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Archive for January 22nd, 2010

A Swiss court just threw a wrench in the gears of an IRS effort to impose bad US tax law on an extraterritorial basis, ruling that UBS does not have to hand over data to the American tax authorities. This ruling nullifies an agreement that the Swiss government was coerced into making with the US government last year. In typical arrogant fashion, the IRS already has indicated that it still expects acquiescence, notwithstanding Switzerland’s strong human rights policy on personal privacy. The Bloomberg story excerpted below has the details, but it’s worth noting that this entire fight exists solely because the internal revenue code imposes double taxation on income that is saved and invested and imposes that bad policy on economic activity outside America’s border. But just as other governments should not have the right to impose their laws on things that happen in America, the United States should not have the right to trample the sovereignty of other nations:

A UBS AG account holder won a Swiss court case preventing data from being disclosed in a ruling that may impede a U.S. crackdown on overseas tax evasion. The failure by U.S. citizens to complete certain tax forms or declare income doesn’t constitute “tax fraud” that would require Switzerland to disclose account data, the country’s Federal Administrative Court ruled in a judgment released today. …“The prosecutors at the Justice Department are not going to be happy with this opinion,” Namorato said in an interview in Washington. “It guts the settlement that they negotiated with the Swiss authorities.” …The Swiss government said in a statement that it will decide Jan. 27 how the Swiss-U.S. agreement can be implemented in light of the ruling. U.S. Justice Department spokesman Charles Miller declined to comment. …The Internal Revenue Service said in a statement that while the agency hadn’t reviewed the ruling it “had every expectation that the Swiss government will continue to honor the terms of the agreement.” …Today’s ruling involved a single test case, and the court said there were 25 more involving similar claims that it will ask the Swiss tax authority to review. “It’s a landmark decision,” said Bernhard Loetscher a partner at Zurich-based law firm CMS von Erlach Henrici AG. “The court considers the case so crystal clear that it invited the SFTA to withdraw the 25 other claims.” …Under the 1996 double taxation treaty, “tax fraud and the like” means fraudulent behavior that causes or attempts an illegal and important reduction in tax owed. Examples included keeping separate accounts of incorrect profit, losses and orders, as well as a scheme of lies. Switzerland distinguishes between tax fraud, which is a crime, and tax evasion, which is a civil offense. “The U.S. will soon start to renegotiate the double taxation treaty, to give up the distinction between tax evasion and tax fraud,” said Zurich lawyer Wolfram Kuoni. “The key battle will be if it will apply retrospectively.”

This battle is part of a broader effort by uncompetitive nations to persecute “tax havens.” Creating a tax cartel for the benefit of greedy politicians in France, Germany, and the United States would be a mistake. An “OPEC for politicians” would pave the way for higher taxes, as explained here, here, and here. But this also is a human rights issue. Look at what happened recently in the thugocracy known as Venezuela, where Chavez began a new wave of expropriation. The Venezuelans with money in Cayman, Miami, and Switzerland were safe, but the people with assets inside the country have been ripped off by a criminal government. Or what about people subjected to persecution, such as political dissidents in Russia? Or Jews in North Africa? Or ethnic Chinese in Indonesia? Or homosexuals in Iran? And how about people in places such as Mexico where kidnappings are common and successful people are targeted, often on the basis of information leaked from tax departments. This world needs safe havens, jurisdictions such as Switzerland and the Cayman Islands that offer oppressed people the protection of honest courts, financial privacy, and the rule of law. Heck, even the bureaucrat in charge of the OECD’s anti-tax competition campaign admitted to a British paper that “tax havens are essential for individuals who live in unstable regimes.” With politicians making America less stable with each passing day, let’s hope this essential freedom is available in the future.

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I’ve been asked by a reader to comment about Supreme Court’s 5-4 decision to strike down campaign finance laws that restricted the ability of people to participate in the political process. I am very happy with this decision because the main goal of campaign finance laws is to protect incumbents by limiting the amount of money (which enables speech) that can be spent. This, of course, makes it harder for challengers and critics to publicize negative information about incumbents or positive information about alternatives. I know that many companies and unions (both of which are collections of individuals) will now spend money in ways that will irritate me, but so what? The 1st Amendment protects other forms of speech I don’t like, but that doesn’t me I want to ban speech – or should be allowed to ban speech if I was a low-life politician. Obviously, it’s good news that the Supreme Court is protecting us from politicians who want to restrict speech they don’t like. Matt Welch of Reason has a great article on CNN:

Free speech really does mean free speech, and the laws that the “Citizens” ruling overturned directly and heinously restricted the stuff. …Citizens United, a conservative 501(c)(4) nonprofit that has funded a dozen political documentaries over the years, produced a critical documentary about Hillary Clinton in 2008 entitled “Hillary: The Movie.” By a decision of the federal government, which was enforcing the Bipartisan Campaign Reform Act (known more broadly as McCain-Feingold), this piece of political speech was banned from television. Let’s boil it down to the essential words: Political documentary, banned, government. You don’t have to be a First Amendment purist to intuit that political speech was, if anything, the most urgent subcategory covered by the First Amendment’s “Congress shall pass no law” restrictions. …As Justice Anthony Kennedy wrote in his majority opinion, “The law before us is an outright ban, backed by criminal sanctions. Section 441b makes it a felony for all corporations — including nonprofit advocacy corporations — either to expressly advocate the election or defeat of candidates or to broadcast electioneering communications within 30 days of a primary election and 60 days of a general election. … If the First Amendment has any force, it prohibits Congress from fining or jailing citizens, or associations of citizens, for simply engaging in political speech.” …As the Supreme Court rightly noted today, “The First Amendment confirms the freedom to think for ourselves.”

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I’ve always been mystified by GOP politicians, pollsters, and consultants who argue that the GOP needs to support big government in order to win votes. The biggest victories for Republicans in living memory, after all, are the 1980 and 1994 landslides, when the GOP was most aggressive in promoting an anti-government message. The big-government, compassionate-conservative message of Bush, by contrast, led to electoral debacles in 2006 and 2008. Tom Sowell has been addressing the strange predilection of some Republicans to tack left. In his third column of the series, Sowell explains that the GOP should use an explicitly conservative message to appeal to black voters rather than foolishly assuming that a “me-too” platform will somehow work:

One of the things that is long overdue is some Republican re-thinking– or perhaps thinking for the first time– about the approach that they have been using, with consistently disastrous results, for trying to get the black vote. …There is no point today in Republicans continuing to try to win over the average black voter by acting like imitation Democrats. Those who like what the Democrats are doing are going to vote for real Democrats. …[Blacks] want their children to get a decent education, which they are unlikely to get so long as public schools are a monopoly run for the benefit of the teachers’ unions, instead of for the education of the children. Democrats are totally in hock to the teachers’ unions, which means that Republicans have a golden opportunity to go after the votes of black parents by connecting the dots and exposing one of the key reasons for bad education in inner cities and the bad consequences that follow. But when have you ever heard a Republican candidate get up and hammer the teachers’ unions for blocking every attempt to give parents– black or white– the choice of where to send their children? The teachers’ unions are going to be against the Republicans, whether Republicans hammer them or keep timidly quiet. Why not talk straight to black voters about the dire consequences of the pubic school monopoly that the teachers’ unions and the Democrats protect at all cost, even though many private schools– notably the KIPP schools in various states– have achieved remarkable success with low-income and minority youngsters?

In his fourth column in the series, Sowell makes the common-sense point that a squishy, moderate message winds up appealing to nobody. That doesn’t guarantee a lost election, to be sure. As Bush and Nixon showed, a milquetoast Republican can prevail if facing an incompetent Democrat in the right national climate, but those often turn out to be Pyrrhic victories since they often set the stage for big Democratic victories in the future. As Sowell notes, Reagan is the right model for the GOP:

A long-standing battle within the Republican Party, going back at least as far as the 1940s, is between those who want the party to clearly differentiate itself from the Democrats and those who seek a broader appeal by catering to a wider spectrum of social and ideological groups. The “smart money” advocates a “big tent” and deplores those who want a clearer adherence to the kinds of ideas espoused by Ronald Reagan. What the “smart money” fails to explain is how Reagan won two landslide presidential elections in a row. He certainly didn’t do it by trying to act like Democrats. That’s how the Republicans later turned off their own supporters, without gaining enough other voters to keep from being wiped out by the Democrats in two consecutive elections. …When you try to waffle and be all things to all people, you can end up being nothing to anybody. That is where the “smart money” crowd have gotten the Republicans in recent years.

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My favorite Heritage Foundation publication (other than the papers I wrote, of course) is the Index of Economic Freedom. The 2010 Index was just released and it is bad news for America. The United States moved significantly in the wrong direction, dropping 2.7 points (on a 0-to-100 scale), which was almost as bad as the reduction of 2.8 points in the thugocracy known as Venezuela. America now ranks below Canada, which is rather embarrassing, and has dropped from “free” to “partly free” in the overall ratings. These findings echo the data in the Fraser Institute’s Economic Freedom of the World (co-published by Cato), which also show a decline in America’s score (as an aside, I will brag that the EFW must be a bit more accurate than the IEF since it was quicker to show America (see page 185) becoming less free during the big-government Bush years). The new Heritage Index has lots of fascinating information, including Chile’s top-10 ranking, making it far and away the freest economy in Latin America. Montenegro enjoyed the biggest jump in the yearly rankings, climbing by 5.4 points (though it still ranks only #68), and Timor-Leste (wherever that is) had the biggest fall, dropping by 4.7 points (are they getting advice from Obama’s economic team?). One final thing worth noting, as seen below, is that the United Kingdom and six of its former colonies dominate the top 10.

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