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TRADE ACCORD ELUDES AMERICAS SUMMIT GROUP
A two-day summit meeting of leaders of 34 Western Hemisphere countries in Argentina, attended by President George W. Bush, broke up over the weekend without clear agreement on when and how to resume stalled talks aimed at achieving a hemisphere-wide free trade agreement. Bush had hoped to persuade his counterparts from Latin America and the Caribbean to deliver a resounding endorsement of the plan, the Free Trade Area of the Americas. But suspicions of U.S. intentions prevailed. The deadlock forced the cancellation of a final lunch for the leaders, as they sought to resolve their differences.
U.S. presidents of both parties have long pushed for a hemispheric free trade zone. Bill Clinton formally broached the idea at the first Summit of the Americas in Miami in 1994. A Free Trade Area of the Americas would be even larger than the EU, though without the EU’s free flow of labor and its political integration. Benefits for the U.S. as the dominant economic power in the hemisphere are obvious. With the removal of tariffs and other barriers that inhibit entry of U.S. goods and services, exports to the region would boom.
But momentum has stalled, partly because the U.S. and Latin America are awaiting the outcome of new trade talks in the World Trade Organization, which is to establish global rules that any regional accord must respect. So the Bush administration has turned to smaller bilateral and regional agreements, like the Central American Free Trade Agreement. But it went to Argentina hoping to get a commitment for resuming negotiations early next year.Link here. Violent demonstrations at Summit of the Americas – link.
U.S.-Panama trade deal will be tough, Bush says.
President Bush acknowledged that it would be difficult to push any U.S.-Panama trade deal through Congress, but said getting one completed remains a top priority for his administration. Bush celebrated the progress on reaching agreement with Panama on a bilateral free-trade pact, welcoming an enthusiastic partner in President Martin Torrijos after days of Latin America resistance to freer trade in the hemisphere. “We just got to continue to work it and to get it done,” Bush said after the two met in the Casa Amarilla, a government guest house across the street from the presidential palace. Torrijos was not as strongly supportive as Bush, but said an agreement for freer trade between the two nations would bring “advantages and opportunities.”
Bush said the deal would likely run into resistance in the U.S. Congress, singling out for criticism the Democrats who often oppose trade deals. The Central American Free Trade Agreement, or CAFTA, was recently ratified by Congress, but it came on a narrow vote that required aggressive lobbying by the White House. The president and vice president paid personal visits to Capitol Hill, and Republican leaders held open the vote to leave time for more arm-twisting. Panama is not a part of CAFTA because Bush negotiated that pact with a pre-existing trading bloc of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic.
Bush’s first stop in Panama represents what has been his multitrack strategy for opening up world markets. Even as the Free Trade Area of the Americas, or FTAA, is stalled and worldwide trade talks are embroiled in thorny issues of farm subsidies, the president has set his sights on individual countries that are eager to do business with the U.S.Link here. Bush backs enlarging Panama Canal – link. Text of Bush-Torrijos press conference here.
CHINA CLOSES ALL BEIJING POULTRY MARKETS
Authorities ordered all live poultry markets in China’s capital to close immediately and went door-to-door seizing chickens and ducks from private homes, as the government dramatically beefed up its fight against bird flu. Beijing also announced that 6 million birds had been slaughtered around the site of China’s most recent bird flu outbreak, and the World Health Organization said it had been asked to help in the reopened investigation of the country’s possible first human cases of the virus.
The escalation of anti-bird flu measures in the world’s most populous country came as a meeting of hundreds of international experts in Geneva opened with warnings that a global human flu pandemic is inevitable and could cost the global economy at least $800 billion. “It is only a matter of time before an avian flu virus … acquires the ability to be transmitted from human to human, sparking the outbreak of human pandemic influenza,” WHO director general Lee Jong-wook told the gathering.
Experts fear the bird flu virus that is sweeping through Asia and has entered Europe could mutate into a form that is easily passed between humans, producing a pandemic that could kill millions. The virulent H5N1 strain of the virus has killed at least 62 people in Asia since 2003, and resulted in the death or destruction of millions of birds.Link here.
CHINESE TRADE SURPLUS SET TO SOAR
China’s trade surplus is set to rise to a record $90 billion in 2005, according to government forecasts, but export growth may slow next year. China enjoyed a positive trade balance of $68 billion in the first nine months of 2005 alone, the Commerce Ministry said, compared to a $32 billion surplus in 2004. Exports remain exceptionally strong, with 26% growth expected this year.
However, officials warned growth could slow next year due to increased protectionism in many markets. According to government figures, curbs on Chinese exports by trading partners has reduced total trade by $8.9 billion so far this year. The U.S. and Europe have both imposed limits on Chinese textile imports, which have ballooned after global quotas were scrapped at the start of the year. They argue that their own manufacturers are being hurt by China's ability to produce mass goods cheaply. The U.S. and China have failed to agree a deal to regulate future imports amid calls by some U.S. politicians for even greater restrictions on Chinese clothing sales.Link here.
U.S.-China relations in the wake of blocked CNOOC bid for Unocal.
Congress set a dangerous precedent when it interfered with Hong Kong–based CNOOC, Ltd.’s bid for Unocal. Supporters of the intervention argued that CNOOC, a subsidiary of state-owned China National Offshore Oil Company, could pose a threat to U.S. economic and national security. Yet Unocal was only a small player in the U.S. energy market and had no technology that might pose a real threat to U.S. security. Nonetheless, congressional pressures prompted CNOOC to withdraw its $18.5 billion bid, paving the way for Chevron to acquire Unocal for $17.7 billion.
The increasingly confrontational approach Congress is taking toward China is leading to “creeping protectionism,” often in the guise of protecting U.S. national security. Although it is proper to criticize China for its human rights violations and its lack of a transparent legal system, we should not ignore the substantial progress China has made since it embarked on economic liberalization in 1978.
A policy of engagement – or what Hu Jintao, president of the People’s Republic of China, calls “peaceful development” – is a necessary condition for constructive U.S.-China relations. Although China’s competitiveness does pose a threat to certain U.S. economic interests, it also benefits American consumers and exporters. Protectionism would harm both the U.S. and China and would increase the likelihood of conflict. Hardliners would gain at the expense of more reasonable voices.
To avert the risk of conflict, the U.S. needs to treat China as a normal great power – not as an adversary, ensure that only those commercial transactions that genuinely threaten national security are blocked, and recognize that by increasing economic freedom we increase personal freedom. Our economic security, as well as China’s, will depend on sound free-market policies, not on destructive protectionism.Link here. Full text of policy analysis here (PDF file).
Lamborghini opens car dealership in Shanghai.
Auto icon Lamborghini opened a dealership in China’s commercial capital of Shanghai, looking to the country’s newly affluent to weather slowdowns elsewhere. Lamborghini, owned by Germany’s Volkswagen AG, says market research showed Shanghai, the country’s biggest city and a virtual citadel to conspicuous consumption, to be the most promising market for its vehicles, which cost $330,000 and more. The dealership, which is along the city’s main east-west thoroughfare, will carry the company’s complete model lineup.
Luxury sports cars are still way outnumbered by standard Volkswagen and Buick sedans on China’s jammed city streets, but foreign luxury carmakers are still racing to boost sales. GM makes Cadillacs in Shanghai and European brands such as BMW and Mercedes-Benz also operate assembly lines in the country. Fiat-owned Ferrari, VW-owned Bentley and others have set up nationwide sales networks. Although China’s auto sales are no longer growing at 75% a year, the peak they hit in 2003, they are still expected to rise by about 15% this year.Link here.
BERMUDA PREMIER SAYS INDEPENDENCE IS A NATURAL PROGRESSION
Government is maintaining its push for Independence with a pledge to hold further parliamentary and public debate but Premier Alex Scott has again refused to give a timetable. The bid for sovereignty was one of the key themes of his Throne Speech which also promised action on housing, drugs and young people as Government unrolled its legislative plans for the coming year. At the ceremony on the lawn of the Cabinet office The Duke of York, who is on a three-day visit, read the Throne speech which promised to hold public meetings and then debate Independence extensively in parliament.
Speaking on behalf of Government, the Duke said, “If the process towards sovereignty is handled in an open manner international business will not leave these shores, the dollar will not lose its value and the status and relationships with overseas neighbors will not be threatened. Independence is therefore a natural progression for a mature jurisdiction such as Bermuda. The work of the Commission may be completed but it is crucial that their footprints not be forgotten. Therefore, to educate the public about the conclusions reached by BIC, the Government will hold public meetings across the island.”
Afterwards Premier Alex Scott said he could not indicate how long Bermuda would deliberate the issue or say how the issue would be decided.Links here and here.
THE ECONOMICS FUELING THE FRENCH RIOTS
Could the riots in France spell the beginning of the end of the European economic model? So far the unrest, which started in a Paris suburb and has now spread to more than 300 French towns, including Orleans, Nantes, and Rouen, have been mainly attributed to religious, ethnic, and immigrant issues. And the arson, car burnings, and other attacks so far seem to be centered in Muslim and African communities, fueled by pervasive discrimination and genuine grievances.
Yet the outbursts were supercharged by an economic system that not only tolerates but actually fosters sky-high youth unemployment. In September, an incredible 21.7% of 15-24 year-olds in France were unemployed, compared to only 11% in the U.S. and 12.6% in Britain. France is not alone – other European countries, such as Belgium, Spain, Greece, Italy, and Finland – also have persistent youth unemployment rates above 20%. Such sky-high levels of idle youth are a by-product of the welfare-state mentality that is still pervasive across much of Europe. The idea is that government’s main role is to provide a safety net for the population, in terms of jobless and health benefits. Generating growth and creating jobs takes a distinctly lower priority, resulting in high unemployment, especially among the young.
The problem for Europe – and France in particular – is that no society can long survive when 20% of young people, with plenty of energy and no place to put it, are unemployed. It is not simply an immigrant problem. Romano Prodi, the leader of the center-left coalition in Italy, says living conditions are terrible in that country’s suburbs, even in areas made up only of Italian citizens. One important lesson of the French riots is that the European economic model is leaving too many people behind, and that is not sustainable.Link here.
WILL THE INTERNET BECOME THE UN-TERNET?
The United Nations wants control of the internet. At its November 2005 meeting in Tunis, the World Summit on the Information Society (WSIS) will deliberate its “second phase” of creating a bureaucracy to manage internet governance. The WSIS is run by the International Telecommunications Union (ITU), a specialized agency of the UN. At the WSIS Preparatory Commission meeting held this past September in Geneva, the EU joined with countries like China and Iran in rejecting the concept of not fixing what is not broken and decided that increased international supervision – maybe even international control – of the internet has become necessary. Why the UN should have a special right to manage “internet governance” is unclear. The claim – like most UN claims – is based on the idea that, because it has the form of a government, the UN can grant itself whatever government-like powers it desires. In this case, the UN has decided it has an information age power of eminent domain and can take over any communications network of international scope.
The work of the WSIS is frequently cast in terms of the UN trying to take control of the internet from the U.S. But the goals specified by the WSIS Working Group on Internet Governance (WGIG) describe American control as only one aspect of the problem. The August report of the WGIG simultaneously decries “unilateral control by the United States government” and the fact that the highest levels of the internet “perform their functions today without a formal relationship with any authority.” In other words, the real problem in the collective mind of the UN is not that the U.S. controls the internet, but that no one does. The shots at the U.S. are as much marketing as substance. It is easier to sell any program at the UN by adding generous doses of anti-Americanism.
The UN either does not understand or is willfully ignoring the fact that the lack of control of the internet is not a bug – it’s a feature! In the words of internet creator Al Gore (not really), the internet was designed to operate with “no controlling legal authority”. Facetiousness aside, the internet is decentralized by design. The internet has achieved its unprecedented success by combining a worldwide reach with its decentralized structure. A local connection allows users to transmit and receive information to and from anywhere in the world where another local connection exists. Since all internet users share a common infrastructure, competition and cooperation are based on the quality of ideas, not on their means of transmission.
There is a trade-off between universality and decentralization. A truly universal network can never be fully decentralized. There must exist, in a literal sense, a master address book. There must also exist someone who maintains the address book, keeping multiple websites from trying to use the same name, and making sure that every website can be found from anywhere on the internet. The designers of the internet solved this problem with decentralized redundancy. They placed a system of “root name servers” at the top of the internet. The root name servers are the final authority for a much larger group of “domain name servers” which form the backbone of the internet. Each root name server (there are presently 13) is fully redundant, containing a complete map of the internet. The root name server operators set their policies and procedures for synchronizing content through the Internet Corporation for Assigned Names and Numbers (ICANN), a non-profit corporation overseen by the U.S. Department of Commerce. The root name servers and ICANN are at the heart of the present UN attempt to take control the internet.
So, if the US stands by its position of not fixing what is not broken, what can the UN or the EU or China or Iran do about it? They cannot directly take control of the internet, but they could set up their own set of root name servers. This would not be the end of the internet. A world of multiple internet channels, in most respects, is as manageable as a world of multiple broadcast channels. The danger from a fragmented internet is that it provides an invitation to government regulation. The U.S. can no more prevent other countries from operating their own root name server networks than other countries can prevent the U.S. from operating its own. To prevent internet fragmentation, the U.S. should press for increased international participation in the maintenance of the internet – but outside of the UN.Link here.
Keep the Internet free of the United Nations.
For decades, the Internet has developed with a minimum of government interference. The core governance of the medium has been performed by non-governmental entities and overseen by the U.S. government, which has exercised a light regulatory touch. It is no coincidence that the medium has prospered from this benign neglect, growing from a research curiosity into a major force in the world economy and an invaluable venue for the exchange of information.
Most people appreciate this success as a convenience that makes their lives easier and their work more productive. However, the Internet represents something quite different to many foreign governments. Some, including members of the EU, are frustrated by their inability to regulate or tax it as they desire. Others, such as China and Iran, see the Internet as a threat and are desperate to prevent their citizens from encountering ideas that might undermine their authority or communicating with foreigners. As a result, the U.S. is coming under increasing criticism that because the Internet is an international resource, no one country should control it.
The dispute will reach the boiling point at the World Summit on the Information Society (WSIS) in Tunisia on November 16-18. A group of nations led by China, Brazil, India, Cuba, and Iran is expected to demand that supervision of the Internet be shifted from a private organization in the U.S. to the UN. WSIS will be a pivotal moment for the future prospects of economic and political freedom. Should the UN gain control of the Internet, it would give meddlesome governments the opportunity to censor and regulate the medium until its usefulness as a vehicle for freedom of expression and international competition is crippled.
The Bush Administration should be applauded for its strong opposition to this proposal, and it should stand firm at the upcoming summit. Congress has also taken note of this issue, and efforts that encourage the President to resist efforts to transfer Internet governance authority from the U.S., like Sen. Norm Coleman’s (R-Minnesota) Senate Resolution 273, “Expressing the sense of the Senate that the United Nations and other international organizations shall not be allowed to exercise control over the Internet,” deserve its support.
The result of a UN-controlled and regulated Internet would be that non-democratic countries that oppose the right to free speech such as China and grasping, anti-market impulses like those of the EU would have a greater voice in guiding the Internet in a direction away from “freedom, education, and innovation.” If the Internet cannot be a government-free zone, it should be governed in a manner that minimizes restrictions rather than imposing international standards that restrict Internet freedom. Given the stakes, the U.S. must stand firm and reject efforts to internationalize governance of the Internet.Link here. Minnesota Senator Coleman warns against U.N. scheme to control the Internet – link.
CHINA MOVES TO LET LOCAL COMPANIES INVEST ABROAD
Beijing is accelerating longstanding plans to allow local institutions to invest overseas, a move that could begin to unlock a portion of the billions of dollars of foreign currency now mostly sitting in low-return Chinese bank deposits. The government departments with responsibility for handling the issue have agreed to submit a scheme for overseas portfolio investment to the central government for approval, according to market commentators and reports in the local media. The scheme, known in China as the Qualified Domestic Institutional Investor (QDII) program, would allow Chinese mutual funds and perhaps also companies to invest their foreign currency holdings abroad.
The scheme has been held up by the central government’s concern about the ability of institutions to properly manage risk in investing overseas, as well as by disagreements between agencies over the issue. Agencies clustered around the central bank have generally supported QDII, which they think will diversify Chinese investment products and ease the impact of large capital inflows into China, whereas stock market regulators fear any outflow could harm local share prices. However, the ability of agencies to submit a single plan to the State Council, China’s cabinet, suggests that they have begun to surmount their divisions.
“A major breakthrough appears to be on the horizon,” said Peter Alexander, of Z-Ben Advisors, a consultancy-based in Shanghai. Mr. Alexander said the State Council’s approval could take “months rather than years”, allowing a pilot scheme to start in early 2006. China has already begun experiments with a form of QDII by allowing its large insurance companies to keep money raised in overseas initial public offerings offshore. But the lead in investing money directly from China is likely to be taken by Hua’an Fund Management, based in Shanghai. Hua’an declined to comment yesterday but local fund managers said the firm had already begun preparations for a foreign- currency overseas fund. Once the scheme has been established, the authorities may extend it to allow ordinary renminbi savings to be invested overseas through mutual funds. The health of the local stock market, which has languished for years, remains a lingering concern in any extension of QDII.Link here.
CAYMAN ISLANDS LOSING HEDGE FUND BUSINESS TO EUROPE?
Growing interest in hedge funds from retail and institutional investors in Europe has been reflected in an increase in the share of a number of European countries, particularly Ireland and Luxembourg, in the hedge fund domicile business. Significantly, there has been a sizeable reduction in the share of the Cayman Islands from 42% in mid-2004, according to a corresponding report issued last year to a share of approximately 34% in mid-2005.
It is not certain from the available statistics whether this has resulted, to any great extent, from a fall-off in the numbers of Cayman hedge funds being created or a relative increase in hedge fund creation in other domiciles. It should be kept in mind, however, that reliable statistics in this area are hard to come by. For example, whereas surveys such as that undertaken by International Financial Services, London, as of the end of 2004 suggest that approximately 43% of the world’s hedge funds are based in offshore jurisdictions, according to official data released in Cayman, 80% of the world’s hedge funds are based in Cayman alone as of the end of the first quarter of 2005.Link here.
NUMBER OF BRITISH HOMEOWNERS IN SPAIN “ARE SET TO DOUBLE”
The number of UK residents buying property in Spain is set to double, according to a new report. A survey by Barclays Bank found one third of potential overseas buyers said Spain including the Balearics and Canary Islands was their favourite destination to have a second home. The bank found 5% of Brits have decided to buy a property abroad in the future, while 5% already own an overseas home. Almost 40% admitted they were thinking about buying a property in another country. The U.S. was the 2nd most popular destination while France was a close 3rd. Britons said the main thing that put them off buying abroad were legal and tax implications, being ripped off by the seller and not being able to cope with a new language and culture.Link here.
Britain, Spain and Gibraltar are engulfed in a major row over the Spanish allegations about money laundering, drugs and fraud. The first shot was fired by the Spaniards – will it sink the tripartite process? Certainly, it makes political life very difficult to continue talks on cooperation, where concessions are expected, if the Spanish Government start attacking Gibraltar in the middle of it all and at a time when very serious decisions have to be taken.
All the publicity only serves to reinforce in Spanish and other minds what Madrid had always been saying about Gibraltar being a cave for smugglers etc, as if all the Gibraltarians were engaged in nothing but money laundering and other crimes.
Why all the uproar at a time when the public was being fed with the notion that relations were good? The Madrid daily El Pais noted that the incident had come when the negotiations for the joint use of the airport and the payment of the Spanish pensions were stalemate. It said Spain had been showing its upset in the tripartite talks – even though this did not come across when the triumvirate gave their press conferences and issued their joint statements at the end of talks, then the emphasis was on progress and great expectations.Link here.
WHO WOULD WIN, LOSE IF MORTGAGE TAX BREAK ENDS?
That most sacred of tax breaks, the mortgage interest deduction that has helped millions buy homes, could vanish if President Bush and Congress follow the recommendations of his tax advisory board. Nine tax experts, tasked with developing simpler and fairer tax laws, concluded that the deduction does more for wealthier taxpayers than for people struggling to buy a home. But mortgage bankers and real estate agents see irreparable harm if the tax break disappears. The National Association of Realtors estimated that housing prices could decline 15%, bad news for owners who have seen the value of their homes increase.
The President’s Advisory Panel on Federal Tax Reform urged the administration to do away with the deduction and replace it with a credit worth 15% of interest paid during the year. They would scrap the deduction for property taxes, too. Mortgages eligible for the tax break would be limited by a formula reflecting the average regional price of housing. If in place today, that range would spread from $227,000 to $412,000. Mortgages for second homes and interest paid on home-equity loans would not be eligible for the credit. Connie Mack, a former Florida senator and chairman of the tax panel, said less than 5% of mortgages in the nation exceed the proposed cap.
For homeowners with a small mortgage who do not itemize their deductions, the credit means a new tax benefit defraying the cost of housing. Taxpayers who bought $1 million homes expecting a generous tax break could be in for a shock, said Michael Fratanponi, senior director of single family research and economics at the Mortgage Bankers Association. Clint Stretch, director of tax policy for Deloitte Tax, said the shock might be as much psychological as financial. “It also has a piece of American dream about it,” he said.Link here.
IRS AUDITS TARGET FIRMS AND RICH TAXPAYERS MORE
More tax returns from corporations and wealthy taxpayers were audited by IRS examiners this year, helping the agency haul in a record $47.3 billion in unpaid taxes. IRS Commissioner Mark W. Everson said the audit rate of high-income individuals and families, those who report earning $100,000 or more, is “still too low”.
“I haven’t set a specific target,” Everson said. “Our No. 1 area of emphasis has been to increase our work in high-income individuals and corporations. We do that because of the sense of fairness that resonates throughout the rest of the system.” The IRS audited one in 63 wealthy individuals and families, the highest rate in 10 years, the agency said. By comparison, about one in 117 taxpayers who made less than $100,000 were audited. Overall, about one of every 107 individuals faced an audit, more than last year, when the tax returns of about one in 129 taxpayers were examined.
The record amount collected this year includes nearly $4 billion from a settlement with taxpayers who used a tax shelter designed to hide unusually large income gains. An average of 20% of corporations were audited during the fiscal year that ended Sept. 30. The largest of those, with assets of $250 million or more, faced the highest audit rate, about 44%. The number of small businesses that faced an audit also rose after a significant dip last year. About one in 126 small businesses, those with assets of less than $10 million, were audited this year.Link here.
EU INTERNAL MARKET COMMISSIONER TAKES A STAND OVER EU CORPORATE TAX PLANS
Speaking at a KPMG conference in County Kildare, Internal Market Commissioner Charlie McCreevy publicly broke rank with the EC on the subject of corporate tax harmonization. Late last month, EU Tax Commissioner, Lazlo Kovacs announced that he intends to press ahead with the presentation of legislation to create a single European corporate tax base, despite strong opposition from five member states. Mr. Kovacs revealed that he plans to put forward his proposals next year, with the intention of legislating on the matter before his mandate ends in 2009.
However, Mr. McCreevy told the audience of accountants last week that, “At an EU level taxation does not fall within my specific remit although there are of course many significant taxation issues that are pertinent to the operation and success of the internal market. There is perhaps no more controversial issue in a European context than taxation. Views on the subject diverge significantly. It is a subject which touches closely on issues of national sovereignty. But that’s just one reason why Member States, including Ireland, insist that all measures in this area be subject to unanimity and why there has been strong resistance to qualified majority voting. That situation will not change. This is not just a matter of the defence of national sovereignty. It goes much deeper than that. The structure and level of taxation is one of the key elements in determining the competitiveness of a country’s economy.”
He went on to add, “There are some who argue that lower taxation in one Member Sate than in another doesn’t give a level playing field. But they are dreaming if they think that by levelling up the taxation levels across Member States, they would attract more inward investment or encourage more economic activity. The harsh reality is that in the global economy in which we live, investment will flow to where it attracts the best return – higher taxes across Europe would be followed by lower investment across Europe and higher investment flows out of Europe. Tax competition between Member States is healthy in that it keeps pressure on governments to watch their domestic spending and keep their tax regimes internationally competitive.”Link here.
THE AMT IS MEANT FOR THE RICH, BUT IT IS THE SCOURGE OF THE MIDDLE CLASS
Maybe you have managed to ignore the recent spate of tax-reform stories, but that does not mean you will dodge the Alternative Minimum Tax or its higher tax bite. The AMT system comes with a completely different set of rates and deduction rules. People pay it only if their AMT tax amount is higher than their traditional taxes. Translation: if you are paying the AMT, you are by definition paying higher taxes.
The system created to make sure the uber-rich did not dodge the tax bullet is under fire because it is now affecting middle-class Americans. And reforming it could mean increased tax payments for everyone. The problem? What defined uber-rich in 1969, when the AMT was first enacted, has never been adjusted for inflation. That means what made you affluent back then does not now – but you are still taxed like it does. The Urban-Brookings Tax Policy Center says the AMT will hit 3.6 million out of the nation’s 131 million taxpayers filing for tax year 2005 (filed in early 2006), and could affect 31 million by 2010 if nothing is done. To give you a sense of just who might get caught, this year only 1.8% of married couples with two kids and an adjusted gross income between $75,000 and $100,000 will be subject to AMT. Next year, that number jumps to 73.4%.
Under the regular IRS rules, you start with your gross income and subtract deductions like state taxes you paid, and exemptions like child credits. Eventually, you arrive at your taxable income. Under AMT rules, you still start with your gross income, but many of the usual deductions and exemptions are disallowed. Suddenly, your taxable income is a lot higher. Even though some deductions still stand, including those for mortgage-interest and charitable donations, some key breaks are lost, including state and local income taxes and property taxes.
In trying to determine tax liability under AMT, you do get to exempt a certain amount of income from your calculations. The problem is that the exemptions granted under the AMT have not kept pace with inflation – while the average paycheck has. Everyone who files taxes is obligated to figure out whether they have to pay AMT, and they are prompted to do so on line 44 of Form 1040. There, taxpayers are referred to the AMT worksheet. If the taxable income on the worksheet is higher than the taxable income on the 1040, you are subject to AMT and must fill out the special AMT Form 6251. But the 12-line worksheet and Form 6251 can be daunting, and 75% of AMT payers hire a professional to do their returns.Link here.
ABOLISH THE IRS
Since 1954, the size of the United States’ tax code has increased by almost 500%. Tax regulations created by the IRS have increased in volume by 93%, and in April 2006, Americans will spend a combined total of 6.5 billion hours, at an estimated cost of close to $500 billion, in order to simply pay for the privilege of footing Washington’s bill. It is time for the FairTax.
The FairTax is a comprehensive plan for the dissolution of the IRS that would replace all income taxes with an embedded personal consumption tax. According to the website of Americans for Fair Taxation, the FairTax would abolish “personal, estate, gift, capital gains, alternative minimum, Social Security, Medicare, self-employment and corporate taxes.” In their stead would be a 23% national sales tax on all consumption goods: a simple, one-time tax that is collected at the retail level.
However, the FairTax is unlike the current sales taxes that exist in this country. These taxes are imposed on top of embedded income tax and compliance costs. In the FairTax Book, written by libertarian radio personality Neal Boortz and Congressman John Linder, a loaf of bread is used as an example to illustrate these hidden costs. For every loaf of bread, the seed producers pass tax costs onto consumers. The shipping company does too. In fact, processors, bakeries, distributors and grocery stores all pass a portion of their income tax burdens onto consumers, no matter how rich or poor they are. Eliminating these costs initially, by eliminating the income tax altogether, would reduce the market price of all products by an average of 22%. Don’t take my word for it, though. Take the word of the Harvard Economics Department.
So when these costs are abolished, the FairTax is added and returns the prices of consumption goods to – you guessed it – exactly where they are today. The difference is, of course, that people who are purchasing these things keep every last penny of their paychecks. For low-income families, this would mean an immediate average increase in pay of 25-30%. If you are trying to think of ways in which to oppose this plan, I need to know one thing: why?
The federal government would still steal – I mean, collect – the same amount of tax revenue as it does today under the FairTax. The FairTax does not cut funding from any cherished socialist programs like welfare or Social Security. It is merely a new way for the federal government to pay for its existence. But wait, it gets better. …Link here.
TAX COMPETITION PROMOTES GOOD POLICY
Beginning with the 1998 publication of Harmful Tax Competition: an Emerging Global Issue, the Paris-based OECD has been trying to bully low-tax jurisdictions into acting as deputy tax collectors for Europe’s welfare states. The OECD was created to be a market-oriented think tank for 30 of the world’s industrialized nations, but the international bureaucracy is now controlled by countries such as France and Germany and is pursuing tax-harmonization policies designed to stem the flight of capital from high-tax countries to low-tax countries. The latest chapter in this battle will take place in Melbourne next week.
The OECD is hosting a global forum so its bureaucrats can team up with representatives from tax authorities of member countries, including Australia, in an effort to convince so-called tax havens to act as deputy tax collectors for high-tax nations. (It is worth noting that this project is riddled with hypocrisy since many OECD member nations, such as the U.S., the U.K., Switzerland, Luxembourg, Austria, and Belgium, are “tax havens”, according to the OECD’s own definition, yet they are not being asked to emasculate their attractive tax and privacy laws.)
The OECD’s anti-tax competition project is fundamentally inconsistent with good tax policy. Public finance experts almost universally recognise that an ideal tax system is characterized by low tax rates and the absence of a bias against saving and investment. Tax competition has helped encourage governments to shift policy in this direction. Simply stated, if politicians are afraid that jobs and capital will escape across the border, they are more likely to lower tax rates and implement tax reform.
There are three historical episodes that illustrate how tax competition has become a liberalizing force in the global economy: 1.) The Thatcher/Reagan personal income tax rate reductions, 2.) The Irish corporate tax rate reduction, and 3.) Flat taxes in Eastern Europe. It is hardly surprising that France and Germany want to thwart tax competition. Jobs and capital are leaving those countries and going to places such as Switzerland, Hong Kong, the U.S., Ireland, the Cayman Islands and Singapore. High-tax nations want to stop that flow, or at least retain the ability to tax flight capital – and the OECD is their vehicle.
Interestingly, the OECD is internally divided on the issue. The anti-tax competition project is controlled by the fiscal affairs committee, which comprises representatives of the tax authorities of the member nations. Perhaps it should come as no surprise that they have a “tax enforcement uber alles” mentality. The OECD’s economists, by contrast, are very sympathetic to tax competition. Rather than make scapegoats of low-tax jurisdictions, the economists have noted that the real problem is bad tax policy, writing that, “illegal tax evasion can be contained by better enforcement of tax codes. But the root of the problem appears in many cases to be high tax rates.”
Leaders in Canberra should adopt a similarly sceptical attitude. Thanks to reforms implemented by both Labor and Liberal governments over the past 20 years, Australia has become one of the world’s strongest economies. And with the future tax reductions and tax reforms likely, Australia has every reason to support policies such as tax competition that benefit fiscally responsible nations.Link here.
HACKERS EMPTYING ONLINE ACCOUNTS
In the latest cyber scam, hackers exploit the weaknesses of investors’ home computers to access e-mail accounts and liquidate online holdings, BusinessWeek reported, citing regulators and people whose accounts have been ripped off. Home PC users are particularly vulnerable since high-speed and wireless connections have made it easier for hackers to get in, the magazine said, noting that 84% of computer users keep sensitive personal information, including financial data, on their home PC.
SEC investigators said they are investigating dozens of such schemes at the moment. “It’s a new and growing area that is more intricate and more complicated than other Internet-related securities frauds,” said John Reed Stark, the SEC’s chief of Internet enforcement. “And it is still evolving.” So far, $20 million has been stolen from online brokerage accounts in the last year. But with $1.7 trillion worth of assets in online brokerages, Web investing is a lucrative pursuit for thieves.Link here.
C.S. LEWIS’S DESCENDENT MISSES OUT ON NARNIA FILM MILLIONS
The family of C.S. Lewis will miss out on the lion’s share of the multi-million-pound royalties from films based on his Chronicles of Narnia. The first movie, The Lion, the Witch and the Wardrobe, opens in London next month amid expectation that a cycle of Narnia films will take over from the Lord of the Rings trilogy as the “must see” Christmas movie for years to come. It will also compete with the films of the Harry Potter books. A new biography of Lewis, who died on November 22, 1963, the day of John F. Kennedy’s assassination, claims £50 million has been paid for the film rights. But the money will not go to his surviving relatives. Just as the late JRR Tolkien, Lewis’s friend and fellow Oxford don, surrendered the film rights to his Lord of the Rings books – he received £105,000 to settle a tax bill – Lewis’s two stepsons, David and Douglas Gresham, sold their rights to his estate in the 1970s.
The first Narnia film has been shot in New Zealand – also the backdrop for the Tolkien films – by Andrew Adamson, who directed the Shrek movies, and it is being distributed by Disney. Aslan, the computer-generated lion in the film, is voiced by Liam Neeson. A screen adaptation has already been written for Prince Caspian, the second book in the 7-title Narnia series. If all the books are filmed, they could easily eclipse the £1.6 billion global box office takings of the Rings movies. The initial signs of “Narniamania” include a 40-fold increase in the sale of the book on which the film is based. There are to be 33 books by academics exploring themes such as Lewis’s use of fantasy as an allegory for the struggle between Christianity and evil.
There are few clues to the ultimate destination of the money. The C.S. Lewis estate is run by an Australian accountant living in Ireland and a Swiss lawyer who report to two shareholders – trusts based in the tax havens of Liechtenstein and Jersey –— and send royalties to a company registered in Singapore. Douglas Gresham, 60, is billed as co-producer of the new movie but he is a salaried employee of the C.S. Lewis Company. His brother David, 61, has largely ignored the Lewis legacy. He has converted to Judaism and has traveled widely, studying different languages and cultures.
Michael White, author of the new biography, CS Lewis, said, “Douglas sold his share of the estate so he will not be receiving the vast fortunes you might expect. He must be kicking himself now. “When Lewis died his estate was worth under £38,000. But the estate has sold the film rights for £50 million. It will also get a cut of the profits from lucrative merchandising deals.” Walter Hooper, 74, who was Lewis’s secretary in the last few months of his life and became his literary editor after his death, said at his home in Oxford, “I really don’t know where the money will end up.”Link here.
OFFSHORE HOW, WHY, WHEN, AND WHERE
The increasing popularity in offshore investing is largely due to the Internet, which removes geographic restrictions and allows individuals to research and reach their favored financial institutions. An increase in the diversity of products and ownership techniques has further increased accessibility. Offshore investing is normally far less regulated than onshore investing, resulting in more varied opportunities and greater potential returns, if often with a greater degree of risk. Depending on your circumstances, as an expatriate investing offshore, you may also benefit from taxation advantages.
The range of options open to expatriates can be daunting but a few simple questions may narrow down the choices that suit you. Consider your time-frame, for example. Factors such as imminent retirement, or perhaps investment with the aim of funding a future commitment, will determine this. Whether it is high returns or low risk, the choice is yours. Your professional independent financial adviser should be able to give you the guidance and support to ensure that whatever you choose is suitable for your short-, medium- and long-term goals and in balance with your selected risk profile/investment strategy.Link here.
ATTACKS ON WEALTHY CREATING AN ECONOMIC BOMB THAT IS TICKING DOWN FASTER
The top-earning 1% of U.S. taxpayers pay one third (34.3%) of all federal individual income taxes collected, while earning only 16.8% of all federally taxable individual income. They are facing frivolous lawsuits in phenomenal numbers, simply because our lax tort laws make them easy targets of opportunity. They are in more danger of government seizure (forfeiture) of their private property than ever before in our history, due in part, to the Patriot Act. The top-earning 1% of U.S. taxpayers are also leaving the USA at the highest rate in history.
An insidious, creeping cancer is eating away at our economy. Not only the Income Tax, but other legislative and regulatory attacks on wealth are forcing many of the people who pay the lion’s share of taxes, to leave the U.S. and because of some of that legislation, they are taking their wealth with them, thus, very disproportionately reducing the tax and investment base in the U.S. The percentages cited above are not some bureaucrat’s pie-in-the-sky projections, but rather, they are totals of actual IRS receipts, that are released every year, about 18 to 24 months after the close of a the tax year.
Since the publication of an earlier version of this article in 2000, more oppressive legislation, aimed squarely at the top-earning 1% has made matters even worse. This is presenting a problem for the top-earning 1%. But, before you start shedding crocodile tears for those poor top income earners, remember that these people are almost all problem solvers. To them, this is only a speed bump. To you and me, it is quite a different issue. You see, it is the wealthy’s legitimate and justified response to the problems being created for them that represents a ticking time bomb presenting an even more serious threat to the remaining 99% of taxpayers. If you make less than $295,495 per year, then that is you.
The wealthy are being systematically backed into a corner by our government. Everything for which they have worked so hard, is now being threatened by the same government, whose job it is to protect citizens from just those types of abuses. Should we then be surprised if the top-earning 1% of taxpayers, facing an untenable situation, take the only legal route left open to them, even if such a response threatens the very fabric of the U.S. economy? I think not. Their response is really quite simple. Since most of those who leave, are seeking privacy, they avoid leaving many trails, but the Census Bureau estimated that in 2003 roughly 370,000 U.S. citizens and permanent residents quietly left the United States permanently.Link here.
PRIVATE BANKERS ARE CRAWLING OUT OF THE WOODWORK TO CATER TO MILLIONAIRES
Last year Capco, a consulting firm headquartered in Belgium, produced a startling report entitled “The Emerging Crisis in U.S. Banking Profitability”, which convincingly argued that the mainstream commercial and individual banking business was about to enter a prolonged dry spell of price competition and compressed profit margins. The report, though, missed one bright spot: banking services for prosperous customers. Merrill Lynch and Capgemini count 8 million people in the world with a net worth in excess of $1 million. That number will grow rapidly as the emerging middle classes of India and China become prosperous and as new wealth is amassed in Latin America, the Middle East and eastern Europe. Their collective net worth of $25 trillion is growing at 6% a year, says Boston Consulting Group. “The banking revenues generated by this very wealthy group of clients comes to over $250 billion a year,” says Clive Bannister, head of HSBC Private Bank. Putting that in perspective, private bankers are generating roughly the same fees as investment bankers.
Scorpio Partnership, a consulting firm in London, studies 120 wealth managers, from Swiss-style private banks to U.S. brokerages like Merrill Lynch. The very rich and their bankers suffered like everyone else in the downturn of 2000 and 2001 but have since resumed their accumulation of assets. Pretax profits at the banks in Scorpio’s universe increased 30% last year, while fee-generating assets under management for affluent individuals increased 13%, to $6 trillion. There are 16 banks each managing over $100 billion in rich people’s assets. New money (net of departures) flowing into Scorpio’s benchmark banks was $42 billion last year – a remarkable 62% jump.
Serving the ultrawealthy is easier said than done. It usually takes two years of cultivating a prospect before the private banker sees a dime. Once the millionaire is hooked, however, a relationship manager might find him a structured derivative for his finances, a boarding school for his teenage son or medical treatment for a brother. He could restructure the customer’s holdings, acquire an apartment for the mistress or go shopping for jewelry with the wife. One prominent American patriarch instructed his private banker in New York to buy a gold hoard and physically store it in Zurich – a hedge against a dirty bomb in the U.S. “Private bankers,” explains Fidelis Goetz, chief executive of Credit Suisse in North Asia, “join a unique circle of trusted people – the priest, the personal physician, the lawyer – surrounding the individual. Sometimes we know more about him than his spouse.”Link here.
IN HUNT FOR TERRORISTS, FBI EXAMINES RECORDS OF ORDINARY AMERICANS
The FBI came calling in Windsor, Connecticut, this summer with a document marked for delivery by hand. On Matianuk Avenue, across from the tennis courts, two special agents found their man. They gave George Christian the letter, which warned him to tell no one, ever, what it said. Under the shield and stars of the FBI crest, the letter directed Christian to surrender “all subscriber information, billing information and access logs of any person” who used a specific computer at a library branch some distance away. Christian, who manages digital records for three dozen Connecticut libraries, said in an affidavit that he configures his system for privacy. But the vendors of the software he operates said their databases can reveal the Web sites that visitors browse, the e-mail accounts they open and the books they borrow.
Christian refused to hand over those records, and his employer, Library Connection Inc., filed suit for the right to protest the FBI demand in public. The Washington Post established their identities – still under seal in the U.S. Court of Appeals for the 2nd Circuit – by comparing unsealed portions of the file with public records and information gleaned from people who had no knowledge of the FBI demand. The Connecticut case affords a rare glimpse of an exponentially growing practice of domestic surveillance under the USA Patriot Act, which marked its fourth anniversary on Oct. 26. “National security letters”, created in the 1970s for espionage and terrorism investigations, originated as narrow exceptions in consumer privacy law, enabling the FBI to review in secret the customer records of suspected foreign agents. The Patriot Act, and Bush administration guidelines for its use, transformed those letters by permitting clandestine scrutiny of U.S. residents and visitors who are not alleged to be terrorists or spies.
The FBI now issues more than 30,000 national security letters a year, according to government sources, a hundredfold increase over historic norms. The letters – one of which can be used to sweep up the records of many people – are extending the bureau’s reach as never before into the telephone calls, correspondence and financial lives of ordinary Americans. Issued by FBI field supervisors, national security letters do not need the imprimatur of a prosecutor, grand jury or judge. They receive no review after the fact by the Justice Department or Congress. The executive branch maintains only statistics, which are incomplete and confined to classified reports. The Bush administration defeated legislation and a lawsuit to require a public accounting, and has offered no example in which the use of a national security letter helped disrupt a terrorist plot.
The burgeoning use of national security letters coincides with an unannounced decision to deposit all the information they yield into government data banks–-- and to share those private records widely, in the federal government and beyond. In late 2003, the Bush administration reversed a long-standing policy requiring agents to destroy their files on innocent American citizens, companies and residents when investigations closed. Late last month, President Bush signed Executive Order 13388, expanding access to those files for “state, local and tribal” governments and for “appropriate private sector entities,” which are not defined. National security letters offer a case study of the impact of the Patriot Act outside the spotlight of political debate. Many parts received far more attention than the amendments to a seemingly pedestrian power to review “transactional records”. But few if any other provisions touch as many ordinary Americans without their knowledge.Link here.
FBI pushing Patriot Act powers.
Lawmakers expressed concern that the FBI was aggressively pushing the powers of the anti-terrorist USA Patriot Act to access private phone and financial records of ordinary people. “We should be looking at that very closely,” said Sen. Joseph Biden (D-Delaware), who is a member of the Senate Judiciary Committee. “It appears to me that this is, if not abused, being close to abused.” Sen. Chuck Hagel (R-Nebraska), a member of the Senate Intelligence Committee, agreed, saying the government’s expanded power highlights the risks of balancing national security against individual rights.
Under the Patriot Act, the FBI issues more than 30,000 national security letters allowing the investigations each year, a hundredfold increase over historic norms, The Washington Post reported Sunday, quoting unnamed government sources. The 2001 Patriot Act removed the requirement that the records sought be those of someone under suspicion. As a result, FBI agents can review the digital records of a citizen as long as the bureau can certify that the person’s records are “relevant” to a terrorist investigation.
Calling the recent growth in the number of letters a “stunner”, Biden said. “Thirty thousand seems like an awful, awful stretch to me.” Justice Department spokesman Brian Roehrkasse said he could not immediately confirm or dispute the 30,000 figure, but he said the power to use the security letters was justified.Link here.
Congress may curb some Patriot Act powers.
Congress is moving to curb some of the police powers it gave the Bush administration after the Sept. 11 terrorist attacks, including imposing new restrictions on the FBI’s access to private phone and financial records. A budding House-Senate deal on the expiring USA Patriot Act includes new limits on federal law enforcement powers and rejects the Bush administration’s request to grant the FBI authority to get administrative subpoenas for wiretaps and other covert devices without a judge’s approval. Even with the changes, however, every part of the law set to expire Dec. 31 would be reauthorized and most of those provisions would become permanent.
Under the agreement, for the first time since the act became law, judges would get the authority to reject national security letters giving the government secret access to people’s phone and email records, financial data and favorite Internet sites. Holders of such information – such as banks and Internet providers – could challenge the letters in court for the first time, said congressional aides involved in merging separate, earlier-passed House and Senate bills reauthorizing the expiring Patriot Act. The aides spoke on condition of anonymity because the panel has not begun deliberations.Links here and here.
Senator Feingold promises to oppose Patriot Act reauthorization without meaningful changes.
In July, something unusual occurred in Washington. The U.S. Senate cast a unanimous vote on a controversial issue. Every member of the Senate agreed to make meaningful changes to the Patriot Act as we reauthorized parts of it scheduled to expire at the end of the year. These revisions will ensure that our government can wage an effective fight against terrorists that respects our basic freedoms. But the battle for these reforms is not over. In the coming weeks, a House-Senate conference committee will meet to work out the differences between competing versions of the bill. Hard-won improvements to the Patriot Act could be in jeopardy.
We will make every effort – and, if we have to, use procedural options at our disposal – to oppose a final reauthorization bill that either strips out the meaningful changes made by the Senate bill or adds measures that ignore the public demands for more protection of our rights and freedoms. Our goal is not to derail reauthorization. It is to ensure that necessary changes to the Patriot Act are made as part of the reauthorization bill. We can – and should – provide law enforcement with the tools necessary to fight terrorism while protecting civil liberties at home.
The end-of-the-year deadline for reauthorization gives us a rare chance to fix parts of the Patriot Act – creating a check on searches for library, bookstore, and other sensitive records, putting new safeguards on secret “sneak and peek” searches of Americans’ homes, and giving citizens real power to challenge secret court orders. These and other issues are at stake in the House-Senate conference committee’s deliberations. If the Senate bill prevails in conference, Congress will finally catch up with an American public that has been questioning the Patriot Act for years – librarians who are standing up to a Justice Department that wants the power to dig into Americans’ library records, town and city councils – even whole states – that have passed resolutions opposing parts of the Patriot Act, and business interests that support changes to the law.Link here.
Since 9/11, the FBI, once organized to fight crime, has been undergoing a makeover to focus its efforts on preventing future terrorist attacks. To help the agency in its efforts, in 2001, the Congress recklessly passed and is now about to renew the USA PATRIOT Act, which dramatically increased the surveillance powers of law enforcement. Yet, the truth is that terrorism (even including the 9/11 attacks) is a rare phenomenon in North America that kills far fewer people than ordinary crime, car accidents, or medical problems. As tragic as the 3,000 deaths from the aberrant 9/11 strikes were, the worst effect of those incidents was the self-inflicted wound from the conversion of America from the “land of the free” to the “land of the watched”.
The PATRIOT Act gives the FBI the power to collect information on people who are not suspected of committing a crime. For example, the FBI can issue a “national security letter” to obtain a person’s financial, library, telephone, Internet, and email records, as well as an individual’s customer and employment history with businesses, by merely certifying that the information is “sought for” or “relevant to” an investigation “to protect against international terrorism or clandestine intelligence activities.” Thus, the FBI can nose into the affairs of anyone who comes into contact with a suspected terrorist and will now retain, in its database even after the investigation is closed, the information gathered on innocent people. Visions spring to mind of FBI agents poring over computer-generated lists of anyone who has ever attended a Cat Stevens concert.
Even worse, such national security letters can be issued by FBI supervisors in the field and need no approval by a prosecutor, grand jury, or judge. National security letters would appear to run directly afoul of the U.S. Constitution’s Fourth Amendment, which states that “no Warrants shall issue, but upon probable cause [that the person has committed a crime], supported by Oath or affirmation.” In guaranteeing this vital civil liberty in the Bill of Rights, the founders made no exception even for alleged “national security” considerations. Furthermore, those businesses or libraries served by the letters cannot tell the targets of the searches about them, which some courts have ruled violates the First Amendment rights of free speech. The FBI has also stiff-armed congressional inquiries into how the secret letters are being used. Finally, according the Washington Post, the FBI has yet to offer any example of a terrorist plot being disrupted by a national security letter.
Communism in Eastern Bloc nations failed because so many societal resources were wasted on control, leaving few available for individual initiative and creativity. Liberty and privacy make people happy, creative, productive, and rich. The U.S. government – and the businesses and non-profit groups that are following the “control-oriented” social norms fostered by government action – should take heed and let freedom ring.Link here.
PAYPAL NAMES NAMES AS IRS CHASES TAX EVADERS
PayPal, the internet money-transfer arm of eBay, will disclose the identity of customers who may be using the service to evade paying U.S. taxes. The IRS is demanding records of customers using Paypal through offshore accounts in all tax havens, including Jersey, Guernsey, Isle of Man, Gibraltar and other UK dependencies. According to the IRS, PayPal’s services have proved very attractive to tax evaders and the problem is growing. Customers can buy goods from eBay and many other shopping websites, pay for them from untaxed income held offshore and get the goods sent to their home address. Tax authorities are also concerned that PayPal can be used to “launder” untaxed money between an individual’s offshore and domestic accounts.
The IRS said, “Because the elements necessary to transfer money require only two email addresses attached to two bank accounts and/or credit or debit cards, PayPal’s structure not only allows persons with monies held in a foreign account to purchase goods and services, it also allows a person with assets secreted in a foreign country to repatriate them to their own domestic bank account without going through traditional banking methods such as a bank-initiated wire transfer.” The IRS is the first domestic tax agency to take action against tax evaders using PayPal.Links here and here.
RFID PASSPORTS: IMPROVED, BUT STILL FLAWED?
In February of 2005, the U.S. State Department published a proposed amendment, in the Federal Register, of U.S. passport regulations. The proposal sought public comment on the idea of embedding RFID chips in all newly-issued passports beginning in 2006. Over 2,300 comments were received in response, and more than 98% of them were negative, focusing on privacy and security concerns. Since the initial proposal had no provisions for encryption or access control of the stored data, people were concerned (rightly so) that their identities could be snooped by anyone with appropriate reader equipment, at any time and without their knowledge. Now, eight months later, the State Department has made some changes for their final draft.
The first change is that the data encoded on the chip will be encrypted, and under access control. The passport will have to be first scanned with an optical reader, and this initial scan will provide the decryption key for the information on the RFID chip. Second, a metallic shield will be woven into the passport’s covers, thus creating a Faraday Cage effect which will, in theory, prevent the chip from being read when the passport’s covers are closed by attenuating any RF energy well below the point where the chip would become active. For the truly paranoid, it will be easy enough to slip the entire passport into an ESD shielding bag, thus providing an additional layer of Faraday protection.
While it is good that the officials at State paid attention to the feedback they got, it is still not clear that they fully understand RFID technology and its potential for abuse. As Bruce Schneier has written in this article on Wired, there is yet another potential security hole that DoS overlooked. This hole takes the form of the collision-avoidance technology that is hardwired into each and every RFID chip. Anyone with a reader can query any passport chip for its unique manufacturer ID number, and the chip will respond if it is in range no matter what kind of encrypted info it may be carrying.
I have two opinions on this whole situation. First, I do not think chipping passports is going to make our borders any more secure. Any criminal (including terrorists) with the determination and resources to forge passports is going to find a way to do so no matter what obstacles DoS throws at them. Second, I question whether the “vulnerability” represents the privacy threat that Bruce Schneier thinks it does. The only way I could see it being abused would be to track a person’s movements, and even that will be sharply limited or curtailed the moment they close their passport and/or slip it into that wonderful little shielding bag.Link here.
AN ENEMY OF THE STATE
According to a printout from a computer controlled by the FBI and the U.S. Department of Justice, I am an enemy of the state. The printout, shown to me recently by a friend who works for Justice, identifies me by a long, multi-digit number, lists my date of birth, place of birth, social security number, and contains more than 100 pages documenting what the Bureau and the Bush Administration consider to be my threats to the security of the USA. It lists where I sent to school, the name and address of the first wife that I had been told was dead but who is alive and well and living in Montana, background information on my current wife and details on my service to my country that I have not even revealed to my wife or my family.
Although the file finds no criminal activity by me or members of my immediate family, it remains open because I am a “person of interest” who has “written and promoted opinions that are contrary to the government of the United States of America.” And it will remain active because the government of the U.S., under the far-reaching provisions of the USA Patriot Act, can compile and retain such information on any American citizen. That act gives the FBI the authority to collect intimate details about anyone, even those not suspected of any wrongdoing.
My file begins on September 11, 2001, the day of the terrorist attacks on New York and Washington. A Marine guard standing post at the Navy Yard in Washington jotted down the license number of my Jeep Wrangler after I was spotted taking pictures of armed guards at the locked-down military facility. That night, I found a card stuffed under my door from Agent John Ryan of the Naval Criminal Investigative Service. I chuckled at the time because the lead character in Tom Clancy’s novels is named John P. Ryan. I called Agent Ryan the next day. He wanted to know what the hell I was doing taking photos of a military facility. I explained that I was a journalist and taking pictures was what I did for a living. I directed him to a web site where he could find some of the photos I shot of the Navy Yard’s side gate on that day. He asked for additional information, including date of birth and social security number, which I provided, and then hung up.
I thought the matter was dead until a few weeks ago when an old friend from Washington called, said he was in the area, and suggested lunch. At lunch, he showed me the 100-plus pages of the file on me that grew out of that first encounter with Agent Ryan of NCIS. “Much of this information was gathered through what we call ‘national security letters,’” he said. “It allows us to gather information from a variety of sources.” A “national security letter” it turns out, can be issued by any FBI supervisor, without court order or judicial review, to compel libraries, banks, employers and other sources to turn over any and all information they have on American citizens.
According to my file, the banks where I have both business and checking accounts have been forced to turn over all records of my transactions, as have every company where I have a charge account or credit card. They’ve perused my book borrowing habits from libraries in Arlington and Floyd Counties as well as studied what television shows I watch on the Tivos in my house. They know I belong to the National Rifle Association, the National Press Photographers Association and other professional groups. They know I attend meetings of Alcoholic Anonymous on a regular basis and the file notes that my “pattern of spending” shows no purchase of “alcohol-related products” since the file was opened in 2001.
When I asked to keep the copy of the file, my friend said “no”. I promised to keep it and the source confidential. “You can’t,” he said. “You can’t keep anything hidden. Your life is an open book with us and it will be to the day you die.” After we left lunch and went our separate ways, I wondered how, if my life was under such scrutiny from Uncle Sam, he could meet me for lunch in a public restaurant and not be discovered? So the next day I went to a public phone in an out-of-the-way location and dialed his direct number. It was disconnected. Then I drove home with one eye glued to the rearview mirror. I did not see anything suspicious but if I turn up missing one day, just forward my mail to General Delivery, Guantanamo Bay, Cuba.Link here.
AMERICA DRIFTS RAPIDLY TOWARD A POLICE STATE
Did you know that under the terms of the new Patriot Act prosecutors will be able to seek the death penalty in cases where “defendants gave financial support to umbrella organizations without realizing that some of its adherents might eventually commit violence”? So, if someone unknowingly gave money to a charity that was connected to a terrorist group, he could be executed. Or, that the Senate Intelligence Committee is fine-tuning the details of a bill that will allow the FBI to secretly procure any of your personal records without “probable cause” or a court order giving them “unchecked authority to pry into personal and business matters”? Or, that on June 29, President Bush put “a broad swath of the FBI” under his direct control by creating the National Security Service (aka the “New SS”)? This is the first time we have had a “secret police” in our 200 year history. It will be run exclusively by the president and beyond the range of congressional oversight.
The American people have no idea of the amount of energy that has been devoted to stripping them of their constitutional protections and how stealthily that plan has been carried out. It has required the concerted efforts of the political establishment, the corporate elite, and the collaborative media. For all practical purposes, the government is no longer constrained in its conduct towards its citizens – it can do as it pleases. The campaign to dismantle the Bill of Rights has focused primarily on the key amendments, the 1st, 4th, 5th, 6th, 8th and 14th. These are the cornerstones of American liberty and they encompass everything from due process to equal protection to free speech to a ban on the “cruel and unusual” treatment of prisoners. Freedom has little tangible meaning apart from the safety provided by these amendments.
At present, there is no reason for the administration to assert its new powers. That would only dispel the widely-held illusion of personal freedom. But, the existing climate of “well being” will not last forever. The poisonous effects of war, burgeoning budget deficits, and inflation indicate that darker days lie ahead. The middle class is stretched paper-thin and disaster could be as close as a hike in interest rates. The new repressive legislation anticipates the massive political unrest that naturally follows a tenuous and volatile economic situation. Is this why Congress has rubber stamped so many of the administration’s autocratic laws, or does Bush simply “hate our freedoms”?
America is undergoing its greatest metamorphosis. It has been severed from its constitutional moorings and is drifting towards a police state. Americans still seem blissfully unaware of the fundamental changes to the political system. The cloak of disinformation and diversion has successfully obscured the perils of our present course. The country is slipping inexorably towards the Orwellian nightmare, the National Security State.Link here.
BANK OF NEW YORK SETTLES U.S. INQUIRY INTO MONEY LAUNDERING
Federal prosecutors said that the Bank of New York agreed to pay $38 million in penalties and victim compensation in a deal stemming from a 6-year investigation of fraud and money laundering involving suspect Russian and American bank accounts and other fraudulent transactions. Prosecutors said the bank, one of the nation’s oldest, did not adequately monitor and report suspect accounts at the bank. The bank agreed to make what prosecutors described as “sweeping internal reforms to ensure compliance with its antifraud and money laundering obligations.” Authorities said that the bank has “accepted responsibility for its criminal conduct” and that it will not be prosecuted as long as it complies with the terms of the deal for 3 years. Bank of New York also agreed to allow an independent examiner to monitor its operations.
The investigation, which began in 1998 and ended last year, first became publicly known in the summer of 1999 when Russia’s pell-mell rush to privatize formerly state-owned assets resulted in widespread criticism of insider deals and possible corruption among Russia’s business elite and officials of the Kremlin. The fine, which is among the largest ever assessed against an American bank for money laundering violations, consisted of $14 million for failing to supervise suspect Russian accounts and $24 million for a separate series of fraudulent activities involving a branch on Long Island. Riggs Bank, a subsidiary of the Riggs National Corporation, paid $41 million in federal penalties this year and last to settle a high-profile investigation of money laundering problems at that institution.
Prosecutors with the U.S. attorneys’ offices in Manhattan and Brooklyn noted that the money laundering scheme at the Bank of New York involved unlicensed transmissions of about $7 billion that originated in Russia, passed through American accounts, and then moved into other accounts worldwide. Authorities said that at least 9 individuals, including a former Bank of New York vice president, had been convicted for their roles in the two cases.Link here.
FIRST INDIVIDUAL IN U.K. FINED FOR MONEY LAUNDERING BREACH
The Financial Services Authority has levied its first fine on an individual on its register for failure to prevent possible money-laundering. It fined Ram Melwani £30,000 and his firm, Investment Services UK Ltd, £175,000 for not conducting business with “due skill, care and diligence.” The FSA said more than £8 million entered the financial system without the bond trading firm knowing customers’ identities or the source of their funds. Some had anonymous accounts. Mr. Melwani failed to ensure his firm complied with anti-laundering laws and was “knowingly concerned” in its actions.Link here.
OUR LIBERTIES UNDER SIEGE
My respect continues to increase for the conservative defenders of our most fundamental liberties. A founder of the conservative movement, Paul Weyrich – chairman and CEO of the Free Congress Foundation – exemplifies this force when he writes, “Because of the War on Terrorism, America may be on the verge of becoming a national security state. That means citizens will allow the state to do almost anything it wants so long as it justifies its actions in terms of ‘national security’. In effect, the Constitution and the rule of law itself go out the window, along with our liberties.”
There is also Bob Barr, with whom I once joined at a conference of the American Conservative Union to criticize sections of the Patriot Act. With customary clarity, he now states, “We believe in traditional conservative values, like accountability. … To date, for example, the Justice Department has failed to disclose how many U.S. citizens’ homes, businesses or records have been secretly searched under the Patriot Act provisions, such as Section 213 (‘the sneak and peek’ provision), or even how many National Security Letter searches (without any judicial supervision) have been executed.”
And Maryland Republican Rep. Roscoe Bartlett, a descendant of a signer of the Declaration of Independence, says resoundingly, “Under this so-called Patriot Act, each of us faces the prospect that the government could treat us as guilty with very little evidence. … Supporters argue Americans should have no ‘sanctuaries’ of privacy. The government should be allowed to investigate us and search for evidence against us anywhere with as few limitations as possible. With this permanent expansion of government powers, we will no longer have areas, such as our homes, that deserve greater privacy protections. That is not the America that I know and love.”
These and other such conservatives are in a direct line back to an early American lawyer James Otis, who helped precipitate the American Revolution. Appearing before a George III court in Boston in 1761, he argued against the Writs of Assistance, by which British customs officers could, in effect, write their own search warrants to explore the colonists’ homes and offices. Similarly, today, with “sneak and peek” powers, government agents going before a rubberstamp, secret Foreign Intelligence Surveillance Court can go into your home or office when you are away. Said James Otis to the king’s judges, “One of the most essential branches of English liberty is the freedom of one’s house. This writ if it should be declared legal, would totally annihilate this privilege.” In the colonies, however, the Writs of Assistance remained legal. But a young lawyer, John Adams, listening to James Otis in that courtroom, wrote in his diary that evening, “Then and there the child, Independence, was born.”Link here.
LIBERTY VERSUS SECURITY EQUALS CONTROVERSY
Benjamin Franklin wrote that “They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety.” He presaged an argument that is raging almost two and a half centuries later. What precisely are the essential liberties which, when given up, make a liberal society unworthy of the name? In Franklin’s own country, as well as in Britain, Australia and elsewhere, these questions are proving particularly vexing to policymakers trying to deal with terrorism.
A month after the July 7th bombings of Underground trains and a bus in London, which killed more than 50 people, Britain’s prime minister, Tony Blair, announced that “the rules of the game are changing” and proposed new security measures to Parliament. Many worry that he wants to change the rules too much. His 12-point plan includes speeding up detention of foreign-born agitators, creating a charge of “indirect incitement” for people who glorify terrorism anywhere in the world, using closed pre-trial hearings to examine sensitive evidence, banning certain Islamist groups and closing troublesome mosques. Until this week, the proposed anti-terror bill also included a plan to extend the period for which police can hold terror suspects without charging them, from 14 to 90 days. But on Wednesday November 9th, in Mr. Blair’s first major parliamentary defeat since becoming prime minister in 1997, the House of Commons voted down the measure by 322 to 291.
With a significant number of backbenchers from the ruling Labour Party bitterly opposed to 90-day detention, this was always going to be a tough vote for the government. It was considered so important that two top cabinet members, finance minister Gordon Brown and foreign minister Jack Straw, were hauled back from foreign trips to vote – on the assumption that there might be only one or two votes in it. The surprising scale of the defeat (Labour has a parliamentary majority of 66) not only casts a shadow over the new anti-terror legislation, but raises big questions about Mr. Blair’s grip on his party. Some 49 Labour MPs refused to back him, even after being put under huge pressure by the party’s whips. Among the rebels were several normally loyal former ministers. After the vote, Michael Howard, leader of the opposition Conservatives, claimed that Mr Blair’s authority had “diminished almost to vanishing point.”
Mr. Blair will still get an extension, but nothing like 90 days. Later on Wednesday, the Commons voted in favour of a proposal tabled by a Labour rebel, and backed by the Conservatives and Liberal Democrats, for a much lower, 28-day detention limit. Some of the government’s other proposals are perhaps even more controversial than detention without charge. The expanded charge of incitement to terrorism, some worry, could criminalise too much speech, such as academic debate on political violence. And deporting rabble-rousing imams could mean sending them to countries where they will be tortured. The government says it will get agreements not to torture from any such countries, as it has from Jordan. But human-rights groups claim these are worthless.
As Mr. Blair tries to toughen anti-terror measures, George Bush is facing accusations that America has already gone too far. The Pentagon last week issued new guidelines on prisoner interrogations, in an implicit response to the abuses at Baghdad’s Abu Ghraib prison. These would forbid “acts of mental and physical torture” and require humane treatment “in accordance with applicable law and policy”. But there is no agreement yet on another Pentagon directive, on the general treatment of detainees. Australia is also considering other proposals to toughen its terror law, including lengthening the period of detention without charge to 14 days. As in other countries with strong terror laws, some worry that this will further alienate the resident Muslim population. Ongoing riots in France have roots in the frustration of Muslim youths with aggressive policing and a lack of jobs.
Some libertarians misquote Benjamin Franklin as saying that giving up any liberty for safety means deserving neither. All societies curb some freedoms – no individual may own a nuclear bomb. But finding the right balance between liberty and security remains tricky, not just in America, Britain and Australia, but the many other free countries that are potential terrorist targets. Clamping down not only diminishes liberties but can even cause the kind of backlash that makes terrorism more likely.Link here.
FULL MARX FOR GEORGE BUSH
Ever since the Berlin Wall fell in 1989, there has been a seemingly endless flow of self-congratulatory comment in the West about how former Communist countries – and even some which have remained Communist – are gradually Westernizing and learning the ropes in the capitalist jungle. Very often, these countries’ so-called progress is in fact cultural decline: the advent of bars for transsexuals in Havana, for instance, has been adduced as evidence of Cuba’s “liberalization”. But the equal and opposite movement nearly always goes unnoticed – the way in which the West has itself adopted many of the old nostrums of Communism, and especially the twin doctrines of revolution and internationalism.
Revolution has now become a completely positive word in the Western political lexicon. Fifteen years ago, it still carried – at least for conservatives – the negative connotations of “Bolshevik”, “sexual” and “French”. Not any more. The myth of revolution now wields such a strong hold over our collective consciousness that, with the compulsiveness of children who beg to be re-told the same story, we regularly accept at face value fairy tales about revolutions in a faraway country of which we know nothing. Recent years have seen a spate of such “revolutions”. The overthrow of Slobodan Milosevic on 5th October 2000 in Belgrade. The overthrow of the Georgian president, Edward Shevardnadze, in the “rose revolution” of November 2003. The “orange revolution” in Ukraine last Christmas. The violent overthrow of the president of Kyrgyzstan in March. The uprising in the Uzbek city of Andijan in May. … All these are presented as spontaneous outbursts of righteous popular indignation.
But prior to the fall of Communism, “revolution” and “people power” was considered just leftish propaganda. It often happens that, after the event, reports reveal that the things were not as spontaneous as was believed at the time. In the cases of Ukraine, for instance, it is now a matter of public record that the Americans poured huge sums into the campaign of Viktor Yushchenko, and that the Ukrainian KGB was also heavily involved on the Americans’ side, playing a key role in stage-managing the whole charade. To be sure, the fact that secret services may be involved does not mean that the people on the streets themselves do not believe in the rightness of their cause, or that the events are the result of manipulation alone. But the simplistic terms in which these “revolutions” are presented by our media, and believed by us at the time, are so strong that they reveal more about our own inner fantasies and desires, and about the true nature of our own political culture, than it does about the countries themselves.
In particular, they reveal that the West has fallen in love with the myth of revolution. If Chairman Mao once said that “Marxism consists of a thousand truths but they all boil down to one sentence: ‘It is right to rebel’,” that sentiment now forms a central tenet of Western political orthodoxy. One of the key catchphrases of George Bush’s presidency has been the eminently Trotskyite concept of world revolution. On 6th November 2003, the American president specifically said that, “The establishment of a free Iraq in the heart of the Middle East will be a watershed event in the global democratic revolution.” George Bush is not, of course, a closet Marxist. But many of his closest advisers, especially the neo-conservatives, come from what can only be described as a post-Trostkyite background.
Like Marxists, indeed, and like many of his European friends, George Bush appears to believe both that freedom is an ineluctable “force of history” and also that it requires constant struggle to achieve it. He argues, like Hegel, Marx’s precursor, that humanity is one, and that a free state like the USA is not really free if other states live under tyranny. In his mind, old-fashioned American Puritan millenarianism marries easily with the missionary mentality of world revolutionists: “The survival of liberty in our land,” he said in January, “increasingly depends on the success of liberty in other lands.” A true conservative, by contrast, would say that there is much evil in the outside world – and that the duty of a statesman is to hold it at bay.
George Orwell is rightly credited with predicting a great deal, yet it is an indication of how far leftwards the West has travelled that his key prediction is often overlooked. Orwell saw that that the Cold War would end on the basis of a convergence between communism and capitalism – the very predicament in which we now find ourselves. At the end of Animal Farm the farmer, who symbolizes the capitalist West, returns to the farm and plays cards with the pigs, who symbolize Communism. The shivering creatures outside “looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which.”Link here.
BLAME BUSH, CONGRESS FOR BUSTED FEDERAL BUDGET
The federal budget process is badly broken and neither President Bush nor congressional leaders, all focused on gaining partisan advantage, are making any real attempt to fix it. With that absence of presidential leadership, we have unrestrained partisanship and near chaos. Even with the budget deeply in the red, the administration continues to press for more tax cuts, while members of Congress of both parties keep voting for higher spending. Given the weakened state of the Bush presidency, it is not clear that the president would have the clout to pursue a more rational fiscal policy should he choose to do so. He certainly has not done so by exercising his veto power, since he has never rejected a single piece of legislation.
Bush’s Tax Reform Commission has reported its ideas, some of which make pretty good sense. Their marching orders were to consider changes that would be revenue neutral, which strictly from a reform perspective might have been reasonable. Unfortunately, the country needs not just reform of its tax laws with far fewer provisions dedicated to encourage individuals and businesses to behave in certain ways. The country needs a revenue system that would raise the amount of money a president and Congress insist on spending.Link here.
WAKE UP AND SMELL THE FASCISM
Comparisons of Hitler, Mussolini, Franco, Suharto, Pinochet … and Bush yielded this list of 14 “identifying characteristics of fascism.”
1.) Powerful and Continuing Nationalism
2.) Disdain for the Recognition of Human Rights
3.) Identification of Enemies/Scapegoats as a Unifying Cause
4.) Supremacy of the Military
5.) Rampant Sexism
6.) Controlled Mass Media
7.) Obsession with National Security
8.) Religion and Government are Intertwined
9.) Corporate Power is Protected
10.) Labor Power is Suppressed
11.) Disdain for Intellectuals and the Arts
12.) Obsession with Crime and Punishment
13.) Rampant Cronyism and Corruption
14.) Fraudulent Elections
(Links to many related articles are included.)Link here.
A PACT WITH THE DEVIL
Recently, over these past few weeks, many newspapers and other mainstream mass media have apologized for not reporting the truth about the Iraq War. Their weak excuses are that they were deceived by the lies put forth by the Bush administration for going to war against a defenseless country and the mass murder of hundreds of thousands of innocent people. Do not be fooled by these feeble excuses.
The mass media is a business. They are in business to make money. Only a fool would run a business trying to sell people something that they do not want. After 9/11, a very ill-educated, self-centered, and vindictive American public wanted blood. They wanted revenge. It mattered not who was the target of that revenge, average America wanted their blood-thirst satiated in any way possible against the most convenient target. Those targets wound up being innocent people bombed in Afghanistan and trumped up charges against innocents resulting in mass murder in Iraq. “Kill them all and let God sort them out” was the call. Like a school of piranhas on a wild feeding frenzy, an ignorant American public sucked up the propaganda.
The mass media willingly obliged a sick and twisted thirst for revenge by a sick and twisted American public by giving the crowd what it wanted. In show business parlance the words would be, “The show must go on!” and the media gave a spectacular all-American show. But what is the mass media besides a group of individuals working in a certain business? From what I have seen working in the mass media for over 28 years, I can tell you that show business has much more than its share of dishonest, vain, egotistical, and distasteful people. Show business has more prima-donnas and vain-glorious people in it than I have ever had the displeasure of working with in any other business. The mass media is full of the most wretched people you would ever meet. I can count on my right hand the number of truly honest, good people I have met in this business over these years.
Most TV announcers have sold their souls to the devil in exchange for fame. I know, I have met many who readily admit so. We should not expect anything from them except lies and a full plate of vanity. Of course they lied about Iraq. Of course they will lie about anything. They have no conscience. After all, all they want to be is on TV and to do so, they think they have to give the public what it wants. It does not matter if it is the truth or not. And now the public is waking up to the crimes and lies of the Bush administration. Only a fool would expect that those who make up our mass media would suddenly change their ways and begin to tell the truth.Link here.
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