Archives: February, 2012

Patriotism, Loyalty, Tax Competition, and ‘Tax Fugitives’

I fight to preserve tax competition, fiscal sovereignty, and financial privacy for the simple reason that politicians are less likely to impose destructive tax policy if they know that labor and capital can escape to jurisdictions with more responsible fiscal climates.

My opponents in this battle are high-tax governments, statist international bureaucracies such as the Organisation for Economic Co-operation and Development (OECD), and left-wing pressure groups, all of which want to impose some sort of global tax cartel—sort of an “OPEC for politicians.”

In my years of fighting this battle, I’ve has some strange experiences, most notably in 2008 when the OECD threatened to have me thrown in a Mexican jail for the supposed crime of standing in a public area of a hotel and advising representatives of low-tax jurisdictions on how best to resist fiscal imperialism.

A few other bizarre episodes occurred in Barbados, back when I was first getting involved in the issue. Here’s a summary of that adventure.

As part of its “harmful tax competition” project, the OECD had called a meeting in 2001 and invited officials from the so-called tax havens to attend in hopes of getting them to surrender their fiscal sovereignty and agree to become deputy tax collectors for uncompetitive welfare states.

Realizing that the small, relatively powerless low-tax nations and territories would be out-gunned and out-manned in such a setting, I organized a delegation of liberty-minded Americans to travel to Barbados and help fight back (as regular readers know, I’m willing to make big sacrifices and go to the Caribbean when it’s winter in Washington).

One of the low-tax nations asked me to provide technical assistance, so they made me part of their delegation. But when I got to the OECD conference, the bureaucrats refused to let me participate. That initial obstacle was overcome, though, when representatives from the low-tax country arrived and they created a stink.

So I got my credentials and went into the conference. But this obviously caused some consternation. Bureaucrats from the OECD and representatives from the Clinton Treasury Department (this was before Bush’s inauguration)  began whispering to each other, followed by some OECD flunky coming over to demand my credentials. I showed my badge, which temporarily stymied the bad guys.

But then a break was called and the OECD announced that the conference couldn’t continue if I was in the room. The fact that the OECD and some of the high-tax nations had technical consultants of their own was immaterial. The conference was supposed to be rigged to generate a certain outcome, and my presence was viewed as a threat.

Given the way things were going, with the OECD on the defensive and low-tax jurisdictions unwilling to capitulate, we decided to let the bureaucrats have a symbolic victory—especially since all that really happened is that I sat outside the conference room and representatives from the low-tax jurisdictions would come out every few minutes and brief me on what was happening. And everything ended well, with the high-tax nations failing in their goal of getting low-tax jurisdictions to surrender by signing “commitment letters” drafted by the OECD.

While the controversy over my participation in the meeting was indicative of the OECD’s unethical and biased behavior, the weirdest part of the Barbados trip occurred at the post-conference reception at the prime minister’s residence.

I was feeling rather happy about the OECD’s failure, so I was enjoying the evening. But not everybody was pleased with the outcome. One of the Clinton Treasury Department officials came up and basically accused me of being disloyal to the United States because I opposed the administration’s policy while on foreign soil.

As you can probably imagine, that was not an effective argument. As this t-shirt indicates, my patriotism is to the ideals of the Founding Fathers, not to the statist actions of the U.S. government. And I also thought it was rather silly for the Treasury Department bureaucrat to make that argument when there was only a week or so left before Clinton was leaving office.

I’m reminded of this bit of personal history because of some recent developments in the area of international taxation.

The federal government recently declared that a Swiss bank is a “fugitive” because it refuses to acquiesce to American tax law and instead is obeying Switzerland’s admirable human rights policy of protecting financial privacy. Here are some details from a report by Reuters.

Wegelin & Co, the oldest Swiss private bank, was declared a fugitive after failing to show up in a U.S. court to answer a criminal charge that it conspired to help wealthy Americans evade taxes. …The indictment of Wegelin, which was founded in 1741, was the first in which the United States accused a foreign bank, rather than individuals, of helping Americans commit tax fraud. …Wegelin issued a statement from Switzerland saying it has not been served with a criminal summons and therefore was not required to appear in court. “The circumstances create a clear dilemma for Wegelin & Co,” it said. “If it were to adhere to current U.S. legal practice aimed at Swiss banks, it would have to breach Swiss law.” …Wegelin has no branches outside Switzerland.

It’s time for me to again be unpatriotic because I’m on the side of the “fugitive.” To be blunt, a Swiss bank operating on Swiss soil has no obligation to enforce bad U.S. tax law.

To understand the principles at stake, let’s turn the tables. What if the Iranian government demanded that the American government extradite Iranian exiles who write articles critical of that country’s leadership? Would the Justice Department agree that the Iranian government had the right to persecute and prosecute people who didn’t break U.S. law? Of course not (at least I hope not!).

Or what if the Chinese government requested the extradition of Tiananmen Square protesters who fled to the United States? Again, I would hope the federal government would say to go jump in a lake because it’s not a crime in America to believe in free speech.

I could provide dozens of additional examples, but I assume you get the point. Nations only cooperate with each other when they share the same laws (and the same values, including due process legal protections).

This is why Wegelin is not cooperating with the United States government, and this is why genuine patriots who believe in the rule of law should be on the side of the “fugitive.”

For further information, here’s a video I narrated on tax competition.

The moral of the story is that “tough on crime” is the right approach, but only when laws are just. At the risk of stating the obvious, the Internal Revenue Code does not meet that test—especially when the IRS is trying to enforce it in a grossly improper extraterritorial fashion.

The Rise and Fall of DoJ’s ‘Gun-Show Sting’

Some legal stories weave together several distinct “Cato was right” themes. Among them is the news this week that the U.S. Department of Justice, conceding that its case has collapsed, has ended its prosecution of remaining defendants in the enormous “Africa Sting” case charging violations of the Foreign Corrupt Practices Act (FCPA) [Reuters, Law.com; my earlier post].

  • DoJ is overzealously picking fights under the vague and misguided FCPA statute. I warned about that last month in this space and you can read more at my blog “Overlawyered.”
  • Despite the Obama administration’s ostensible truce with Second Amendment supporters, anti-gun sentiment still runs high in some relevant Washington quarters. The Department of Justice chose to stage its biggest-ever prosecution by going after participants at a Las Vegas gun show, neatly advancing gun controllers’ longstanding portrayal of such shows as nests of lawbreaking. It now appears that, as juries see it, illegality at gun shows may not be quite as prevalent as some imagined.
  • Law enforcement stings are rife with dangers for liberty. Cato’s criticism of stings goes way back and includes Gene Healy last year on the Amish raw-milk sting and longstanding coverage of the outrages generated by sting operations in the war on drugs. (On the latter, see a recent “This American Life” segment on high school pot stings in Florida, as related by Mark Frauenfelder.) Although a recent sting against Google for accepting unapproved drug ads involved relying on a career con man, it paid off with a stunning $500 million fine payable to the government, which virtually ensures it will be repeated against other defendants.

To stay abreast of tomorrow’s Department of Justice embarrassments, keep reading Cato today.

‘Say I Threatened You Again, And You’ll Really Be Sorry!’

Apparently, if you try to undo something the feds want you to do, they’ll slap you around until you confess they’ve never threatened you. At least, that’s how Education Secretary Arne Duncan rolls when it comes to national curriculum standards:

Following is a statement by U.S. Secretary of Education Arne Duncan on a legislative proposal in South Carolina to block implementation of the Common Core academic standards:

“The idea that the Common Core standards are nationally-imposed is a conspiracy theory in search of a conspiracy. The Common Core academic standards were both developed and adopted by the states, and they have widespread bipartisan support. GOP leaders like Jeb Bush and governors Mitch Daniels, Chris Christie, and Bill Haslam have supported the Common Core standards because they realize states must stop dummying down academic standards and lying about the performance of children and schools. In fact, South Carolina lowered the bar for proficiency in English and mathematics faster than any state in the country from 2005 to 2009, according to research by the National Center for Education Statistics.

“That’s not good for children, parents, or teachers. I hope South Carolina lawmakers will heed the voices of teachers who supported South Carolina’s decision to stop lowering academic standards and set a higher bar for success. And I hope lawmakers will continue to support the state’s decision to raise standards, with the goal of making every child college- and career-ready in today’s knowledge economy.”

I don’t really need to go any further than the statement itself to prove that, contrary to “Fat Tony” Duncan’s protestations, it is not a “conspiracy theory” to say that the Common Core is “nationally imposed.” But let’s rehearse the litany one more time:

  • In 2008 the National Governors Association, Council of Chief State School Officers, and Achieve, Inc.—the main Common Core architects—called for federal “incentives” to get states to adopt “a common core of internationally benchmarked standards in math and language arts.”
  • President Obama’s $4.35-billion Race to the Top required that states, to be fully competitive for grants, adopt national standards.
  • Race to the Top contained $330 million that Washington is using to fund development of two national tests to go with the Common Core.
  • The President’s “blueprint” to reauthorize No Child Left Behind would make national standards the backbone of federal accountability.
  • To get waivers from No Child Left Behind’s most onerous provisions, a state has to either adopt the Common Core or have a state college system declare that the state’s standards are “college- and career-ready.” Of course, this came after almost every state had already adopted the Common Core.

Why is Duncan lashing out? Quite possibly, he’s reacting to a recent spate of research and commentary attacking the Common Core based on its highly dubious legality, quality, and odds of success. That South Carolina is considering backing out—though the Palmetto State effort fell short in a Senate subcommittee—might have pushed Duncan over the edge. I mean, how dare those people try to buck what Duncan and his boss were not in any way trying to get them to do!

Unfortunately, as failure in the South Carolina committee reinforces—and I warned last week—it is unlikely that many states will formally boot what they’ve already adopted. The time to fight to keep the Common Core out of states was before Race to the Top decisions were made, as we at the Center for Educational Freedom did. Of course, it was off most people’s radars during that crucial time because that was exactly what national-standards supporters wanted. And it’s what their ongoing dissembling about Washington’s heavy hand is intended to continue.

Thankfully, that strategy seems to not be working so well anymore.

Courtland Milloy’s Self-Defense Quiz

Washington Post columnist Courtland Milloy mentions the new Cato study, Tough Targets, in his latest column

The article begins with this self-defense quiz:

Say you’re sitting at a bus stop in the District, alone at night, when a suspicious person approaches. There have been more than 475 robberies in the city this year — a 70 percent increase over this time last year — and many involve the theft of electronic devices such as smartphones.

But your chances of being victimized are greatly reduced because:

a. Your smartphone has a disabling device that makes it worthless to robbers.

b. More police officers have been assigned to street patrol.

c. You have a gun.

The local police chief says the correct answer is (a) & (b). In the comment section, however, an astute reader notes that the correct answer is all of the above, including Milloy’s point (advanced at the conclusion of his article) that “risk avoidance” should be a part of a sensible personal safety plan.

Does Mitt Romney Have Health Insurance?

It’s an interesting question. Romney is under age 65, which means that he would have to obtain private health insurance. He jokes that he is unemployed, which means he may have to purchase it on his own. Or he may get it as a retiree benefit from Bain Capital.

The question is interesting because Romney is so wealthy that to spend his money on health insurance might seem like a waste. (Of course, Romney may be very risk averse, and a man to whom $10,000 is a small wager probably isn’t going to notice a $20,000 health insurance premium. But Romney could pay for whatever medical care he and his wife – and his children, and his grandchildren – could possibly need.) On the other hand, if Romney doesn’t have private health insurance, it would look bad that he forced other people to buy it.

Moreover, Romney turns 65 on March 12, meaning he becomes eligible for Medicare on March 1. He likely received his Medicare card in the mail two months ago. If Romney does not enroll in Medicare, it would again look bad that he who forced others to purchase health insurance is opting not to obtain health insurance himself. But if he does enroll in Medicare, it’s worth asking whether the 99 percent should subsidize people like him.

A ‘Privacy Bill of Rights’: Second Verse, Same as the First

The White House announces a “privacy bill of rights” today. We went over this a year ago, when Senators Kerry (D-MA) and McCain (R-AZ) introduced their “privacy bill of rights.”

The post is called “The ‘Privacy Bill of Rights’ Is in the Bill of Rights,” and its admonitions apply equally well today:

It takes a lot of gall to put the moniker “Privacy Bill of Rights” on legislation that reduces liberty in the information economy while the Fourth Amendment remains tattered and threadbare. Nevermind “reasonable expectations”: the people’s right to be secure against unreasonable searches and seizures is worn down to the nub.

Senators Kerry and McCain [and now the White House] should look into the privacy consequences of the Internal Revenue Code. How is privacy going to fare under Obamacare? How is the Department of Homeland Security doing with its privacy efforts? What is an “administrative search”?

Nancy Pelosi on Gasoline Prices

The congresswomen’s comments are so cartoonish, I don’t even have to comment on them. But I thought Cato readers would like to know what the minority leader of the U.S. House is saying about rising gas prices. From a Nancy Pelosi press release today:

Independent reports confirm that speculators are driving up the cost of oil, hurting consumers and potentially damaging the economic recovery. Wall Street profiteering, not oil shortages, is the cause of the price spike.

We need to take strong action to protect consumers from this speculation. Unfortunately, Republicans have chosen to protect the interests of Wall Street speculators and oil companies instead of the interests of working Americans by obstructing the agencies with the responsibility of enforcing consumer protection laws.

We call on the Republican leadership to act on behalf of American consumers and join our efforts to crack down on speculators who care more about their profits than the price at the pump even if these spikes harm the American consumer and our economy.

For a rational discussion on energy policy, see Downsizing the Department of Energy.