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ANCHORED TO THE DOLLAR
It is the dream of many an escapist to finish a working career and, with money in the bank and retirement checks coming each month, set off in search of adventure. Dreams of gorgeous anchorages, aqua blue waters, sandy beaches, and palm tree lined beaches have literally spelled disaster for many an afternoon’s work schedule. But how often do any of these dreams include that occasional storm and the resulting consequences? Do your dreams include the preparations necessary to weather the storms common to these adventures?
Now, if you are thinking this is just another one of those sailing articles being written by some parrot head who is typing with one finger on one hand while holding a margarita in the other you would be wrong... at least about it being a sailing article. Whether you dream of boats, wineries, or beautiful estates – if your finances are tied to savings or investments in the U.S. your future is anchored to the ups and downs of the dollar. Understanding this could mean the difference between a wonderfully successful adventure or years of difficulty and possibly total failure.
Just ask anyone who happened to have made their escape back in the 1990’s or early 2000 how important it is to plan for the dollar’s rise and fall on the currency market. Imagine purchasing a nice little house in Tuscany in 1999 knowing that your retirement would provide you with just enough to live comfortably. Not even considering the stock market collapse, how would you then feel as you watched (and felt) the effects of the dollar falling 30% over the next few years. Could you survive living expenses rising 30% or would your wonderful dreams be seriously at risk? Now, how would you feel when you hear the leaders of the world’s central banks making statements that the dollar needs to fall another 20 to 30% to be in balance? As you dream and plan your escape have you considered such scenarios?
Using the assistance of the sailing metaphor, this article will attempt to help readers better understand currency fluctuations, what causes them, future trends, and strategies you can use to protect your financial assets and future retirement dreams. This is a brief introduction designed to stimulate your thinking and studies in a topic seldom considered until the last moment.Link here.
THE WORLD’S MOST CORRUPT COUNTRIES
Corruption in nearly half the world’s nations is not getting much better and, indeed, in many countries is intensifying – affecting virtually every aspect of life among peoples on every continent. While a year ago, some 72 out of 158 nations surveyed by the international watchdog group Transparency International were classified as “corrupt”, now 74 of 163 countries fall into the same category. A few, most notably India, managed to bootstrap themselves (just barely) out of the truly corrupt group, while others, particularly Iran, dug themselves more firmly into that camp.
TI has developed an index from 0 to 10 comprised of surveys of specialists, opinion leaders, business officials and human rights monitors who live, work or travel extensively in each of the countries ranked. The higher the score, the less corrupt the country. Tied for #1 this year, with a CPI “score” of 9.6 are Finland, Iceland and New Zealand. At the bottom, with a score of 1.8 is Haiti.
Clearly, as those who monitor the ebb and flow of corruption around the world confess, the rankings are heavily subjective, and the nature of the corruption, particularly in the most severely corrupt nations, can differ markedly. But all share one particular characteristic. “You are dealing with societies where corruption filters into everyday life,” says Laurence Cockroft, a senior TI official. “Most of us don’t experience [it] in our daily life. My guess is that when the TI Index drops below 5, certainly below 3, you get into a different kind of territory.”
Below 5, you have 119 countries out of 163, including such nations as Italy, Greece, South Africa, Brazil and China. Below 3 on the TI scale, some 47 nations drop off, though many are very close to the line. Corruption can take on a host of different forms. It can, and often does, involve the police and judicial systems, including questionable enforcement of business contracts and other commercial litigation. It frequently involves diversion of a percentage of funds from critical projects into the pockets of senior government officials or their families – often in systematic skimming operations. Indeed, the U.S. State Department has labeled Belarus Europe’s only remaining outpost of tyranny.
Unfortunately, most of the corruption occurs in countries whose populations are least equipped to deal with the consequences – the world’s most deprived nations. In Cambodia, where two-thirds of the population earns less than $2 a month and one-third earns less than $1, a “substantial portion” of the $500 million to $600 million in donor aid each year is “lost to unofficial fees, an informal system of patronage, illicit ‘facilitation’ payments by businesses and individuals,” one Transparency official said.
Such under-the-counter payments for everything from the simplest municipal services to appointments to many of the nation’s highest offices, particularly those where there is the greatest access to illicit profits, are the effective rule of law in most of the nations surveyed – especially in Africa, Central Asia, and Latin America.
In general, the most corrupt nations are those with “an extremely weak institutional setting,” according to Transparency officials. In Haiti, for instance, President Jean-Bertrand Aristide fled in the face of an internal uprising and international pressure after he sought to move a number of his political allies into the highest positions within the justice system. However, a corrupt police force is still almost ubiquitous there, helping to cement the country’s place alone at the top of the most corrupt list.
The former Central Asian republics of the Soviet Union are grouped near the top of the list of most-corrupt nations. Venezuela President Hugo Chavez, who repeatedly locks horns with the U.S., has helped establish his country’s presence on the most-corrupt roster by turning the national police force from a once professional body of crime fighters into an institution that is used largely for political issues, according to a TI official.
Among the least corrupt nations, the U.S. has slipped to #20 this year from #17 last year, while France, Belgium, Ireland and Japan leap-frogged over the U.S. in the rankings. The top 10 – the world’s least corrupt countries--has remained virtually unchanged with Finland, Iceland and New Zealand tied for the lead, followed closely by Denmark, Singapore and Sweden. Furthermore, there does seem to have been some improvement in anti-corruption mechanisms in many nations, particularly the more developed countries. In the past year, such nations as Indonesia, China, the Philippines, Sri Lanka and Australia have ratified the U.N. Convention Against Corruption. Ironically, Japan, the 17th least corrupt country in the world, and South Korea, the 42nd least corrupt, have failed to ratify the U.N. document.
One Transparency official observed that some countries like Japan have failed to ratify the convention because “that means you have sorted out your whole legal system by which you can enact all provisions of the convention,” while others with more questionable records in stamping out corruption “perceive [the convention] more as a standard of [future] achievement.”Link here.
SWITZERLAND CUTS TARIFFS FOR DEVELOPING NATIONS
The Swiss Federal Council has adopted a revised Preferential Tariffs Ordinance allowing developing countries to continue to benefit from reductions on existing duties for goods imports. In addition, the poorest countries will be able to import their goods into Switzerland free of customs duties and quotas. Under the Ordinance, which entered into force in April 1, 2007, the complete lifting of duties and quota restrictions also applies to countries that are in the debt relief process as part of the international debt relief initiative.
Switzerland is among the first countries to completely implement the undertaking to give duty-free and quota-free market access for the poorest countries made at the WTO Ministerial Conference in Hong Kong in 2005. At the same time, Switzerland is also implementing the last stage of the “zero duty initiative” adopted by the Federal Council in 2001 and which envisages a progressive introduction of duty-free market access for the poorest countries.”
Strengthening the competitiveness of developing countries is part of Switzerland's foreign economic strategy. Its aim is to ensure that Swiss business is able to benefit from the economic advantages generated by the international division of labour in an environment with stable and appropriate conditions. The Swiss government says that the facilitation of market access for products from these countries is an important contribution to the promotion of trade, the raising of export revenues and consequently to the economic expansion of the developing countries.Link here.
GHANA GOVERNMENT STEPS UP OFFSHORE BANKING EFFORT
Ambitious to make country the financial hub of West Africa.
Ghana President, Mr. J. A. Kufuor announced that the government is in the process of setting up an International Financial Services Center in collaboration with the Barclays Bank to, among other things, transact offshore banking business, making Ghana the financial hub of the West African sub-region.
President Kufuor said all the economic indicators – inflation, interest rates, stability of the currency and GDP – are showing positive trends. These macro-economic and fiscal developments, he said, have emboldened the Bank of Ghana to schedule a redenomination of the cedi on July 1. President Kufuor said that confidence in the economy has encouraged the financial sector to witness an increase in the number of banks currently operating in the country. He said the feat could not have been achieved without remittances from Ghanaians abroad which, as at last year, stood at more than $4 billion.
President Kufuor announced that Government is taking the appropriate measures to achieve reliability and adequacy of electric power supply, in the shorter-term and longer-term, in order to meet domestic and industrial needs of the nation. He said the government regrets that the current energy problem which is causing anxiety to the whole nation, especially the business community.Link here.
ISLAMIC FINANCE COULD HAVE ITS LIMITATIONS
There is likelihood that some areas of finance will never achieve acceptable fatwa from Islamic scholars, a possibility that merits closer look by all providers, according to Niall S. K. Booker, deputy chairman and chief executive officer of HSBC Bank Middle East Limited. He said that while Islamic finance has truly come of age, growing 15-40% a year generating great deal of excitement, new entrants and international interest, there is a need to exercise caution, as some areas of finance may not meet the requirements of the Islamic principles.
“It may sound odd coming from a British banker, but we must not lose sight of the principles of Shari’ah. It is HSBC’s position that we will never market or sell a product as Islamic without a recognized fatwa. There is a possibility that some areas of finance will never achieve an acceptable fatwa. I do not see, for example, how a derivative product based on forward interest rates can ever be Shari’ah-compliant, and this caution should inform all providers,” Mr. Booker said. But he also added that until a few years ago no one would have predicted an Islamic card, and yet these are now commonplace. He also emphasized the need for growing and improving human capital in the region. He also spoke about the need for consolidation of the banking industry, credit and risk management.Link here.
MORE THAN 2.5 MILLION .EU DOMAIN NAMES REGISTERED IN FIRST YEAR
According to figures released by the EC, more than 2.5 million .eu domain names have been registered since the TLD (Top Level Domain) was made available to the public a year ago. This number of active users means that .eu is Europe’s third most popular top level domain (TLD) and 7th most popular worldwide. With a 17% increase of registrations over the past five months, .eu is also one of the fastest growing TLD names on the web.
“After just one year .eu has become a well-established part of Europe’s cyberspace,” observed Viviane Reding, EU Commissioner for Information Society and Media. “This is a positive sign of the attractiveness of electronic commerce within the EU. I congratulate EURid as the independent not-for-profit registry responsible for .eu, for successfully managing the extremely high demand from industry and the public and for helping us to deploy Europe’s identity online.”
According to the EC, citizens and companies from all 27 EU Member States have applied for a .eu domain name during its first year of existence, but the strongest demand for .eu has come from Germany (31%), the UK (17%) and The Netherlands (12%). The great success of .eu has also been accompanied by an increase in demand for national domain names in most Member States. For instance, since October last year the growth in the number of national domain names in Germany and the UK (.de and .uk) has been around 5%. The Netherlands (.nl) experienced the highest growth rate – 10% over the same period. The popularity of .eu with the public also encouraged France to open its national domain name .fr – previously reserved only for professionals, associations or public bodies – to the public, using rules and practices similar to .eu’s introduction.
The .eu domain first opened on 7 December 2005 to businesses holding prior rights. Since early April 2006, registration has been open to all EU residents and organizations with a legal seat in the EU.Link here.
U.S. STATES MOVE TO CLOSE “ABUSIVE” CORPORATE TAX STRATEGIES
Try to thwart shifting of profits to lower tax states.
Governors in six states have recommended that their state adopt a key reform to outlaw a variety of “abusive” income-tax-avoidance strategies practiced by large corporations, a new report by the Center on Budget and Policy Priorities has shown. According to the report by the nonpartisan research organization and policy institute, 18 states had already adopted the reform, known as “combined reporting”, as of the start of 2007. In recent weeks, the governors of 6 more states all proposed the reform as part of their new budgets.
The Center’s study reported that, to avoid state corporate income taxes, a number of large, multistate corporations have devised strategies to move profits out of the states in which they are earned and into states in which they will be taxed at lower rates – or not at all. They do this by creating subsidiaries largely or solely as tax shelters in “tax haven” states like Delaware and then artificially shifting funds to them in the form of royalties or rent.
The report cited as an example the case of retailer Wal-Mart, which has transferred ownership of all of its stores to a Wal-Mart subsidiary. In most states, this enables Wal-Mart to deduct the “rent” it pays the subsidiary (i.e., the rent it pays itself) from the income that is subject to state corporate taxes. The subsidiary receiving the rent is not taxed because it qualifies as a tax-exempt Real Estate Investment Trust under federal and state law. The Center argues that this practice is wrong because it costs states billions of dollars in revenue, and because it give multistate corporations an unfair tax advantage over in-state corporations and smaller businesses.
Combined reporting is considered to create a level playing field for all businesses by treating a parent corporation and most of its subsidiaries as a single corporation for income tax purposes. The state taxes a share of the entities’ combined nationwide income, depending on how much of the corporation’s total activity takes place in that state. The U.S. Supreme Court ruled in 1983 that combined reporting was both fair and constitutional. In 2004-05, Vermont became the first state in more than 20 years to adopt combined reporting.Link here.
IRS ISSUES FINAL REGS ON DEFERRED COMPENSATION
The U.S. Treasury Department and the IRS have issued final regulations on the treatment of nonqualified deferred compensation plans and arrangements under section 409A of the Internal Revenue Code. “Treasury and the IRS have worked hard to develop these regulations on the treatment of nonqualified deferred compensation plans,” said Treasury Assistant Secretary for Tax Policy Eric Solomon. “These regulations comprehensively address how employers can identify nonqualified deferred compensation plans and arrangements subject to section 409A and provide rules to help employers and employees comply.”
Affected plans and arrangements are required to comply with documentation requirements established in the final regulations by December 31, 2007. The final regulations generally implement the rules provided in the proposed regulations published on September 30, 2005, but include revisions reflecting numerous comments received from the public. The regulations are in response to legislation enacted by Congress in 2004 to address concerns involving reported abuses of nonqualified deferred compensation plans.Link here.
JACKSON HEWITT TO PROBE FRANCHISEE TAX FRAUD ALLEGATIONS
Jackson Hewitt Tax Service, the #2 tax preparation company in the U.S., has announced it has launched an internal review of allegations that a franchisee prepared fraudulent tax returns. Jackson Hewitt has over 6,500 franchised and company-owned offices throughout the U.S. The review is being led by Fred Goldberg, a partner at the law firm Skadden, Arps, Slate, Meagher & Flom LLP, who served as IRS Commissioner between 1989 and 1992. He was also Assistant Secretary of the Treasury for Tax Policy in 1992.
The U.S. has filed civil injunction suits against five corporations that operate Jackson Hewitt tax preparation franchises, as well as 24 individuals who manage or work at the franchises, the Justice Department and the IRS announced recently. The suits allege that one of the individual defendants, Farrukh Sohail of Atlanta, wholly or partly owns each of the five corporations, which prepared and filed over 105,000 federal income tax returns last year. The five corporations allegedly operate more than 125 Jackson Hewitt retail tax preparation stores in the Chicago, Atlanta, Detroit and Raleigh-Durham, N.C. areas.
According to the government complaint, Sohail and other defendants “created and fostered a business environment” at the Jackson Hewitt franchises “in which fraudulent tax return preparation is encouraged and flourishes.” Examples of fraud alleged in the lawsuits include filing false returns claiming refunds based on phony W-2 forms, using fabricated businesses and business expenses on returns to claim bogus deductions, claiming fuel tax credits in absurd amounts for customers clearly not entitled to any credits, and massive fraud related to claiming the federal earned income tax credit.
The suits further allege that some of the Jackson Hewitt franchises’ managers and employees received kickbacks from customers for helping the customers file fraudulent tax returns. The suits further allege more than $70 million in combined losses to the U.S. Treasury, and seek court orders barring the franchises and other defendants from preparing tax returns for others.Link here.
JOHN EDWARDS TO TAKE ON U.S. TAX PREPARATION INDUSTRY
Unveils proposal to dramatically simplify the U.S. tax filing system.
U.S. Democratic presidential hopeful Senator John Edwards has unveiled a new proposal to dramatically simplify the U.S. tax filing system, by having the IRS calculate millions of families’ tax bills and mail them on a “Form 1”. In the first in a series of podcasts, Edwards argued that his plan would prevent millions of Americans from needlessly navigating a complex and confusing tax filing system or paying tax preparers to help with their taxes.
According to Edwards, for as many as 50 million Americans, the IRS gets all the information it needs to calculate taxes from employers and financial institutions. As part of Edwards’s plan, the IRS would calculate the tax bill and mail it to taxpayers on a Form 1, where they could verify and recalculate it or simply sign and return it. Edwards revealed that Form 1 is a step toward his vision of a tax code that is “simpler and fairer and that rewards work.”
Edwards claimed that his plan would make filing taxes easier for taxpayers by sharing information, reducing the need to gather documents, and by creating a free interactive web site that eliminates the need for data entry, calculators and tax tables. He also said that it would help low-income workers by informing working families about their eligibility for the Earned Income Tax Credit.
Edwards’s proposal would also take on the tax preparation industry, which, he argues, continues to fight against simplification of the tax system. Edwards commented that, “The American tax code is unnecessarily complicated and full of shelters and loopholes that favor wealth over work. While corporations and wealthy families can hire expensive accountants and lawyers, ordinary families face unnecessary obstacles in calculating and paying their taxes.
“It takes seven hours to complete even the simplest tax form, the 1040EZ. One-third of EZ filers pay tax preparers. Meanwhile, for tens of millions of taxpayers who file simple returns, the [IRS] already has all the data it needs (such as household size, wages, and interest income) to calculate the tax or refund due.” Edwards claimed that Form 1 could save families $2 billion in tax preparer fees, but noted that the tax preparation industry has fought similar efforts. “[T]he IRS agreed with the tax software industry to limit free online filing to low-income taxpayers. Its barebones ‘Free File’ program for low-income taxpayers has a history of hidden fees and bait-and-switch advertisements,” Edwards said.Link here.
U.S. JUSTICE DEPARTMENT FAILS TO STOP WITNESS TESTIFYING AT SENATE TAX HEARING
DoJ tried to quash testimony from convicted indentity thief and tax fraudster.
The Justice Department has failed in its effort to keep a witness from appearing at a hearing of the Senate Finance Committee, following a hearing in the U.S. District Court for the District of Columbia. The Finance Committee last week obtained judicial approval to call a witness convicted of various crimes including identity theft and tax fraud, as a witness at its annual hearing on the tax filing season and the challenges taxpayers face. However, the DoJ filed a motion to quash the Finance Committee’s summons for the witness’s testimony.
Judge Thomas F. Hogan affirmed the Committee’s right to call the witness, who is now expected to testify as planned, to help it understand how as many as 15,000 American taxpayers may have fallen victim to identity theft tax crimes last year. Commenting on the development, Finance Committee chairman Max Baucus (D-Montana) announced: “I’m baffled as to why the Department of Justice would try to stop Congress from alerting Americans fully to the problem of identity theft and tax fraud. We have called this witness to help taxpayers understand how criminals can prey on them at tax time. The Justice Department didn’t articulate any legitimate reason for standing in the way of Congress’s oversight responsibilities. It appears they just wanted to stop the Finance Committee from holding a hearing as we see fit.”
Committee Ranking Member Chuck Grassley (R-Iowa) noted, “It’s hard to see how the Justice Department’s legal fight served the public. ... Surely, the Justice Department has better things to do than waste precious resources interfering with a congressional hearing that ironically will highlight their good work convicting a tax-scamming con artist.”
Additional witnesses at the hearing include Mark W. Everson, Commissioner of the IRS. Everson will also update the panel on the IRS response to last year’s GAO study, which found widespread problems and errors in the paid preparer industry, and on implementation of the telephone tax refund.Link here.
TEXAS LAWYERS FOUGHT THE IRS AND THE TEXAS LAWYERS WON
Two weeks before tax day (April 15), married lawyers Alan and Jean Brown were signing their names to the back of a familiar-looking green and yellow U.S. Treasury Department check that most Americans associate with a tax refund. The check the San Antonio couple endorsed on March 30 was an IRS refund of sorts – but not in the traditional sense.
The $1.34 million check was the result of a settlement between the Browns and the government in Alan Brown, et al. v. United States, a Federal Tort Claims Act (FTCA) suit the couple filed three years ago in the U.S. District Court for the Western District of Texas. The couple filed the civil suit after they were caught up in a complicated tax prosecution in which Alan Brown, a well-known criminal defense attorney with Brown & Norton, and Jean Brown, a family law solo, allege they were targeted by overzealous IRS agents, which led to the Browns being indicted in 2003 by a federal grand jury in Austin, Texas, for allegedly filing false personal tax returns between 1994 and 1997.
In their first amended complaint in their civil suit, the Browns alleged, among other things, that IRS agents had authorized a warrantless search of their offices, records and home that was without probable cause; that the defendants and/or other “investigative or law enforcement officers” used false or misleading evidence to seek a search warrant, justify the grand jury investigation, and the indictments; and that the government, “through its ‘investigative or law enforcement officers,’ maliciously prosecuted Alan Brown through and including a lengthy criminal trial without probable cause, which proximately caused plaintiffs to suffer significant damages.” The Browns further alleged in a response pleading that IRS agents made “material misrepresentations and omissions to their supervisors, prosecutors, and a grand jury.”
After a 5-week trial in Austin in U.S. v. Alan Brown, a jury acquitted Alan Brown in 2005. The government subsequently dismissed the indictment against Jean Brown. While the settlement check that resulted from their civil suit will just about cover the Browns’ legal expenses in their criminal tangle with the government, the couple says the money represents something more important. The fight with the government finally is over. “While we believe we would have gotten a lot more in trial, it would have hung up on appeal,” says Jean Brown, who adds that she was indicted merely because she filed a joint tax return with her husband.
Julie Zatz, an Assistant U.S. Attorney in Los Angeles who handled the FTCA civil suit after the U.S. Attorney’s Office for the Western District of Texas recused itself, says the government did not admit any liability in settling the case. “It did not settle for anything that the agents had alleged to have done or failed to do,” Zatz says. Rather, she explains, the government wanted to contain its litigation costs by settling the suit.
But Bill Reid, a partner in Austin’s Diamond McCarthy who represented the Browns in their civil suit, disagrees with Zatz. It is unusual for the government to settle such a case for more than $1 million, he says. “The thing is, this is not your normal tax case,” says Reid, who is a former Assistant U.S. Attorney for the Western District of Texas. “Generally, they’re not paying that ... on a malicious prosecution case.”
To pay for their criminal defense lawyers, the Browns took out a second mortgage on their house, spending just over $1 million in legal fees. “And that was people being nice to me. If it was a company it could have been $5 million,” Alan Brown says. “Discovery was huge,” he says, adding that the government had close to 30,000 files. After paying their legal bills, there won’t be any money left over from the settlement, Jean Brown says. “The settlement certainly will not put any extra change in our pocket, but it will be able for us to get out of the hole,” Jean Brown says. “Is any one of us going to quit working? No.”Link here.
EU WANTS TO CLOSE SAVINGS TAX DIRECTIVE LOOPHOLES, REPORT SAYS
European Taxation Commissioner Laszlo Kovacs wants to tighten the 2-year-old EU law that taxes foreign savings so that offshore tax dodgers will not be able to use loopholes anymore, according to a news report. Kovacs has begun to consult the savings industry to find out which measures could work effectively, according the Financial Times.
The EU savings tax law was introduced in the summer of 2005 and created a system where banks are allowed to withhold a tax on savings held by people from another European country. Non-EU countries like Liechtenstein and Switzerland also agreed to apply a withholding tax. According to the FT, Switzerland only raised €100 million in withholding taxes during the first six months of the law’s operation. “There is a degree of disappointment with the way it has worked so far, but optimism that it will succeed when the loopholes are closed,” an official from the EC was quoted as saying.Link here.
UK OFFSHORE TAX AMNESTY DISASTER
Her Majesty’s Revenue and Customs (HMRC) is hoping to net billions of pounds from the crackdown, which is set to begin in the next 10 days. Investors with money in offshore accounts will be offered an amnesty to declare any unpaid tax and interest, but only until June 22. Many experts feel this is not long enough and they expect thousands to fall foul of the Revenue.
Offshore account holders who fail to admit that tax is due and are caught out after an investigation by the taxman, face having to pay up to 20 years’ unpaid tax, plus interest on that sum and a penalty of up to the same as the amount owed. They could also face prosecution. About 3 million people have offshore accounts, with a total value of about £180 billion. These are typically run from the Channel Islands, Ireland and the Isle of Man.
One of the main benefits of these accounts is that the interest is paid gross, rather than with basic rate tax deducted. Savers are expected to declare the interest on self-assessment tax forms, but the time lag between earning the interest and declaring it allows interest to be rolled up, earning investors a bigger total return. However, it is estimated that hundreds of thousands of people with these accounts – possibly as many as one in five – fail to declare the taxable interest. Some may do so inadvertently.
Under the amnesty, investors with offshore accounts have until June 22 to register an intention with HMRC to make a disclosure of any tax due. They then have five months to submit the disclosure and pay. Investors who do this face a maximum penalty of 10% of any outstanding tax earned on offshore savings account, on top of any tax plus interest on that tax that is due.
HMRC is expected to come down hard on investors it believes are guilty of avoidance. It is set to carry out detailed investigations and those who are proved to have avoided paying tax face tough penalties including prosecution. Banks and building societies will be ordered to hand over the names of more than 100,000 customers with offshore accounts. Last year, a special commissioner gave the taxman the power to force Barclays to hand over the details of thousands of customers with offshore bank accounts.
Experts warn that the limited period of the amnesty could mean that many investors ignore the opportunity. Thousands are expected to be tripped up by the investigations. Charles Roy-Choudhury, head of taxation at the Association of Certified Chartered Accountants, says, “Investors must first decide to come clean and admit they have not paid tax. But for people who have been saving offshore for a long time, the sheer length and breadth of records they will need to track down could actually put them off declaring tax due. ... if the Revenue really is interested in sorting out this mess properly, it should consider backdating payable tax owed to no more than six years. As it stands, this is potentially an horrendous and chaotic situation.”
Stephen Herring, tax partner at accountancy firm BDO Stoy Hayward, says, “It could be a nightmare for some investors to gather all of the necessary information if they have accounts going back 15 to 20 years, but my view is, ‘tough luck’. ... As far as the bigger cases are concerned, it seems generous to let evaders off with a reduced penalty. However, the period that the Revenue has given savers to come clean seems mean.”Link here.
UK ACCOUNTANTS WARN ABOUT PROBLEMS WITH INHERITANCE TAX SCHEMES
According to UK business advisers Target Accountants, a recent controversial court ruling means that married couples who switch ownership of their family home using a common tactic to minimise inheritance tax (IHT) bills could lose any IHT savings. The case is unlikely to affect the super rich, says Target. However it could have a severe impact on ordinary families whose wealth is mainly tied up in their home, and result in them paying up to £114,000 in extra tax.
It is now common practice when drafting a will for solicitors to provide that on the death of the first spouse or civil partner, their IHT-free amount, currently £285,000, is passed into a trust for the family, with the remaining estate passing free of tax to the surviving partner. This ensures that no tax is paid when the first partner dies and the estate of the survivor is not swelled on their subsequent death. Establishing a “nil rate band trus”q is relatively easy for the super-wealthy, as the £285,000 can be paid in cash. However, it is not so easy for those in “middle England”, where the family home often makes up the lion’s share of their wealth.
One popular solution is for the estate to pass entirely to the survivor, who gives an IOU for that amount to the trust. When he or she dies, the IOU reduces the value of their estate and hence the tax the family has to pay. However a recent ruling has highlighted a major pitfall. The case, brought by Her Majesty’s Revenue and Customs, concerned the death of the second partner, who had inherited his late wife’s estate and paid an IOU to a trust. The court agreed with HMRC that the IOU could not be deducted when calculating the tax due on his estate because the debt related to his wife’s half of the home, which he had previously gifted to her many years before when he made her a joint owner.
Harwood says the case shows that IHT is no longer a tax on the wealthy. She is advising people who may be affected to seek professional advice about the practical implications of the ruling.Link here.
UK LOOKS TO SCRAP TAX ON FOREIGN PROFITS
The U.K. government is reportedly working on proposals that would allow British-based multinationals to repatriate billions of pounds in profits earned overseas free of tax. According to a report by the Financial Times, the Treasury is preparing to launch a consultation document this Spring which will discuss a number of options, including an European-style “participation exemption” for foreign dividends, as well as a different approach to the anti-avoidance rules that impose tax on profits generated in low-tax jurisdictions.
The move by the British government is being viewed as part of its effort to improve the corporate tax regime, after several warnings from business groups that recent additions to UK tax legislation are making the country increasingly uncompetitive compared with its economic rivals. Seemingly heeding these calls, Chancellor of the Exchequer Gordon Brown announced in his budget statement last month a 2% cut in corporate tax to 28%, bringing the UK below the OECD corporate tax average.
The expected revenue loss for the government from exempting foreign dividends from tax is thought to be relatively small – in the low hundreds of millions of pounds. However, the Treasury expressed concern that the change could lead to more substantial tax leakage, as firms borrow in the UK to invest in low-tax jurisdictions. Consequently, the Treasury is likely to claw back any lost tax receipts with more anti-avoidance legislation. The measures are also not expected to bring about an overall tax cut for businesses operating in the UK. Nonetheless, it is anticipated that the change would be welcomed by companies, as they would no longer have to apply complex tax strategies to minimize taxes on repatriated profits.
In 2005, a similar measure enacted by the U.S. Congress, whereby repatriated profits qualified for a special 5.25% tax rate for one year as opposed to the standard rate of corporate tax of almost 35%, led to many billions of dollars being repatriated by some of the country’s largest firms. However, many observers believe that the law largely failed in its objective of encouraging U.S. firms to invest and create jobs at home.Link here.
SWEDEN’S PROPERTY TAX NEXT ON GOVERNNENT’S REFORM LIST
Hot on the heels of its proposal to axe the wealth tax, Sweden’s center-right coalition government has pledged to continue its reform of the tax and welfare system by proposing to abolish the unpopular property tax, replacing it with a so-called “communal tax”.
Under the current property tax system, homeowners must pay 1% of the taxable value of their dwelling if they live in a house, and 0.5% if they live in an apartment. However, the tax is particularly unpopular with Sweden’s middle classes, and Christian Democratic leader Goran Hagglund said in a recent report that the levy makes it “very difficult for people to plan their lives. ... It makes it especially difficult for people with small margins, who live in areas that are considered attractive,” he noted.
While property tax reform was a key pledge in the governing coalition’s election manifesto last year, and was perhaps the policy which most helped sway the electorate away from the Social Democrats’ long domination of government, there has been much debate within the coalition over how the tax’s elimination should be financed. But it would appear that an agreement has been reached on a new flat rate system, known as the “communal tax”. The new tax would lead to a charge of about SKR4,500 (€485) or a maximum of 1% of the property’s taxable value. The shortfall in revenue would then be made up through higher capital gains tax when homes are sold.Link here.
FRENCH PRESIDENTIAL HOPEFUL NICOLAS SARKOZY WOULD CUT CORPORATE TAX RATE
Sees need to match falling rates all across Europe.
French presidential hopeful Nicolas Sarkozy has reportedly pledged to cut the rate of corporate tax by 5% to ensure that France does not get left behind in Europe’s race to lower company tax rates. In an interview with i>La Tribune, Xavier Bertrand, a spokesman for the center-right presidential candidate, said that Sarkozy wants to lower the rate of France’s corporate tax to 25%, bringing the tax down to about the average rate in the EU.
Unlike France’s European partners, Sarkozy is keen to link a cut in corporate tax to a series of governance criteria, and companies would have to demonstrate that their employment, wage and investment strategies were “synchronized”. The Sarkozy camp has not given an indication as to the timeframe over which such a corporate tax cut would take place, but Sarkozy himself has hinted that he would be keen to implement a number of key tax and welfare reforms within the first few months of his leadership if he is elected President in the upcoming round of elections. These would form part of a package of austerity measures which are designed to provide for a clean break with the previous policies practiced by a succession of governments. It is unclear whether tax cuts would form a part of these early measures.
Axel Poniatowski, member of Sarkozy’s election team, told Britain’s Daily Telegraph, “If Mr. Sarkozy wins, things will change very quickly indeed. It will be a kind of tough love,” Poniatowski was quoted as saying, adding that Sarkozy is promising a “real economic revolution” if he wins the election, the first round of which takes place in three weeks.
It is estimated that a 5% cut in corporate tax would cost the French government about €8 billion in revenues, which could be financed by a 1% increase in the rate of VAT. Sarkozy fears that with key European competitors having recently announced corporate tax cuts, including Germany, Spain and the UK, France risks becoming increasingly unattractive as a place to do business and cannot afford to do nothing.
Under plans agreed by Germany’s coalition government, the effective corporate tax burden there will fall to below 30% from almost 40% in January 2008, while the UK Chancellor of the Exchequer Gordon Brown announced a 2% cut in corporate tax in his recent budget speech. The old EU15 also continue to face growing tax competition from the new EU entrants in Central and Eastern Europe, such as the Czech Republic, where the government has announced proposals for a 15% flat tax on personal income and a 5% cut in corporate tax to 19%.Link here.
RUSSIAN LAWMAKERS REJECT BILL TO UNFLATTEN INCOME TAX
The Russian State Duma, the lower house of parliament, has voted to reject two amendments to the Russian tax code that would replace Russia’s flat rate of tax on personal income with a progressive system whereby those who earn more pay more tax. The tax code currently stipulates that Russian tax residents pay income tax at a rate of 13% regardless of their income. Amendments were introduced by the nationalist Rodina party, who argue that the current tax system disproportionately hits the poorest taxpayers.
One of the amendments proposed no tax on individual incomes up to 60,000 rubles per year, a 10% tax on incomes from 60,000 to 120,000 rubles, a 13% tax on incomes from 120,000 to 1.2 million rubles, a 20% tax on income from 1.2 million to 3.6 million rubles and a 30% tax on income over 3.6 million rubles. The bill was opposed by both Deputy Prime Minister Alexander Zhukov and the speaker of the State Duma, Boris Gryzlov.
President Vladimir Putin signed the 13% flat tax into law in 2000 which at the time formed the centrepiece of his market reform strategy. The flat tax replaced the former progressive tax rate which ranged from 12% to 30%. One of the main objectives of the flat tax was the desire to reduce tax evasion by encouraging more people to declare their true incomes. It was also hoped that the flat tax would stem the tide of capital flight from Russia, although this has only recently begun to reverse. The government has also recently legislated an income tax amnesty in a bid to tempt Russians to bring home and invest some of the billions of dollars stashed in secret foreign bank accounts.Link here.
AUSTRALIA ABOLISHES “INEFFICIENT” STATE TAXES
Australian Treasurer Peter Costello has announced that a number of “inefficient” State tax have been abolished by the government as a result of its ongoing tax reforms. According to Costello, the reforms have led to the abolition of accommodation tax, financial institutions duty, marketable securities duty and debits tax. In addition, he said that agreement has been reached on a timetable for the abolition of the following: mortgage duty, rental duty, lease duty, stamp duty on unquoted marketable securities, cheque duty and stamp duty on conveyances of non-real non-residential property.
Despite this progress, Costello said that stamp duty on non-residential conveyances of real property is the last State tax listed for abolition in the Intergovernmental Agreement for which the States have yet to agree to an abolition schedule. Last month, Minister for Revenue and Assistant Treasurer, Peter Dutton, introduced new tax legislation aimed at improving the country’s taxation system by reducing compliance costs, improving certainty for taxpayers, supporting philanthropy and ensuring the integrity of the tax base. The Tax Laws Amendment (2007 Measures No. 2) Bill 2007 affects taxation in a number of areas, including mining and prospecting rights, research and development, donations of listed shares to deductible gift recipients, deductions for contributions to fund-raising events, and measures affecting venture capital activities.Link here.
Australian tax system failing business, lobby group claims.
A new report on business taxation in Australia has argued that the country’s business sector is being increasingly weighed down by a tax system which is inefficient, overly complex and levies too many taxes for little return. The report, “Tax Nation: Business Taxes and the Federal–State Divide”, was compiled by the Business Council of Australia (BCA) and the Corporate Tax Association (CTA), and highlights numerous problems with the current system, arising from the division between federal and state tax systems. It calls for a major rethink on business tax across governments.
The report – which claims to be the first comprehensive examination of its kind of Australia’s entire business tax system – is based on a survey of the number, type and total amount of taxes paid by nearly 100 of Australia’s largest companies. “The overall issue of federal–state business tax arrangements needs to be reviewed again, which is why the BCA and CTA are now calling for a Productivity Commission review into the entire business tax system and to make recommendations for possible reforms,” said BCA President Michael Chaney.
The report found that governments impose 56 different taxes on business including 21 federal taxes, 33 state and territory taxes and 2 local government taxes. A similar study on the U.K. found that in an economy three times the size of Australia’s, business paid only 22 different types of taxes. The 92 businesses surveyed paid Australian governments a total of A$27.5 billion in tax in 2006 – the equivalent of all federal and state government spending on Australia’s schools system. In addition to the taxes they directly paid, the survey found the 92 businesses collected a further A$37 billion for governments from other taxpayers, through excises, personal income tax (PAYG) and the GST. One-third of respondents spent more than A$2 million per year on tax compliance, with some spending as much as A$10 million.
The survey highlights the reliance on fewer than 100 companies being able to continue to contribute a significant share of tax revenue to Australian governments. The BCA, which has been leading calls for a major shake-up of federal–state relations, argued that Australia’s business tax system was a clear example of how confusing and conflicting roles between tiers of government was acting as a significant drag on business and the economy.Link here.
CHINA EXEMPTS LOCALLY INCORPORATED FOREIGN BANKS FROM CERTAIN TAXES
The Ministry of Finance and State Administration of Taxation have jointly issued a circular on taxation exempting locally-incorporated foreign banks from certain taxes, the official Xinhua news agency reported. Xinhua said the circular covers business tax, value-added tax, corporate income tax, stamp tax, and real estate transaction tax. The circular relates to the Regulations on Foreign-funded Banks issued in November 2006, which allow the incorporation in China of foreign banks and the transformation of their branches as wholly-owned foreign banks on the mainland.
In the process of transformation, the circular says, the transfer of property rights and equities from a former bank branch to the transformed wholly-owned foreign bank is exempted from business and value-added taxes, according to Xinhua. A transformed wholly-owned foreign bank should continue to enjoy tax holidays which the former bank branch had enjoyed.Link here.
THE TRUTH ABOUT OFFSHORE INVESTING
Offshore banking and investing is not littered with money laundering criminals, fraudsters, and tax evaders, as many governments will have you believe. In reality there is infinitely more criminal activity onshore within their countries then there is offshore.
There is a huge difference between those who bank and invest offshore for legitimate reasons and those who do so for illicit and criminal reasons. Unfortunately, because of the explicit efforts of the governments of the G7 nations, many people believe that this difference is slight to nonexistent. Not true. Seek out the facts, and the truth will be revealed.
Placing money and assets offshore is not now and will likely never ever be an illegal activity. Offshore banking and investing can be most beneficial to almost anyone. The vast majority of individuals and companies that place money and assets offshore are ethical, law-abiding people. I guess part of the continuing challenge is that the word “offshore” in the financial sense is synonymous in many people’s minds with tax savings. This can be the case, albeit it was more so in the past than today. Today, the tax saving advantages of the offshore world are mostly available only to people and institutions, who are usually expatriates, citizens of but non-resident in a high taxation country, and with tax liability in a country where taxation is low or even non-existent. There are, however, many more real benefits available to those who choose to open an offshore bank or investment account.
The asset protection benefits, personal privacy advantages and the potential to access better account structures and services are available to the majority of people and institutions when they choose to bank or invest offshore. Americans, British, Canadians and Europeans can potentially benefit in one way or another from opening an offshore bank or investment account. However, placing assets offshore without informing the relevant tax authorities in your country of residence or citizenship can be illegal.
The Bahamas, for example, like many offshore jurisdictions today, is heavily regulated to protect investors and to prevent money laundering and terrorist financing. The increased regulatory environment has actually provided companies and individuals who bank and invest offshore in The Bahamas a greater degree of confidence and security. In The Bahamas they have strict guidelines covering maintenance of client privacy which can further afford those seeking personal and asset protection with assurance that their identity and transactions will remain confidential. When it comes to protecting assets from potential unfair litigation, offshore structures like trusts and foundations are often used in conjunction with an International Business Corporation (IBC) or an offshore Private Trust Company (PTC).
Another advantage of an offshore bank or investment account is the fact that such structures are usually far more flexible and accessible, pay better interest rates, often have lower charges, and can offer those who regularly travel the flexibility they need from a bank account through which they can transact in multiple currencies, and to which they can have access from anywhere in the world. As you can see, the truth about offshore banking and investing is that it can offer many real benefits to many real people.Link here.
BARBADOS PROTESTS ABOUT PROPOSED U.S. “TAX HAVEN” LEGISLATION
Barbados, along with other Caribbean low-tax jurisdictions, is lobbying U.S. legislators against proposed legislation recently introduced by Democrat senators which would give the Treasury much-enhanced powers against a number of listed “tax havens”, including Barbados.
“That is an inaccurate and misguided labeling of Barbados,” said Michael King, Barbados’s Ambassador in Washington to local newspaper Nation News. “Those members of Congress should know that their country does not sign double taxation agreements with tax havens. We have had a double taxation treaty with the United States for almost 25 years. The OECD members don’t conclude investment treaties with tax havens and that should be known to officials on Capitol Hill. ... Barbados is a very clean jurisdiction that doesn’t encourage tax evasion or money laundering.”
The Barbados/U.S. tax treaty dates from 1984, and was accompanied by an exchange of tax information agreement. The treaty creates opportunities for 3rd country investors in U.S. real estate, and is also attractive to U.S. manufacturers. Many U.S. investors are exempted from U.S. accumulated earnings tax on Barbadian profits – this is a rare feature in U.S. tax treaties. A protocol to the U.S. treaty signed in 1991 lowered withholding rates and introduced new “limitations on benefits” rules. The U.S. treaty was further amended in 2004 in what was said to be an attempt to counter tax evasion.
44 of the USA’s largest and most influential free-market groups sent a letter in late March urging Treasury Secretary Henry Paulson to “protect America’s self-interest” and oppose the proposals by Senator Byron Dorgan (D-North Dakota) and Senator Carl Levin (D-Michigan) that “seek to thwart tax competition and penalize good tax policy in other jurisdictions.”Link here.
DUBAI REGULATOR MOVES TO BLOCK INTERNET HIGH YIELD FRAUDULENT SCHEME
Increased trend in Middle East e-frauds seen.
The Dubai Financial Services Authority (DFSA) has obtained injunctions in the Dubai International Financial Center (DIFC) Court against the operators of the Euro-America Index. The DFSA was alerted to the operations of Euro-America Index after the company purported to offer returns of between 100% to 230% on 100 day index investment products. On its website, Euro-America Index claimed to have three global trading centers, including Chicago and Zurich, as well as one based in Dubai, and referred to the DIFC. The DFSA investigation has revealed that Euro-America Index was never authorized to trade in any of these financial centers.
The DFSA was assisted in this investigation by the U.S. S.E.C. and the Swiss Federal Banking Commission (SFBC). The orders, which prohibited the operation of the website and stopped the conduct of Euro-America Index, were made by the Deputy Chief Justice of the DIFC Court, the Honorable Michael Hwang after a court appearance in Dubai via a video link with the judge in Singapore. Cooperation was received from the website domain owner, Domains by Proxy Inc. and GoDaddy.com, based in Arizona.
David Knott, DFSA Chief Executive explained that, “Once again the DFSA acted swiftly to protect the reputation of the DIFC and prevent potential loss to investors. Investors must exercise extreme caution when they view sites on the internet, be sure to obtain confirmation that the organization is licenced and obtain independent financial advice before parting with their money. We are starting to see an increased trend in these types of e-frauds in the Middle East.”
Last month, after a DFSA investigation into an internet fraud in Dubai, the Malaysian Securities Commission made three arrests and froze US$350,000. The actions related to a fraudulent investment scheme targeting Australian and Singaporean investors who were cold called by representatives of Cambridge Capital Trading, a fictitious London firm. Investors were directed to websites called the Dubai Options Exchange and a fictitious regulator, the UAE Commodity Futures Board.Link here.
SENATOR GRASSLEY BLASTS IRS OVER FAILURE TO SAFEGUARD TAXPAYER DATA
Sen. Chuck Grassley, (R-Iowa) ranking member of the Committee on Finance, has expressed alarm over a new government report which has revealed just how vulnerable taxpayer data contained on employee laptops is to theft, fraud and other criminal abuses.
The report by the Treasury Inspector General for Tax Administration (TIGTA) found that hundreds of IRS laptop computers and other computer devices had been lost or stolen, employees were not properly encrypting data on the computer devices, and password controls over laptop computers were not adequate. TIGTA concluded that as a result, “it is likely that sensitive data for a significant number of taxpayers have been unnecessarily exposed to potential identity theft and/or other fraudulent schemes.”
The report prompted harsh criticism from Grassley, who commented that “Thieves are very good at mining sensitive data for their own end. One stolen IRS laptop could put thousands of taxpayers in jeopardy. It’s hard to see why this is still a problem when the IRS knew about it more than three years ago.” The Finance Committee plans to hold a hearing to examine the issue of identity theft and fraudulent tax returns.
The TIGTA report shows that theft of IRS computer equipment potentially containing sensitive information on thousands of taxpayers is running at alarmingly high levels. Between January 2, 2003, and June 13, 2006, IRS employees reported the loss or theft of at least 490 computers. A large number of IRS laptops were stolen from employees’ vehicles and residences, but 111 incidents occurred within IRS facilities, where employees were likely not storing their laptop computers in lockable cabinets while they were away from the office.
While TIGTA said that it found limited definitive information on the lost or stolen computers, such as the number of taxpayers affected, a separate test on 100 laptop computers currently in use by employees determined 44 laptop computers contained unencrypted sensitive data, including taxpayer data and employee personnel data. “As a result, we believe it is very likely a large number of the lost or stolen IRS computers contained similar unencrypted data,” the report said.
According to TIGTA, employees did not follow encryption procedures because they were either unaware of security requirements, did so for their own convenience, or did not know their own personal data were considered sensitive. The investigation also found other computer devices, such as flash drives, CDs, and DVDs, on which sensitive data were not always encrypted. Despite similar findings in 2003, TIGTA said that the IRS had “not taken adequate corrective actions” to reduce the problem. TIGTA also evaluated the security of backup data stored at four offsite facilities and found that data was not encrypted and adequately protected at all four sites. For example, at one site, non-IRS employees had full access to the storage area and the IRS backup media.Link here.
THE WATCHFUL AIRLINE SEAT
Human ingenuity is a wonderful thing, especially when combined with the instincts of a pickpocket. The following is from the Daily Mail. “Tiny cameras the size of a fingernail linked to specialist computers are to be used to monitor the behaviour of airline passengers as part of the war on terrorism.” To find out whether they look nervous, see.
Yay-yesss! Rejoice! Brethren, we are now stark bonkers. In the hills, not of Galilee but maybe of Yorkshire a new industry is come unto us. Not a sparrow shall fall without some damnfool otherwise-unemployable at Homeland Security watching. Henceforth God will be seen as comparatively inalert, perhaps reading computer magazines and dozing off on his watch. Yes, the Divine will be replaced by tiny little cameras. For a price.
Listen to this. It is wonderful. BAE Systems, just incidentally a defense contractor, is busily designing a seat with not only a little camera, but also a microphone. “Cameras fitted to seat-backs will record every twitch, blink, facial expression or suspicious movement before sending the data to onboard software which will check it against individual passenger profiles.”
Why the microphone? At first I thought the Daily Mail was testing a parody generator, but it seems to be serious. “A separate microphone will hear and record even whispered remarks. Islamic suicide bombers are known to whisper texts from the Koran in the moments before they explode bombs.” What in the name of ... well, the Comparatively Inalert, I guess ... is this foolishness supposed to accomplish? Think about it. To begin with, will the airplane have special mumbled-Koran-detection software, fluent in Arabic? What good would it do?
The guy mumbles “moments” before he explodes the bomb. Sirens sound, lights flash. A screen in the cockpit flashes “Mumbled Koran, seat 34-F.” The terrorist will not notice this, of course, and just push the button. I suppose that the air marshal would rush up and shoot him in the head, whereupon it would turn out that he was a bulk-lot soap jobber from Lebanon, muttering about what a sumbitch his boss was.
Note that the microphone is going to “record even whispered remarks.” To be listened to by whom? When? Since the terrorist has a bomb, the plane is not going to land. And if he is not a terrorist, who cares what he says? (“Hey, Sally, how ‘bout a nooner in London?”) Or maybe there will be a bank of Arabic-speakers in a secret compartment, wearing headphones and listening earnestly to even whispered remarks. I can see that a lot of thought has gone into this.
What about false positives, which in practice will probably be all positives? You have 300 people on the aircraft. Some, afraid of flying, mumble prayers, sweat, twitch. People with minor obsessive-compulsive disorder clear their throats, blink in sets of seven, blow on their fingers, and pull their earlobes. Some anarchist, tired of being watched, puts his chewing gum over the camera. Every 15 minutes the Terror Alarm goes off. The stews rush to the seat and strip search the suspected terr while the air marshal, dressed like a cheap divorce-attorney, waves his hog leg threateningly.
In practice of course everyone would simply ignore the alarms. Real terrorists would carefully avoid twitching or mumbling the Koran. In any event, once the plane is airborne the potential mumbler could just pull the pin. Take-off speed and an altitude of 200 feet are perfectly adequate to make a gaudy mess of an airliner.
After New York, a huge market sprang up for the paraphernalia of security. Metal detectors, X-ray gadgets for baggage, and such like. These things cost whole bunches. Airports after all have lots of gates. Here was a Comstock Lode for tech industry. Further, a new federal bureaucracy came into being, hiring large numbers of people, screeners and marshals and supervisory ‘crats, who suddenly had a monetary interest in terrorism. When you get paid for solving a problem, the last thing you want to do is to solve it. Where would exterminators be without cockroaches?
Having sold Uncle Patsy all of these pricey contrivances, what does industry then do? The things last for years. Sure, there are maintenance contracts, but the real gravy is in selling things to the feds. The trick is to build upgraded and improved security gadgets. Thus we get pricey explosives-sniffers that any sophomore chemistry-major could circumvent, but that are certainly pricey, which is the point. Then we get semi-pornographic X-ray machines, which also cost a lot, which is again the point.
But these markets get saturated. To open the money drains yet wider, one needs completely new products. So engineers sit around and think, “How about ... ejection seats for all passengers! Nah, not even the feds are that stupid. Uh, maybe shock-trauma modules to fit in the cargo bay? Hey, I got it! How about seats with little cameras, see, and we could record mumbled stuff from ... what’s that book? Just the thing!”
Just the thing indeed. Think how many airliners there are, and multiply by the numbers of seats. BAE Systems or somebody would get to install a camera and microphone in each seat, along with the monumental amount of wiring needed (a wireless version would be an early and expensive upgrade) as well as the computers to monitor them. The MKD software would be a juicy contract by itself, with of course mumbled-Farsi and mumbled-Pashtu as expensive upgrades.
Cut-purses, footpads, blackguards, doxies, defense contractors, and siphoners of gas tanks. Same people. Do not blink on your next flight, or it is off to the calaboose.Link here.
THE CASE AGAINST GEORGE W. BUSH
With prominent Republican Senators speaking out against a scandal-plagued White House, talk of impeachment has moved from the margins to the mainstream. That may seem politically far-fetched, but in fact, there is a strong case to be made. The latest Bush administration scandal – the firing of eight U.S. attorneys under highly questionable circumstances – has Washington abuzz with talk of a new Watergate. The question on everyone’s mind is, could this be the president’s Saturday night massacre – the obstruction of justice that triggers impeachment?
Unless there is a sea change in Congress, talk of impeachment is largely a hypothetical exercise. That does not mean there is no legal case against the president. If a California prosecutor were fired to end an investigation of a Republican congressman, that might be a crime. If the others were fired for failing to prosecute Democrats without evidence, that would be a gross abuse of power. If President George W. Bush played any role, impeachment is a legal possibility. We need not wait for the outcome of investigations of this scandal, however, to conclude that President Bush has so abused the powers of his office that he could be impeached and removed from office. There are already other substantial grounds.
The framers of the U.S. Constitution knew that despite powerful checks, presidents might still abuse their powers, so they created impeachment as the ultimate safeguard. Constitutional grounds for impeachment are “treason, bribery or other high crimes and misdemeanors.” During Richard Nixon’s impeachment, the House Judiciary Committee determined that abuses did not have to violate the criminal code to meet this test. They simply needed to be, as the framers said in constitutional debates, “great and dangerous offenses that subvert the Constitution.” Several of the president’s actions already qualify.
The strongest legal argument for impeachment – because it is based on the Watergate precedent – arises out of the fact that President Bush refused for years to seek court approval required under the Foreign Intelligence Surveillance Act for a special wiretapping program in the U.S. After revelations that President Nixon illegally wiretapped journalists and White House staffers, Congress enacted FISA to prevent future such abuses, making them a federal crime. Illegal wiretapping was one of the grounds for articles of impeachment against Nixon.
But 30 years later, President Bush asserted that FISA hampered intelligence gathering in the war on terror, so as commander in chief he could ignore it. Actually, the FISA court overwhelmingly grants presidential requests (19,000 approvals since 1978 versus 5 rejections) and can grant approvals after wiretaps commence. But if President Bush still thought FISA too burdensome, he should have asked Congress to amend it. Since he did not, he must obey it. After the 2006 elections, he reversed himself, announcing he would comply with FISA, but what about all the years he flouted it?
The Constitution plainly states the president shall “take care that the laws be faithfully executed.” The president must obey and uphold the law, not take it into his own hands. Case law on this is clear. When during the Korean War President Truman wanted to seize U.S. steel mills to keep them running despite a strike, the Supreme Court said no, noting in its decision that the president was commander in chief of the Army and Navy, not the country. But the truth is, impeaching a president is not just about checking off legal boxes. There must be solid evidence of wrongdoing, but impeachment is an inherently political act. The legal case must resonate with the public, not just lawyers.
That is why the strongest political ground for impeachment is not Bush’s illegal wiretapping program, but the fact that the country was driven into war in Iraq – which most Americans now view as a disastrous mistake – under false pretenses. The framers deliberately gave Congress war-making powers because the momentous decision to go to war should be reached only after the fullest consideration. They believed Congress would curb the historical tendency of executives to make war needlessly. If a president lies or deceives Congress about going to war, he negates its critical constitutional role.
Facilitating mistreatment of detainees in violation of the Geneva Conventions and U.S. statutes (including the War Crimes Act of 1996) is another ground for impeachment. President Bush’s directive effectively removed these protections from al Qaeda and Taliban detainees. After abuses at Abu Ghraib became public, President Bush failed to conduct thorough investigations or to ensure those responsible, including higher-ups, were brought to justice, further violating the Geneva Conventions and his constitutional obligation to faithfully execute the law.
Other potential grounds for impeachment exist, but in my judgment the pattern of this president’s failure to uphold the law and his subversion of the Constitution is sufficiently clear. The question now is, what to do about it?Link here.
WHAT IF THEY THREW A TRIAL AND NOBODY CAME?
Angelo Mike’s writing always inspires me. His latest column on jury “dooty” is no different. When reading it, I immediately sensed the creepy coercion inherent in government and the good citizens who worship it. The feelings of revulsion I get from government are worse than ones I get from seeing a snake slither, an adult abusing a child, or gory road kill, perhaps because it is on such a massive scale as to be incomprehensible. “Stockholm Syndrome and the State” brought back memories of my own painful interaction with the “just us” system, as well as a few chuckles. I am glad I can laugh about it now. At the time, there was only outrage.
Tyranny is like the frightening and memorable episode of “The Twilight Zone”. In it, an innocent-looking, little blond girl could make people permanently disappear if they did not cater to her every whim. She would smile and say, “You’d better be nice to me!”
In a similar vein, government buildings are constructed to appear official and upstanding with large, stately columns. There must be justice within them! Look at the fancy architecture! They spare no expense! (Isn’t it easy to spend other people’s money?) Government must really care. Everything inside is done in such an official, orderly fashion that it must be good, right and fair. Good citizens have been going along with government pretense for so long that they are not even aware they only do so out of fear. When pressed, they will admit that it is not perfect, but they will defend it by saying that it is better government than can be found in other places in the world. That is not saying much. People willingly pay for fertilizer too. That does not change what it is.
I had first been summoned by the powers that be soon after the birth of my first child, some 18 years ago. I resented the hell out of the fact that some powerful, anonymous entity could, from out of nowhere, step into my life and try to make me “dance”, like in the old West when a bully would shoot at someone’s feet. I never thought that was funny either. It was like a bad episode of “Star Trek” where the voyagers beamed themselves onto a planet that seemed normal, but was actually run by an invisible, powerful, arbitrary, childish being for his own pleasure. Does this sound like government to you?
The summons contained a lengthy questionnaire. The state wanted to know all about me. If I did not answer all the questions truthfully and reply on time, I could be arrested and fined. It was truly criminal. In fact, I could not have had a more violent reaction if the return address had said “IRS” rather than “U.S. District Court”, and the IRS is as scary as it gets for me. They have so many guns.
At the time, I was breast-feeding my baby. The state expected me to put his health and well being on hold so that I could serve them. I knew the state would not hesitate to use deadly force to teach me a lesson or make an example of me if it so chose. The thought of being imprisoned and thus separated from my infant did not work for me, either. If he grew up and chose to make himself fodder for the criminals in Washington, that would be his choice, but as a babe in arms, it was mine and it was going to happen over my dead body! All last illusions of justice evaporated for me. The state had drawn a line in the sand and now I was at war.
The first notice I had gotten was friendly, almost an invitation, if you can overlook the prying questions and mild threats, nothing personal, mind you. The verbiage in the jury summons was almost as if they were asking me not to inconvenience the state by forcing it to issue a bothersome bench warrant for my arrest. The notice of jury summons was not unlike an invitation to a “party” where you need to bring your checkbook (Tupperware, Longaberger, books, purses, lingerie, etc.). At these “parties” (sorry, ladies, but no man has ever issued me such an invitation), women think it is okay to “invite” their friends to buy things for their own gain. Is the abhorrent practice of voting goodies for yourself at the expense of others so different?
The second notice was not nearly as friendly – more like an irritated parent reminding you to do your chores or else. On the last day, I filled it out in ink rather than pencil as instructed. I was so angry when I colored in the little dots that tiny tears appeared all over the computer-legible form. Some bureaucrat must have decided that it was not worth bothering to process by hand, and I never heard from that particular bureaucracy again. For every stupid law there will always be a way out for people who insist on being free, and there are a lot of stupid laws.
Government goes to great lengths to pretend that everything is fair. The next time I was officially “summoned”, my son was feeding himself. A slightly different bureaucracy actually got me into the building. I felt like a head of cattle. My lot was not the worst, though, and my time not completely wasted. I struck up a conversation with the fellow seated next to me – the one person of color in a room of 150 or so people. He told me he was sick of being called for jury duty every two years since he turned 18. He also told me that he had been “randomly” selected out of 150 to actually sit on the jury every single time. I asked him if he thought he was “randomly” chosen because he was black? I could see that the question was already there in his eyes and in his mind. I handed him a nice little pamphlet entitled “Jury Nullification,” which is produced by The Fully Informed Jury Association (FIJA). I am sure he kept showing up for his summonses because he was afraid of ending up just another black man in the prison system. Sure enough, he was “randomly” selected to sit on this jury as well.
I left another copy on my seat at the end of the day. We were generously paid $15 for the day – taxable, naturally. What an insult! No car? That is no excuse from being summoned by the omnipotent state. Find yourself a ride there and back. On which day it will be, and at what time we may allow you to leave, we cannot say. Small children? Tough – find yourself a free sitter indefinitely at a day’s notice. You are a sole proprietor of your own business? Too bad for you. Nothing can interfere with the working of the government. You have been chosen.
My time in the Libertarian Party brought me my last jury summons. I ran for office. Naturally, such a good citizen’s name gets flagged for jury “dooty”. The LP is not totally without merit. It is where I learned of jury nullification and obtained the FIJA forms.
An LP lawyer told me never to ignore a jury summons. I did. I think it is high time other people did too. Is civil disobedience not our real duty? What if they threw a trial and nobody came? Eventually they would have to stop arresting us because there would be no jury, no room left in jails and no wages left to confiscate to pay for it all. The farce of a justice system we have in this country would fold faster than a fiat currency.
Civil disobedience is contagious. Catch it! I was once kicked out of a courtroom for laughing! My spiritual teacher told me that he was proud of me – that more people should laugh at pompous displays of self-importance. It is, after all, our responsibility to expose the nakedness of the emperor government. Yea, a little courage and “eternal vigilance is the price of liberty.” (John Curran) What are you waiting for?Link here.
E.C. JOINS HAGUE CONFERENCE ON PRIVATE LAW
The E.C. has become a member of the Hague Conference on Private International Law, the global inter-governmental organization which seeks to unify the rules of private international law. V.P. Franco Frattini, Commissioner responsible for Freedom, Security and Justice, said, “Our aim is to facilitate E.U. citizens’ life setting clear rules as regards jurisdiction of the courts, applicable law and the recognition and enforcement of judgments not only within the E.U. territory, but also at international level.
“The accession of the European Community to the Hague Conference will allow for increased consistency as regards private international law, making life easier for those who decide to move and reside abroad.”
One of the key objectives of The Hague Conference is to find internationally agreed approaches to issues such as jurisdiction of the courts, applicable law and the recognition and enforcement of judgments in a wide range of areas, from international civil procedure and commercial law to matters of marriage and personal status and the protection of the family and children. The work of the conference encompasses more than 120 countries around the world.Link here.
THE MIND OF CLARENCE THOMAS
The Supreme Court Opinions of Clarence Thomas, 1991–2006: A Conservative’s Perspective reviewed.
The title word “conservative” may create the wrong impression. At an earlier time in his career, book author Henry Mark Holzer was a member of the inner circle of Ayn Rand, a writer who has exerted a major influence on libertarian thought. Holzer himself has been a courageous and determined advocate of individual liberties throughout his life as lawyer and professor of law. He leaves to the reader the task of deciding whether Justice Thomas is a libertarian or a conservative (160), but it is plain that he admires Thomas as a proponent of what I have no hesitation in calling a libertarian approach to constitutional law. Nevertheless, I put the “a” before “libertarian approach”, in recognition that libertarians are not all of the same mind when it comes to the interpretation of law. In this respect, there are at least two types of libertarianism:
My money is with the process libertarians. I believe that the practical losses one may suffer by being on their side are vastly outweighed by the practical gains. State constitutions are strong on certain individual liberties, and the federal Constitution is in most respects a model of libertarian thought. To interpret these documents fairly, giving their words the sense that their authors intended, is good for the cause of liberty, in the short term, usually, and in the long term, almost always.
But let us go beyond the issue of practical gains or losses. If you are worried about intellectual honesty, as Holzer is, you are much more likely to find it with the libertarianism of process than with the libertarianism of result. It is simply breathtaking, the degree to which presumed supporters of civil liberties have gone in amending the Constitution by judicial interpretation. I am, by profession, a literary historian and critic, and I know I would be laughed out of my profession if, when I interpreted texts, I took the kind of freedoms with fact and logic that judges, lawyers, and professors of law routinely take when they interpret the Constitution.
Of course, no text interprets itself. Even apparently simple texts can pose interpretive challenges. In the Old Testament, I encounter the commandment, “Thou shalt not kill.” The words are not as simple as they look. We can quite properly conclude that the commandment means, “Thou shalt not murder”, i.e., thou shalt not kill a legally and religiously innocent human being. By interpreting the text in this way, we preserve its original meaning, as determined by our knowledge of its literary context. We interpret, but we do not invent.
Now suppose we go further and assume that a text that is so important to so many people ought to be adapted to their changing needs and evolving perceptions of life. Or suppose we simply do not like the original meaning of the text. So we advance the thesis that there is a wider religious philosophy underlying “Thou shalt not kill,” a philosophy based on the idea that laws are given by God for the benefit of the people, to promote the general welfare. This sounds plausible. Well, does capital punishment, or the slaying of one’s religious enemies, really promote the general welfare? Perhaps not. And what benefit do people get from killing animals, even to eat their meat? Some experts now claim that a vegetarian diet is much healthier. So we announce, “Thou shalt not kill” means, “Thou shalt not kill any animals.” And suppose we take the next step. Suppose we say that the biblical commandment, in which we have now discovered a prohibition against killing in general, plainly establishes a right to life. And if there is a right to life, then plainly it is a crime to take life. In short, “Thou shalt not kill” is a mandate for the police to arrest anyone who kills an insect.
If a literary interpreter or Bible scholar ever reasoned in this plausible way, even the vegetarian members of his profession would pronounce him mad. Yet this is the process of “interpretation” that the Supreme Court has been applying to the Constitution during the past 70 years.
It must be admitted that by interpreting the Constitution in this manner, the court has sometimes done much good. In the famous case of Griswold v. Connecticut (1965), for example, it decided that states do not have the right to outlaw the use of contraceptive devices. The law in question was a gross affront to individual liberties. But to decide that it was prohibited by the Constitution, Justice William O. Douglas had to discover in that document a “right to privacy”, a right that he could locate only among the “penumbras, formed by emanations from [the] guarantees” of the Bill of Rights. Shall we applaud this exercise in judicial spiritism? I think not. It was patently dishonest. Proceeding in the same way, the court might just as well have found that the emanations and penumbras of the commerce clause (another fecund source of diseased judicial interpretation) prohibit me from writing dirty verses in my diary. After all – to invoke two of the judiciary’s favorite legal fictions – the diary might at some time be carried into the stream of interstate commerce and might then be found offensive to community standards.
The fact that none of this sounds outlandish underscores an important fact. This is the kind of reasoning that the Supreme Court actually uses, as it daily substitutes its own wisdom for the meanings originally inscribed in the Constitution and the laws. Often its actions are immediately damaging to individual liberty. But every action that renders the Constitution malleable to imaginative reconstruction renders it less capable of defining and protecting liberty in the future.
The full theory of “authorial intent”, or “original intent”, or “originalism”, as it has come to be called in American law, was developed by E.D. Hirsch, Jr., in two important, indeed fundamental, books: Validity in Interpretation (1967), and The Aims of Interpretation (1976). Hirsch is a literary critic and historian, primarily concerned with the interpretation of literary texts, not with the interpretation of the particular kind of text called a constitution. What about the popular claim that the Constitution is such a peculiar kind of text as to require interpretation by methods that would never be applied to others? One hears that the Constitution is a “living” document, and that it ought to “evolve”, so as to adapt itself to new “conditions”. In other words, we can rid ourselves of bad laws only by treating the Constitution as a butterfly that is constantly emerging from a cocoon.
Of course (as both Holzer and Thomas explicitly recognize), there are a lot of bad laws. So why not get rid of them? One answer is that there is no reason to think that nine presidential appointees sitting behind a bench in Washington, D.C., will succeed at the task of discriminating the bad from the good, especially when their qualifications for the job consist mainly of political appointment, an exuberant imagination, and a total lack of argumentative scruples. Another answer is, go ahead. Rewrite the Constitution from the judicial bench. But while you are doing it, ask yourself: What is the sense of calling it a constitution? Call it something else – call it an essay that is constantly being written, call it a proposal that is always being voted on, call it anything you like, other than a constitution, because the purpose of a constitution is to say how things should be and to keep them that way. Do you believe that anything called a “constitution” could possibly be ratified if its proponents proclaimed, “This is a document that is going to keep changing in unpredictable ways, in a continual process of reinterpretation by people who have been educated to believe that it has no fixed and definite meaning”?
No one would answer yes to that question. Constitutions are written and ratified with the expectation that their meaning will not be changed except by regular and deliberate process of the body politic (as opposed to the internal debates of a politicized judiciary). It is because most of our fellow citizens still cherish that expectation that they are willing to respect decisions that honor the Bill of Rights, no matter how much they may dislike its particular applications.
Enter Professor Holzer, who demonstrates that Justice Thomas is the Supreme Court’s smartest and most consistent advocate of interpreting the Constitution according to its authors’ original intent. In the process, Holzer illuminates many of the great controversies of constitutional law, providing a full, though not exhausting, account of Thomas’s contributions to the “three pillars of American constitutionalism – separation of powers, federalism, and judicial review”. Holzer is always clear and precise, both in his own analyses and in his criticism (favorable or not) of the analyses of others. He aptly describes “the decades-long metastasis of the ‘Living Constitution’s’ malignant doctrines into most areas of American constitutional and statutory law” and explores the various intellectually interesting ways in which Justice Thomas has “fought against this anti-constitutional disease.”
The appeal of Holzer’s book extends much farther than the audience of Supreme Court watchers and conservatives still angry (and they ought to be) over the controversy that surrounded Thomas’s appointment. The book amounts to a seminar on constitutional law, its history and practice, and on the processes and specialized language of the Supreme Court. Ideas and customs that are ordinarily explicated (badly) at the length of hundreds of pages are swiftly and memorably communicated here.
The literary, as well as the intellectual, value of this book is substantial. Holzer understands the uses of scorn. After quoting some of Justice William J. Brennan’s pompous asseverations – “Our amended Constitution is the lodestar for our aspirations. Like every text worth reading, it is not crystalline. ... Its majestic generalities and ennobling pronouncements are both luminous and obscure” – Holzer writes, “Not content to loose this blather, Brennan ...” went on to loose some more, which Holzer then cites, to devastating effect. The key words are “loose”, which is what you do with your bowels, and “blather”, which is what most people are afraid to call the sage observations of elder statesmen. Holzer is not afraid.
Holzer knows what to do with a metaphor: “[Justice] Douglas prospected his way through the Constitution. Although what he found was fools’ gold, it glittered enough to satisfy six of his colleagues.” And Holzer knows how to state a plain truth: “The concept of a ‘Living Constitution’ ... means no Constitution at all.”
Holzer identifies the essential issue: do we have a constitution, or merely a set of judicial dogmas? I hope that the answer is, Yes, we still have a constitution. But if the answer is No to that, then Holzer’s book may help us get it back.Link here.
A POLITICALLY INCORRECT DEFENSE OF CAPITALISM
Regnery’s Politically Incorrect Guide ... series is turning out to be surprisingly good. Of course I knew I would enjoy Tom Woods’ PIG to American History, but I was also fascinated by Tom Bethell’s PIG to Science. What makes these books so good is that they make simply shocking assertions, e.g., that the so-called Civil War was not just about slavery. Or that it is an open question whether HIV causes AIDS. And then they back them up with careful scholarship.
In this respect, the cartoonish illustrations and bullet-point summaries may have misled the sympathetic reader. Yes, part of the point of the PIG series is to annoy the heck out of the left-liberal media establishment. But far from relying on an anti-intellectual, hick “You gonna trust them-there college perfessors with all that book learnin’?”-type argument, on the contrary the PIG books make careful, well-reasoned cases and quote experts in the fields under discussion.
The latest addition to the series is my own Politically Incorrect Guide to Capitalism. I know I have lived up to the “shocking” assertions of my predecessors. In this book I question the need for child labor laws, Civil Rights legislation, and medical licensing, and I defend golden parachutes for canned CEOs as well as outsourcing and trade deficits. And if I may be so immodest, I would like to think that my arguments on all of these points do not betray a simpleton apologist for corporate America, or a closet racist. (If the experience of Tom Woods is any guide, however, I am sure hostile reviewers will draw such conclusions.)
The basic structure of my book is to take on a wide range of topics – including oil profits, unequal wages, the environment, discrimination, safety regulation, globalization, and more – and first summarize the typical anti-capitalist condemnation relevant for that topic. This reminds the reader of the “politically correct” version that he his heard growing up and every time he turns on the news. After reviewing the basic case against the free market for the topic in question, I then go through and pick apart every component of the criticism. By the end of the chapter, I have (hopefully) convinced the reader that it is the government that causes (or at least exacerbates) the problem under discussion, and that the best antidote is not more regulations or federal dollars, but rather more freedom.
PIG to Capitalism is not a textbook in economics. If you want that, Gene Callahan’s Economics for Real People is a better choice. Having said that, the PIG to Capitalism does provide a very good introduction to “thinking like an economist” on a wide range of topics. Much of what I do in this book is simply codify the best arguments for the free market that I have encountered over the years. Many of you will not learn anything new here, but even so the book will serve as a great reference when your socially conscious egalitarian buddy starts arguing with you.
The Politically Incorrect Guide to Capitalism is probably the most radical defense of the free market that you can get at Barnes & Noble. Fans of Ludwig von Mises and Murray Rothbard can pass it along to their more mainstream colleagues without feeling like sell-outs. So go buy yourself a copy, and 10 more for your intellectual (but oh so confused) friends. And remember, every copy you buy puts more money in circulation and hence boosts GDP.*
*Oh wait, I debunked that silly logic in Chapter 10.Link here.
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