Posted by
Mike Rulle on Thursday, April 02, 2009 12:00:00 AM
GUEST ESSAY BY ANDREW SHELDRICK
I think the most under-reported news of the week is the Chinese
proposal to establish a new reserve currency. Whether this proposal
has legs will no doubt depend in large measure on the perceived
effectiveness of the Obama administration's economic initiatives -
though the current proposals to borrow or print about $3 trillion can't
look encouraging to our overseas creditors. So perhaps there's a
long-shot that Keynes will belatedly get his "Bancor".
The Chinese proposal seems to anticipate using SDRs as the functional
unit of currency. Reminiscent perhaps of how the Euro had its origins
in the ECU? However, the creation of a new reserve currency could have
devastating effects for the U.S., especially given the inability of the
current and recent administrations, and their counterparts in the
Congress, to observe any kind of budgetary or fiscal discipline.
However, my pet peeve this week has been the new "outrage" (both
in the U.K. and the U.S.) over the use of offshore "tax havens" by U.S.
and U.K. multinationals in order to reduce tax in their home
countries. There are two very simple propositions here that nobody in
the media or the government seems to acknowledge. First, there is a
distinction between "tax avoidance" (perfectly legal) and "tax evasion"
(not legal). The two terms are used apparently interchangeably by
Obama and his acolytes in Congress and the media. Second, managements
of companies have not merely the right, but also the legal and
fiduciary obligation to their stockholders, to organize their affairs
in such as way as to reduce taxes to the maximum extent permitted by
law, so as to maximize the company's profits - even, by the way, if
the principal stockholder is the Federal Reserve Bank of NY. That is
and always has been the essence of the capitalist system.
It has been asserted (by Joe Biden and others) that companies
who take advantage of legitimate tax planning strategies are
"unpatriotic". Setting aside the interesting question of how the
principle applies to Tim Geithner, Biden should heed the words of Judge
Learned Hand, who once famously observed, in a leading tax case:
"Anyone may arrange his affairs so that his taxes shall be as low as
possible; he is not bound to choose that pattern which best pays the
treasury. There is not even a patriotic duty to increase one's taxes .
. . [T]axes are forced exactions not voluntary contributions." As a
smart lawyer, Obama must understand all of this, but as usual prefers
to pander to ill-informed public opinion rather than putting his
communications skills to good use to explain the issue. Obviously
there is a pattern here - an apparent pathological inability to say or
do anything that may be at odds with the views of the least-informed
members of the electorate.