
The U.S. government does not care that innocent people have been ensnared, because the U.S. government desperately needs both to prove that there are vast numbers of terrorists and to demonstrate its proficiency in protecting Americans by capturing terrorists. Moreover, the government needs “dangerous suspects” that it can use to keep Americans in a state of supine fearfulness and as a front behind which to undermine constitutional protections and the Bill of Rights. The Bush-Cheney Regime succeeded in its evil plot, only to throw it all away by releasing the ridiculous confession by Khalid Sheikh Mohammed.
Will Bush’s totalitarian Military Tribunal now execute Mohammed on the basis of his confession extracted by torture, or would this be seen everywhere on earth as nothing but an act of murder? If Bush cannot have Mohammed murdered, the U.S. government will have to shut Mohammed away where he cannot talk and tell his tale. The feds will have to replicate Orwell’s memory hole by destroying Mohammed’s mind with mind-altering drugs and abuse. It is to such depths that George Bush and Dick Cheney have lowered America.Link here.
U.S. EXECUTIVE BRANCH DOMESTIC SPYING REVELATIONS MAKE IMPEACHMENT IMPERATIVE
While serving as President Bush’s White House lawyer, Alberto Gonzales advised Bush that the president’s war time powers permitted Bush to ignore the Foreign Intelligence Surveillance Act (FISA) and to use the National Security Agency (NSA) to spy on U.S. citizens without obtaining warrants from the FISA court as required by law. Under an order signed by Bush in 2002, NSA illegally spied on Americans without warrants.
By spying on Americans without obtaining warrants, Bush committed felonies under FISA. Moreover, there is strong, indeed overwhelming, evidence that justice was obstructed when Bush and Gonzales blocked a 2006 Justice Department investigation into whether Gonzales acted properly as Attorney General in approving and overseeing the Bush administration’s program of spying on U.S. citizens. Also at issue is whether Gonzales acted properly in advising Bush to kill an investigation of Gonzales’ professional actions with regard to the NSA spy program.
We are faced with the almost certain fact that the two highest law enforcement officials of the United States are criminals. The evidence that Bush and Gonzales have obstructed justice comes from internal Justice Department memos and exchanges of letters between the DoJ’s Office of Professional Responsibility (OPR), an investigative office, and members of Congress. The documents were leaked to the National Journal, and the story was reported in the March 15, 2007, issue by Murray Waas, who also relied on interviews with both current and former high ranking DoJ officials.
From Waas’s report it is obvious that many current and former Justice Department officials have serious concerns about the high-handed behavior of the Bush administration. The incriminating documents were leaked to the National Journal, the only remaining national publication that has any credibility. The New York Times and Washington Post have proven to be supine tools of the Bush administration and are no longer trusted.
As I wrote earlier, the only possible reason for violating FISA is to collect information that can be used to silence critics. The administration’s claim that bypassing FISA was essential to the “war on terror” is totally false and is a justification and practice that the Bush administration, no longer able to defend, abandoned in January of this year.
After keeping the information from Congress and the public for one year, on December 16, 2005, the New York Times reported that Bush was spying on Americans without complying with the FISA statute. In response to a request from members of Congress, the Justice Department’s Office of Professional Responsibility (OPR) launched an investigation into the Bush administration’s decision to ignore FISA and to conduct domestic spying on American citizens without obtaining the warrants required by law. On January 20, 2006, Marshall Jarrett, the Justice Department official in charge of OPR, informed senior Justice Department officials of his investigation and its scope.
Gonzales informed President Bush about the OPR investigation, and Bush shut down the investigation by refusing security clearances to the DoJ officials in OPR. In a response to Senate Judiciary Committee chairman Arlen Specter on July 18, 2006, Gonzales disclosed that President Bush had halted the OPR investigation. This is the first and only time in history that DOJ officials have been denied security clearances necessary to conduct an investigation. The Bush administration claimed that the secret spying was too crucial to our national security to permit even Justice Department officials to learn about it. However, even as Bush was denying clearances to OPR, he granted identical clearances to: (1) the FBI agents ordered to find who leaked the administration’s secret spying to the New York Times, (2) DoJ officials who had to respond to legal challenges to the illegal spy program, and (3) five private sector individuals who sit on the Privacy and Civil Liberties Oversight Board. Obviously, the unprecedented denial of security clearances to OPR was done in order to prevent the investigation.
Americans have never experienced an administration so replete with crimes as the Bush Regime. This criminal regime must now be brought to an end. Impeachments of Bush, Cheney, and Gonzales, followed by felony indictments and trials are imperative if the rule of law in the United States is to be preserved.Link here.
SHOCKER! FBI ABUSES CIVIL LIBERTIES
Surprise, surprise. The U.S. Justice Department’s inspector general issued a scathing report earlier this month criticizing how the FBI abuses a form of administrative subpoena called “security letters” to obtain thousands of telephone, business and financial records in secret without prior judicial approval. The report says that the FBI lacks sufficient controls to make sure the subpoenas, which do not require a judge’s prior approval, are properly issued. According to this report, the FBI does not even follow the few rules it does have.
Under the U.S. PATRIOT Act the bureau has issued more than 20,000 of these “national security letters” – far more then previously admitted. The DoJ report concludes that the program lacks effective management, monitoring and reporting procedures. And we might add, this is evidence of wholesale violations of the Fourth Amendment of the Bill of Rights. (But does anyone care?)
Before the PATRIOT Act, these letters could only be issued to a very select group of individuals who were suspected of the very serious crime of espionage, defined as “spying to obtain secret government information.” But the Act allows the letters to be used against anyone, including U.S. citizens, even if they are not suspected of espionage or any criminal activity. Also, today FBI field offices are allowed to issue these letters independently. In the past, only senior FBI officials had this privilege. And they are not subject to even perfunctory judicial review or oversight. That is a system ripe for abuse. It is finally being exposed.
In 2002, I reported that the FBI quietly had been asking offshore financial institutions to review their records for transactions involving scores of small businesses, organizations and people in the U.S., none of whom had been charged with any crime. The supposed object was to find terrorists and their cash. The use of these slipshod “security letters” marked a drastic change in the relationship between law enforcement and the financial industry. Financial institutions only used to surrender records to government agents, only after official proof of probable cause that a crime had occurred or was about to occur and after a search warrant was issued by a federal judge or magistrate. And all these questionable government actions were and are kept secret because the PATRIOT Act also allows the FBI and other government police to hide what they are doing. The Act extends the power of government over personal and financial records of every kind.
There is no dispute that the PATRIOT Act makes it far easier for the FBI and even the U.S. CIA to obtain a person’s financial, medical, student or other records. Under the Act, the FBI is given broad authority to obtain financial, medical, business, bookstore and library records, supposedly to pursue terrorist activities. Section 215 of the Act allows the FBI to order any person or entity to turn over “any tangible things,” so long as the FBI “specifies” that the order is “for an authorized investigation ... to protect against international terrorism or clandestine intelligence activities.” Records that can be obtained using the FBI letters include telephone logs, email logs, certain financial and bank records and credit reports. All the FBI has to say is that such information may be “relevant” to an ongoing terrorism investigation. Supposedly these letters cannot be used in ordinary criminal investigations.
Up until the PATRIOT Act, police requests for search warrants had to be based on a reasonable belief that the person under investigation had committed or was about to commit a crime. The truth is that the government really does not need these huge police powers. It already has authority to prosecute anyone it has probable cause to believe has committed, or is planning to commit, a crime. It also has the authority to engage in surveillance of anyone whom it has probable cause to believe represents a foreign power or is a spy, whether or not the person is suspected of any crime.Link here.
MACAU-BASED BANK BANNED FROM U.S. FINANCIAL SYSTEM
The U.S. Treasury Department has finalized a rule against Macau-based Banco Delta Asia SARL (BDA) which bars the bank from entering the U.S. financial system either directly or indirectly. The Treasury invoked the rule under Section 311 of the USA PATRIOT Act, prohibiting US financial institutions from opening or maintaining correspondent accounts for or on behalf of BDA.
The Treasury’s move comes after an investigation which found that BDA “turned a blind eye” to illicit activity, notably by its North Korean-related clients. “In fact, in exchange for a fee, the bank provided its North Korean clients access to the banking system with little oversight or control,” stated Stuart Levey, Treasury’s Under Secretary for Terrorism and Financial Intelligence (TFI).
In September 2005, the Treasury’s Financial Crimes Enforcement Network (FinCEN) found BDA to be of “primary money laundering concern” under Section 311 and issued its proposed ruling. The U.S. Treasury has since been engaged in an ongoing investigation of BDA with the cooperation of Macau’s authorities. The information derived from that investigation and the failure of the bank to address adequately the full scope of concerns described in the proposed rule laid the groundwork for the action.
The Treasury said that over the past 18 months, the Macanese authorities have taken substantial steps to strengthen Macau’s anti-money laundering and counter-terrorist financing regime, notably by passing a new law to strengthen these controls, and by creating the jurisdiction’s first-ever Financial Intelligence Unit (FIU). It also emphasized that the regulatory action is targeted at BDA as an institution, not Macau as a jurisdiction. The Treasury said that it would review and if appropriate rescind the rule if the concerns laid out in it are adequately addressed, including if BDA were to be brought under the long-term control of responsible management and ownership.
According to the Treasury, abuses at the bank included the facilitation of financial transactions related to illicit activities, including North Korea’s trade in counterfeit U.S. currency, counterfeit cigarettes, and narcotics. In addition, several front companies may have laundered hundreds of millions of dollars in cash through the bank. The Treasury stated that the final rule highlights the bank’s “grossly inadequate due diligence.”
The U.S. Treasury has previously issued final rules against a number of foreign financial institutions, including VEF Banka (Latvia), Commercial Bank of Syria (Syria) and Syrian Lebanese Commercial Bank (Lebanon), Myanmar Mayflower Bank (Burma) and Asia Wealth Bank (Burma).Link here.
THIS IS MY LAND
Ronald Reagan used to tell a joke about the Soviet Union that got to the heart of something very important about freedom. “What is the difference,” he would ask, “between the Soviet Constitution and the U.S. Constitution? The Soviet Constitution guarantees freedom of speech. The U.S. Constitution guarantees freedom after speech.” When the Supreme Court hears arguments in Harvey Frank Robbins’ case against the federal government, it would do well to keep Reagan’s point in mind. Freedom means not just the right to act, but the right to act without fear of reprisal.
In 1993, Robbins bought a ranch in Wyoming, not knowing that the previous owner had agreed to give the Bureau of Land Management an easement over the land. BLM agents, however, had neglected to record the easement, so when the purchase went through, Robbins got the land free and clear. Realizing their mistake, the agents ordered Robbins to sign over the easement, and when he refused, they grew belligerent. “The federal government doesn’t negotiate,” one official told him. Instead, they promised that Robbins’ refusal would “come to war” and that they would give him a “hardball education.” Then they began a vendetta against him that would last to the present day.
They canceled his right of way over government-owned land, repeatedly harassed the guests at his ranch, cited him for minor infractions while letting similar violations by his neighbors go unnoticed, and brought him up on criminal charges of interfering with federal agents during their duties. The jury acquitted him after deliberating for less than 30 minutes.
After enduring years of such treatment, Robbins sued, arguing, among other things, that the BLM agents had violated his Fifth Amendment right to exclude others from his property. The trial court and the U.S. Court of Appeals for the 10th Circuit agreed, but the government asked the Supreme Court to reverse in Wilkie v. Robbins. “No court,” said Solicitor General Paul Clement in his brief, has “ever recognized a constitutional right against retaliation ... in the context of property rights.”
This astonishing argument is potentially far more dangerous to the rights of property owners than the notorious Kelo v. New London decision two years ago, which held that government can use eminent domain to transfer property from one private owner to another whenever politicians think doing so would be in the public interest. If the Court rules against Robbins, home and business owners would find it much harder to resist when the government demands their property.
Without constitutional rules against official manipulation and abuse, officials will be free to intimidate property owners into simply giving up their land without just compensation and without legal protection. Why would bureaucrats buy land through eminent domain if they could just pressure people into giving up their land for free?Link here.
WHERE TO LOOK FOR FREEDOM IN AN UNFREE WORLD
Harry Browne showed the way.
March 1 was a day of nostalgia and sadness for many advocates of individual liberty. It marked the first anniversary of the death of Harry Browne. Harry was one of the late 20th century’s most articulate champions of personal freedom.
Harry burst onto the national radar in 1970 with the publication of his prescient bestseller, How You Can Profit from the Coming Devaluation. In this book, he predicted that in the wake of 35 years of government manipulation in gold prices, the U.S. would be forced to default on the Bretton Woods Agreement, stop selling gold to foreign central banks at $35 an ounce, and devalue the all-powerful U.S. dollar. Harry’s explanations of money and economics were brilliant in their simplicity. He accurately predicted the consequences of devaluation. He urged readers to buy gold, silver and the Swiss franc as a hedge against devaluation. His book rocketed to the top of the national best-seller lists, seeding a new “hard-money” industry of books, newsletters and conferences that flourished and linger to this day.
While Harry’s investment books (he wrote eight more) and newsletters enjoyed wide success over the following two decades, his most important and longest-lived work was not about investments at all. His 1978 best-seller, How You Can Find Freedom in an Unfree World, spoke to all who struggle against the over-arching walls of government, the legal system, the social customs and mores of our cultures, and the interpersonal relationships that seem to restrict our personal freedom.
Harry’s lovely and beloved wife Pamela has kept his work alive through his website. To commemorate the anniversary of his passing, last week she announced that How You Can Find Freedom in an Unfree World, which has been out of print for the past few years, is now available for download. For those who struggle to achieve individual sovereignty, it is an opportunity to add a very perceptive and compelling work to their library of libertarian thought.
Defining freedom as “the opportunity to live your life as you want to live it,” Harry guided readers through the turmoil each of us struggles with in our daily lives. These struggles included social restrictions, family problems, high taxes, bad relationships, the work treadmill and the ever-present incursions of government. In our personal relationships with our mates, friends, families, and our business relationships, Harry argued that most are bound by oppressive emotional and identity traps and boxes which are no more than the imaginary barriers of a belief system. Harry explained these traps and pointed out that you can explore alternative choices. His explanations of how to break free of our false assumptions led thousands of readers to count the book among the most important and life-changing they had ever read.
For those who consider taxation, regulation, and the myriad other intrusions of government to be the greatest challenge to individual liberty, the alternatives may seem far less obvious. Yet only misconceptions about the nature and power of government stop most individuals from enjoying true freedom. “No matter what happens, you’re smarter than the government,” he wrote. “You’re more flexible than the government. And you have more incentive to make your life work well than government employees have to make government work well – or even to make it work at all.” His first principle in dealing with government, then, is do not be awed by it. What little the government achieves depends on the voluntary participation of its citizens. The second principle is do not confront the government. Keep to yourself, do what you have to do.
“It can take time to accept the fact of your own sovereignty,” he concludes. “It can seem natural to assume that your future will be decided by others, that your purpose in life is to serve society, your country, or the world – as determined by others ... But you are sovereign. You rule one life – and you rule it totally.”Link here.
HOW THE U.S. WRECKED THE WORLD’S MOST ROBUST ECONOMY AND IMPOVERISHED ITS OWN PEOPLE
“Paper money eventually returns to its intrinsic value – zero.” ~~ Voltaire
“I want to stress just how fast this all happened. By the time Serverus was crowned in 193 AD, the denarius was still the international currency, even though for the last few generations it had gradually been devalued. But a mere 22 years later, in 215 AD, India first rejected the denarius and then the devalued gold coins. And of course the world moved much slower in those days, with trade between Rome, India and China taking months. Seen in this light, 22 years was very fast indeed.
“After 215 AD and the final loss of Rome’s position as the owner of the world’s currency, Rome’s trade, economy and living standards went into tailspins. The “silver” denarius lost so much more of its value that even Romans wouldn’t take it. Emperor Caracalla introduced a new silver coin, the antoninianus, but immediately started to remove silver from it. Within 45 years, by 268, this coin was nothing but base metal with a thin silver coating.
“I must stress again how quickly and completely Roman living standards fell from the time that the rest of the [world] rejected its money as the world’s currency.” ~~ “A Short History of International Currencies” by Christopher Weber, April 4, 2005
As I will support in this essay, imbalances and systemic problems have become so severe that the economic downtrend in the U.S. will almost certainly accelerate dramatically at some point in the months and years ahead. The natural question is “When, exactly?” – but due to unknowns, exact timing and velocity of markets and other dynamic social phenomena are inherently unpredictable. Trends, historical examples, and current data are knowable, however, and they all tell us a storm is coming. The economy may drag on with the appearance of quasi-normality for a while longer yet – it has already done so for longer than many expected. “Markets can remain irrational longer than you can remain solvent,” as Warren Buffett pointed out. But if economic timing and velocity are not predictable, the direction and amplitude of future economic events seem clear. Data strongly suggest that we are moving towards a Greater Depression, or perhaps something even worse.
This current and onrushing disaster is entirely the result of historically-typical and well-understood government dynamics and actions. Ordinary Americans have allowed, encouraged, and participated in these dynamics and actions because their understanding of government has been systematically and purposefully subverted, beginning with the adoption (via the Constitution) of a powerful central government and then especially with the push for Prussian-inspired government schooling in the 1800s. The political and corporate power elite have encouraged these same dynamics and actions because they personally benefit from them, directly and indirectly.
By now, the paradigm that Americans use to understand government has become so corrupted as to be massively out of sync with reality, to such an extent that Americans clamor for more of the same policies which caused the problems in the first place. If we are somehow able to avoid an epic melt-down of America’s economy (and perhaps the world’s), such a miracle would require a rapid and dramatic turnaround in the typical American’s understanding of the dynamics and effects of government action – it would require, in other words, the widespread adoption of a new paradigm. My calculation on the odds against that happening in time are a billion to one. I will be surprised if more than a small minority understand the reason for the problem even after America’s fall from economic grace.
You may disagree with my conclusions (most do), but the facts themselves are widely known and not in serious dispute. Intelligent, well-connected and well-respected people have issued warnings in recent years on the problem. These warnings have been reported in the media and then, for the most part, forgotten. The situation continues to grow more precarious, which makes the “soft landing” many are hoping for less likely by the day. As for when the crash will become too obvious to ignore or deny, again, many unknowns can trigger or affect the speed and nature of a great unwinding such as the one we now face. A few such possibilities are a nuclear U.S. attack on Iran, a domino of bank failures triggered by mortgage and other credit defaults, an acceleration of the world trend away from using the US dollar, China and other mega-creditors dumping their massive dollar holdings and using the cash to buy commodities and other real assets.
The tipping point could happen before this column is published, or not for several more years. I lean towards “soon” however. I will be surprised if we get through the next year (or even this year) without our current Rube Goldberg economy coming unraveled. I urge you to do your own research and analysis and come to your own conclusions, but please give this issue the time and consideration it clearly deserves.Link here.
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