Tuesday, April 12, 2011

Spin and Distortion - attempts to block the path towards Automatic Information Exchange

Our friends over at Center for Spin and Distortion, ahem, Freedom and Prosperity (CFP) have come up with their latest charade in confusing the public - see their video released yesterday The IRS Running Amok: Bureaucrats Want to Force Americans Banks to Put Foreign Tax Law Above U.S. Tax Law.

The video
relates to a very interesting development in the US going on right now, blogged earlier in
Tax Haven USA attracts over $3 trillion in foreign dirty money, on proposed IRS regulations for the U.S. to be more transparent about what foreigners earn there. Currently, almost all foreigners can bank in the U.S. in complete secrecy, and evade taxes they owe their own governments. These excellent proposals would see the U.S. creating the prerequisites for the U.S. co-operating with other countries to help them tax their own citizens properly.

Obama's administration now appears to be willing to address one of the root causes of the financial crisis. As you can read in our earlier blog here, the routine reporting of non-resident deposits would be an important step towards rectifying harmful capital flows. The US is the world’s pre-eminent tax haven, and we have labelled it the biggest capital-sucking machine ever devised on earth. This operates through the US offering anonymous and tax exempt portfolio investments by non-residents in US-bank deposits and government debt securities. Clinton's administration attempted in the 1990s to introduce legislation to address this matter. The proposal got sacked because of the whinnying opposition of financial institutions. Now the CFP launches its spin-machine to repeat the same.

Let's just turn to the abstract of the video:
"Even though it violates existing law, the IRS is seeking to impose a regulation that will discourage foreign investment in the U.S. economy and undermine the competitiveness of American banks. This CFP video provides five reasons why this proposal is misguided, including the risk to innocent people living under corrupt and tyrannical governments."
At least two immediate distortions spring to the eye.

First, this regulation will be a first step to curtail tax evasion committed through US-law. How can the CFP claim to be acting from any moral high ground (as in the name of freedom) if they are openly advocating the export of law subversion to the rest of the world? Is that freedom for US citizens, and condemnation for the rest of the planet's population? How should the US credibly seek desperately needed tax dollars for budget consolidation by clamping down on US tax evaders through FATCA while refusing to cooperate reciprocally?

The second obvious nonsense relates to the corrupt and tyrannical governments issue. After all, now that we see the dirty money stashed by Mubarak and Gaddafi in Western banks coming to light,
this argument is utterly defeated: western financial institutions and their governments do by no means ask hard questions when dictators around the world stash their money in their banks - see here. To claim that the reporting of US-interest payments to non-residents to US-authorities is helping tyrannical regimes is distorting the picture - in fact, it is the move towards greater transparency that begins to provide a faint chance of the US-authorities clamping down on US-banks helping tyrannical regimes.

Thankfully, the EU appears to have understood the problems inherent in the shortsightedness of the former US-policy and has approached the US in order to enhance cooperation to counter cross-border tax evasion (we reported in the headline article
in Links Apr 8 ) Ultimately, as the EU-tax Commissioner Šemeta said, the aim must be a multilateral approach to institute automatic tax information exchange. As we argue in our briefing paper on automatic information exchange, such a system must be open to developing countries.

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