Obama’s Proposed IRS Rules Mean Trouble for Overseas Americans, Will Also Lead to Less Investment in America

The U.K.’s Daily Telegraph reports that British banks may turn away any America clients as a result of an Administration proposal to modify the already-onerous Qualified Intermediary rules and make them even worse. This makes life more difficult for overseas Americans, which will compromise the competitiveness of U.S. firms trying to win market share around the world. It also will discourage foreign financial institutions from investing in America since pulling out of the U.S. market is an easy way to get out from under the IRS’s unfair extraterritorial regulatory reach.

British banks and stockbrokers may refuse to take on American clients if new international tax proposals outlined by President Obama are passed. The decision, which would make it hard for Americans in London to open bank accounts and trade shares, is being discussed by executives at Britain’s banks and brokers who say it could become too expensive to service American clients. The proposals, which were unveiled as part of the president’s first budget, are designed to clamp-down on American tax evaders abroad. However bank bosses say they are being asked to take on the task of collecting American taxes at a cost and legal liability that are inexpedient. …One executive at a top UK bank who didn’t want to be named for fear of angering the IRS said: “It’s just about manageable under the current system - and that’s because we’re big. The danger to us is suddenly being hauled over the coals by the IRS for a client that hasn’t paid proper taxes. The audit costs will soar. We’ll have to pay it but I know plenty of smaller players won’t.” The British Bankers Association (BBA) and APCIMS had a meeting with European counterparts 10 days ago to discuss the crisis. A delegation is set to meet the US Treasury’s Internal Revenue Service on 16th June to demand they drop the reforms. …President Obama’s proposals are built on the so-called Qualified Intermediary system which was intended to ensure Americans paid the correct tax wherever they were domiciled. Foreign financial institutions that handle American money have to fill in a US tax form on behalf of the client that has to be audited too.

Washington Likes Democracy — When People Vote Right

The U.S. government is a big proponent of democracy — as long as foreign peoples do what they are told.  Washington pushed for early elections in Gaza and the result was … oops!  A victory for Hamas.  So now Washington doesn’t like democracy and won’t talk to the victors of a democratic vote.

Now the pattern risks repeating itself.  Vice President Joe Biden recently visited Lebanon and told the Lebanese how much America likes democracy — as long as they vote for the parties that the Obama administration prefers.  Reports Associated Press:

Vice President Joe Biden said Friday that future U.S. aid to Lebanon depends on the outcome of upcoming elections, a warning aimed at Iranian-backed Hezbollah as it tries to oust the pro-Western faction that dominates government.

Confident its alliance will win, Hezbollah criticized Biden’s visit as a U.S. attempt to influence the June 7 vote and held a mass rally to show its popular support.

Biden is the highest-level U.S. official to visit Lebanon in more than 25 years and the attention shows American concern that the vote could shift power firmly into the hands of Hezbollah. U.S. officials have said before they will review aid to Lebanon depending on the composition of the next government, apparently meaning military aid.

“The election of leaders committed to the rule of law and economic reform opens the door to lasting growth and prosperity as it will here in Lebanon,” Biden said. The U.S. “will evaluate the shape of our assistance programs based on the composition of the new government and the policies it advocates.”

The U.S. considers Hezbollah a terrorist group and Biden’s one-day visit was clearly timed to bolster the Western-leaning faction led by Prime Minister Fuad Saniora ahead of the vote. He expressed strong support for the government.

Given the disastrous record of foreign aid over the years, I’d rather the administration simply stop handing out Americans’ money, irrespective of the government in power in a particular nation.  But Washington certainly should stop trying to publicly, even ostentatiously, buy votes.  Imagine how Americans would respond to a similar threat from another country:  “We’ll pay you if you vote our way, but forget the cash if you choose the other guys.”  Most Americans, whatever their personal political preferences, would not be amused, shall we say.

There’s good reason not to like Hezbollah, but Lebanese politics is more complicated than many U.S. policymakers seem to realize:  some Christian factions are allied with the Shiite group.  Moreover, Hezbollah’s focus is on Israel, not America.  There’s no reason to turn another fractious and well-armed group into an enemy of the U.S.

I know it would be a revolutionary change for  Washington, but how about just staying out of other nations’ affairs?  Show our respect for democracy by not trying to buy the result that we want.  Treat others as we would expect them to treat us.  And stop meddling in political disputes in which we can do no evident good.

Foreign Aid Establishment Runs Scared

For years the foreign aid establishment has simply pointed at pictures of starving children abroad and said:  give.  Congresses and presidents have responded by tossing billions at the World Bank, International Monetary Fund, U.S. Agency for International Development, and other so-called aid agencies.  The result, unfortunately, has been continuing poverty mixed with increased indebtedness.  For good reason aid has been said to involve taking money from poor people in rich countries and giving it to rich people in poor countries.  But the arguments against misnamed “foreign aid” advanced by Cato and other free market advocates have been largely ignored.

The latest challenger is Zambian economist Dambisa Moyo, who has gained significant public attention for her new book, Dead AidI’ve reviewed it in the Washington Times and Cato has hosted a forum for her.  Dedicated to legendary British economist P.T. Bauer, the first recipient of Cato’s Milton Friedman Prize, Dead Aid excoriates the aid establishment for supporting policies that actually make recipients worse off.  Foreign aid would be better called foreign hindrance.

Now, reports the Financial Times (full text hidden behind a subscription wall, alas):

A swell of opposition is building in the aid world to a new protagonist who has thrown down a strident challenge to the rock stars and liberal economists who have long dominated debate over foreign assistance to developing countries.

Galled by the ease with which Dambisa Moyo, a Zambian economist and former investment banker, has risen to prominence this year, activists are circulating detailed critiques of her ideas and mass mailing African non-government organisations to mobilise support against her.

Yet it is proving hard to suppress the hyper-active graduate of Oxford and Harvard, who pops up weekly in a new capital to promote her book, Dead Aid — the title itself an affront to rock star Bob Geldorf’s Live Aid campaigns.

Obviously the aid lobby is worried.  Free market friends should jump in to back up Moyo.  She has brought both attention and credibility to the case against foreign aid.  This moment must not be wasted.

A Correction

In a previous post, I offered my impressions on the Coburn-Burr-Ryan-Nunes health care reform bill, based on my reading of the bill summary prepared by their staff.  The very next day, I had a friendly discussion with those staffers about the legislation.  (They were most gracious; many thanks to them.)  It turns out some of the things I wrote were inaccurate.  So I’d like to make the following corrections.

Based on my reading of the bill summary and my discussions with staff, my previous post ought to have read that the Coburn et al. bill would:

  • Mandate that Offer federal subsidies to states that create a new regulatory bureaucracy called a “State Health Insurance Exchange,”
  • Mandate Require that all plans offered through those exchanges meet federal regulatory standards,
  • Mandate Require “guaranteed issue” in those exchanges,
  • Mandate Create “uniform and reliable measures by which to report quality and price information,”
  • Impose price controls on those plans by prohibiting risk-rating,
  • Launch a government takeover of the “insurance” part of health insurance, by means of a “risk-adjustment” program intended to cope with the problems created by price controls, and Require that states creating an exchange also create some mechanism for providing coverage to people with high-cost illnesses, including but not limited to risk-adjustment, risk pools, or reinsurance, and
  • Fall just short of an individual mandate by setting up (mandating?) Require that states creating an exchange take steps to facilitate enrollment, which may include automatic enrollment in exchange plans at “places of employment, emergency rooms, the DMV, etc.” — essentially, trying to achieve universal coverage by nagging Americans their residents to death.

My description of the legislation as a “Mandate-Price-Control Bill”?  Not accurate.  My claim that the bill involves tax increases?  Based on my erroneous impression that the bill would impose price controls on insurance premiums.  The bill may lead to some tax increases (it proposes new categories of federal spending after all), but for the moment I take staff at their word that on net the bill would not increase taxes or government spending.

Why the errors?  Suppose a bill summary says that federal legislation would “ensure” the creation of state-based exchanges and that individuals “would get” access to an exchange.  Does that mean the bill would mandate the creation of exchanges, or that states could choose to create them or not?  What if that’s the only language, and there is no mention of states having an option?  (What does this guy think?)  Suppose the bill summary promises, “Guaranteed access to care…regardless of patient age or health history,” by virtue of the rules it would impose on insurers within the exchange.  Does that spell rating restrictions (i.e., price controls)?  What if the bill summary then promotes a tool (i.e., risk-adjustment) commonly used by European systems to cope with the adverse consequences of price controls?  Reasonable people can disagree, I suppose.

Rather than spend any more time on what I don’t like about the bill and the bill summary (and there is more), let me emphasize what I do like.  The authors understand the need to reform the tax treatment of health insurance.  And they understand that leveling the playing field between job-based and “individual-market” insurance amounts to a huge tax cut — even when revenue-neutral.  They propose to block-grant part of Medicaid, and would further means-test Medicare premiums.

Not my ideal bill, or even the best I can hope for under the circumstances.  But it would do much good and is a far cry better than anything we’re likely to see from the other side of the aisle.

The Laffer Curve in Action

Tom Golisano, one of the richest men in New York, has decided to escape the state’s greedy politicians by moving to Florida. This is another example of why higher tax rates are so destructive. When people are tired of being fleeced, they can move their labor and/or capital. They can choose to be less productive. And they can hire lobbyists, lawyers, and accountants to find creative loopholes.

Writing for the New York Post, Mr. Golisano is very happy that his money no longer will be funding tax-and-spend politicians in Albany:

Politicians like to talk about incentives — for businesses to relocate, for example, or to get folks to buy local. After reviewing the new budget, I have identified the most compelling incentive of all: a major tax break immediately available to all New Yorkers. To be eligible, you need do only one thing: move out of New York state. Last week I spent 90 minutes doing a couple of simple things — registering to vote, changing my driver’s license, filling out a domicile certificate and signing a homestead certificate — in Florida. Combined with spending 184 days a year outside New York, these simple procedures will save me over $5 million in New York taxes annually. 

One thing’s certain: That money won’t continue to fund Albany’s bloated bureaucracy, corrupt politicians and regular special-interest handouts. How did the state get to this point? By spending, spending and spending some more. New York’s budget was $72.7 billion in 1999. Ten years later it ballooned to $131.8 billion. Each year, on average, the budget has risen at an astounding 6 percent compounded annual rate – more than double inflation (2.8 percent).

…This problem didn’t begin with the current recession. New York faced a $6 billion shortfall before the economic downturn. However, in the face of economic turmoil, Gov. Paterson, Assembly Speaker Sheldon Silver and Senate Majority Leader Malcolm Smith looked to the unions and special interests, who answered with one voice: raise taxes. That was irresponsible – and may just prove to be counterproductive, since the top 1 percent of earners account for about 50 percent of state revenue and are the ones who can and will leave.

Among other hikes in taxes and fees, they raised the marginal tax rate on the most successful (and most mobile) New Yorkers to 8.97 percent, the second-highest rate in the nation. Bottom line? By domiciling in Florida, which has no personal-income tax, I will save $13,800 every day. That’s a pretty strong incentive. Like I said, I love New York. But I’m not going to pay any more for the waste, corruption and inefficiency that is New York state government.

Tax Bureaucrats Take the Fun out of Everything

The Daily Mail reports that a Romanian student who sold her virginity to the highest bidder as part of an online auction may wind up keeping less than half of her earnings thanks to Germany’s oppressive tax system:

Tax authorities in Germany are poised to claim 50 per cent of the money that a teenage student earned for ‘auctioning’ her virginity… Romanian-born Alina Percea, who is a student in Germany, was paid £8,800 in cash for a weekend of sex with the Italian businessman after she auctioned her virginity online. But tax officials in Berlin regard the 18-year-old’s act as ‘nothing more than prostitution’. Prostitution is legal in Germany – but it is heavily taxed. …It also emerged that, because Alina earned so much in such a short time, she may even be liable for a hefty VAT bill too. VAT in Germany works out to 19 per cent, meaning the sale of her virginity could land her with just over £3,000 in the end.