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On today’s edition of Coffee and Markets, Brad Jackson is joined by Francis Cianfrocca to discuss Fiat’s Italian speaking Super Bowl ad, a new effort by the federal government to go after Americans with Swiss bank accounts and how this may be a precursor to wealth confiscation by Washington.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:

FIAT 500 Abarth – 2012 Super Bowl Commercial – Seduction
Swiss Bank Wegelin Charged With Helping U.S. Tax Evasion
Switzerland Should Be Terrified Of The Rampaging Justice Department
Swiss bank Julius Baer cautious about outcome of US tax evasion probe but expects fine

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Obamacare opponents have been raising red flags around this issue for some time, but today the IRS has finally issued preliminary guidelines for the implementation of the Affordable Care Act. The legislation is expected to cost America tens of thousands of jobs, while also sending some high-end industries overseas. There’s more from the IRS available at the links in text below. That it’s being released on a Friday afternoon is no coincidence.

On February 3, 2012, the IRS and the Treasury Department issued proposed regulations on the new 2.3-percent medical device excise tax (IRC §4191) that manufacturers and importers will pay on their sales of taxable medical devices starting in 2013. Additional information is available in the Medical Device Excise Tax FAQs.

The IRS and Treasury Department request comments on the proposed regulations by May 7, 2012. Comments may be submitted electronically, by mail or hand delivered to the IRS. The preamble to the proposed regulations provides instructions on how to submit comments.

Industry sources have already begun weighing in through press releases of their own. There’s also a detailed analysis of the implications of the proposed guidelines here. (more…)

Leftists want higher tax rates and they want greater tax compliance. But they have a hard time understanding that those goals are inconsistent.

Simply stated, people respond to incentives. When tax rates are punitive, folks earn and report less taxable income, and vice-versa.

• When tax rates increase, sometimes they engage in tax avoidance, lowering their tax liabilities legally.
• When tax rates change, sometimes they choose to alter their levels of work, saving, and investment.
• And when tax rates go up, sometimes they resort to illegal steps to protect themselves from the tax authority.

In a previous post, I quoted an article from the International Monetary Fund, which unambiguously concluded that high tax burdens are the main reason people don’t fully comply with tax regimes:
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The Internal Revenue Service (IRS) loves you and has a wonderful plan for your life. It wants to ease your mind about compliance with the tax code and make April 15 as stress-free as possible.

Sound too good to be true? Of course it is. Their real goal is to extract more tax dollars out of your pocket without having to muster the political courage to advocate a tax increase, and to do so in the most cynical way possible—by taking advantage of the least-sophisticated and lowest-income workers.

Some of our elected officials and the revenue establishment are convinced that there is a $345 billion annual “tax gap” between what people actually owe or should be paying and what the IRS actually collects. Of course, in a voluntary compliance system—the alternative to which is a police state—there is always going to be some gap in compliance. Not surprisingly, the IRS doesn’t mention the certainty that many people actually pay more than they owe because they fail to take advantage of deductions available to them.

Does the revenue establishment fault the tax code’s inherent complexity and Congress’ failure to reform it as responsible for the supposed shortfall? Guess again.

Slowly, over the past several years, the IRS has been insisting that more and more information be submitted from employers and from the savings and investment industry directly to them. At the same time, they’ve been tightening down on who can and who cannot prepare tax returns. Have you noticed?

And today, the IRS will hold its second hearing on what they call the “Real-Time Tax System,” which they claim is intended to give the IRS the ability to identify tax non-compliance in real time. Of course, the Real-time Tax System will require even more information from taxpayers, employers, banks and brokerage firms, but of course it’s being done to “reduce the burden for taxpayers.”

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I’ve written several times about a proposed IRS regulation that would force American banks to put foreign law above U.S. law. I’ve repeatedly warned that the scheme, which would force financial institutions to report the deposit interest they pay to foreigners, is bad economic policy, bad regulatory policy, and bad banking policy.

My arguments have included:

• Explaining that this onerous regulatory scheme will result in capital fleeing to other nations, needlessly harming the financial sector and putting American banks at risk.
• Explaining why the proposal is a threat to human rights since many foreigners keep money in the United States because they live in nations with unstable and/or repressive governments.
• Explaining that the IRS action is a gross abuse of the regulatory process since an executive branch agency does not have the authority to overturn laws enacted as part of the democratic process.
• Explaining that this proposed regulation is just the beginning, and that proponents hope to issue follow-up rules that would cripple policies making America a haven for global capital.

But these points don’t seem to matter to the Obama Administration, which is ideologically committed to the anti-tax competition agenda of Europe’s welfare states. This is why the White House supports all sorts of destructive policies, including not only this misguided regulation, but also the creation of something akin to a world tax organization that will have power to block free-market tax policy.

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Last year, I came up with a saying that “Bad Government Policy Begets More Bad Government Policy” and labeled it “Mitchell’s Law” during a bout of narcissism.

There are lots of examples of this phenomenon, such as the misguided War on Drugs being a precursor to intrusive, costly, and ineffective money laundering policies.

Or how about government healthcare subsidies driving up the price of healthcare, which then leads politicians to decide that there should be even more subsidies because healthcare has become more expensive.

But if you want a really stark example of Mitchell’s Law, the internal revenue code is littered with examples.

The politicians created a nightmarishly complex tax system, for instance, and then decided that enforcing the wretched system required the erosion of civil liberties and constitutional freedoms.

The latest example of this process involves the Foreign Account Tax Compliance Act, a piece of legislation that was imposed in 2010 because politicians assumed they could collect lots of tax revenue every single year by getting money from so-called tax havens.

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Ralph Bradbury is an Arkansan, through and through. At 55 years old, his blocky frame says less about his years as a Razorbacks baseball standout and more about his career in the hardscrabble trucking industry. But it’s his experience on the ball field that’s helping him get through hard days recently.

Bradbury isn’t suited up in the cardinal and white; he’s not wearing his glove and kicking up diamond dust. He’s in the thick of a game that could cost him his savings, his career, his family – even his future. Ralph Bradbury is in a fight with the Internal Revenue Service.

The father of two is fighting for his life against the IRS, who he says is trying to force him to pay $800,000 in unpaid taxes he doesn’t owe for Continental Express, a trucking company he never owned.

Allied against him: the IRS, an influential US Senator and the legislator’s mother-in-law, already caught once by the courts for quietly siphoning off Continental assets. Yet nobody is trying to find out who embezzled almost two million dollars in unpaid payroll taxes.

It’s a tale that boggles the mind.

Soon after graduating from the University of Arkansas in 1975, Ralph Bradbury took his management skills to the trucking industry. He had a head for logistics and organization and knew how to convert an array of hundreds of tractor-trailers and thousands of accounts into positive cash flow.

Ed Harvey, a Little Rock entrepreneur, recognized Bradbury’ God-given talents and in 1985 invited him to build up his one-man owned Continental Trucking into a national force. Part of the deal: Harvey promised to make him an owner of the firm in the future.

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About a month ago, I posted in regard to what I called “the euthanasia of the saver.” This comment had to do with the fact that nominal interest rates in the United States for financial investments such as bank certificates of deposit and bank savings accounts—the kinds of investments traditionally employed by retired persons and small savers, who wish to gain income without exposing their funds to great risk of capital loss—now fall considerably below the rate of inflation, and hence the real (or inflation-adjusted) yield on such investments is negative. That is, the nominal payoff is insufficient to offset the loss of purchasing power of the money invested.

About a month before I wrote my commentary, my old friend Richard Rahn had, without my noticing, written on the same issue in a commentary article published in the Washington Times, but he had gone beyond the simple point I made. Rahn notes that besides suffering the loss of wealth occasioned by the negative real yield on such investments, the investor has to pay tax on the nominal yield—truly a case of the government’s adding insult to injury. He notes that given the currently prevailing rates of interest, rate of inflation, and tax rates, a small investor who earns a nominal yield of 1% and pays a 20% marginal tax rate, while the rate of inflation is 3.5 %, actually ends up paying a real tax rate of 370%. For example, an investor buys a $100,000 CD, earns $1,000 in annual interest, pays a tax of $200, and incurs a loss of $3,500 in purchasing power on the invested principal. Total (nominal) income is $1,000; total real tax (nominal tax plus inflation tax) is $3,700.

This expropriation of private wealth is not accidental.

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While Obama tours the country promoting his personal donation plan, the Republican Presidential hopefuls are in a pitched battle for the nomination and arguing which tax simplification plan is best. Threatened with the possibility of rate cuts, the Media and politicians trot out the usual suspects of lies about tax hikes and tax cuts.  This is a battle Republicans must win and, to do so, they need to expose those lies.

Keep in mind that the battle between those who create wealth and those that want to redistribute it, mainly politicians, is as old as civilization itself.  We read of tax battles and even reform in every age, like Urukagina’s tax reductions in Babylonia/Sumer in 2350 BC.  Equally venerable are the constant set of demagogic lies by those against tax cuts and simplification.  It is important to note that politicians like complicated tax codes and high tax rates because they control those rates and dispense the loopholes and regulations that complicate the tax code.  Tax simplification means they lose power.  As a result, resistance to tax reform is more often the rule than reform. As for the lies, they abound, so let’s consider just a few:

Lie # 1: Tax cuts cause deficits/Tax hikes balance the budget.  The Media and the Left often say that the Reagan and Bush tax cuts led to deficits while Clinton’s tax hikes led to a balanced budget. In truth, according to the IRS, federal tax revenues rose dramatically after the overall Reagan tax cuts/reforms (98%) and the Bush tax cuts (a record $700+ billion). This is just as they did after the Harding/Coolidge cuts (61% revenue increase) and after the Kennedy/Johnson cuts (62% revenue increase).  Those are the four major income tax reductions we have had since the inception of the income tax in 1913 and every time revenues rose after they were in place – every time.

So did the tax rate cut cause a deficit? The lie, of course, is to blame the revenue gathering mechanism (tax code/rate cut) instead of the revenue spending mechanism, i.e. Congress/Presidents.  The spenders kept spending – often at an accelerated rate when they saw the new revenues.  Thus, the fault for continuing deficits lies not with tax rate cuts, which produced higher revenues, but with politicians who spent too much.

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“It’s time for our government to get serious about shared sacrifice.”
- Warren Buffett, NY Times Op-Ed August 15, 2011

Those high-minded and selfless words from one of the nation’s richest men inspired the Democrats’ latest push for higher taxes on job creators.  It also sounds like one of the creepy slogans chanted and repeated by the aromatic “Occupy Wall St” protesters when they decry corporate greed and the doomed capitalist system.

Yes, Mr. Buffett has entered his ninth decade of this mortal coil as somewhat of a folk hero to progressives and leftists who would normally be revolted by a multimillionaire investor.  But Buffett (whose many holdings include the GEICO insurance company) has purchased a little media insurance by speaking out against his own tax rates and has practically begged the government to take more of his money and money from the rest of us who are business owners and are trying to be next decade’s Warren Buffett.

Meanwhile, according to research done by Americans for Limited Government, Buffett’s company, Berkshire Hathaway, has a decade-old dispute with the IRS over its corporate tax bill, an obligation worth $1 billion dollars, so far.

“The company has been short-changing the tax collection agency for much of the past decade. Mr. Buffett’s company has not fully settled its tax bills from 2002-2009. Yet he says he’d happily pay more. Except the IRS has apparently been asking him to pay more going on nine years.”

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Earlier this year, President Obama’s IRS proposed a regulation that would force banks in America to report any interest they pay to accounts owned by non-resident aliens (that’s the technical term for foreigners who don’t live in the U.S.).

What made this regulation so bizarre, however, is that Congress specifically has exempted these account from taxation for the rather obvious reason that they want to attract this mobile capital to the American economy. Indeed, Congress repeatedly has ratified this policy ever since it was first implemented 90 years ago.

So why, you may be asking, would the IRS propose such a regulation? After all, why impose a regulatory burden on a weakened banking sector when it has nothing to do with enforcing American tax law?

The answer, if you can believe it, is that they want American banks to help enforce foreign tax law. And the bureaucrats at the IRS want to impose this burden even though the regulation is completely contrary to existing U.S. law.

Not surprisingly, this rogue behavior by the IRS already has generated considerable opposition. Senator Rubio has been a leader on the issue, being the first to condemn the proposed regulation.

Both Senators from Texas also have announced their opposition, and the entire Florida congressional delegation came out against the IRS’s regulatory overreach.

And now we have two more important voices against the IRS’s rogue regulation.

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President Obama and the Democratic Party effectively turned every controversial issue they faced over the past three years into a potential crisis, and convinced the American people to support their solutions without question to avert presumed dire consequences.  Important works of legislation capable of changing the American way of life were passed on the basis of “we have to pass this now – or else!”  Mr. Obama is preparing to face the nation again with another speech that will proclaim urgency and use panic to get his legislative desires passed.  We need to recognize what has been going on and put a stop to it.

The American Recovery and Reinvestment Act of 2009, the stimulus bill, was quickly passed by the Democratic controlled House and Senate without real debate in order to keep the unemployment rate from rising above 8%.  With unemployment at 9.1%, and over 17% when considering all those who stopped looking for work or are working part-time, that crisis was not averted.  All the stimulus bill did was to spend $800 billion of tax payer money to pay government workers salaries for one year and for a few temporary road construction projects.  The law did not provide any incentive for self-sustaining employment and our economy is now facing another recession.

The Patient Protection and Affordability Act of 2010, Obamacare, was crammed through the Democratic controlled House and Senate against overwhelming protests by the American people. All this ideologically designed legislation accomplished, with over 2,700 pages and the creation of 159 new bureaucracies, was to create uncertainty for employers and push up the cost of health care insurance.

The recently passed Dodd Frank Wall Street Reform and Consumer Protection Act of 2010, the last piece of hastily formed legislation passed by the Democratic controlled House and Senate before the November  2010 election shifted power in the House to the Republicans, is an empty bill passed for political purposes leaving its substance to regulations yet to be written.  Our nation’s banking system is now paralyzed by the uncertainty of what will be in those regulations.

From Cash for Clunkers to cash for Solyndra, everything this administration does is preceded by “pass it now, there is no time for debate.”  Economic conditions are difficult for most Americans and with 14 million citizens unemployed and an estimated 25 million Americans in total who are unemployed or under-employed, families are hurting and it would be easy to proclaim a crisis and cause panic.

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So far, the shuffling of employees–and some might argue, the buying of their silence–has been the only reaction to the Gunwalker scandal, in which various agencies of the federal government conspired to assure the success of straw purchasers and smugglers running guns to a violent Mexican drug cartel.

In the months since the scandal was revealed, the Department of Justice (DOJ) , BATF, Federal Bureau of Investigation (FBI), Drug Enforcement Administration (DEA), Internal Revenue Service Criminal Division (IRS-CD), Department of Homeland Security, and Department of State, have conspired to stonewall and House and Senate investigations that have been launched to investigate a scandal that appears to be worse than Iran-Contra and Watergate combined.

The scandal is not complicated, and would be revealed by the answering of five simple questions that the media dare not demand answers to from this Administration.

1. Who came up with the idea of allowing guns to be purchased by straw purchasers and then “walked” across the border by smugglers?
2. Who authorized Operation Fast and Furious in the Department of Justice?
3. Who authorized Operation Fast and Furious in the Department of Homeland Security?
4. Is Operation Fast and Furious the only operation of its type, or were there similar operations in Texas, Florida, and other states as evidence suggests?
5. What, precisely, did Barack Obama, Eric Holder, and Janet Napolitano know about Operation Fast and Furious, and when did they know it?

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Senator Rubio continues to impress with his Reagan-like efforts to restrain government and promote growth. His latest initiative is legislation to curtail rogue IRS bureaucrats who are seeking to use regulatory edicts to overturn 90 years of law.

Here are excerpts from a report in The Hill.

Sen. Marco Rubio (R-Fla.) and other Senate Republicans on Tuesday introduced a bill aimed at blocking pending regulations that would require banks to report to the Internal Revenue Service all interest deposits paid to nonresident aliens (NRA). Rubio, along with Texas GOP Sens. John Cornyn and Kay Bailey Hutchison, introduced S. 1506 because they believe the pending regulations have the potential to drive billions of dollars of deposits away from U.S. banks. A summary of the bill provided by Rubio’s office argues that this could leave U.S. banks undercapitalized and less able to lend in the U.S. “Simply put, this rule will cause billions of dollars in important NRA deposits to be withdrawn from American banks and invested in countries with less onerous reporting requirements,” the lawmakers state in the bill summary. “A capital flight of any magnitude will hurt the lending capacity of community banks and damage local and state economies — not to mention endanger those who invest in U.S. banks due to corruption, inflation, and violence in their home countries, particularly in nations like Mexico and Venezuela.” The summary also notes that Congress has explicitly exempted NRA deposits from taxation… Rubio’s bill is a companion bill to H.R. 2568, which was introduced by Reps. Bill Posey (R-Fla.), Francisco Canseco (R-Texas), Mario Diaz-Balart (R-Fla.), Ruben Hinojosa (D-Texas) and Gregory Meeks (D-NY).

This may sound like a technical issue, but there are big implications.

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There has been a good deal of discussion of late about whether or not the IRS should launch an investigation into Media Matters’ tax-exempt status.  In today’s part two of a three part series from FOX Business’ Elizabeth MacDonald, details of the civilian complaint filed by C. Boyden Gray demonstrate why the former White House counsel to President George W. Bush believes that Media Matters should have its tax-exempt status yanked.

Citing a pattern of “unlawful conduct,” Gray writes in his petition, which FOX Business has obtained, that the nonprofit has “executed a partisan strategy” in violation of U.S. tax law as it exists “no longer to educate the public but, rather, to declare ‘war on FOX,’” Gray says, quoting from an interview its founder, David Brock, gave to the website Politico.

Also unlawful, Gray says, is the nonprofit’s reported goal to “disrupt” the commercial interests of News Corp. (News Corp. is the parent of FOX News and FOX Business.)

Read the whole article, Former White House Counsel to IRS: Pull Media Matters’ Tax-Exempt Status.

Among the activity noted in the complaint:

• Conducting a campaign to get chain book retailers to stop selling the book, “Unfit for Command: Swift Boat Veterans Speak Out Against John Kerry”
• Advocating for legislation such as the Fairness Doctrine, which would be in violation of tax law if such activity exceeds an insubstantial amount
• Stating that it is “looking for ways to turn regulators in the U.S., U.K., and elsewhere against the network,” and intending to “focus on [News Corp. CEO Rupert] Murdoch and trying to [sic] disrupt his commercial interests.”
• Using tax-free dollars to fund the “Progressive Talent Initiative,” an endeavor “geared toward members of the Netroots community” and aimed at producing “camera-ready liberals” who can speak to the media on progressive issues

So many other examples not even mentioned in the article are readily available.

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An investigation into New Jersey’s largest teachers union finds that the Internal Revenue Service has an outstanding lien against the New Jersey Education Association for $56,730.31 in back taxes.

The lien involves unpaid taxes from as far back as 2005, though most of the teacher union’s unpaid taxes are from 2009 and 2010.

The federal tax lien was issued against the NJEA on December 7, 2010, and has been on file with the Passaic County Clerk’s office since December 21, 2010.

The investigation was conducted by Education Action Group with the assistance of Mark Kalinowski, founder of North New Jersey Tea Party Group which is based in Passaic County.

The NJEA recently settled two other IRS tax liens totaling $16,581. One of those tax liens involved $13,885.76 in unpaid taxes, going back to 2005 and 2006. That lien was released by the Passaic County Clerk’s office on January 6, 2011.

The other lien, totaling $2,696, was filed on October 13, 2010 and was released by the Union County Clerk’s office on May 3, 2011.

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One of the tax increases buried in Obamacare was an onerous and intrusive “1099″ scheme that would have required businesses to collect tax identification numbers for just about any vendor and then send paperwork to the IRS whenever they did more than $600 of business.

o Send one of your sales people to New York for a couple of nights? They would have to get the tax ID for the hotel and submit a form to the IRS.

o Buy a printer for the office? The printer company would need to provide a tax ID and the purchaser would have to submit a form to the IRS.

o Have a retirement dinner for somebody in the accounting department? Get the restaurant’s tax ID and submit another form to the IRS.

This system was seen as a nightmare, even leading to rather amusing cartoons mocking the law and showing how it would expand an already abusive IRS. And in a rare fit of common sense, the 1099 requirement was repealed earlier this year.

That’s the good news. The bad news is that an international version of Obamacare’s 1099 scheme also was enacted early last year. But since the burden is largely falling on foreigners, there’s no groundswell among voters to repeal the law – even though it will impose far more damage on the American economy.

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There hasn’t been much good economic news in recent years, but one bright spot for the economy is that the United States is a haven for foreign investors and this has helped attract more than $10 trillion to American capital markets according to Commerce Department data.

These funds are hugely important for the health of the U.S. financial sector and are a critical source of funds for new job creation and other forms of investment.

This is a credit to the competitiveness of American banks and other financial institutions, but we also should give credit to politicians. For more than 90 years, Congress has approved and maintained laws to attract investment from overseas. As a general rule, foreigners are not taxed on interest they earn in America. Moreover, by not requiring it to be reported to the IRS, lawmakers on Capitol Hill have effectively blocked foreign governments from taxing this U.S.-source income.

This is why it is so disappointing and frustrating that the Internal Revenue Service is creating grave risks for the American economy by pushing a regulation that would drive a significant slice of this foreign capital to other nations. More specifically, the IRS wants banks to report how much interest they pay foreign depositors so that this information can be forwarded to overseas tax authorities.

Yes, you read correctly.

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Since it is tax-filing season and we all want to honor our wonderful tax system, let’s go into the archives and show this video from last year about the onerous compliance costs of the internal revenue code.

Narrated by Hiwa Alaghebandian of the American Enterprise Institute, the mini-documentary explains how needless complexity creates an added burden – sort of like a hidden tax that we pay for the supposed privilege of paying taxes.

Two things from the video are worth highlighting.

First, we should make sure to put most of the blame on Congress. As Ms. Alaghebandian notes, the IRS is in the unenviable position of trying to enforce Byzantine tax laws. Yes, there are examples of grotesque IRS abuse, but even the most angelic group of bureaucrats would have a hard time overseeing 70,000-plus pages of laws and regulations (by contrast, the Hong Kong flat tax, which has been in place for more than 60 years, requires less than 200 pages).

Second, we should remember that compliance costs are just the tip of the iceberg. The video also briefly mentions three other costs.

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