Hillary Clinton Heads to Burma
On Wednesday, Secretary of State Hillary Clinton travels to the isolated nation of Burma, officially known as Myanmar, in an attempt to spur the reform process. “After years of darkness, we’ve seen flickers of progress,” said President Barack Obama of the troubled country. By visiting Burma Secretary Clinton can test the new government’s willingness to do more.
Of course, the Clinton initiative may fail. But the main argument for the policy change is not that it is certain to work, but that the alternative has failed. Isolating Burma has achieved nothing.
Burma long has been one of the most tragic of nations. The military regime brutally suppressed the democracy movement led by Nobel laureate Aung San Suu Kyi. Even more deadly has been the half-century long battle with ethnic groups like the Karen, which have sought autonomy in the east.
The United States and Europe responded with sanctions, but to no avail. China took advantage to secure a position of political influence and economic dominance. The military regime continued to live up to its reputation for brutality and corruption.
Now there are “flickers of progress,” as the president suggested. A badly flawed election last year; a new, nominally civilian government; the release of a few political prisoners; liberty for Ms. Suu Kyi, who also has been meeting with government ministers; and a slight break between Burma and its chief patron, Beijing.
Individually these are but small changes, and the Burmese military has previously offered tantalizing reforms only to reverse course, intensifying its brutal suppression of any opposition. However, the combination of many small steps offers hope that something more real may be happening this time. Even Suu Kyi has expressed optimism, and is preparing to reenter politics—legally.
Equally important is the increasing evidence that Burma wants to balance the influence of its imperious neighbor China. For all of the worries in America about Beijing’s growing clout around the world, the People’s Republic of China is finding out—just as the United States discovered years ago—that friends can be expensive to buy and often don’t stay bought.
Engaging Burma could encourage that state to continue on a more independent course—separate from China. The regime isn’t likely to dump its patron, but any distance between the two would be progress. The PRC’s churlish reaction to the Clinton initiative suggests that Beijing is concerned.
An adjustment in U.S. policy toward Burma was sorely needed. Isolation resulted in few positive outcomes. For the most part Asian nations, even America’s friends, ignored U.S. and European sanctions. The regime did not fall; Suu Kyi was not freed; democracy did not come; the ethnic groups did not enjoy peace. The generals simply tightened their grip.
Although this policy failure long has been obvious, no one wanted to “reward” the Burmese regime by dropping economic penalties. This left U.S. policy stuck in a political cul-de-sac. Sanctions were ineffective, doing nothing to advance human rights. But they could not be changed for the sake of appearance.
Nascent reform in Burma now offers Washington an opportunity to shift course. No one should get their hopes up. The regime may intend to only adopt a few reforms as window-dressing to win Western aid. Even if the commitment to change is real, the road to a better life for the Burmese people remains long and hard.
Nevertheless, for the first time in years there truly are “flickers of progress” in Burma. The administration is right to try to turn these flickers into something more. A desperately poor and oppressed people deserve a better life.
Of Qaddafi and Kim Kardashian
Last week on The Tonight Show with Jay Leno, President Obama discussed the withdrawal of U.S. troops from Iraq, the 2012 Republican presidential field, and ubiquitous Hollywood socialite, Kim Kardashian. But the conversation got really interesting when it veered to the recent intervention in Libya.
Obama said that with the arrival of the Arab Spring, the late Libyan leader Moammar Qaddafi had an opportunity “to finally loosen his grip on power and peacefully transition to democracy. We gave him ample opportunity and he wouldn’t do it.” On the former leader’s killing, Obama said, “There’s a reason after [Osama] bin Laden was killed, for example, we didn’t release the photograph. I think that there’s a certain decorum with which you treat the dead even if it’s somebody who’s done terrible things.”
Hmmm, decorum. To some in the Beltway it may seem tired and trite to hear that U.S. foreign policy is flagrantly hypocritical when it comes to the subject of human rights. But it’s nonetheless noteworthy to hear prominent American leaders openly advocate intervening abroad in places like Libya in advance of the universal human aspiration to be free while continuing to support Middle East client states that repress their own people. Sadly, President Obama and other American leaders, especially in the wake of the momentous Arab Spring, are often perceived as liberty’s worst emissaries.
For numerous strategic and historical reasons, no American government has intervened militarily in countries such as Algeria, Jordan, or Yemen in defense of human rights. In Saudi Arabia, a long-time U.S. partner, homosexuals, apostates, and drug smugglers can be sentenced to execution, sometimes by beheading. In extreme cases, the convict’s body is crucified in public. And yet, the same U.S. government that offers unflinching support to the Saudi Kingdom led from behind for an intervention in Libya to stop an alleged massacre in Benghazi. In neighboring Egypt, meanwhile, for 29 years the U.S. government showered former President Hosni Mubarak with praise, despite his widespread use of torture and systematic repression of political prisoners. Washington also continues to support and arm the regime in Bahrain, which deliberately kills unarmed protesters and oppresses its people.
To promote human rights in Libya while supporting some of the world’s most heinous tyrannies may reflect America’s geopolitical preferences, but it makes a mockery of human rights and reveals an enormous discrepancy between what America claims to be doing and what it actually does. As much as Obama and his defenders want to strut around and promote their triumph over Moammar Qaddafi, people in the Middle East and around the world are well aware of this discrepancy. Such policies are not only abhorrent but also detrimental to America’s long-term interests. Advancing liberty is a painful and arduous process, but it can be done, and often independent of U.S. government efforts.
Are Tax Havens Moral or Immoral?
Being the world’s self-appointed defender of so-called tax havens has led to some rather bizarre episodes.
For instance, the bureaucrats at the Organization for Economic Cooperation and Development threatened to have me thrown in a Mexican jail for the horrible crime of standing in the public lobby of a hotel and giving advice to low-tax jurisdictions.
On a more amusing note, my efforts to defend tax havens made me the beneficiary of grade inflation and I was listed as the 244th most important person in the world of global finance — even higher than George Soros and Paul Krugman.
But if that makes it seem as if the battle is full of drama and (exaggerated) glory, that would be a gross exaggeration. More than 99 percent of my time on this issue is consumed by the difficult task of trying to convince policymakers that tax competition, fiscal sovereignty, and financial privacy should be celebrated rather than persecuted.
Sort of like convincing thieves that it’s a good idea for houses to have alarm systems.
And it means I’m also condemned to the never-ending chore of debunking left-wing attacks on tax havens. The big-government crowd viscerally despises these jurisdictions because tax competition threatens the ability of politicians to engage in class warfare/redistribution policies.
Here’s a typical example. Paul Vallely has a column, entitled “There is no moral case for tax havens,” in the UK-based Independent.
To determine whether tax havens are immoral, let’s peruse Mr. Vallely’s column. It begins with an attack on Ugland House in the Cayman Islands.
There is a building in the Cayman Islands that is home to 12,000 corporations. It must be a very big building. Or a very big tax scam.
As I’ve already explained in a post about a certain senator from North Dakota, a company’s home is merely the place where it is chartered for legal purposes. A firm’s legal domicile has nothing to do with where it does business or where it is headquartered.
With the Support of the Obama Administration, Paris-Based OECD Now Wants De Facto World Tax Organization as Part of Its Anti-Tax Competition Campaign
I’ve been battling the Organization for Economic Cooperation for years, ever since the Paris-based bureaucracy unveiled its “harmful tax competition” project in the late 1990s. Controlled by Europe’s high-tax welfare states, the OECD wants to prop up the fiscal systems of nations such as Greece and France by hindering the flow of jobs and capital to low-tax jurisdictions.
Guided by a radical theory know as Capital Export Neutrality, the OECD wants to impose global tax rules that would prevent taxpayers from ever having the ability to benefit from better tax law in other jurisdictions. This is why, for instance, the international bureaucrats are anxious to undermine national tax laws – such as America’s favorable treatment of bank deposits from overseas – that enable people to escape onerous tax regimes.
Bolstered by support from the Obama Administration, the OECD now is taking its campaign to the next level. At its Global Tax Forum in Bermuda, which ends later today, the bureaucrats unveiled a new scheme that effectively would result in the creation of something akin to a World Tax Organization.
The vehicle for this effort is a Multilateral Convention on Mutual Administrative Assistance in Tax Matters. This may sound dry and technical, but the OECD wants all nations to participate in this pact, which has existed for a couple of decades but was radically expanded last year to give high-tax governments sweeping new powers to impose bad tax law on income generated in low-tax jurisdictions.
But the real smoking gun is that the OECD has put itself in charge of the “co-ordinating body” that will have enormous powers to interpret the agreement, modify the pact, and resolve disputes – thus giving itself the ability to serve as judge, jury, and executioner.
This is a profoundly dangerous development with all sorts of very troubling implications. Since I’m in Bermuda trying to destabilize this effort, I don’t have time for extensive analysis, but here’s a press release from the Center for Freedom and Prosperity and here are some of my immediate concerns.
- Higher tax burdens. If high-tax governments succeed is imposing this Multilateral Convention (insert “World Tax Organization” whenever you see that term), tax competition will be undermined and politicians will respond by increasing tax burdens. This is why nations such as France have been pushing this scheme, of course, and why left-wing academics have long dreamed of this type of arrangement.
- Risk to human rights. Amazingly, the Multilateral Convention is open to repressive regimes, which then would have access to all sorts of sensitive and confidential taxpayer information. Already, the thuggish dictatorship of Azerbaijan has signed up, as well as the unstable nation of Moldova and the corrupt government of Mexico. The implications are grim, including the sale of private data to criminal gangs, the loss of sensitive information to hackers, and the direct misuse of American tax returns.
- Loss of sovereignty. For all intents and purposes, the Multilateral Convention outlaws certain pro-growth tax policies and discourages others. Equally worrisome, it creates a system allowing foreign tax collectors to cross borders. The Obama Administration has specifically acquiesced to this provision, so perhaps we will soon see corrupt Mexican tax authorities harassing businesses and individuals on American soil.
- Outlawing tax avoidance. The OECD historically has tried to portray its efforts as a fight against tax evasion, but the Multilateral Convention explicitly talks about “combating tax avoidance.” This should not be a surprise since the Capital Export Neutrality ideology is based on the notion that taxpayers should have zero ability to lower their tax burdens. This means we can fully expect an assault on all forms of tax planning, with American companies almost sure to be among the first to be in the OECD’s crosshairs.
The final insult to injury is that American taxpayers are the biggest funders of the OECD, providing nearly one-fourth of the bureaucracy’s bloated budget. So our tax dollars are being used by OECD bureaucrats (who receive tax-free salaries!) to dream up new ways of increasing our tax burdens. In case you need any additional reasons to despise this bureaucracy, here’s a video detailing its anti-free market activities.
And since I’m recycling some videos, here’s one explaining why tax competition is so important.
Monday Links
- Please join us this Wednesday, May 25 at 2:00 p.m. Eastern for a Policy Forum with former Minnesota governor Tim Pawlenty, “Limiting Government: What Washington Can Learn from Minnesota,” with opening remarks from Cato founder and president Edward H. Crane. Governor Pawlenty received an “A” grade on Cato’s biennial “Fiscal Policy Report Card on America’s Governors: 2010,” by Cato director of tax policy studies Chris Edwards. Complimentary registration is required of all attendees by noon Eastern tomorrow, Tuesday, May 24–seating is limited and not guaranteed. If you cannot join us in person, please join us on the web for a live video stream of the event.
- Washington’s use of tax dollars to strong-arm states into adopting national standards and tests doesn’t leave much room for state choice in education.
- Did you know Cato has a series of 60 and 90-second radio ads about the Constitution that you can download for free?
- “Unfortunately, suspicions about private property as a fundamental human right survive to this day, to the detriment of the coherence of human rights as a guiding political concept, and of fundamental freedoms and prosperity.” Read the rest of the new Cato Policy Report here.
- What will happen if we do nothing, and let Medicaid, Medicare, and Social Security continue to grow?
Freedom vs. Entitlements
A new World Bank working paper by Jean-Pierre Chauffour (author of the Cato book, The Power of Freedom: Uniting Human Rights and Development) finds that freedom is the root cause of development. In contrast to economic, political and civil freedoms, Chauffour finds that “beyond core functions of government. . . the expansion of the state to provide for various entitlements, including so-called economic, social and cultural rights, may not make people richer in the long run and may even make them poorer.”
The President’s Next Middle East Speech
The news media is abuzz with speculation about what President Obama will say in an address this Thursday at the State Department. The topic is the Middle East, and White House Press Secretary Jay Carney explained, “we’ve gone through a remarkable period in the first several months of this year…in the Middle East and North Africa,” and the president has “some important things to say about how he views the upheaval and how he has approached the U.S. response to the events in the region.” The speech, Carney hinted to reporters, would be “fairly sweeping and comprehensive.”
If I were advising the president, I would urge him to say many of the same things that he said in his June 2009 speech in Cairo, this time with some timely references to the recent killing of Osama bin Laden, and an explanation of what the killing means for U.S. counterterrorism operations, and for our relations with the countries in the region.
Bin Laden and Ayman al-Zawahiri, al Qaeda’s long-time number two (now, presumably, its number one) railed for years about overthrowing the “apostate” governments in North Africa and the Middle East. And yet, one of the biggest stories from the popular movements that have swept aside the governments in Tunisia and Egypt, and may yet do so in Libya, Syria, Yemen, and Bahrain, is al Qaeda’s utter irrelevance. President Obama won’t need to dwell on this very long to make an important point.
The killing of Osama bin Laden doesn’t signal the end of al Qaeda, but it might signal the beginning of the end. In reality, al Qaeda has been under enormous pressure for years, but that hasn’t stopped the organization from carrying out attacks—attacks which have mainly killed and injured innocent Muslims since 9/11. It is no wonder that al Qaeda is enormously unpopular in the one place where bin Laden and his delusional cronies sought to install the new Caliphate. How’s that working out, Osama?
Al Qaeda had nothing to do with the reform movements that have swept across North Africa and the Middle East; the United States has had little to do with them either. That is as it should be. These uprisings were spontaneous, arising from the bottom up, and they are more likely to endure because they were not imposed by outsiders. Sadly, the same will not be said of the Libyans who rose up against Muammar Qaddafi, without any special encouragement from the United States. If the anti-Qaddafi forces ultimately succeed in overthrowing his four-decades long rule, President Obama’s decision to intervene militarily on their behalf ensures that some will question their legitimacy. The same would be true in Syria, or in Iran, if the United States were seen as having a hand in selecting the future leaders of those countries.
Barack Obama was elected president in part because he publicly opposed the decision to go to war in Iraq at a time when many Americans, including many in his own party, were either supportive or silent. He had a special credibility with the American people, and among people in the Middle East, because he worried that the Iraq war was likely to undermine American and regional security, cost hundreds of billions of dollars, and claim many tens of thousands of lives. Tragically, he was correct.
There is a right way, and a wrong way, to go about promoting human freedom. In Thursday’s speech, I hope that the president reaffirms the importance of peaceful regime change from within, not American-sponsored regime change from without.
The United States remains, as it has been for two centuries, a well-wisher to people’s democratic aspirations all over the world. But we learned a painful lesson in Iraq, and we should be determined not to repeat that error elsewhere. That is a message worth repeating, both for audiences over there, and for those over here.
Reckless IRS Regulation Would Put Foreign Tax Law over American Tax Law and Drive Investment out of the United States
I’m not a big fan of the IRS, but usually I blame politicians for America’s corrupt, unfair, and punitive tax system. Sometimes, though, the tax bureaucrats run amok and earn their reputation as America’s most despised bureaucracy.
Here’s an example. Earlier this year, the Internal Revenue Service proposed a regulation that would force American banks to become deputy tax collectors for foreign governments. Specifically, they would be required to report any interest they pay to accounts held by nonresident aliens (a term used for foreigners who live abroad).
The IRS issued this proposal, even though Congress repeatedly has voted not to tax this income because of an understandable desire to attract job-creating capital to the U.S. economy. In other words, the IRS is acting like a rogue bureaucracy, seeking to overturn laws enacted through the democratic process.
But that’s just the tip of the iceberg. The IRS’s interest-reporting regulation also threatens the stability of the American banking system, makes America less attractive for foreign investors, and weakens the human rights of people who live under corrupt and tyrannical governments.
This video outlines five specific reasons why the IRS regulation is bad news and should be withdrawn.
I’m not sure what upsets me most. As a believer in honest and lawful government, it is outrageous that the IRS is abusing the regulatory process to pursue an ideological agenda that is contrary to 90 years of congressional law. But I guess we shouldn’t be surprised to see this kind of policy from the IRS with Obama in the White House. After all, this Administration already is using the EPA in a dubious scheme to impose costly global warming rules even though Congress decided not to approve Obama’s misguided legislation.
As an economist, however, I worry about the impact on the U.S. banking sector and the risks for the overall economy. Foreigners invest lots of money in the American economy, more than $10 trillion according to Commerce Department data. This money boosts our financial markets and creates untold numbers of jobs. We don’t know how much of the capital will leave if the regulation is implemented, but even the loss of a couple of hundred billion dollars would be bad news considering the weak recovery and shaky financial sector.
As a decent human being, I’m also angry that Obama’s IRS is undermining the human rights of foreigners who use the American financial system as a safe haven. Countless people protect their assets in America because of corruption, expropriation, instability, persecution, discrimination, and crime in their home countries. The only silver lining is that these people will simply move their money to safer jurisdictions, such as Panama, the Cayman Islands, Hong Kong, or Switzerland, if the regulation is implemented. That’s great news for them, but bad news for the U.S. economy.
In pushing this regulation, the IRS even disregarded rule-making procedures adopted during the Clinton Administration. But all this is explained in the video, so let’s close this post with a link to a somewhat naughty – but very appropriate – joke about the IRS.
China Cracks Down on Ideas. And Music. And Advertising.
The government of China finally confirmed that it has detained the artist Ai Weiwei. Meanwhile, Evan Osnos writes from Beijing for the New Yorker about China’s “Big Chill”:
Step by step—so quietly, in fact, that the full facts of it can be startling—China has embarked on the most intense crackdown on free expression in years. Overshadowed by news elsewhere in recent weeks, China has been rounding up writers, lawyers, and activists since mid-February, when calls began to circulate for protests inspired by those in the Middle East and North Africa. By now the contours are clear: according to a count by Chinese Human Rights Defenders, an advocacy group, the government has “criminally detained 26 individuals, disappeared more than 30, and put more than 200 under soft detention.”
Indeed, everywhere I turn today, there’s news about Chinese censorship and fear of dissent, of ideas, of art, of words like “luxury.” The Washington Post has a major article on Bob Dylan’s concert Wednesday night in Beijing. Dylan, the troubadour of the peace movement and the Sixties and civil rights, in the capital of the world’s largest Communist party-state. How’d that go? Ask Keith Richburg, whose Post article is titled “The times they are a-censored“:
Rock music icon Bob Dylan avoided controversy Wednesday in his first-ever appearance in Communist-led China, eschewing the 1960s protest anthems that defined a generation and sticking to a song list that government censors say they preapproved, before a crowd of about 5,000 people in a Soviet-era stadium.
Keeping with his custom, Dylan never spoke to the crowd other than to introduce his five-member band in his raspy voice. And his set list – which mixed some of his newer songs alongside classics made unrecognizable by altered tempos — was devoid of any numbers that might carry even the whiff of anti-government overtones.
In Taiwan on Sunday, opening this spring Asian tour, Dylan played “Desolation Row” as the eighth song in his set and ended with an encore performance of “Blowin’ in the Wind,” whose lyrics became synonymous with the antiwar and civil rights protest movements.
But in China, where the censors from the government’s Culture Ministry carefully vet every line of a song before determining whether a foreign act can play here, those two songs disappeared from the repertoire. In Beijing, Dylan sang “Love Sick” in the place of “Desolation Row,” and he ended his nearly two-hour set with the innocent-sounding “Forever Young.”
There was no “Times They Are a-Changin’ ” in China. And definitely no “Chimes of Freedom.”
The Folly of Succeeding in Libya
Tonight, to sell the illusion of America’s “limited military action” in Libya’s civil war, President Barack Obama insisted that America had a moral imperative to intervene militarily, implying he will do so wherever foreign leaders commit atrocities against their people. This latest mission in the name of “humanitarian imperialism” is extremely dangerous. In fact, if all goes well in Libya, it might be just as bad as if we fail.
Consider, for instance, if I walked through a wall of fire and came out the other side unharmed. Although I came out safe and sound, my decision to walk through the wall of fire was still misinformed. My good outcome was simply one among a host of potentially terrible outcomes. After all, if I were to walk through that wall of fire again and again, given the danger and level of risk, I would end up with many more bad outcomes than good outcomes.
In this respect, and in terms of our external security commitment to Libya, what matters is not necessarily a good outcome, but making a good decision in the face of various options. Thus, even a narrow and limited military engagement does not mean an absence of risk; one need only reference our “narrow and limited” military engagement in Vietnam to understand the danger of foreign gambles. If indeed our military can be ordered by the president to any corner of the globe, for the advance of human rights and in the absence of vital American interests, then the repercussions of our latest intervention could reverberate well beyond Libya.
Great Moments in Human Rights: Creating an Entitlement for Free Soccer Broadcasts in Europe
Forget the Magna Carta and the Constitution. Don’t pay attention to the end of slavery. Ignore the defeat of the Nazis or the collapse of the Soviet Empire.
If you want a real victory for humanity, European courts have ruled that people have the right to free soccer games on TV. Apparently, people are now “entitled” to anything that is “of major importance” to society.
Isn’t that just peachy? Europe is slowly collapsing under the weight of the welfare state. Nations such as Greece and Portugal already have reached the point of fiscal collapse. But rather than address these problems, the political elites at the European institutions have decided on a modern-day version of bread and circuses for the masses.
Here’s a blurb from the Financial Times.
European countries are entitled to ban the exclusive airing of World Cup and European football championship games on pay-TV in order to allow wider public viewing on free channels, one of Europe’s top courts has ruled. The ruling is a blow for Fifa, which organises the World Cup finals, and Uefa, which handles the European Football Championship finals. Both organisations depend heavily on the sale of broadcasting rights for much of their income and had challenged the extent to which games had to be shown more widely. But on Thursday the General Court in Luxembourg slapped down their arguments and ruled in favour of Belgium and the UK, which had included games organised by Fifa or Uefa on their lists of events they considered to be “of major importance” to society and so entitled to wider audiences.
The IRS Run Amok
I’m not a big fan of the Internal Revenue Service, but I try not to demonize the bureaucrats because politicians actually deserve most of the blame for America’s complex, unfair, and corrupt tax system. The IRS generally is in the unenviable position of simply trying to enforce very bad laws.
But sometimes the IRS runs amok and the agency deserves to be held in contempt by the American people
Let’s look at a grotesque example of IRS misbehavior. It deals with a seemingly arcane issue, but it has big implications for the US economy, the rule of law, and human rights.
On January 7, the tax-collection bureaucracy proposed a regulation that, if implemented, would force American financial institutions to put foreign tax law above US tax law. Banks would be required to report to the IRS any interest they pay to foreigners, but not so the US government can collect tax, but in order to let foreign governments tax this US-source income.
This isn’t the first time the IRS has tried to pull this stunt. At the very end of the Clinton years, the agency proposed a rule to do the same thing. But the bureaucrats were thwarted because of overwhelming opposition from Capitol Hill, the financial services industry, and public policy experts. There was near-unanimous agreement that it would be crazy to drive job-creating capital out of the US economy and there was also near-unanimous agreement that the IRS had no authority to impose a regulation that was completely inconsistent with the laws enacted by Congress.
But like a zombie, this IRS regulation has risen from the grave.
I’m not sure what is most upsetting about this proposed rule, but there are five serious flaws in the IRS’s back-door scheme to turn American banks into deputy tax collectors for foreign governments.
1. The IRS is flouting the law, using regulatory dictates to overturn laws enacted through the democratic process.
Ever since 1921, and most recently reconfirmed by legislation in 1976 and 1986, Congress specifically has chosen not to tax interest paid to non-resident foreigners. Lawmakers wanted to attract money to the U.S. economy.
Yet rogue IRS bureaucrats want to impose a regulation to overturn the outcome of the democratic process. Heck, if they really think they have that sort of power, why don’t they do us a favor and unilaterally junk the entire internal revenue code and give us a flat tax?
2. The IRS has failed to perform a cost-benefit analysis, as required by executive order 12866.
Issued by the Clinton Administration, this executive order requires that regulations be accompanied by “An assessment of the potential costs and benefits of the regulatory action” for any regulation that will, “Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities.”
Yet the IRS blithely asserts that this interest-reporting proposal is “not a significant regulatory action.” Amazing, we have trillions of dollars of foreign capital invested in our economy, perhaps $1 trillion of which is deposited in banks, and we know some of which definitely will be withdrawn if this regulation is implemented, but the bureaucrats unilaterally decided the regulation doesn’t require a cost-benefit analysis.
During a previous incarnation of this regulation, the IRS’s failure to comply with the rules led the Office of Advocacy at the Small Business Administration to denounce the tax-collection bureaucracy, stating that “…there is ample evidence that the impact of the regulation is significant and that a substantial number of small businesses will be impacted.”
3. The IRS is imposing a regulation that puts America’s economy at risk.
According to the Commerce Department, foreigners have invested more than $10 trillion in the U.S. economy.
And according to the Treasury Department, foreigners have more than $4 trillion in American banks and brokerage accounts.
We don’t know how much money will leave America if this regulation is implemented, but there are many financial centers – such as London, Hong Kong, Cayman, Singapore, Tokyo, Zurch, Luxembourg, Bermuda, and Panama – that would gladly welcome the additional investment if the IRS makes the American financial services sector less attractive.
4. The IRS is destabilizing America’s already shaky financial system.
Five years ago, when the banking industry was strong, the IRS regulation would have been bad news. Now, with many banks still weakened by the financial crisis, the regulation could be a death knell. Not only would it drive capital to banks in other nations, it also would impose a heavy regulatory burden.
How bad would it be? Commenting on an earlier version of the regulation, which only would have applied to deposits from 15 countries, the Chairman of the Federal Deposit Insurance Corporation warned that, “[a] shift of even a modest portion of these [nonresident alien] funds out of the U.S. banking system would certainly be termed a significant economic impact.” He also noted that potentially $1 trillion of deposits might be involved. And a study from the Mercatus Center at George Mason University estimated that $87 billion would leave the American economy. And remember, that estimate was based on a regulation that would have applied to just 15 nations, not the entire world.
So what happens if more banks fail? I guess the bureaucrats at the IRS would probably just shrug their shoulders and suggest another bailout.
5. The IRS is endangering the lives of foreigners who deposit funds in America because of persecution, discrimination, abuse, crime, and instability in their home countries.
If you’re from Mexico you don’t want to put money in local banks or declare it to the tax authorities. Corruption is rampant and that information might be sold to criminal gangs who then kidnap one of your children. If you’re from Venezuela, you have the same desire to have your money in the United States, but perhaps you’re more worried about persecution or expropriation by a brutal dictatorship.
There are people all over the world who have good reasons to protect their private financial information. Yet this regulation would put them and their families at risk. The only silver lining is that these people presumably will move their money to other nations. Good for them, bad for America.
Let’s wrap this up. Under current law, America is a safe haven for international investors. This is good news for foreigners, and good news for the American economy. That’s why it is so outrageous that the IRS, unilaterally and without legal justification, is trying to reverse 90 years of law for no other reason than to help foreign governments.
By the way, you can add your two cents by clicking on this link which will take you to the public comment page for this regulation. Don’t be bashful.
One last point. The Obama Administration says this regulation is part of a global effort to improve tax compliance. But unless Congress changes the law, the IRS is not responsible for helping foreign tax collectors squeeze more money out foreign taxpayers. Moreover, the White House has been grossly misleading about U.S. compliance issues (as this video illustrates), so their assertions lack credibility.
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