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CRY FOR ARGENTINA
A beautiful country imperiled by decades of abusive government.
Drift off during an 8-hour flight from Miami and by morning you can wake up in Buenos Aires, a vibrant city of some 12 million people (when you include the metropolitan area) and one of the best travel bargains in the world. Buenos Aires is highly literate, highly Catholic, the most European city outside of Europe, and the most culturally cosmopolitan city in Latin America.
But stay here for a while – I have been here a month – and you will find some interesting contrasts and hints that things are not always as they seem. It is, for example, an energetic, bustling, harried city teeming with commerce, art galleries, high-end restaurants, and dance clubs. But for a city so alive, Buenos Aires is also obsessed with and haunted by its dead. One of the major tourist attractions is the cemetery in Recoleta, where Argentina’s rich and famous are interred in gaudy mausoleums, a kind of post-mortem affirmation of the dramatic gap between the country’s elites and its poor.
Down by the airport, vacant Navy warehouses look ominously over the city’s slums. Locals will tell you the buildings were the sites of the torture of thousands of dissidents during Argentina’s period of military rule from 1976 to 1983. Many were drugged, put on planes, and – still alive – simply pushed off into the Atlantic Ocean. It is still a sore subject in Argentina. It is spoken of in hushed tones. Mothers of “the disappeared” still protest weekly in the federal plaza, clutching posters of missing kin.
There are few indigenous South Americans in Buenos Aires. The city’s architecture, cuisine, and culture teem wih European influence, and most of the city is of European descent, predominantly Spanish and Italian, but also German, Portuguese, French, and British, with a rising immigrant population from neighboring Latin American countries. Yet despite Buenos Aires’s proud “melting pot” demographics, there is also strong sentiment to preserve Argentine culture from outside influences. You will find comparatively few multinational brands here (there is not a single Starbucks). Many companies familiar to Americans will spin off Argentine-sounding brands, in an appeal to nativist consumer sentiment.
Argentina is one of the more thoroughly Catholic countries in the world. More than 90% of the population identifies as Catholic, and the country’s constitution requires that its government support the Roman Catholic Church. But many (if not most) are non-practicing. And the church’s influence on the country’s public policy has had some interesting effects. The country’s stringent divorce laws, for example, have fostered cottage industries such as telos, rent-by-the-hour sex hotels. Low-end telos can be as seedy as you might expect, but there are cleaner, higher-end spots, too, and discreetly reserving one has become fairly common.
At the beginning of the 20th century, Argentina was one of the wealthiest countries in the world. It since has endured decades of bad government, including the rudderless reactionary populist appeal of Peronism which still dominates the county’s politics today, the military junta in the 1970s and ‘80s, and consistently bad economic policy that culminated in the country’s financial collapse in 2001. The economy is recovering, but it is clear that most Argentines do not have much faith that it will last. Many feel that the government is being dishonest about its economic data – or just making it up.
Durable goods and long-term purchases usually are made with U.S. dollars, not Argentine pesos, a good indicator that Argentines are not ready to trust their own currency. Most retail and service business will also give you a discount if you pay in cash instead of credit. Yet for all the abuse they have endured at the hands of government, Argentines still are reflexively pro-government. Socialism and Peronism (now run by political and cultural elites who win votes by denouncing elitism) still rule Argentine politics. Market liberals are few and far between.
That said, Argentina is a beautiful country and an absolute steal for American and European tourists. The 3-1 peso-dollar exchange makes it one of the better bargains in the world. A world-class meal in a city like Buenos Aires with an appetizer, desert and a premium bottle of wine will run at most $30 or so per person. Argentina is known for its beef, and particularly its steak, but its famous parilla barbecues will also serve up lamb, venison, wild boar, trout or a number of other animals raised in the vast, wild expanse of the Patagonia. (This is not a place for vegetarians.)
Buenos Aires offers culture and sophistication, but much of Argentina is pastoral, untouched wilderness and offers some amazing contrasts in geography. Sweep up the western coast on a tour bus, for example, and take in the magnificent vistas offered by the Andes and the Patagonian wilderness. The North offers desert in the west and more tropical climes in the east, including Iguazu Falls, arguably the most spectacular waterfall in the world.
Although there is strong anti-American sentiment here, it is generally limited to U.S. foreign policy, and not to individual Americans. Argentines are mostly warm, congenial, and hospitable – even to American tourists (like me) who speak little Spanish. For a country so literate and so rich in natural resources and tourist destinations, it is tragic that Argentina has fallen so far in the last century, and that so much of the country remains so poor. Its neighbor and rival to the west, Chile, is thriving and providing a model for the rest of Latin America. Unfortunately, it seems unlikely that sound economic policy will arrive in Argentina anytime soon.
Link here.13 NOT SO CONVENTIONAL REASONS TO LOVE PANAMA
Most of us have already read the myriad of articles about Panama, not to mention the “About Panama” section on the websites of every real estate agency promoting property in the region. There is no doubt that Panama possesses numerous advantages, including its strategic geographic location, incentive program for retirees and a relatively low-cost of living, amongst others. However, some of the reasons that I particularly enjoy living in Panama are not the most obvious, such as The Canal (after showing my 4th visitor the Miraflores Locks, the outing becomes slightly monotonous) or its proximity to Miami (I have never been to Miami in my life!). Certain pleasures can only be recognized after living in Panama as a foreigner for some time. Though I appreciate the similarities that Panama and the “Western World” share, I also cherish the differences, since they are what makes my life here truly unique and exciting.
SINGAPORE: LIVING, WORKING AND DOING BUSINESS
Situated at the southernmost tip of the Malay Peninsula with a land area of 685.4 square kilometers (264.6 square miles), Singapore is an island-state with a 4.2 million population. It consists of one main island and 63 islets. Modern Singapore was founded by Sir Stamford Raffles in 1819. Only until the “rightful” Johorean heir agreed to sell the island to the British that it became a colony. Widely known and recorded by many sojourners as Temasek – Sea Town – by the 14th century, Singapore was part of the Sri Vijayan empire.
As the British had ruled Singapore for about 140 years till 1963, one of the legacies is the English Legal System, as well as English which is the language of administration, business and instruction in schools from kindergarten upwards. In addition to Malay, Mandarin and Tamil that make up the official languages of the country. Malay is the only national language as enshrined in the Constitution in recognition of the indigeneous status of the Malays. The national coat of arms depicts a lion and a tiger, the latter indicating Singapore’s historical links to Malaysia. What is more interesting, a Dutch economist developed Singapore’s economic blueprint, and thenceforth guided it to attain success. The late Dr. Albert Winsemius, who died in 1996, was appointed as the country’s Chief Economic Advisor from 1961 to 1984.
Singapore’s populace is of largely immigrant stock. With ethnic Chinese being the majority, followed by Malays and ethnic Indians, then Eurasians, ethnic Arabs, ethnic Sephardic Jews and a handful of other ethnicities. Apart from the main three races, the rest are collectively known as “Others”. Each community has its own unique customs and practices whose differences only lately have blurred and cross-practiced – in part due to inter-marriages. Certain prejudices towards one another still prevail, even between ethnic sub-groups. Such attitudes are expected of and commonplace in heterogenous societies.
Singapore is so often touted as a first-world global business city-state that many Assignees upon arrival expect business to be conducted in the Western manner. The perception is further entrenched by the use of English as the language of business. Only when they start negotiating with their Singaporean counterparts do they notice subtle Asian behavior – and this is when the fun starts.
Singaporeans value punctuality, hence they appreciate it when meetings start on time. Confirming the meeting again a day before the actual date is optional. Unlike in other Asian countries, Singaporeans do not take kindly to gifts on the first day of meeting. Bribery is not a Singaporean way of life hence this gesture may be misconstrued as such. Again, unlike certain Asian business etiquette, it is not necessary for a senior Executive to accompany the Assignee to the meeting. Unless it is an ethnic Chinese family business, observance and respect accorded to seniority are not practiced. Lastly, a firm handshake is more than suffice regardless of the Singaporean’s gender. No bowings, putting palms together and a slight bow, or any other pseudo-Asian gesture, please. Business cards in Asia serve as an extension of the person’s business reputation. Hence, the exchange itself upon first introductions is almost akin to a ritual. If the Assignee is new to Singapore – or Asia for that matter – some useful pointers to take note of are included.
Given its multiracial population make up and British heritage, newcomers to Singapore will inevitably become perplexed by the average Singaporean behavior and mindset. There is no one easily identifiable Singaporean trait as it is influenced by many sources, e.g., the macro- and micro-environments, family and peer influences, educational background and work experiences, to name but a few.
It is Singaporeans’ aversion to “losing face” – or inclination for “face saving” – that they come across as non-confrontational. Even if a conflict arises over trivial matters, they would rather save the other party’s face instead of thrashing out the issue. Such behaviour may appear difficult or strange for the Assignee to grasp. Singaporeans believe in achieving results together collectively, hence their preference for a harmonious work relationship. Any wrongdoing committed by the Assignee’s peers or staff should be discussed behind closed doors.
Relocating to a new country with a completely different set of values and practices is not without its fair share of the unknown. The International Assignee is not alone in feeling apprehensive or anxious about approaching the locals. So are the locals who have limited, superficial or no prior interaction with foreigners. It is crucial to check himself when caught in situations that may lead him to stereotyping due to first impressions. May I suggest the following pointers:
WEALTH GAP GROWS AND SOLIDARITY FADES AS REBELLION OF RICH SPREADS ACROSS EU
Disputes over public money and how to spread it fairly are rife across large tracts of Europe, eroding national solidarity, feeding separatism, encouraging populism, and generating friction between Europe’s wealthy centers of excellence and their less fortunate national hinterlands.
The rich bits of Europe are revolting. And it is some of the most successful and attractive cities on the continent that are in the revolutionary vanguard. From the fashion and finance mecca of Milan to the hi-tech center of Munich, from the world’s diamond capital, Antwerp, to the vibrant coastal hub of Barcelona, Europe’s most dynamic cities and regions are increasingly rebelling against “subsidizing” the poorer parts of their countries, demanding to keep their home-grown wealth, and causing headaches for central governments. “We are in the champions’ league, and our competition is with Milan or Munich, not other Spanish cities,” says Ignasi Guardans from Barcelona, a leader of Catalonia’s strongest party, the moderately nationalist centre-left Convergencia i Unio. “[W]e feel we are subsidising the south and there is a lot of resentment about that. The young in Catalonia feel that Spain is drinking our blood.” In Barcelona, Catalans are incensed that motorways built with taxpayers’ money are all toll-paying in their region, while they are free in the south of Spain.
In Italy, the center-left government of Romano Prodi has just received a drubbing in local elections, particularly in the north, not least because the north perceives Rome as the agent pilfering its hard-earned cash only to hand it over to the “spongeing” south where the Mafia and Camorra soak up the subsidies. Lombardy in the north generates twice as much wealth as Campania in the south. Milan does not want to pay for Naples. “The northerners are saying enough is enough,” says James Walston, a professor at the American University in Rome.
In Belgium, Flemish nationalists complain that the public sector payrolls in Wallonia are twice the size of those in Flanders. “It is majority socialist in the south, the last Soviet republic in Europe,” says Filip Dewinter, the Vlaams Belang leader. “They are stealing our money with the collaboration of the government in Brussels. We are a hard-working people, very prosperous, low unemployment, and we are giving them €12 billion every year to finance their social security. We can stand alone.”
In Germany, the wealthy southern states of Bavaria and Baden-Württemberg balked at the Berlin government’s health service reforms last year because they had to pay more into the national kitty than poorer parts of Germany. In Britain, in the debate over Scottish devolution or independence, the wealthy south-east appears increasingly aggrieved over the Barnett formula that ordains higher per capita public spending in Scotland than in England.
The rich people’s rebellion engulfing the various countries has also spread to the pan-European level, affecting the way Brussels dispenses its largesse. “It is a bun fight for the money,” says a European commission official. “There is definitely much less solidarity around.” The expansion of the EU from 15 to 27 countries over the past three years has immensely widened the disparities in wealth, while putting strains on the funds available. For example, a Polish farmer gets only a fraction of the subsidies available to a French farmer.
“The EU budget is not increasing, but there is much more demand on it, and an argument about who should benefit,” says André Sapir, an expert on the European economy at the Free University of Brussels. “Many of these successful regions are making a cost-benefit analysis about staying in the larger national entity. And since their markets are no longer national, but mainly the single European market, it makes it less costly to split.”
Such calculations have already helped to redraw the map of Europe. When communism collapsed, President Vaclav Klaus in Prague concluded that Czech prosperity would be boosted by divorce from the poorer Slovaks, and colluded with Slovak nationalists to break up Czechoslovakia. Similarly, the disintegration of Yugoslavia in the 1990s was partly propelled by the secession of Slovenia, by far the richest and most productive part, which was sick of seeing its taxes propping up regimes in Belgrade.
The great unsung story of the EU over the decades has been its social democratic exercise in redistributing wealth between and within countries, narrowing the wealth gap and hugely benefiting states such as Greece, Portugal, and Ireland. In essence this meant that big, wealthy Germany kept the checkbook open. But those days are over. United Germany is a relatively poorer Germany. Having poured hundreds of billions of euros into ex-communist eastern Germany to fund unification over the past 15 years, the burghers of Munich, Cologne, or Hamburg are less keen to stump up for Bulgarians or Poles.
The result is that in an EU of 500 million people, the wealth gap is greater than ever. The richest corner, inner London, generates more than three times the wealth of the EU average, while north-eastern Romania manages barely a quarter. The rich regions are clamoring for a new dispensation, arguing that they only want a square deal. “We only want to receive back what we pay in,” says Mr. Guardans of Catalonia. He points to the Basque country with some envy, since the Spanish Basques levy and spend their own taxes, simply paying the central government in Madrid for services rendered. But he concedes that if all 17 regions of Spain had the same fiscal powers, there would be no more Spain.
“The south just takes us for granted, they truly believe in the one-way flow of our money to the south,” says a resident of Belgian Flanders. “It is not right. Of course, we need to do something to support the weaker parts of the country. But I do not want to do it personally. It would be better to split up.”
Link here.DIGICEL LOOKS LIKELY TO GET ITS BRITISH VIRGIN ISLANDS MOBILE LICENSE
After BVI High Court Justice Rita Joseph-Olivetti ruled that telecommunications operator Digicel can apply for a license to operate in the BVI, the territory’s Telecommunication Regulatory Commission (TRC) is now considering the company’s application for a mobile telecommunications license. Digicel obtained leave from BVI Court to file an application for Judicial Review after arguing that its application to operate a GSM license in the BVI had not been addressed in accordance with the Telecommunications Act, which stipulates that each application must be considered on an objective, transparent and non-discriminatory basis.
The BVI government’s decision to liberalize the territory’s telecoms market effectively ended the 40-year monopoly enjoyed by Cable & Wireless. However, the government invited only the three current licensed public suppliers to apply through the TRC for licences to operate across all three sectors – fixed line, mobile and cable. This meant that other applicants, including Digicel and Virgin Live Media, were excluded from the process.
The BVI government has come in for plenty of tongue-lashing after the court case went against it. On a TV panel discussion last week, Jerry Sardine, Managing Director of Anguilla-based Caribbean Management Services said that the TRC, supposedly an independent regulatory body, was being led by the Minister: “So, therefore, there is not a level playing field being provided under the constant changing BVI Telecommunications Act and supposed policies being executed by a quasi-independent regulatory body, the TRC. There is a prejudicial, predatory, antiquated and dinosauric approach toward the liberalization of the Telecommunications Sector within the British Virgin Islands.”
Link here.THE BAHAMAS’ NATIONAL DEBT BALLOONED UNDER PREVIOUS GOVERNMENT
During the parliamentary debate on the recently announced Bahamas budget it was revealed that the territory’s national debt has grown by $656 million or 29% over the last five years, and stands at $2.9 billion. Minister of State for Finance, Zhivargo Laing, told parliament, “This represents an average annual increase of some 5.8%. This level of growth of the national debt has had the consequence of pushing debt servicing, in terms of interest payments upward from $103.4 million in 2002/03 to $141.4 million in 2006/07, an increase of some $38 million or 37%.”
The newly elected government has pledged to eliminate the budget deficit by 2011, and to reduce the national debt to 30-35% of GDP. Laing said that these goals could be achieved without the need to raise taxation or cutting back government expenditure on essential services. Instead, he plans to improve revenue collection by ensuring that the present taxation system is strictly enforced, “so that there can be no recourse to loopholes or other means of evading or avoiding taxation.”
Citing IMF statistics, Prime Minister Hubert Ingraham noted that projections for economic growth in 2007 and 2008 provide confidence that the growth strategy envisaged by the government will be successful.
Link here.IRS MOVES TO CURB FRAUDULENT TELEPHONE EXCISE TAX REFUND CLAIMS
Moving to curb abuse of this year’s one-time telephone excise tax refund program, the U.S. Justice Department and the IRS have obtained federal indictments this spring against tax preparers who allegedly filed thousands of dollars in fraudulent refund claims. In recent weeks, the alleged refund schemes involving preparers in Miami , Norcross (Georgia), Dallas, and Riverside (California), led to federal indictments. Last week, the defendant in the Miami case pled guilty to one count of making and presenting fraudulent federal income tax refund claims to the IRS. The indictments stemmed from searches carried out this winter by special agents from IRS Criminal Investigation.
The IRS has been monitoring telephone excise tax refund requests for potential problems. Shortly after the tax-filing season opened in early January, the agency observed problems with returns from some tax preparers that indicated possible criminal intent. Along with the searches undertaken by the IRS, other tax preparers across the nation who prepared questionable telephone tax refund requests received visits from IRS revenue agents (auditors) and special agents. The IRS has advised taxpayers to stay away from unscrupulous promoters and tax preparers who make false claims about the telephone tax refund and suggest that many, if not most, phone customers can get hundreds of dollars or more back under this program.
At the same time, the IRS this year urged taxpayers filling out their 2006 returns not to overlook the telephone tax refund. About 30% of taxpayers have not requested this special refund so far this year, and although some of them may not be eligible, others may qualify and not know it. The IRS urges eligible taxpayers who already filed, but overlooked the refund, to request it by filing an amended return on Form 1040X. The government stopped collecting the long-distance excise tax last August after several federal court decisions held that the tax does not apply to long-distance service as it is billed today. Officials also authorized a one-time refund of the federal excise tax paid on service billed during the previous 41 months, stretching from the beginning of March 2003 to the end of July 2006. The tax continues to apply to local-only phone service.
To make the refund easier to figure out, the government established a standard refund amount, based on personal exemptions, ranging from $30 to $60. If taxpayers have phone bills and other records, they can request the actual amount of excise tax paid. Though using the standard amount is optional, it approximates the eligible amount for most individual taxpayers. Taxpayers only need to fill out one line on their return, and they do not need to present proof to the IRS.
Link here.IRS CRIMINAL PROBES FELL LAST YEAR
While the number of tax-related investigations started by the IRS rose during the 2006 fiscal year, the number of criminal investigations initiated by the agency fell last year, according to a new Treasury report. The Treasury Inspector General for Tax Administration’s (TIGTA) latest report into the IRS’s enforcement activities showed decreases in several key performance measures from Fiscal Year 2005. For example, the number of subject investigations initiated decreased 8.5%, the number of subject investigations in open inventory decreased 5.8%, the number of subject investigations referred for prosecution decreased 4.9%, the number of subjects convicted of a crime decreased 6.1%, and the number of subjects sentenced for a crime decreased 3.6%.
The study revealed that the number of investigations in the Department of Justice pipeline was at a 6-year high. This resulted in the function spending more direct investigative time to prepare these investigations for adjudication instead of initiating new investigations. Meanwhile, TIGTA said that the percentage of direct investigative time spent on legal source income tax and tax-related investigations was at a 7-year high. Although the function reported it was spending more time investigating these types of cases, overall investigations initiated decreased, thus affecting the number of legal source income tax and tax-related investigations initiated.
The TIGTA report raised concerns that the IRS is losing experienced special agents to attrition faster than it is replacing them. According to its most recent estimates, the function’s planned hiring will not offset Fiscal Year 2006 attrition or expected Fiscal Year 2007 attrition. In an effort to ensure voluntary compliance, the IRS continues to increase its publicity on tax prosecutions. The overall publicity rate of 75.6% for prosecutions in Fiscal Year 2006 was at an all time high.
Link here.ROBERT RUBIN SUGGESTS U.S. FUND MANAGERS ARE PAYING TOO LITTLE INCOME TAX
A former U.S. Treasury Secretary has suggested that fund managers receiving pay through performance fees are not paying their fair share of tax, adding fuel to the debate as to whether curbs should be placed the escalating sums earned by the top fund managers.
Sitting as a panelist at a tax reform conference organized by the Brookings Institution, Robert E. Rubin, a Treasury Secretary during the Clinton administration, was asked whether it would be more appropriate for fund managers earning profits from managing others’ money, known as carried interest, to pay income tax at rates of up to 35%, instead of capital gains tax, which can be taxed at 15%. “It seems to me what is happening is people are performing a service, managing peoples’ money in a private equity form, and fees for that service would ordinarily be thought of as ordinary income,” Rubin said. He went on to state that the issue should be examined “with great seriousness” by the Congressional tax committees.
Currently, the standard basic fee structure for managers of hedge and private equity funds is 20% of gains made by the fund, plus a 2% management fee. This has helped to fuel some massive pay increases for the heads of the most successful funds. According to Alpha magazine, the average pay of the 25 top performing fund managers was $570 million last year. The highest paid of these fund managers earned $1.7 billion.
Senate Finance Committee Chairman Max Baucus (D-Montana) has expressed concern that hedge fund and private equity fund managers are manipulating the US tax code to reduce their tax bills, but he has revealed that new legislation to rectify this is a long way off. Senate Finance Committee staff are currently examining this area of taxation after a closed-door hearing heard from a number of experts on the subject last month, including Victor Fleischer, who has written a study of the tax implications of hedge-fund managers’ pay, and IRS officials. “The different rate between capital gains and ordinary income puts a lot of strain on the code,” Baucus explained.
The Brookings forum was convened to address the challenges of reforming the U.S. tax system in an increasingly global economy. It was opened by former U.S. Treasury Secretary Lawrence H. Summers and featured contributions from academics and Congressional staff.
Link here.CANADA TAX FAIRNESS PLAN PASSED IN COMMONS
Decision to introduce a new “Distribution Tax” on income trusts is played down.
The Canadian Budget Implementation Bill, which contains Finance Minister Jim Flaherty’s controversial “Tax Fairness Plan” has been passed by the House of Commons and now awaits the approval of the Senate.
In welcoming the passing of the measure, Flaherty made no mention of the unpopular decision to introduce a new “Distribution Tax” on income trusts in an attempt to tackle what he considers a “growing trend toward corporate tax avoidance” caused by the vehicle’s more favorable tax treatment compared with the more conventional company structure. This tax is being applied beginning this year to distributions from publicly traded income trusts and limited partnerships set up after Flaherty’s October 31 2006 announcement. Trusts formed prior to this date will benefit from a four-year transition period.
The new tax, which was devised largely without consultation and announced without warning, has caused consternation in Canada’s business and investment sector, and several corporations with well-advanced plans towards converting to trust status have been forced to rethink their strategies. According to Flaherty, the estimated federal revenue loss for 2006 due to the special tax advantage for income trusts would be C$500 million (US$424 million) – a burden he argued was unfairly being shifted to ordinary taxpayers and other tax-paying corporations.
Link here.CANTON TAX LAW “UNCONSTITUTIONAL” SAYS SWISS HIGH COURT
Socialist Party deputy claims decision puts a brake on “the fiscal cannibalism between the cantons”.
A tax law introduced by the canton of Obwalden in 2006 which cut income tax for wealthy taxpayers has been struck down by Switzerland’s highest court. The Federal Tribunal in Lausanne ruled last week that the income tax law is unconstitutional because it is regressive and not based on economic imperatives.
After a referendum in 2005, Obwalden, a tiny mountainous region in the center of Switzerland, brought in an income tax law which cut tax for those earning more than CHF300,000 per year to 1% from 2.35%. Individuals earning up to CHF70,000 pay 8% and those with income up to CHF300,000 pay up to 6%. At the same time, Obwalden also cut corporate tax to 6.6%, making it one of the lowest rates in Switzerland. Obwalden’s tax reforms also prompted other cantons to respond with tax cuts of their own. Cantons Zurich, Valais, Fribourg, Uri and Schaffhausen all reduced tax rates in 2006.
But according to Socialist Party deputy Josef Zisyadis, who brought the action and moved to Obwalden specifically to oppose the tax regime, the court’s decision has “put a brake on the fiscal cannibalism between the cantons. ... The Federal Court’s decision is extremely important, on the Swiss and European level.”
The European Commission is currently attempting to make Switzerland change aspects of its corporate tax regime designed to attract holding companies to the jurisdiction. The Commission argues that the Swiss tax regime, which allows cantonal governments freedom to set their own tax rates to attract new companies and wealthy expats, breaches the 1972 trade agreement between Switzerland and the EU by distorting trade and competition. Under Swiss law, the cantons may fully or partially exempt profits generated abroad from cantonal and municipal company tax. All Swiss cantons have made use of this provision, although in different forms.
However, in April, EU Economic and Monetary Affairs Commissioner Joaquin Almunia told European parliamentarians that this is politically unacceptable because companies establish operations in Switzerland with the sole intention of avoiding taxes in the EU. The EC has told the Swiss government that if it does not cooperate on the tax issue, it will initiate proceedings against the country under the EU’s state aid rules, which seek to eliminate regional or industry-targeted tax breaks in the interest of promoting a level competitive playing field across the EU. However, it is unclear whether such an action will succeed as Switzerland is not a member of the EU and arguably it has no jurisdiction over Swiss laws.
As for Obwalden, the cantonal government has said that it will attempt to draw up a constitutionally acceptable tax system and present the plans before the cantonal parliament in due course. The Federal Department of Finance meanwhile, said that while it rejects regressive tax systems, the court’s decision would not reduce cantonal tax competition, nor lead to tax harmonization.
Link here.HM REVENUE & CUSTOMS ANNOUNCES MASSIVE CAROUSEL FRAUD STING
After one of the biggest ever investigations by the UK’s HMRC, involving nearly 100 mobile phone traders and two separate criminal trials, six men behind a £85 million VAT fraud were jailed for a total of more than 47 years.
Tracking their fictitious trading across the North West, Midlands, Republic of Ireland and Europe and the subsequent court case has been one of the biggest “missing trader” or MTIC frauds to be prosecuted. Over a nineteen month trading period, HMRC officers identified losses of over £85 million in VAT linked to the activities of the conspirators.
Peter Hollier, Head of Criminal Investigation in the North West for HMRC announced that, “This was not some kind of victimless crime, but organized fraud on a massive scale perpetrated by criminals all bent on making fast and easy profits at the expense of the British taxpayer. This was theft of revenue needed to fund our country’s public services. Missing trader fraud is not merely a paper fraud but often features links to other forms of criminal activity.”
Presiding judge, His Honour Judge Swift added, “This conspiracy generated considerable loss of public revenue. On the documents something like £85 million was taken from public revenue at a time when revenues were stretched and honest people continued to pay tax.”
Investigations by HMRC began in 2000 and involved breaking the audit trail of 98 businesses based in the UK, Germany, Belgium, Spain and the Netherlands. The conspirators were directors and executives of seven of the companies identified during the trial. Mobile phones were purportedly imported into the UK VAT-free by various companies set up by the conspirators, who then sold the phones on, charging VAT that was never paid over to HMRC. These companies then went “missing”. The phones were then “sold” down the line to various “buffer” traders before they were exported again often to be repurchased by the original companies at a trading loss.
According to HMRC, as the accomplices got more confident the transactions grew in number and value, and it was clear from handwritten records found that those involved had difficulty themselves keeping a track of the transactions as the scale escalated.
Link here.UK SMALL BUSINESS SLAMS HM REVENUE & CUSTOMS’ “CRAVEN” PURSUIT OF FAMILY BUSINESS
The Federation of Small Businesses (FSB) has attacked the conduct of HMRC in a family tax case that was heard in the House of Lords last week. The UK’s biggest business organization criticized HMRC’s decision to ignore a refusal by the Court of Appeal to allow a petition to the House of Lords in the so-called Arctic Systems case. Arctic Systems Ltd. used dividends from the business to remunerate Geoff and Diana Jones, the shareholders. Despite a decisive ruling by the Court of Appeal in favor of the taxpayer, HMRC is continuing its campaign to extract money from the Joneses.
Bill Knox, FSB Taxation Chairman, said, “HMRC’s conduct towards a family-run business in this case is utterly shameful. They refused to respect the decision of the Court of Appeal, which delivered a decisive and authoritative ruling in favor of the taxpayer.
“Hounding hardworking small business owners in this way sullies the good name of HMRC and will not instill confidence in the UK small business community as a whole, which rightly expects to be treated proportionately and fairly by the tax authorities.
“The craven decision to pursue the case further will be at the expense of the taxpayer and will result in a damaging loss of confidence in HMRC’s record with small businesses.”
The couple, who have been supported throughout by the Professional Contractors Group, a body set up specifically to help the UK freelance community contest unfair tax claims, have been fighting HMRC after receiving a back-dated bill for £42,000 in tax which, according to the then Inland Revenue, was owed under the settlements legislation. They had established the jointly-owned company, Arctic Systems, after seeking advice from accountants. Each purchased one share in the company, drew a salary and distributed the profits equally as dividends. HMRC has argued that dividends paid to Mrs. Jones should be treated as Mr. Jones’s income for tax purposes, causing uncertainty for hundreds of thousands of small businesses with a similar set-up.
Link here.FIRST COMES LOVE, THEN COMES MARRIAGE, THEN COMES UNCLE SAM WITH HIS HAND OUT
Despite efforts by Congress to reduce the marriage penalty, some newlyweds – mainly those with two good-sized incomes – will pay more in taxes after they get hitched than they did as two singles combined. Some high-income couples could even find their wedding crashed by the alternative minimum tax. On the other hand, a couple could pay less post-nuptials tax if one earns considerably more than the other. Two low- or middle-income spouses with comparable incomes would likely see no change.
With wedding season in full swing, it is a good time to look at the impact of marriage on taxes and whether newlyweds should adjust their income-tax withholding to reflect their new tax status. Because the federal government does not recognize same-sex marriage, the following applies only to heterosexual couples.
Even if you keep separate checking accounts, you must file your federal income taxes as either married filing jointly or married filing separately. Filing separately does not usually lower a couple’s tax bill unless one spouse has certain large deductions, such as for medical expenses or casualty losses. Couples filing separately can lose some tax benefits, so it is not commonly done. If you and your spouse file a joint return, you are each legally responsible for both of your taxes. If you file separately, you are liable only for your share. If you think your spouse is a tax cheat or might flee the country, leaving you with a big tax bill, consider filing separately.
For the rest of this column, married means filing jointly. In 2001 and 2003, Congress took steps to reduce the marriage penalty. It made the standard deduction exactly twice for marrieds what it is for singles. It also adjusted the lower tax brackets so married couples reach them when they have twice as much taxable income as singles. For example, the 25% bracket starts at $31,850 for singles and $63,700 for joint returns. However, the penalty still exists in the higher brackets. The 28% bracket starts at $77,100 for singles. For married, it is only $128,500.
On the other hand, suppose the wife has $100,000 in taxable income and the husband has none. As a single, she would be in the 28% bracket. After marriage, the rate drops to 25%, Scharin says. This is called the marriage bonus. As newlyweds, they might both have modest incomes, so their taxes do not change after marriage. Over time, their incomes grow and they owe a marriage penalty. Then they have a child and one spouse stops working, so they have a large disparity in income and enjoy a marriage bonus. Marriage-penalty relief, like many provisions in the 2001 and 2003 tax acts, expires after 2010.
Marriage could throw some higher-income people into the AMT, which essentially levies an additional tax on top of your regular tax. There are situations where individually, neither owes AMT, but when you add your incomes together, you could owe AMT. The reasons are complicated, but it essentially can happen because the AMT exemption amount (similar to a standard deduction) is not twice for married what it is for single.
Some people who had been taking the standard deduction might benefit from itemizing after marriage. For 2007, the standard deduction is $10,700 for joint returns and $5,350 for singles. But if you have $7,000 in deductions and your spouse has only $3,000, you will no longer be itemizing.
If your capital losses for the year exceed your capital gains, you can deduct up to $3,000 in excess capital losses from your ordinary income. Capital losses of more than $3,000 can be carried forward to be used in future years. The $3,000 limit applies to both singles and married couples. Two single people you could deduct a total of $6,000 in capital losses from ordinary income. A married couple can deduct only $3,000. Unused capital losses can still be carried forward, so you do not lose them. It just takes longer to use them.
What about kids? Couples could lose some tax benefits if there are children from a previous marriage. A single person can contribute up to $5,000 per year before taxes to a dependent care reimbursement account at work to pay for child care expenses. The limit for married couples is also $5,000. If a husband and wife had each been setting aside $5,000 before marriage, their combined contribution was $10,000. After marriage, they are limited to $5,000.
Some people might have to stop contributing to an IRA after marriage. Others might become eligible. Your eligibility to contribute to a regular deductible IRA or a Roth IRA depends on your income and whether you are eligible for an employer-sponsored retirement plan such as a 401(k). The income limits are higher for married people than singles. It could be that one person could not make a contribution as a single person because he or she earned too much, but with a lower-earning spouse, now they could. On the other hand, a lower-earning spouse could find that marrying a rich person makes him or her ineligible. The rules are in IRS Publication 590.
Newlyweds can use the IRS withholding calculator to estimate their post-wedding tax liability. If a big change is in store, they might want to adjust their withholding to avoid getting a big tax bill or refund next year. Unfortunately, it will not give accurate results if you are subject to AMT or self-employment tax or if any of your jobs will end before the end of the year. In those cases, the IRS recommends using Publication 919, How Do I Adjust My Tax Withholding?
Link here.DEBT COLLECTORS’ THREATS DRIVE WOMAN TO SUICIDE
The Fair Debt Collection Practices Act starts out this way: “There is abundant evidence of the use of abusive, deceptive, and unfair debt collection practices by many debt collectors. Abusive debt collection practices contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy.” One of the things debt collection leads to that is missing to the FDCPA’s introduction is suicide.
It does not happen “all the time,” but it does happen, sadly enough. The “credit card nation” documentary, Maxed Out, interviews several families of debt-related suicides, and talks with debtors who have seriously considered taking their own lives. Indeed, death can be the only way out of debt, especially in the wake of the credit-industry-driven revisions to the bankruptcy code, BAPCA. Indeed, as recently seen here, 20% of Americans think they will never escape debt.
The recent MacDermid decision from the Sixth Circuit U.S. Court of Appeals reads like a heartbreaking tale of debt collection gone wrong. Debt collectors working in-house for Discovery (thereby saving Discover from FDCPA claims), allegedly threated Ms. MacDermid with (among other things) jail time, going so far as to make up a relationship with the local prosecutor’s office. Their lies convinced Ms. MacDermid she had no choice but to take her life to save her husband from the debt she racked up.
In law, you take your “victim” as you find them. Ms. MacDermid was bipolar. That is why the Sixth Circuit found that Discover’s debt collection constituted “outrageous conduct”, and that Mr. MacDermid could therefore sue for intentional infliction of emotional distress.
Link here.CAYMAN LEADER ATTACKS “POLITICALLY MOTIVATED” U.S. OFFSHORE PROBE
Cayman Islands Leader Kurt Tibbets has launched into a stout defence of his jurisdiction’s reputation, dismissing accusations from U.S. Senators that the Cayman Islands is a facilitator of international tax evasion as nothing more than “political manoeuvring”. Tibbetts said that the Cayman Islands has “absolutely nothing to hide,” and accused the Senators leading the attack against the Cayman Islands as “needing a platform to be seen and heard.”
Tibbetts’ remarks came in response to a recent request by the U.S. Senate to investigate the Ugland House building in the Cayman Islands, which, as the Cayman headquarters of international law firm Maples & Calder, acts as the registered office for thousands of companies, U.S. and otherwise. However, according to Tibbetts, claims by U.S. anti-tax haven campaigners about the amount of income that “goes missing” in the Cayman Islands are largely unsubstantiated. He added that Washington insiders admitted to a Cayman delegation on a recent trip to the U.S. that politicians there use such campaigns to gather votes. This led Cayman Cabinet Minister Arden McLean to observe that, “Every time America has an election ... politicians try to appease people about tax evasion.”
“When we met with the head of the Ways and Means Committee, it was very clear to us that the technocrats on Capital Hill are quite aware of how business is conducted in Cayman,” Tibbetts said. Moreover, he added, they are "totally satisfied with the bona fide financial services that we operate.” ... “When it comes to trade, without the existence of jurisdictions such as ours, in many instances these corporations would not be able to compete worldwide successfully,” Tibbetts argued. He said that representatives of the U.S. Congress or government are welcome to the Cayman Islands to discuss the issue, but insisted that his government will not be dictated to.
Link here.IRS EXTENDS DEADLINE FOR REPORTING FOREIGN ACCOUNTS
Taxpayers have an additional two days this year, until July 2, 2007, to file the Report of Foreign Bank and Financial Accounts (FBAR) form, the IRS has announced. The FBAR form is required for each U.S. person who has a financial interest in, or signature authority, or other authority, over any financial accounts, including bank, securities or other types of financial accounts, in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year.
The Treasury increased enforcement of the FBAR requirement after a report to Congress in April 2002, published in accordance with Section 361 of the USA PATRIOT Act, said that while more than 2.5 million taxpayers have been audited in the previous three years, the audits discovered and addressed very few FBAR failure-to-file issues. The FBAR form is not available for electronic filing, but many income tax software packages can prepare a printed copy.
Link here.PASSPORT PROBLEMS TRAP CITIZENS IN U.S.
With so much fighting going on about people who want to get into the country, we did not realize how hard it is to get out. Chaos at the U.S. Passport office has left thousands of travelers stranded stateside, many of them holding useless airplane and cruise tickets – a situation one critic calls “reverse Ellis Island”.
The irony is not lost on Tarina Oliver, who last week canceled a trip to the Dominican Republic when her passport did not arrive on time. Oliver, 43, had planned to visit her sister, who is teaching English for a year to kindergarten students on the poor island. Oliver also was going to bring her 4-year-old daughter Josephine to give her a chance to experience life in a very different place. “The opportunity to visit the Dominican Republic doesn’t come around too often,” Oliver said. Now, the opportunity appears to be gone, doomed by red tape.
Oliver applied for her passport on March 26 for a trip that was going to begin June 2. At the time, the official at the post office where she submitted her application said she would have “no problem” getting her passports in time. He recommended against paying extra for expedited treatment. Oliver spent the last month frantically trying to get word on the missing passports, and landed in a quagmire worthy of a Kafka novel.
Some applicants are storming passort offices around the country anyway – but that is not a great option for people like Oliver. There are only 13 regional passport offices that are really equipped to solve problems, and they are only in large cities. Most people like Oliver apply at “passport acceptance facilities” like local post offices. A visit to these offices will net troubled applications little more than blank stares. So for now, Oliver and her daughter are trapped inside the U.S. borders, victims of increased security procedures designed to keep dangerous people out.
The Passport Services Office at the State Department blames an avalanche of applications filed earlier this year for the mess. Because of new rules requiring passports for North American travel, applications are up about 37%, the office says. While that is a sharp increase, it was completely predictable. The passport reform was mandated by the Intelligence Reform and Terrorism Prevention Act of 2004. Soon after, the State Department announced the Western Hemisphere Travel Initiative, which requires passports for travel to places like Mexico and the Caribbean. By stranding travelers like Oliver, the State Department has shown it cannot handle the demands of increased security. If the office’s computers and personnel cannot handle a completely predictable increase in passport applications, how can it be expected to keep out terrorists?
The passport chaos raises other important questions. A 37% increase is not a 300% increase. Yet many citizens are reporting that passports are not arriving until three months or more have passed – a 3-fold increase over wait times a year ago. How did things get that bad, that fast?
Late last year, the State Department began issuing snazzy new passports that include a small computer chip loaded with personal information about the traveler. The chips are supposed to make the documents harder to forge. They can beam data through radio waves to passport readers, which should speed up immigration lines. But computer security experts warned that the chips can be hacked and that would-be imposters could lift data from them without even touching the traveler. Debate on the security of the chips is ongoing. (As is debate on enhancements to many government-issued IDs. Click to see our “Privacy Lost” special report.)
State Department spokesman Steve Royster said the changeover to new passports, called “e-Passports”, had nothing to do with the problems. So far, the agency has issued 3.7 million chip-enabled passports since August – meaning most passports issued so far this year have been the traditional kind – but now nearly every new passport is an e-Passport, Royster said. Barring some other explanation, it is hard to imagine this major change has had no impact on passport delays. And one has to wonder if the chip-enabled passports – designed to one day carry biometric information like fingerprints – can be trusted to an agency which cannot even answer the phone.
Last week, the State Department announced it would relax passport rules for North American travelers. A passport application receipt, printed from the Web, and a government-issued ID card, will be honored as travel documents. Now, there is the advanced security we have been waiting for. The relaxed rules will not help Oliver, however. She sent her child’s birth certificate in with the passport application. Without that, she has little hope of getting a state ID card from the motor vehicles department for her daughter, which she would need to satisfy the new rules. The rules change also does not help anyone hoping to travel anywhere else in the world. Without a passport, you are still trapped inside the U.S.
Link here.HOW PRIVATE IS THAT GOOGLE SEARCH?
Google’s privacy practices are the worst among the Internet’s top destinations, according to a watchdog group scrutinizing how the online search leader handles its users’ personal information. London-based Privacy International assigned Google its lowest possible grade. The category is reserved for companies with “comprehensive consumer surveillance and entrenched hostility to privacy.”
None of the 22 other surveyed companies – a group that included Yahoo, Microsoft and AOL – sunk to that level, according to Privacy International. While a number of other Internet companies have troubling policies, none comes as close to Google to “achieving status as an endemic threat to privacy,” PI said.
In a statement from one of its lawyers, Google said it aggressively protects its users’ privacy and stands behind its track record. In its most conspicuous defense of user privacy, Google last year successfully fought a U.S. Justice Department subpoena demanding to review millions of search requests. An independent European panel recently opened an inquiry into whether Google’s policies abide by Europe’s privacy rules. Hoping to placate its critics, Google has pledged to begin erasing the information about users’ search requests within 18 to 24 months. The company says it stockpiles data to help its search engine better understand its users so it can deliver more relevant results and ads.
PI is particularly troubled by Google’s ability to match data gathered by its search engine with information collected from other services such as e-mail, instant messaging and maps. “Under the microscope, it turns out that Google is doing much more with our data than we ever imagined,” said the group’s director, Simon Davies. Privacy International said it spent six months reviewing Internet privacy practices with the help of about 30 university professors.
Link here.UNLIKELY TERRORISTS ON NO FLY LIST
Anyone who has passed through an airport in the last five years and has been pulled aside for extra screening knows that the government and the airlines keep a list of people they consider to be security threats. Every time you check in at the ticket counter your name is run through a computer to make sure you are not on something called the “No Fly List”. It is part of a secret government database compiled after 9-11 to prevent suspected terrorists from getting on airplanes.
It began as a project of the highest priority. In 2003, President Bush directed the nation’s intelligence agencies and the FBI to cooperate in creating a single watch list of suspected terrorists. A version of that list is given to the airlines and the Transportation Security Administration to prevent anyone considered a threat to civilian aviation from boarding a plane. The government will not divulge the criteria it uses in making up the list or even how many names are on it. But in the spring of 2006, working with a government watchdog group called the National Security News Service, 60 Minutes was able to obtain a copy of the No Fly List from someone in aviation security who wanted us to see what the bureaucracy had wrought.
The first surprise was the sheer size of it. In paper form it is more than 540 pages long. Before 9-11, the government’s list of suspected terrorists banned from air travel totaled just 16 names. Today there are 44,000. And that does not include people the government thinks should be pulled aside for additional security screening. There are another 75,000 people on that list.
With Joe Trento of the National Security News Service, 60 Minutes spent months going over the names on the No Fly List. While it is classified as sensitive, even members of Congress have been denied access to it. But that may have less to do with national security than avoiding embarrassment. Asked what the quality is of the information that the TSA gets from the CIA, the NSA and the FBI, Trento says “Well, you know about our intelligence before we went to war in Iraq. You know what that was like. Not too good. ... This is much worse. It’s awful, it’s bad. I mean you have got people who are dead on the list. You have got people you know are 80 years old on the list. It makes no sense.”
60 Minutes certainly did not expect to find the names of 14 of the 19 9-11 hijackers on the list since they had been dead for five years. 60 Minutes also found a number of high profile people who are not likely to turn up at an airline ticket counter any time soon, like convicted terrorist Zacarias Moussaoui, now serving a life sentence, and Saddam Hussein, who at the time was on trial for his life in Baghdad.
One person who was not surprised is former FBI agent Jack Cloonan, who was retiring from the bureau’s al Qaeda task force just as the list was being put together. “I did see Osama bin Laden on the list both with an ‘O’ in the first name and a ‘U’ in the second name. I was glad to see that. But, some of the other names that I see here, you know, I just have to scratch my head and say, ‘My good, look what we’ve created,’” Cloonan says. Intended to be a serious a serious intelligence document, Cloonan says the No Fly List soon became a “cover your rear end” document designed to protect bureaucrats and make the public feel more secure.
Link here.FBI DATA MINING PROGRAM RAISES EYEBROWS IN CONGRESS
Lawmakers are questioning whether a proposed FBI anti-terrorist program is worth the price, both in taxpayer dollars and the possible loss of Americans’ privacy. The National Security Analysis Center (NSAC) would bring together nearly 1.5 billion records created or collected by the FBI and other government agencies, a figure the FBI expects to quadruple in coming years, according to an unclassified FBI budget document.
Those numbers alone raised concerns from two congressmen, Reps. Brad Miller, D-California, and James Sensenbrenner, Jr., R-Wisconsin, the chair and ranking member of the oversight panel of the House Science and Technology Committee. The FBI has a track record of improperly – even illegally – gathering personal information on Americans, most recently through the widespread abuse of so-called National Security Letters, the two men noted in a letter to Congress’s investigative body, the Government Accountability Office. Miller and Sensenbrenner asked GAO to determine whether the NSAC will include records on U.S. citizens, and whether there are protections in place to make sure all the data in the program was legally collected.
Of further concern to the two congressmen are the FBI’s stated hopes to “proactively” mine the data to find terrorists using “predictive” analysis, according to its budget request, an unproven method according to experts and even the U.S. intelligence chief’s office. In theory, predictive analysis involves mapping a known pattern of terrorist behavior – for instance, the sequence and timing of such mundane activities as bank transactions and travel purchases – against a massive collection of such records like the NSAC databases. If an individual’s actions match the pattern, they can be considered a suspect, even if they have no known ties to any suspected terrorists or known terrorist groups.
Such a method would help identify “sleeper cells”, the FBI claims in its request – secret groups of terrorists living innocuously within the U.S., waiting for a signal from a terrorist group leader to assemble and strike. But to date the approach has not proven workable. So far, terrorism researchers “cannot readily distinguish the absolute scale of normal behaviors” for terrorists or ordinary Americans, conceded a 2006 document from the Office of the Director of National Intelligence. In other words, no one can figure out how terrorists act differently from normal Americans.
The FBI has requested $12 million for its NSAC project. That amount would pay for 90,000 square feet of space and an additional 53 employees, according to its budget request. Whether Congress will approve the funds has yet to be determined.
Link here.Electronic Frontier Foundation urges judge to require the FBI to release surveillance abuse records.
The EFF urged a judge to force the FBI to finally release records about its now documented abuse of National Security Letters (NSLs) to collect Americans’ personal information. EFF’s filing comes as an internal FBI audit revealed that the bureau’s misuse of surveillance authority has been more widespread then previously thought.
EFF sued the FBI in April after the agency failed to respond to a Freedom of Information Act (FOIA) request about the misuse of NSLs. EFF’s FOIA request came after an initial Justice Department report indicated extensive abuse of the powerful NSL tools. Now, the Washington Post has reported that a new audit identified more than 1000 potential violations made while agents collected data about domestic phone calls, emails and financial transactions of thousands of Americans. FBI officials told Post that there have likely been several thousand instances of abuse in total. This week, the FBI also released new guidelines for the use of NSLs, but that will not fix the core problem – a law that is ripe for abuse.
“Under the PATRIOT Act, the Bureau can use NSLs to get private records about anybody without any court approval, as long as it claims the information could be relevant to a terrorism or espionage investigation,” said Marcia Hofmann, EFF Staff Attorney. “We have heard again and again about how the FBI has misused this new power to overreach into the lives of ordinary Americans. It’s time for someone other than the Justice Department to assess the documented problems, and long past time for Congress to fix the mistake it made in the PATRIOT Act, including repealing the expanded NSL powers it gave the FBI.”
Link here.EX-CONSTITUTION
Where “interpreting” the Constitution has taken us.
Psst. I have news for you. The Constitution you live under has an extremely loose relationship to the one Thomas Jefferson swore to administer 206 years ago. In significant respects, the current American federal system is in fact the polar opposite of the one he knew and loved.
How is it that questions such as whether abortion is allowed and when, whether homosexuals may marry each other and where, what penalties may be imposed on convicted criminals and when, and who received Florida’s electoral votes in the election of 2000 have been and continue to be decided by federal judges? The short answer is that “constitutional law” – the body of judicial decisions implementing the Constitution – has been off the rails virtually from the beginning. Nationalists in control of the federal judiciary have consistently used their offices to further their personal political ends, all in the name of “interpreting” the Constitution.
The changes they have wrought since 1801, the year Jefferson was inaugurated, have gone far toward eliminating three basic features – republicanism, federalism, and limited government – from the federal system. Sure, there are elections at federal and state (including local) levels, and kids and immigrants still are taught, while soldiers and politicians still must swear, to uphold the Constitution.
But, to be blunt, those three basic features have given way to a system in which virtually all matters of any import are governed ultimately by federal policymakers. Worse, when someone thinks to put the matter in the form of a legal question, it is apt to be decided by an unelected, life-tenured federal judge, purportedly – but rarely actually – on the basis of the federal Constitution. All of which constitutes nothing less than betrayal of the American Revolution.
What do I mean? The Revolution was fought not to vindicate American nationality, but to reestablish home rule in the 13 yielded growing insistence that only the colonial legislatures could tax, then in any sense legislate for, the colonists. When Britain proved irrevocably committed to its policy of legislating for the colonies, the colonists declared their independence.
The priority given to state identity was reflected in the Declaration of Independence, which said that the 13 former colonies were (not “one nation” or “a big country” or “an amalgamated mass”, but) “free and independent states” – plural. Lest the significance of the plural be missed, the first federal constitution (the Articles of Confederation) said in the second article that each state retained its sovereignty. In other words, each was on a par in the international system with Sweden, Spain, and Great Britain itself. Did the federal Constitution change this situation? In a word, no.
Republicans, as opponents of ratification styled themselves in the debate over ratification of the Constitution, insisted that the proposed constitution as it stood was a threat to the states’ self-government. The Federalists insisted that the federal government would have only the powers it was “expressly delegated”. People bought that argument. They were narrowly persuaded to try the experiment – on condition that the Bill of Rights be adopted right away to answer the major objections about the lines between federal and state power and about the traditional individual rights of English-speaking people.
So people still wanted what they had made the Revolution to vindicate – republicanism, federalism, and limited government. So when did they change their minds? Which generation of Americans decided to substitute today’s government characterized by a huge policymaking role for appointed judges, a highly centralized “federal” system, and congressional discretion to legislate regarding virtually any question that came to mind for the original version of the Constitution? In short, never. When the first party to control the federal government, the Federalist Party of Alexander Hamilton, attempted to ignore the principles of federalism and limited government, it was voted out. Thomas Jefferson, leader of the party that defeated Hamilton and permanently consigned the Federalists to oblivion, described the “Revolution of 1800” as “as real a revolution in the principles of our government as that of 1776 was in its form.”
Yet, from the beginning, federal judges attempted to undermine the model of government that the people had ratified. So, for example, in Chisholm v. Georgia (1793 – only four years into the life of the new government), Chief Justice John Jay, the first chief justice, attempted to extend federal courts’ jurisdiction to a class of cases not among those over which the Constitution had been intended to give federal courts authority. The people quickly slapped this power grab down by adopting the Eleventh Amendment.
Federal courts, however, had not learned their lesson, but continued to work against the three guiding principles of the American Revolution, as reflected in the new Constitution. Most spectacularly, at the very time that Jefferson and his Virginia Republican Party were thumping the Federalists into non-existence, John Marshall handed down a series of Supreme Court decisions establishing the opposite principles as fundaments of American “constitutional law”. Which brings up a very important point. “Constitutional law” (the body of judicial decisions implementing the Constitution) has very little, if anything, to do with the federal Constitution ratified in 1787–88. What is more, many pillars of this anti-constitutional constitutional law were known by their authors to be contrary to the people’s understanding of the constitution at the time they ratified it – in other words, inconsistent with what the Federalists told the people they were going to get if they voted “aye”.
In numerous opinions of the Marshall Court – notably McCulloch v. Maryland, Fletcher v. Peck, Dartmouth College v. Woodward, Martin v. Hunter’s Lessee, and Gibbons v. Ogden – the Supreme Court’s “constitutional law” consistently centralized the government, in spite the interpretation of the Constitution presented by Federalists at the time of the ratification debates. They often did so by offering novel definitions of common words and making patently counter-factual assertions.
As Justice William Brennan, the closest thing to a 20th-century Marshall, would say, with five votes, a justice can do anything. This “Rule of Five” was not enunciated in those terms before Brennan, but it might as well have been. Republicanism – rule via elected officials; federalism – the division of powers between the state and federal governments; and limited government have been the perennial victims of judicial misconstruction of the Constitution. The case names and subjects under dispute have changed, but the tendency has been the same: A persistent power grab by the federal government, in the persons of federal judges. Over time, the arrogation has been increasingly bald-faced.
Suppose that a federal judge opposed this tendency of “constitutional law” to distort the constitutional system. Might he not counteract it? The form of legal education in American law schools today makes that exceedingly unlikely. Since the beginning of the 20th century, legal education has been dominated by the “case method” of instruction, which substitutes reading of judicial opinions for historical study. Thus, “Constitutional Law” classes feature a heaping helping of the opinions of John Marshall, William Brennan, and their ilk, and no consideration at all of the debates in the ratification conventions. Only the mischaracterizations, in other words, and not the truth.
Lawyers-in-training are never told that Marshall’s opinions came out exactly, precisely, completely, perfectly opposite where he and his fellow Virginia Ratification Convention Federalists explicitly and vociferously said they would, or that William Brennan’s account of the Fourteenth Amendment’s Equal Protection Clause has no relationship to that provision’s intended meaning. Even “originalist” judges, then, are unlikely to be very originalist.
It is an infuriating tale. I have written a book about it, The Politically Incorrect Guide to the Constitution.
Link here.HABEAS CORPUS, 101
For those of us who cannot afford law school at George Washington University, here is a fantastic primer from professor Jonathon Turley, courtesy of Keith Olbermann.
Olbermann: Supporters of ... the Military Commissions Act ... point out that other administrations have suspended habeas corpus without destroying the republic. Is this time different, and if so how and why is that pretty much a sophistry argument?
Turley: It is hardly a convincing case that you have to have the collapse of the republic. It says more about the republic than the actions of the earlier presidents. This is a system of government that was designed to be idiot-proof and God knows we have tested that through the years. But it was actually designed for multiple idiots, and it means that we can go a certain period of time with the denial of rights and we have tended to correct that and it looks like we are about to do that now. This was one of the most disgraceful moments of the last Congress and it will be equally disgraceful to see many Republicans vote to fight the effort to bring back the great writ.
Olbermann: ... It is easy to imagine Americans who are patriotic but scared, who could just sort of dismiss habeas corpus and other civil liberties as luxuries that make us weak right now. Explain why that is exactly backwards ... why they are necessities that make us strong.
Turley: First of all, habeas corpus is sometimes treated like some trick by a Philadelphia lawyer. It is actually the foundation for all other rights. When the government throws you into a dungeon for what you say or who you pray to, it is habeas corpus that is the right that allows you to see the enforcement of the other rights. So without habeas corpus, the rest of it is just aspirational and meaningless.
The danger when you walk away from these values, these rights that define us have been proven by this president. The greatest irony of the Bush Administration is that his legacy will be to show the dangers of walking away from those rights that define us. We are very much alone today. He cannot go to Canada without people protesting, Miss America cannot even go to Mexico without being booed. We are viewed as a rogue nation and it is a dangerous world to live in when you are alone. In Italy, they are prosecuting in abstentia our own agents. ... It is very interesting that the lesson this president may leave for his successors is that whether you are inclined to walk away from those core rights or not, that is what puts us in the greatest danger.
Olbermann: The right to bear arms, to believe your religion or to not believe any religion at all, to say what you want, these rights get people fired up, no matter what side of the debate they are on. Is not habeas corpus essential to all of them? ...
Turley: That is right. ... all those rights are meaningless [without habeas corpus] because it is habeas corpus that allows you to get to a court who can hear your complaint. So without habeas corpus it is just basically words that have no meaning, and this president has shown the dangers of the assertion of absolute power. He has asserted the right to take an American citizen, declare them unilaterally an enemy combatant and deny them all rights. The courts have said otherwise and now Congress will say otherwise.
Link here.NEW EU CUSTOMS LAW TO COMBAT MONEY LAUNDERING
As from this Friday (June 15), travelers entering or leaving the EU will have to declare cash movements of more than €10,000 ($13,300) as new customs laws designed to thwart money laundering and terrorist financing take effect. The EC says that the new legislation aims to introduce an EU-wide common approach to controlling cash movements into and out of the EU while complementing the EU’s Money Laundering Directive, which has already introduced a monitoring of transactions made through credit and financial institutions.
Under the new rules customs authorities are empowered to undertake controls on people and their luggage and detain cash that has not been declared. They are required to initiate proceedings against people who fail to declare cash of an amount of €10,000 or more. The rules also require the declaration of the equivalent amount in other currencies or easily convertible assets such as unsigned cheques. As for penalties resulting from such proceedings it is up to Member States to ensure that they are proportionate to the offence, so as to have a deterrent effect.
The new Regulation takes into account the 2002 Commission report on cash movements into and out of the EU. This report revealed that from September 1999 to February 2000, EU customs authorities observed a considerable amount of cash plus other assets such as cheques, securities, gems and precious metals moving in and out of the EU – a total of €1.6 billion of which €1.35 billion was cash.
Link here.MR. BUFFETT, MEET LUDWIG VON MISES AND MURRAY ROTHBARD
Mr. Warren Buffett has retired. He has given away or plans to give away most of his multi-billion dollar fortune. Mr. Buffett, meet Ludwig von Mises and Murray Rothbard. Why not make a healthy contribution to the Ludwig von Mises Institute? “It is the mission of the Mises Institute to restore a high place for theory in economics and the social sciences, encourage a revival of critical historical research, and draw attention to neglected traditions in Western philosophy. In this cause, the Mises Institute ... defends the market economy, private property, sound money, and peaceful international relations, while opposing government intervention as economically and socially destructive.”
Remarked upon by both von Mises and Rothbard is the quite unbelievable but not at all unusual fact that some of the most important capitalists deny the efficacy and justice of free markets. Mr. Buffett is among them. I have singled him out only because it is part of his genius to simplify matters and speak of them clearly. We are not in doubt as to his views. The lessons we have to learn by analyzing views such as his go well beyond what he as an individual thinks and believes. We have much to learn from Warren Buffett as investment genius and as business manager. But he and others have much to learn from Ludwig von Mises and Murray Rothbard and those following in their footsteps.
In accumulating his wealth, Mr. Buffett has followed the saying “Shoemaker, stick to thy last.” He has stuck to investing in and managing businesses he knows about, while avoiding all others. He has resolutely stuck to his investment rules. He has patiently waited until the market has pitched balls that he can hit out of the park. He personifies focus, the opposite of conglomeration. When he ventures out of his area of expertise, he often falls flat on his face. He does not understand that government intervention is economically and socially destructive.
Mr. Buffett’s views on related matters of economic, social, and political policies have already come in for analysis and criticism in the LRC pages. Mr. Buffett favors the estate tax. Lew Rockwell explains to Mr. Buffett and all of us that repealing the estate tax will generate more wealth and more charitable giving. Repeal makes it easier for new people, supported by inherited family wealth, to compete with the rich and super-rich.
Mr. Buffett thinks he does not merit his wealth and has not earned it. He thinks his talents came by birth and that he does not deserve them. He is an egalitarian. But is each one of us not enfolded in a complex process of choice and external human and providential influences that is beyond our comprehension? And leaving aside all such considerations that raise doubt about the propriety of guilt and egalitarian ideas, there are no moral or practical grounds for Mr. Buffett to endorse government as the remedy. Government is an agency of violence, and government agents cannot possibly know enough to reallocate human merits and demerits. And besides being disruptive and creating strife, political processes are anything but fair.
Mr. Buffett favors the progressive income tax, on the ground that the market system produces inequitable results. Mr. Buffett’s businesses have brought major benefits to consumers. He has invested large sums of money at times (like 1974) when others were fearful and assessed high risks. He could have been wrong. He won a bet. He won a series of bets, but he does not look at it that way. He thinks he got a free lunch, that Mr. Market inequitably gave him a free lunch.
I do not doubt that Mr. Buffett’s unique talents and mind have earned him some rent, but does that mean that everyone who does well in a market is earning rents? Mr. Buffett does not understand that the progressive income tax discourages entrepreneurial actions and risk-taking such as his. It acts as if market rewards are unearned rents that are unfair, as if they were compensation for nothing. And does the government of all things know what is rent and what is not? Mr. Buffett naïvely thinks that the State is some kind of beneficent and all-knowing institution. He does not seem to grasp that politicians and interest groups are out for power and the dollar and willingly destroy wealth to get them.
It is truly amazing that such an intelligent figure as Buffett can make so many stupid arguments. But he himself knows this! He himself has written about this! He has observed that very smart people often invest badly because they fall prey to greed, envy, fear, boredom, extraneous factors, and emotions. He says that, in a word, they do not act rationally, or that their ego gets in their way. They need to insulate themselves from all of this to invest well. When it comes to politics, Buffett and others – he is far from being alone – allow extraneous and emotional factors to disrupt their thought.
Buffett says that insurance against the huge potential losses from nuclear terrorism required an entity greater than existed in the private sector: “Only the U.S. government fits the bill.” Mr. Buffett wants to shelter his insurance operations and those of other companies from some very large risks. He expresses this desire while making statements about public benefit. This is a matter of public record. It would be easy to infer cupidity, but I see no need for that. I charge him with economic, social, and political ignorance and naïveté.
The State operates a slew of phony “insurance” schemes. The promised payments (liabilities) of all of them combined are gargantuan. They cannot all be met or paid. Americans are living in a dream world based on paper promises. Someone as shrewd as Warren Buffett should understand this. His mis-education is symptomatic of a widespread problem. I do believe he would benefit from Mises University.
Left to its own devices, undistorted by government inducements, the private sector and private choices can reduce the prospective damages from terrorist and nuclear attacks. Companies will disperse and harden facilities. They will back up computer, information, and financial systems. They will purchase private protection forces. Individuals will locate to safer places. Free individuals in free markets will resolve or alleviate any and all risks in appropriate ways that even geniuses like Warren Buffett cannot conceive of.
Link here.THE WAR ON CONSCIOUSNESS
We are truly in a war. It is not the war we imagine we are in, which is the way our true adversaries want it. It is not a foreign war against a foreign enemy. It is a war on consciousness, a war on our own minds. The global war on terror that is being fought around the world is an embodied reflection in the material world of a deeper, more fundamental war that is going on in the realm of consciousness itself.
We have the most criminal regime in all of our history wreaking unspeakable horror on the entire planet, while simultaneously waging war on the consciousness of its own citizens – us. If we are not aware of this, we are unwittingly playing into, supporting and complicit in the evil that is being perpetrated in our name.
A government’s war on the consciousness of its own citizens is by no means unique to the Bush administration. Abusing power over others so as to limit their freedom is an archetypal process that has been endlessly reenacted by governments throughout history in various forms. With the Bush administration, however, the pathological aspect of this process has become so exaggerated and amped up to such a degree that it is just about impossible not to notice its staggering malignancy. With the Bush administration, the underlying evil that has played out in our government over many years is becoming overwhelmingly obvious for all to see. With the Bush administration, the underlying evil that informs systems of government that are based on “power over” instead of “liberty for” is coming out from hiding in the shadows. Instead of being acted out underground, our government is acting out this evil above ground, in plain sight for all who are courageous enough to look.
Impeaching Bush & Co. ultimately will not change anything unless we deal with the corrupt powers which control and direct them. Bush is just a finger-puppet of the hidden hand which animates him. Bush only has apparent power, as he himself is a minion of far more powerful predator-like forces whose nefarious interests he serves. Whether we call it the illuminati, the global elite, a shadow government, or a secret cabal, there is no doubt that there are darker, self-serving forces that have insinuated themselves into and taken over our government. The terrorists that we should be worried about are domestic terrorists who are actually implementing their agendas from deep within our very system of government itself.
The U.S. Government itself has become a “front” for the underlying military-industrial-financial crime syndicate that animates it. This is not to say that there are not many good, well-meaning people in our government – they are simply prohibited by the very nature of the corrupt system they are in from reforming it. Our system of government is rigged in such a way so that there is no way to transform the system within the system itself.
The underlying core of our government has become rotten such that the entire operation simply feeds into and is an expression of the same underlying corruption. All of the scandals continually coming out are like the superficial skin rash of a much deeper systemic disease, like a cancer that is infecting the greater body politic. Citizens who are not aware of our government’s insidious intrusions into our lives are unwittingly feeding the corruption they are looking away from in their very act of looking away.
The “powers” that have taken over our government have become concentrated and centralized in just a few elite hands. They almost control all the levers of power – financial, political and judicial. In this war on consciousness, these powers-that-be are using the most advanced mind-control technology that our world has ever known to make its takeover complete. The essence of mind-control is information control, which is one thing our overly secretive current administration is very good at.
The private interests that control our government have an incredible propaganda machine at their disposal in the form of the mainstream media, which if not quite fully owned and controlled, is certainly under their “influence” enough to serve their underlying self-serving agenda. George Orwell once said that omission is the greatest form of lie. This perfectly describes the corporate owned media of today. The corporate world and our government are becoming indistinguishable.
One difference between what is happening in our country and the state-controlled media of the old Soviet Union, is that in the Soviet Union, most people were quite aware that what was being presented to them by their corrupt government as news was nothing but mind-warping propaganda. Many Americans have fallen so under the spell of the Bush regime’s criminal lies that they do not even know they are being lied to. It is like we are living in a land of state-controlled zombies who think they are free citizens of a free country.
It is as if millions of our fellow citizens have fallen asleep, as if they have become hypnotized and brainwashed by the powers-that-be’s incessant “managing” and “massaging” of reality. These powers simply manipulate an already gullible and highly suggestible public into a game of “divide and conquer”. They get rich off of other’s blood – they incite conflict, and covertly support both sides, as they themselves reap the benefit of the conflict.
The corporate war machine, which is co-dependently entangled with our government, profits wildly from our invading other sovereign countries. The government-military-industrial complex’s solution to the very problem that they created by instigating wars – more war! It is completely sick and insane. And we, in our dulled denial, simply go along and allow the whole parasitic enterprise to be fed by offering our sons and daughters as fodder. To the extent that we are not shedding light on the utter criminality and insanity of what the Bush administration is doing and saying “No,” we are all complicit in feeding our own genocide.
The last thing this criminal enterprise wants is for us to see what it is doing. These criminal war lords want us to believe that we live in a democracy. For example, we are given the illusory stage-show of free elections, while there is overwhelming evidence that the elections were rigged. Even to be in a position to run for president you have to be able to raise hundreds of millions of dollars – this itself is the entrance fee to the game. In addition, the only people who would be allowed by these robber barons to be in a position of power such as “Commander-in-Chief” is someone they control. Barack or Hillary? It is an illusion of choice, a stage-managed distraction from what is really going on. In a very real sense, the Democrats and Republicans are simply various factions who are fighting for the right to represent the underlying military-industrial-financial crime syndicate that owns and operates our government.
The powers that have taken over our country will do anything to distract us and keep up the illusion that they are protecting us so as to maintain power. These banking and corporate pirates are willing and more than ready to intimidate, buy off, or destroy any and all critics. It is important for us to realize the depth of evil we are dealing with here – they are willing to kill as many people as needed to accomplish their aims.
The Bush regime’s worst nightmare is for us to wake up to how we have been manipulated, hoodwinked and played by them like fools. The last thing they want is for us to access the natural intelligence inherent in being consciously aware, and connect with each other through the open-heart of lucidity. The powers-that-be’s greatest fear is for us individually, as well as collectively, to connect with our intrinsic God-given power to create.
The solution to winning the war on consciousness is for us to recognize the nature of the war we are in, which can only happen through the agency of our consciousness. Realizing that the true war we are in is an assault on our own minds is the expansion of consciousness which is itself simultaneously the solution. From a deeper, more expansive perspective, the war on consciousness is itself the very catalyst and instrument for consciousness to awaken to itself. “Truth,” to quote the infamous Nazi minister of propaganda Joseph M. Goebbels, is “the greatest enemy of the state.” Like pouring water on the Wicked Witch of the West in The Wizard of Oz, when the true light of awareness is shed on what Bush and the real powers behind him are doing, their illegitimate power over us is dispelled as the illusion it always was.
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