June 30, 2004

Forsaking Privacy

If the government had access to the communications between a client and his lawyer, the lawyer would be nothing but a government agent, like Soviet defense attorneys, whose official role was to serve as adjuncts to the prosecution.
Paul Craig Roberts and Lawrence M. Stratton, "The Tyranny of Good Intentions"

Once upon a time, the U.S. Justice Department respected the legal rights that make law a shield of the innocent rather than a weapon of government. No more. What the great English jurist William Blackstone called "the Rights of Englishmen" have been eroded beyond recognition.

The last remaining right the attorney-client privilege is under full-scale assault by Justice Department prosecutors in the tax shelter case involving the accounting firm KPMG. The Justice Department has demanded, and the accounting firm has agreed to, a waiver of the attorney-client privilege for communications between lawyers and KPMG employees involved in marketing tax shelters the Internal Revenue Service has challenged.

The attorney-client privilege was long championed by jurists because they realized the privilege promoted equality under the law. Convictions can result from lack of access to legal knowledge as well as from actual wrongdoing. To ensure defendants would avail themselves of legal counsel, their communications with attorneys were made confidential, outside the reach of prosecutors.

I've written about tax issues before, including this article on our very odd SUV subsidies.

In recent years, the Justice Department has taken the position that winning its cases is more important than historic rights centuries in the making. Arguing that the innocent have nothing to fear from their attorneys' disclosures of their confidences, department has employed various means of subverting the attorney-client privilege.

Sentencing guidelines from the White House-appointed U.S. Sentencing Commission have greatly strengthened prosecutors' ability to attack the attorney-client privilege. Indictment of a company and the severity of punishment depends on its "cooperation" with the investigation.

A January 2003 memo by Deputy Attorney General Larry D. Thompson, now a fellow at the Brookings Institution, defines "cooperation" in a way that drives a wedge between a company and its employees. A company that pays its employees' legal fees is defined as uncooperative.

Faced with the threat of being declared uncooperative, KPMG announced it would pay its employees legal fees only if they waived the attorney-client privilege and "cooperated" with the investigation. Invariably, "cooperation" requires self-incrimination and negotiation of a guilty plea. By making it impossible for a defendant to defend himself, the government need never have a real case.

Americans must think seriously about the quality of "justice" coming from the Justice Department. Prosecutors have defined "cooperation" as aid in convicting oneself or a fellow employee, as waiving all constitutional rights and privileges, as betrayal of fellow employees and as helping prosecutors create the appearance of guilt even when no crime has been committed.

Among the pending victims in the KPMG case, Jeffrey Eischeid faces 20 years in prison for marketing KPMG tax shelters that experts said were legal.

The IRS has the right to challenge the tax shelters, and the accounting firm has stopped marketing them. But for the Justice Department to retroactively declare them illegal illustrates the precarious position of a defendant today. Whatever he has done can be declared illegal after the fact.

The Justice Department also has disposed of the legal principle there can be no crime without intent. Neither Jeffrey Eischeid nor other KPMG employees knowingly or intentionally sold illegal tax shelters. The products were approved by KPMG's professional responsibility committee, and the IRS' challenge does not mean a crime was committed.

However, Justice prosecutors have become experts at creating the impression crimes have been committed. By stripping away a defendant's rights, prosecutors can coerce a guilty plea, crime or no crime.

Conservatives who prattle about Americans living under a rule of law are speaking of a bygone era. The rule of law ended during the New Deal, when President Franklin Roosevelt turned congressional statutes into authorization bills for federal bureaucrats to legislate via regulations.

Today, there is even less accountability. Appointed officials make criminal law without even a congressional authorization bill. The Sentencing Commission's "proposals" become law unless Congress vetoes them. What we are witnessing is the emergence of a fascist legal order in which law and legal procedure are whatever unelected officials decide serves the interest of government.

How else can we explain how the four foundations of our legal system no retroactive law, no crime without intent, no self-incrimination, and the attorney-client privilege have been swept aside in the federal case against KPMG?

Paul Craig Roberts is a columnist for The Washington Times and is nationally syndicated.

Posted by 77mvt315 at 08:57 PM | TrackBack

June 09, 2004

Tax Legislation for the Trash Heap

Steven Pearlstein updates us on the 930 pages in the recently passed Senate tax bill and the 398-page draft released last week by the chairman of the House Ways and Means Committee, Bill Thomas (R-Calif.).

With a few exceptions, both bills are grab bags of special-interest provisions designed to reward the well-connected at everyone else's expense. They reward companies that have played cynical tax games and open up new vistas for the tax shelter industry. And while claiming that the purpose of the exercise was to create jobs in the United States, they will only enhance existing incentives for U.S. companies to earn their profits overseas.

Worse still, they are almost certain to add billions each year to a federal deficit that is already too high.

Posted by 77mvt315 at 12:33 PM | TrackBack

June 05, 2004

The "Seamy Side" of State Tax Incentives

TaxProf points to a "brazen" Powerpoint (!) presentation by Big 4 Accounting firm Ernst & Young: Turning Your State Government Relations Department from a Money Pit into a Cash Cow.

Ernst & Young delivered the PowerPoint presentation at a recent meeting of the State Government Affairs Council, which bills itself as "the premier national association for multi-state government affairs professionals of over 120 major US corporations, trade associations and service providers." Ernst & Young made the pitch to a who's who of leading companies -- Alcoa, Anheuser-Busch, Bank of America, Bayer, BellSouth, Best Buy, Capital One, Coors, Goodyear, Home Depot, MBNA, Microsoft, Nextel, Nissan, Pfizer, Toyota, Verizon, and Wal-Mart.

Ernst & Young acknowledges that taxpayers don't like corporate welfare but suggests ways to "provide government with justification" for giving tax incentives to businesses. A key strategy is to identify "public benefits" while making a threat of dire consequences if the deal is not made. At the same time, the PowerPoint presentation suggests techniques to prevent states from rescinding the tax incentives if the promised public benefits do not materialize.

Posted by 77mvt315 at 04:53 PM | TrackBack

June 02, 2004

Wisconsin School Finance Reform Proposal

The Governor's Task Force on Educational Excellence is evidently poised to suggest that the state fund schools by:

  • Increase the state sales tax to 6% (from 5%) and reduce property taxes by 20% (I'll believe that when I see it)
  • Eliminate the QEO (Qualified Economic Offer)
  • Increase Class size reduction funding to $2,500 per child
  • Reimburse school districts at a higher rate for educating high-cost special education students.
Amy Hetzner summarizes the proposal.

I think that school funding should include:

  • Sales tax reform (newspapers, advertising - are currently not taxed)
  • Increase in annual vehicle fees, reflecting the cost of a auto and the fuel efficiency
  • Increased Federal Funding via reform of the Social Security tax so that all wage income is taxed, not just the first $87,600.

Posted by 77mvt315 at 09:12 PM | TrackBack

May 24, 2004

May 20, 2004

Tax Avoidance & Intellectual Property

Dave writes about Amazon's controversial one-click purchase patent (many business process patents, are I believe an abuse of the patent process). Evidently, Amazon assigned their patent(s) to Deutsche Bank as part of a credit agreement between 1995 and 1997.

I wonder if there might be a tax shelter angle to this (amazon was generating huge losses at the time, and other firms might wish to do a deal for the tax benefits of those losses)? Years ago, I worked for a major international beverage firm. One of their (this firm was not unique) tax reduction/avoidance strategies was to create the flavors in tax havens (Puerto Rico, Cyprus, Ireland among other places) and sell that essential component back to US entities at high prices (this is of course a rather simplistic analysis). The US entities then generated small margins or losses while the offshore unit generated the large margins. This tax strategy, among many others is discussed in the very enlightening book by NY Times reporter David Cay Johnston: Perfectly Legal.

Deutsche Bank, like many others, has been part of a number of tax shelter strategies.

This abusive patent process is the major reason I do not link to amazon (barnes & noble online is a fine alternative).

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April 15, 2004

Tax Day

Tyler Cowen writes a very useful article on where the federal government's $21,671 spending per household (2004) goes - up $3,500 from 2001!

Dan Gillmor has some additional comments relating to the emerging AMT (alternative minimum tax) problem, a subject I discussed some weeks ago.

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April 10, 2004

Madison Property Taxes: "Everybody's Richer"

According to city assessor Ray Fisher Friday when 2004 property assessments were released. "My house went up 10 percent this year. I look at it as money in my pocket." - Beth Williams writes. Interesting perspective.... Can't say that I agree with Ray on that one. Bill Novak writes:

"Last year, assessments went up 8.6 percent and the local real estate tax was up 7.1 percent, according to the Assessor's Office. In 2002, assessments were up 8.1 percent and taxes went up 3.2 percent. In 1997 and 1999, assessments went up and taxes went down." What about 1998, 2000 and 2001?

There has been talk in the state legislature of completely shifting school taxes from the property tax to other sources, such as the sales tax. Wayne Wood, a retiring representative from Janesville and Rep Mickey Lehman (R-Hartford) developed a proposal that would have used a sales tax increase to reduce property taxes for schools.

Michigan dramatically changed their school finance system a few years ago, substantially reducing property taxes, in return for an increase in sales taxes.

My view is that the time is long past to remove school spending from Wisconsin's high property taxes. Every Wisconsin property owner should reasonably expect:

  • Actual property taxes (not mill rate or assessed value) should increase at a rate not to exceed the past 12 month's Consumer Price Index (CPI)
  • Increases beyond the CPI would only occur if one or more of the following occur
    • Property is sold
    • Building Permit is issued, increasing the value of the home

How should we replace some of the property tax revenues?

  • Sales Tax
  • Gas Tax
  • Vehicle License Fees (tied to value as well as fuel economy - am I dreaming?)

Political paralysis on this issue can only lead to drastic measures in the not too distant future.

Related Links: Assessor's office | Wis Taxpayer's Alliance (lots of useful information)

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February 22, 2004

Frontline: Tax Me if You Can

PBS's Frontline has an interview with Robert McIntyre, Director of the Institute on Taxation and Economic Policy regarding Federal Tax Policy.

Our current tax system is a mess, with many special interests (ethanol, SUV's) feeding at the trough.

Business Week had an interesting article recently on the "fairness" of the current tax system (including the controversial Alternative Minimum Tax (AMT) implications on middle income Americans).

A friend thinks we're better off taxing everything at the cash source....

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