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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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.

“The release today of proposed regulations to implement the $20 billion medical device tax scheduled to go into effect next year highlights the need for prompt action by Congress and the Administration to repeal this anti-competitive, job-killing tax.

“Studies have shown the tax will cost jobs – as many as 43,000 are at risk — at a time when the American economy is struggling and U.S. medical technology leadership in the world market is threatened by competitor nations who have grown their industries through more favorable tax and regulatory policies.

“The anticipated tax has already forced companies to lay off workers and to reduce critical R&D that will help drive the next wave of treatments and cures.

There was a rash of editorials opposed to the move back in January. It’s little wonder that the proposal would manage to find its way out on a Friday afternoon when fewer people are likely to be paying attention. It’s just another day in Obamacareville, and that means fewer jobs at a time when America can least afford it.

“Put simply, the new medical-device tax will steal jobs”

A year from now, the federal government will start collecting a new tax on medical devices — from tongue depressors to imaging machines — thanks to the sweeping health care overhaul that Democrats enacted in the spring of 2010.

People in the industry say it’s already having an effect.

In November, citing the new tax, Stryker Corp., whose products include artificial hips and knees, announced that it would let go about 1,000 of its workers.

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:

Macroeconomic and microeconomic modeling studies based on data for several countries suggest that the major driving forces behind the size and growth of the shadow economy are an increasing burden of tax and social security payments… The bigger the difference between the total cost of labor in the official economy and the after-tax earnings from work, the greater the incentive for employers and employees to avoid this difference and participate in the shadow economy. …Several studies have found strong evidence that the tax regime influences the shadow economy.

Indeed, it’s worth noting that international studies find that the jurisdictions with the highest rates of tax compliance are the ones with reasonable tax systems, such as Hong Kong, Switzerland, and Singapore.

Now there’s a new study confirming these findings. Authored by two economists, one from the University of Wisconsin and the other from Jacksonville University, the new research cites the impact of tax burdens as well as other key variables.

Here are some key findings from the study.

According to the results provided in Table 2, the coefficient on the average effective federal income tax variable (AET) is positive in all three estimates and statistically significant for the overall study periods (1960-2008) at beyond the five percent level and statistically significant at the one percent level for the two sub-periods (1970-2007 and 1980-2008). Thus, as expected, the higher the average effective federal income tax rate, the greater the expected benefits of tax evasion may be and hence the greater the extent of that income tax evasion. This finding is consistent with most previous studies of income tax evasion using official data… In all three estimates, [the audit variable] exhibits the expected negative sign; however, in all three estimates it fails to be statistically significant at the five percent level. Indeed, these three coefficients are statistically significant at barely the 10 percent level. Thus it appears the audit rate (AUDIT) variable, of an in itself, may not be viewed as a strong deterrent to federal personal income taxation [evasion].

Translating from economic jargon, the study concludes that higher tax burdens lead to more evasion. Statists usually claim that this can be addressed by giving the IRS more power, but the researchers found that audit rates have a very weak effect.

The obvious conclusion, as I’ve noted before, is that lower tax rates and tax reform are the best way to improve tax compliance – not more power for the IRS.

Incidentally, this new study also finds that evasion increases when the unemployment rate increases. Given his proposals for higher tax rates and his poor track record on jobs, it almost makes one think Obama is trying to set a record for tax evasion.

The study also finds that dissatisfaction with government is correlated with tax evasion. And since Obama’s White House has been wasting money on corrupt green energy programs and a failed stimulus, that also suggests that the Administration wants more tax evasion.

Indeed, this last finding is consistent with some research from the Bank of Italy that I cited in 2010.

…the coefficient of public spending inefficiency remains negative and highly significant. …We find that tax morale is higher when the taxpayer perceives and observes that the government is efficient; that is, it provides a fair output with respect to the revenues.

And I imagine that “tax morale” in the United States is further undermined by an internal revenue code that has metastasized into a 72,000-page monstrosity of corruption and sleaze.

On the other hand, tax evasion apparently is correlated with real per-capita gross domestic product. And since the economy has suffered from anemic performance over the past three years, that blows a hole in the conspiratorial theory that Obama wants more evasion.

All joking aside, I’m sure the President wants more tax compliance and more prosperity. And since I’m a nice guy, I’m going to help him out. Mr. President, this video outlines a plan that would achieve both of those goals.

Given his class-warfare rhetoric, I’m not holding my breath in anticipation that he will follow my sage advice.

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.”

Of course it is. There’s actually a fairly insidious plan behind all of this. The “Real-Time Tax System” is just an appetizer for the pièce de résistance of the revenue establishment–a “return-free” system where the IRS would calculate your tax obligation for you (convenience!) and simply ask for your signature in large, friendly letters. In one fell swoop the IRS could claim to have the taxpayer’s best interests at heart, while making the calculation that reflects the best interests of the revenue establishment.

The return-free system (and thus the virtual elimination of voluntary tax compliance) is the ultimate goal of the revenue establishment. Before assisting in the destruction of the U.S. economy, Austan Goolsbee described the benefits of a return-free system in a 2006 op-ed in The New York Times. President Obama has endorsed return-free, and it was also discussed by the so-called “super committee,” which was specifically tasked with finding ways to raise more revenue for the government.

Make no mistake–Not only will the return-free system result in your paying higher taxes, it will require that substantially more of your personal financial information be disclosed to the IRS.

Perhaps the most cynical thing about the return-free system is that it takes advantage of the most vulnerable taxpayers—those with below-average incomes and below-average tax sophistication. What will they do when they get a bill from the IRS in a threatening envelope filled with legalese and threats of penalties? They’ll sign and pay up.
Our elected officials have constructed the most onerous and complicated monstrosity of a tax code imaginable, and instead of fixing it, they want to solve their revenue problem by extracting higher taxes from us without having the political courage to raise tax rates.

Our voluntary tax compliance system is a feature, not a bug. It’s a key indicator of self-government, one of the hallmarks of American freedom. The bug is our absurd tax code, which contains multiple and conflicting definitions of income, saddles the U.S. economy with an incredible compliance burden, and results in deadweight losses to the economy and to our global competitiveness.

If there is a tax gap, the fault lies at the feet of Congress for not overhauling our tax code into something that is functional and competitive in the 21st century. Fix that. In the meantime, I’ll prepare my own taxes, thank you very much.

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.

A new article in the Weekly Standard explains what’s at stake.

Early last year the Treasury Department published its “Guidance on Reporting Interest Paid to Nonresident Aliens,” which would require banks to report to the Internal Revenue Service the interest paid to foreign depositors with a U.S. bank account. While the Treasury and the regulatory apparatus insist that the cost and inconvenience of adhering to this regulation is next to nothing, the rule may cost the U.S. banking system hundreds of billions of dollars in lost deposits, in turn costing our economy billions of dollars, while providing no discernible benefit to banks, depositors, taxpayers, or the U.S. economy. …a much bigger problem—for banks and the economy—than the compliance costs is the threat of a massive capital flight. The United States is a very popular place for foreigners to park their savings, for a variety of reasons. For starters, we offer a stable government that can be trusted to keep its hands off deposits—something that appeals greatly to residents of Venezuela, Argentina, Ecuador, and any number of other unstable countries. …As a result, a staggeringly large amount of savings from abroad is currently held in U.S banks. While the Treasury asserts that “deposits held by nonresident alien individuals are a very small percentage of the [total] deposits held by U.S. financial institutions,” that very small percentage amounts to more than $3.7 trillion, according to a 2011 Bureau of Economic Analysis report, hardly a pittance. The massive amount of foreign savings here is a boon to the U.S. economy. Banks lend against these deposits, mainly to companies here in the United States. Jay Cochran, an economist at George Mason University, studied the impact that the more limited 2002 reporting requirements would have had on the banking system, estimating that it would have resulted in nearly $100 billion in deposits leaving the U.S. banking system. A reporting regulation that covers all foreign accounts would likely result in two to three times more capital flight. The impact would be harmful not just for the banks but for the broader economy. The decline in profits in the banking sector alone from a roughly quarter-trillion-dollar capital flight would be in the range of $5-10 billion—which makes a mockery of the notion that the costs of the regulation are under $100,000.

For more information about this wretched proposal, here’s a video I narrated on the topic.

To put it bluntly, the Obama Administration is pushing this regulation because it thinks the anti-tax competition agenda of Europe’s welfare states is so important that it is willing to risk the health of the American economy, undermine the soundness of U.S. financial institutions, disregard the rule of law, and abuse the regulatory process.

Indeed, this proposal is even worse than the increasingly infamous Foreign Account Tax Compliance Act.

And that’s saying something, because with each passing day, it is more and more obvious that FATCA is a destructive law that will significantly harm the American economy. But at least it’s a law, one that was approved by Congress and signed by the President. And the costly FATCA regulations being developed by the IRS are for the purpose of enforcing the law.

The interest-reporting IRS regulation is also costly and destructive, to be sure, but what makes it so perverse is that it is – at best – completely gratuitous. It is being advanced solely for reasons of ideology, regardless of the law and consequences be damned.

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.

This FATCA law basically imposes a huge regulatory burden on all companies that have international transactions involving the United States, and all foreign financial institutions that want to invest in the United States. It is such a disaster that even the New York Times has taken notice, recently reporting that:

…the Foreign Account Tax Compliance Act, or Fatca, as it is known, is now causing alarm among businesses outside the United States that fear they will have to spend billions of dollars a year to meet the greatly increased reporting burdens, starting in 2013. American expatriates also say the new filing demands are daunting and overblown. …The law demands that virtually every financial firm outside the United States and any foreign company in which Americans are beneficial owners must register with the Internal Revenue Service, check existing accounts in search of Americans and annually declare their compliance. Noncompliance would be punished with a withholding charge of up to 30 percent on any income and capital payments the company gets from the United States. …The I.R.S., under pressure from angry and confused financial officials abroad, has extended the deadline for registration until June 30, 2013, and is struggling to provide more detailed guidance by the end of this year. But beginning in 2012, many American expatriates — already the only developed-nation citizens subject to double taxation from their home government — must furnish the I.R.S. with detailed personal information on their overseas assets. …He said his sense was that Fatca required companies “to prove your innocence.” …Then there is a question of reciprocity: Would the United States accept the same demands for information from the tax authorities in other countries — say Russia or China?

It’s worth noting at this point that FATCA only exists because of bad tax law. If the United States had a simple and fair flat tax, there would be no double taxation of income that is saved and invested. As such, the IRS wouldn’t have any reason to care whether Americans had bank accounts and/or investments in places such as London, Hong Kong, and Panama.

But as is so often the case with politicians, they choose not to fix bad policy and instead decide to impose one bad policy on top of another. Hence, the crowd in Washington enacting FATCA and sending the IRS on a jihad.

By the way, the New York Times was late to the party. Many other news outlets already have noticed that the United States is about to suffer a big self-inflicted economic wound.

Indeed, what’s remarkable about Obama’s FATCA policy is that the world in now united. But it’s not united for something big and noble, such as peace, commerce, prosperity, or human rights. Instead, it’s united in opposition to intrusive, misguided, and foolish American tax law.

Let’s look at some examples.

o From the United Kingdom, a Financial Times column warns that, “This summer, the senior management of one of Asia’s largest financial groups is quietly mulling a potentially explosive question: could it organise some of its subsidiaries so that they could stop handling all US Treasury bonds? …what is worrying this particular Asian financial group is…a new law called the Foreign Account Tax Compliance Act…the new rules leave some financial officials fuming in places such as Australia, Canada, Germany, Hong Kong and Singapore. Little wonder. Never mind the fact that implementing these measures is likely to be costly. …Hence the fact that some non-US asset managers and banking groups are debating whether they could simply ignore Fatca by creating subsidiaries that never touch US assets at all. “This is complete madness for the US – America needs global investors to buy its bonds,” fumes one bank manager. “But not holding US assets might turn out to be the easiest thing for us to do.”

o From India, the Economic Times reports that, “FATCA, or the Foreign Account Tax Compliance Act, will require overseas banks to report U.S. clients to the Internal Revenue Service, but its loose definition of who is a U.S. citizen will create a huge administrative burden and could push non-residents to slash their U.S. exposure, some bankers say. …Bankers say the scheme will be extremely costly to implement, and some say that as the legislation stands, any bank with a client judged to be a U.S. citizen will be also obliged to supply documentation on all other clients. “FATCA will cost 10 times to the banks than it will generate for the IRS. It is going to be extremely complicated,” said Yves Mirabaud, managing partner at Mirabaud & Cie and Swiss Bankers Association board member.”

o Discussing the impact in Canada, Reuters notes, “The new regulation has drawn criticism from the world’s banks and business people about its reach and costs. ..”Hundreds of millions of dollars spent on developing compliance processes to target Canadian citizens would not be a useful exercise, and they are, for the most part, people who actually have no tax liabilities because they do not earn income in the United States,” [Canadian Finance Minister] Flaherty said.”

o A Taiwan news outlet said, “Taiwan’s domestic banks will reportedly reduce holdings of American bonds worth an estimated NT$100 billion (US$3.33 billion) due to the U.S. government’s recent decision to impose 30% tax on foreign-investment income in U.S. securities as bonds. Taiwan’s eight government-linked banks reportedly hold U.S. financial products worth over US$2 billion… On April 8, 2011, the U.S. government issued a notice advising foreign financial institutions to meet certain obligations under the Foreign Account Tax Compliance Act (FATCA), under which foreign financial institutions are subject to complex reporting rules related to their U.S. accounts.”

o From the Persian Gulf, the Bahrain Daily News noted, “A US law…has drawn the criticism of the world’s banks and business people, who dismiss it as imperialist and “the neutron bomb of the global financial system.” The unusually broad regulation, known as FATCA, or the Foreign Account Tax Compliance Act, makes the world’s financial institutions something of an extension of the tax-collecting Internal Revenue Service – something no other country does for its tax regime. …Even the European Commission has objected, and experts say other countries may create their own FATCA-style regimes for US banks or withdraw from US capital markets. In a barrage of letters to the Treasury, IRS and Congress, opponents from Australia to Switzerland to Hong Kong assail FATCA’s application to a broad swath of institutions and entities.”

o A story from Singapore finds, “For many years, thousands of foreign investors have put their money into American shares or other investments. Now, however, a somewhat obscure law called the Foreign Account Tax Compliance Act (FATCA) may make investments in the United States for everyone, from billionaires to the man on the street, here in Singapore far less attractive. …some banks or investment managers may advise customers not to invest in the US. … “private bankers are publicly advising their clients to clear their portfolios of all US securities”. A fund manager here told me his company is also advising clients to avoid US investments, and other companies may similarly start telling large clients as well as smaller ones the same story. Investors could then see recommendations not to invest in the US, and they may put their money elsewhere. …As consulting firm PwC said, “some institutions could decide that complying with the due diligence and verification provisions may not be cost effective” so they may stop making investments in the US. Banks or other asset managers may similarly decide it is easier not to offer US investments than to try and comply with the FATCA.”

o From Switzerland, a story “about the backlash from United States expats and the financial sector to the Foreign Account Tax Compliance Act (FATCA)” reports that, “Growing numbers of American expatriates are renouncing their US citizenship over a controversial new tax law and ever more burdensome fiscal and reporting obligations. …banks and business people who are supposed to enforce it on behalf of the US tax man are worried about its costly administrative burden… it’s just too expensive. The consequence will be that they cut out US clients and stop investing in the US. …Three or four years ago no one talked about renouncing nationality – now it’s an open discussion. That’s a major shift in mentality.

o Writing about the reaction from Europe, one columnist noted, “FATCA encourages foreign financial institutions to limit their exposure to U.S. assets. In a joint letter to the Treasury and the IRS, the European Banking Federation and the Institute of International Bankers, which together represent most of the non-U.S. banks and securities firms that would be affected by FATCA, warned that “many [foreign financial institutions], particularly smaller ones or those with minimal U.S. investments or U.S. customers, will opt out of U.S. securities rather than enter into a direct contractual agreement with a foreign tax authority (the IRS) that imposes substantial new obligations and the significant reputational, regulatory, and financial risks of potentially failing those obligations.” A widespread divestment of U.S. securities by institutions seeking to avoid the burdens of FATCA could have real and harmful effects on the U.S. economy.”

These press excerpts help demonstrate the costs of FATCA, but what about the benefits? After all, maybe the law will lead to lots of good results that offset the high regulatory costs and lost investment for the American economy.

Well, the only “benefit” anybody had identified is that FATCA will transfer more money from the productive sector of the economy to the government. Indeed, Obama argued during the 2008 campaign that cracking down on “tax havens” with proposals such as FATCA would give politicians lots of additional money to spend.

But when the legislation was approved in 2010, the Joint Committee on Taxation estimated that the new law would raise only $8.7 billion over 10 years, not the $100 billion that Obama claimed could be collected every single year. This video has some of the damning details.

One final point demands attention.

While it appears that the rest of the world is against FATCA, that’s not completely true. Some international bureaucrats in Paris, funded by American tax dollars, actually want the rest of the world to adopt the same Orwellian system. Here’s a blurb from the New York Times story.

Jeffrey Owens, a tax expert at the Organization for Economic Cooperation and Development, said catching tax evaders was “a concern that many member countries share.” If countries could agree to new global reporting standards for exchanging information, he said, then “maybe there’s a way forward.”

In other words, the pinhead bureaucrats at the OECD think FATCA’s such a swell idea that they want to create a global network of tax police. So not only would America erode the sovereignty of other nations because of our bad tax law, but those other nations would be able to impose their bad tax law on income earned in America!

And just in case you think that’s just irresponsible demagoguery, it’s already beginning to happen. Check out this IRS regulation, proposed by the Obama Administration, that would require American banks to put foreign law above American law.

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.

It is without question that Bradbury built Continental Express up from a variety of positions, eventually as Chief Executive Officer. After more than a decade with him at the helm, the boutique trucking company grew into a national logistics powerhouse with 500 tractor-trailers, major accounts and hundreds of top-notch employees – many of them crossing the country 24 hours of every day of the year.

As the company grew, Harvey and his wife, Bonnie, who is the Mother-In-Law of US Senator Mark Pryor, got into dozens of other businesses: banking, sawmills, boating, and many more. Continental was a cash cow for the family and the Harvey’s used the privately held firm as their piggy bank to buy properties and other bad fits for the business. Day after day, Bradbury would take calls from the Harveys letting him know of another personal expense to be borne by the company or another bad business idea he had to sort out.

Still, Bradbury managed to grow the company into an Arkansas powerhouse. After a decade with the business, he asked the Harveys to discuss his promised equity stake in the company. Each time he asked, the husband and wife team rebuffed him. Meetings to discuss the commitment were canceled and delayed; business benchmarks and goals were shifted and reset. In the end, they simply refused to give him a piece of what he had built.

Disappointed the Harveys would not make good on their promise of ownership, he left the firm in 1999.

CONTINENTAL EXPRESS CRASHES

After he left, the Harveys hired Kelly Wooldridge as president and Todd Tiefel as Chief Financial Officer to replace Bradbury’ leadership of the firm. The family took their eyes off Continental and within months Tiefel and Wooldridge started looting the place. Tractor-trailers were transferred to subsidiaries owned independently by the President and CFO. Many other shady deals slowly bled Continental.

Ed Harvey eventually figured out about the well-concealed theft, fired the two fraudsters and in 2005 begged Bradbury to return as CEO and clean up the mess. Working closely with Harvey, Bradbury discovered a web of deceit and turned the proof over to the US Attorney. Tiefel, and Wooldridge both eventually went to federal prison.

The company to which Bradbury returned was very different from the company he had left seven years before. Between the Tiefel/Wooldridge looting and a state trooper’s death caused by a Continental driver which led to a $7 million liability, the company was cash poor. And with former executives in prison and the death of a law enforcement officer on their hands, the company’s reputation was in shambles.

Even with Bradbury back in the wheelhouse, the company was truly suffering. Longtime accounts left and new accounts didn’t sign on to replace them. Cash wasn’t building up, so the firm relied heavily on vendor financing – a temporary measure which looked to be a permanent fix.

The once wealthy company was operating hand-to-mouth. Far from a cash cow, Continental Express now relied upon a $37 million line of credit personally guaranteed by Ed Harvey to operate. The company was losing $200,000 to $300,000 monthly and no longer financed the Harvey’s lifestyles, so they decided to sell the business.

The Harveys hired a broker to sell Continental Express: Marvin Jones, a man who claimed to be working around Arkansas for years but who old line Arkansans could not recall. Soon, Bradbury no longer wrote nor approved checks; he was no longer involved in the flow of funds and was removed from control of the books.

Jones gained complete financial control of Continental Express operations. Bradbury became a CEO with no authority, Marvin had no official title and Ed Harvey’s wife Bonnie called the shots.

A victim of Alzheimers, Ed Harvey slowly faded into the background and Bonnie Harvey, the Senator’s Mother-in-law, stepped in with her husband’s Power Of Attorney to run the company. She maintained full financial control of Continental Express across three years.

As Bonnie Harvey and Marvin Jones orchestrated a sale, they stopped paying payroll taxes to the federal government. In the end, Continental Express kept three quarters of taxes they withheld from employees’ wages – $1.8 million dollars.

Amazingly, this money has completely disappeared.  There is no evidence Bradbury ever had it or knows where it is today. There is no accounting for who actually took millions in federal payroll taxes… yet.

While Bradbury had no fiduciary control, Harvey and Jones transferred more assets out of Continental. Two local banks sued the company for loan default and for transferring assets guaranteeing loans. Metropolitan National Bank and First Security Bank later settled their lawsuits for cash and confidentiality agreements.

By stripping the company of assets Harvey and Jones hurt the IRS’ financial position, too, on recovering the missing $1.8 million.

After the sale of Continental Express, the tax bill still nagged at Ralph Bradbury. He started sending up flares, imploring Bonnie Harvey and Jones to pay the government. Emails dating to late 2008 indicate that Jones and the Harveys’ lawyer both acknowledged Continental’s tax obligations. They made promises but paid nothing.

In fact, by moving around company assets Bonnie Harvey and Marvin Jones were demonstrating a refusal to pay – normally a red flag for the IRS.

But the IRS has never contacted the well-connected Harveys and Marvin Jones is shrugging his shoulders, saying it’s not his problem and he owes nothing.

“I was not involved in anything to do with the finances until after the company was sold” on Dec. 4, 2008, Jones told Arkansas Business. “So I’m not sure how that argument holds up.” Yet Jones had total control of the books during the time the taxes went unpaid.

Instead, the IRS pursued Ralph Bradbury for the $2.7 million total of taxes and penalties even though he had no fiscal authority. The IRS decided to pursue a former company employee instead of the company’s owners!

They chased former Continental executive Pete Campbell, too. Both negotiated with the IRS and the agency agreed the two were not decision makers for the final two quarters. But both men are still held responsible for the first missing quarter: $800,000.

Bradbury is appealing the IRS ruling and headed to court. Campbell died in the meantime; his wife received an IRS assessment for $800,000 the morning of his funeral. Harvey and Jones – the people responsible for the non-payment of the payroll taxes - have been asked for nothing.

What role has Senator Mark Pryor played in the IRS’s bizarre decision to proceed against Bradbury and not Pryor’s Mother-In-Law Bonnie Harvey? Sen. Pryor’s spokesman dismissed the idea that the Senator had used his influence to help his wife distract the IRS from his mother-in-law, according to Arkansas Business:

“This office, nor Sen. Pryor, has dealings with Ed Harvey’s business decisions,” Michael Teague said. “Mark Pryor has made no phone calls, no discussions, no emails, no letters, no meetings, nothing with the IRS in regards to this issue or anything Ed Harvey does.”

Bonnie Harvey has controlled Continental Express since Ed Harvey fell victim to Alzheimer’s and Ed cannot interact about his affairs. The carefully crafted statement from Pryor’s aide does not address how if Sen. Pryor talked business with his mother-in-law or his wife and doesn’t say he never discussed the matter with Bonnie Harvey.

Two court cases prove that Harvey and Jones defaulted on one Continental bank loan and transferred assets to avoid paying another. $1.8 million in employee taxes went unpaid under Harvey’s watch, too, and no tax or law enforcement agency has investigated where that money went.

Worse: an analysis of IRS files obtained under the Freedom of Information Act proves the agency is not pursuing anyone at all for the two other quarters of stolen taxes. Once the IRS ruled the two employees were only liable for one quarter-a quarter in which they had no actual financial control of the company, the agency mysteriously declined to pursue the owner and shareholders for the second and third quarters – the very same people who benefitted financially.

Asset transfer and missing funds routinely triggers deeper IRS investigation, but not this time – not when a person in question is the close relative of a powerful US Senator. Rules and laws are for the little people.

The only people jubilant about this situation are Arkansas Republicans.

“Mark Pryor has sowed the seeds of his own defeat,” said one giddy Republican “ Republican will say Mark Pryor arranged kid-glove treatment from the IRS for his mother-in-law and helped rip off Arkansas tax-payers for nearly two million dollars. You can almost picture the devastating 30-second negative TV commercials now.”

Sooner or later we will know three things: what did Sen. Mark Pryor know, when did he know it and will it cost him his U.S. Senate seat?