Archives: 03/2008

Europeans Launch New Attack against Tax Competition

Hoping to get the ability to track – and tax – flight capital, uncompetitive welfare states in Europe are launching a new attack against so-called tax havens. Nations such as France and Germany want to expand the savings tax directive so that financial privacy laws are emasculated and more forms of saving and investment are subject to extra layers of taxation. Fortunately, there are some EU nations that still respect privacy rights, and they are very reluctant to change their policies merely because other nations have bad tax law. Moreover, non-EU jurisdictions such as Switzerland and Liechtenstein are even more likely to resist. The International Herald Tribune reports on the conflict:

Under pressure from Germany, the European Commission will draw up new proposals this year that are likely to widen the scope of legislation on tax evasion - and close a loophole under which trusts and some other savings escape the same controls as cash. …However the newest initiative seems destined to re-ignite the long-running and bitter EU battle over banking secrecy. On Tuesday, Luxembourg, Belgium and Austria hinted that they would resist any moves to force them to provide information to other tax authorities on the savings of nonresident investors. …Germany and Britain want Luxembourg, Belgium and Austria to agree to exchange information so that the EU can apply pressure to the non-European jurisdictions to do the same. Broadly speaking, the tax also is only applied on interest earned on cash deposits, not dividends or the type of trusts that were being used in Liechtenstein. During a meeting Tuesday, the German finance minister, Peer Steinbrück referred specifically to the “spectacular case of tax fraud” emanating from Liechtenstein, according to one official who attended the closed-door discussion. …”German tax payers have effectively been made fools of by high earners using the system to avoid paying tax,” said Steinbrück, who described evasion as a “social and moral issue,” the official added. …”Tax paradises in practice become tax parasites,” argued Anders Borg, the Swedish finance minister. …However the EU is likely to be much more divided about banking secrecy. Jean-Claude Juncker, Luxembourg’s premier and finance minister, made a veiled threat at the Tuesday meeting to stall any potential changes. “I look forward to many years of fascinating, fundamental, discussion,” Juncker said, according to the official. …Kovacs also said that he would escalate efforts to persuade other jurisdictions to abide by the terms of the deal, including Hong Kong, Macao and Singapore.

The Fierce Urgency of Shame

Last week’s decision by the Air Force to spend up to $100 billion over the next 30 years on an airborne fuel tanker built by a partnership of Northrop Grumman and the European Aeronautic Defense and Space Company (EADS) – rather than by Boeing – offers a teachable moment about an ugly, age-old truth regarding American politics. To wit, well organized political constituencies – and the politicians that cater to them – are perfectly willing to rip off the country for a buck and a vote.

The United States Air Force reports that the Airbus airborne fuel tanker outperforms the Boeing airborne fuel tanker on all five relevant selection criteria. So the issue is quite simple: Should the Air Force buy the best plane possible for the United States military, or should the Air Force buy the best plane possible for some politically well-connected investors and workers and force the military to operate sub-optimal weapons systems as a consequence?

The fact that well organized interest groups – namely, Boeing Corporation and the workers that would be employed by the tanker contract – are unconcerned with the injury they would do to both U.S. taxpayers and the U.S. military in the course of making a few extra bucks should not surprise. It’s a story that could be retold dozens of times over. The fact that Boeing and the workers associated with Boeing wrap themselves up in patriotic garb in the course of hobbling America’s military abroad is what truly grates.

I don’t know whether the military really needs a new airborne fuel tanker, whether a new airborne fuel tanker is a good buy for the taxpayer, or whether the Airbus model really outperforms the Boeing model (and given the track record of military procurement bureaucracies, it’s not unimaginable that the Air Force might have gotten this wrong). I do know, however, that if the military is going to buy one, its decision about what model to buy ought to be based on pure, unadulterated merit – leavened by a concern for getting the best performance bang for the contract buck given the limited resources of the American taxpayer.

Any other consideration forced on the military is a raw declaration that our military’s fighting power should suffer for somebody’s pay check. Those making that argument while boasting about their love for country ought to be deeply ashamed.

Note to the idealists: Both Barack Obama and Hillary Clinton have expressed opposition to the Air Force decision. Now, either they know something about the technical details of the Airbus and Boeing airborne tankers that has escaped the Air Force’s attention, or the promise of a “new politics” is as empty as one might expect.

Conservatives and Free Trade

Robert Lighthizer tries to make the case in this morning’s New York Times that conservative Republicans should all be pragmatic protectionists.

It’s telling that the op-ed column does not present one bit of evidence that trade barriers have actually made America a more free and prosperous country. His argument, rather, is one of name dropping: Many liberals, including Ted Kennedy, have “supported the advance of free trade” while many conservatives, including Ronald Reagan, have prudently deviated from “free-trade dogma.”

Lighthizer paints a misleading caricature of Ronald Reagan’s trade legacy. It’s true that Reagan bowed to protectionist pressure more often than he should have, but in his words and most of his deeds, he came down squarely in favor of free trade. As I noted in an op-ed published shortly after Reagan’s death in June 2004:

Reagan’s heart and head were clearly on the side of free trade. While president, he declared in 1986: “Our trade policy rests firmly on the foundation of free and open markets. I recognize … the inescapable conclusion that all of history has taught: The freer the flow of world trade, the stronger the tides of human progress and peace among nations.’

It was the Reagan administration that launched the Uruguay Round of multilateral trade negotiations in 1986 that lowered global tariffs and created the World Trade Organization. It was his administration that won approval of the U.S.-Canada Free Trade Agreement in 1988. That agreement soon expanded to include Mexico in what became the North American Free Trade Agreement, realizing a vision that Reagan first articulated in the 1980 campaign. It was Reagan who vetoed protectionist textile quota bills in 1985 and 1988.

And Ted Kennedy as a free trader? His trade record is mixed, but on most votes in recent years, he has come down against trade liberalization. According to our new trade vote web feature, “Free Trade, Free Markets,” Kennedy voted against the Central American Free Trade Agreement, the Chile and Singapore FTAs, presidential trade promotion authority, and the 2000 African trade bill. He voted in favor of China currency sanctions, exempting anti-dumping laws from WTO negotiations and the trade-distorting farm bill now making its way through Congress. If that’s the record of a free-trader, then the term has lost any meaning.

Whether a conservative should support free trade ultimately turns on what THAT label means. If conservative means one who opposes change and wants to preserve the status quo, then free trade is probably not the right policy. But if conservative means one who favors individual liberty, free markets, limited government, and a more peaceful world, free trade is a grand slam.

The War on the Drug War

IMHO, the best show on television is HBO’s The Wire.  Now the writers and producers are taking their passion to the pages of Time Magazine, where they rail against the injustices of the drug war and call for jury nullification. (HT: Radley Balko’s Agitator).

Cato co-published the most comprehensive book on jury nullification in 1999.

For additional background, go here, here, and here.

Chapman Kneecaps McCain

Libertarian columnist Steve Chapman has written what is to date the definitive takedown of John McCain’s various delusions about Iraq. As is Chapman’s wont, it’s a great column overall, packed with substance. Here’s the gist:

McCain portrays himself as uniquely clear-eyed about the war. In fact, those eyes have often been full of stars. When Army Gen. Eric Shinseki forecast that more troops would be needed for the occupation, McCain didn’t fret. Shortly before the invasion, he said, “I have no qualms about our strategic plans.” As the online magazine Salon reports, he predicted the war would be “another chapter in the glorious history of the United States of America.”

He brags now that he criticized Donald Rumsfeld’s handling of the occupation. But McCain didn’t declare “no confidence” in him until a year and a half after the invasion. And let’s not forget the day he took a stroll through a Baghdad market, guarded by attack helicopters and 100 soldiers in full combat mode, to prove how safe Iraq was. The following day, 21 Iraqis were abducted from the market and murdered.

[…]

The point of the surge was to catalyze rapid progress that would facilitate our departure. But now the Pentagon says that come July, we’ll still have more troops than the 132,000 we had before. When Lt. Gen. Carter Ham was asked if the number will fall below 132,000 by the time Bush leaves office, he replied, “It would be premature to say that.”

McCain says the current “strategy is succeeding in Iraq.” His apparent definition of success is that American forces will stay on in huge numbers as long as necessary to keep violence within acceptable limits. We were told we had to increase our numbers so we could leave. Turns out we had to increase our numbers so we could stay.

Five years after the Iraq invasion, we’ve suffered more than 30,000 dead and wounded troops, incurred trillions in costs and found that Iraqis are unwilling to overcome their most basic divisions. And no end is in sight. If you’re grateful for that, thank John McCain.

As has always been the case, men like John McCain define leaving as losing and staying as success. If we stay in Iraq for 100 years, that’s “success.” If we leave, ever, we’ve lost.

I’d only add to Chapman’s column that, before the war, media darling St. John of Arizona was one of the most naive proponents of the “greeted as liberators” school of thought, assuring Larry King on September 24, 2002 that “I believe that the success will be fairly easy.” Five days later, McCain was back on CNN, assuring the American people that “I believe that the United States military capabilities are such that we can win a victory in a relatively short time. And I, again, I don’t think it’s, quote, ‘easy,’ but I believe that we can win an overwhelming victory in a very short period of time.” And so forth.

McCain’s claim to straight-talking rectitude on Iraq today is based solely on the fact that the Washington narrative has been changed as a result of The Surge. It’s almost as if it was designed to have just such an effect.

FISA and the “Ravenous Trial Lawyers”

One of the common talking points of advocates for warrantless wiretapping is that the debate is really about lining the pockets of “ravenous trial lawyers.” As I’ve said before, this is a particularly silly argument. An op-ed in Sunday’s Chicago Tribune makes this argument particularly well:

The Bush administration and its acolytes now claim that we must give giant telecoms amnesty for breaking the law, or else those telecoms will no longer cooperate with the government in spying efforts that help protect America. The truth is that telecoms do not need a special deal. These companies have immunity from lawsuits for turning over customer records to the government if they do so in conformity with existing law. But, in this instance, the telephone companies knowingly violated that law. If we give them a free pass this time, won’t the telephone companies feel free to violate the laws protecting our privacy in the future?

The Bush administration and its supporters in Congress complain that these lawsuits are simply about money and enriching trial lawyers – suggesting that the litigation should be stopped because of the potential damages that might be awarded in such lawsuits. This criticism ignores the fact that, according to the rules in the federal court, the only way that we could ensure that a federal judge could continue to explore previous violations if the companies simply changed their participation or the government changed or ended the program was to ask for minimal damages. We are not interested in recovering money for ourselves, nor is our counsel, the American Civil Liberties Union of Illinois. We, however, are committed to assuring that these giant companies are punished for violating the law and thus dissuaded from violating the law in the future.

More important, amnesty not only lets the companies off the hook without answering any questions, it assures that the American people will never learn about the breadth and extent of the lawless program. Some seem to suggest that we should not have our day in court because a select few members of Congress have been able to review documents about the spy program operated by the White House. The judgment of a few Washington insiders is not a substitute for the careful scrutiny of a federal court.

This is ultimately not about money, but about the principle that nobody is above the law. I actually think that a reasonable compromise would be to limit damages due to past FISA lawbreaking. This would ensure that telecom companies aren’t driven into bankruptcy while upholding the principle that violating your customers’ privacy—and the law—comes with consequences. Of course, I’d bet money that supporters of warrantless wiretapping wouldn’t accept that compromise, because they, too, know that this is an issue of principle, not money.

Clinton Promises to Protect Yankees from Unfair Trade Practices

A little ditty from an author who wants to remain anonymous:

NEW YORK — Senator Hillary Clinton vowed Tuesday that if elected president she would enact legislation that would give the New York Yankees a reprieve from what she characterized as the “unfair and exploitive” trading practices of the Kansas City Royals and Pittsburgh Pirates.

Clinton, a self-described Yankees fan, told an audience of supporters that the lower wages paid by the smaller-market clubs give the teams an unfair advantage over the Yankees, who are compelled to pay high salaries for the team’s superstar players. She vowed that upon assuming the presidency she would immediately ask for a “time out” for trades between the Yankees and the so-called “parasite” teams for five years, during which time Congress and Major League Baseball would study the harm done to the Yankees from these trades and construct a remedy that would protect the team.

She suggested that such protection should be extended to other teams as well, with the Dodgers, Mets, and Cubs among the teams that have been victimized in trades by rivals.

Clinton’s proposal was hailed by Yankees fans as a welcome first step toward correcting the imbalances in Major League Baseball that have hindered the Yankees’ efforts to remain competitive.

“Let’s face it, these teams continually manage to steal talented minor leaguers from us, some of whom eventually enjoy moderately successful major league careers,” said Michael Kumar, 26, a florist from Brooklyn. “As a result, we occasionally find ourselves wishing we had the players back that we traded to them. I’m tired of them conniving to weaken our teams in this way. It’s about time someone stopped this.”

Greg Packer, 43, from Huntington, N.Y., a self-described avid Mets fan, echoed that sentiment. “For too long Major League Baseball has allowed the Royals to rip off our teams without doing anything to prevent it. Brian Bannister was our pitcher and now he’s an ace for the Royals. That’s (garbage).”

In her address Clinton noted that the Yankees lost once to the Royals in 2006 and twice in 2007, a trajectory that would have Kansas City sweeping the Yankees in the season series by 2011. “We are giving them the rope to hang us with,” she said. “This must stop!”

An aide to Senator Clinton pointed out that the payroll of the Royals has increased by over 10 percent per year over the past four years, while the Yankees’ payroll has stagnated over the same period. Such a surge has given Kansas City vast resources with which to compete for talent with the Yankees on occasion.

Major League Baseball Commissioner Bud Selig indicated that he will duly investigate the matter and come up with the appropriate prescription that will give the Yankees at least a modicum of relief from the relentless competition that the Royals inflict upon them.

“I am well aware of the myriad advantages that the Royals have over the Yankees, and it is clear to me as a matter of basic fairness something must be done to rectify this situation and protect teams like the Yankees and Red Sox,” he told a reporter in his Milwaukee office.

Selig suggested that the trade “time out” could be phased out over time as the Pirates and Royals increase their attendance and television ratings.

While Senator Barack Obama enthusiastically supported a trade “time-out” as well, analysts have questioned his sincerity after his senior baseball adviser contacted the Chicago Cubs to assure them that if he were elected president they would still be able to make trades.