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"The Postal Savings System
  in Japan actually has on deposit in real funds
  nearly $10 trillion which is then managed by the private sector
  under the watchful eye of government."



  July 18, 1996

  Testimony of:
  Martin A. Armstrong
  before US Congressional
  House Way & Means Committee

  Chairman Princeton Economic Institute
  214 Carnegie Center Princeton, NJ 08540

  Mr. Chairman, members of the committee. I would like to thank you
  for inviting me here today to offer what
  information PEI has gathered from our experience in dealing with
  the multinational corporate and institutional
  sector in the global economy. As a brief background, PEI
  maintains offices in the US, Tokyo, Hong Kong,
  Sydney and London. We currently provide corporate and
  institutional advice under contract on global assets
  exceeding US$2.5 trillion, an amount equal to about half of the
  US national debt.

  In our capacity as an advisor serving the international community
  in real life decision making rather than theory,
  PEI may be uniquely qualified in providing insight as to how and
  why both investment and business capital flows
  are affected by a nation's domestic policy objectives.

  It has been our experience, that there are five key factors that
  provide the core stimulus behind capital flows

  1) Foreign Exchange
  2) Taxation
  3) Labor Costs
  4) Inflation & Interest Rates
  5) Security (geopolitical & financial)

  Let me begin with foreign exchange as an illustration of how
  capital is being affected before discussing taxation.

  Foreign Exchange fluctuations have become the number one cause of
  corporate losses. The percentage movement
  in the exchange value of currencies has become as high as 40%
  over a two year period. Exchange losses have
  impacted every sector of business in every nation to the point
  that the very way multinationals operate today is
  dramatically shifting from that of only 10 years ago.
  Multinationals have been forced to change pricing policy as
  well as the location of manufacture in an effort to reduce
  extreme financial risks for their shareholders.
  Transactions such as Rockefeller Center, MCA etc resulted in
  significant losses to the Japanese investors, more
  so by the 40% depreciation of the dollar than the actual decline
  in value of the underlying assets. Japan Airlines
  was forced to lay-off 25% of its work force last year due to the
  fact that their cost base was Japanese yen while
  their revenue was largely foreign currency denominated. In
  Germany, Mercedes has been forced to restructure
  their pricing policy as of July 1st, 1996 due to foreign
  exchange. Instead of pricing the product in DMarks around
  the world, which has cost them market share, products will now be
  priced in local currency thereby transferring
  the currency risk back to Germany.

  These are but a few examples of how the more recent extreme
  fluctuations in the exchange value of currencies has
  impacted business and investment decisions on a global scale.
  While it may be politically preferable to manipulate
  currency values in an attempt to impact trade flows, in reality,
  trade accounts for less than 10% of the total world
  capital flow movement. Our warni ngs delivered in a letter to
  Congress and the White House back in 1985
  cautioned against such intentional currency manipulation as
  enacted in the G5 September Plaza Accord. The net
  result of attempts to influence trade through currency
  manipulation led to the 1987 Stock Market Panic. PEI's
  research was requested by the Brady Commission and we would like
  to think that we had some impact upon its
  findings since two of our clients were on the Commission itself.
  Mr. Brady later stated that he believed that
  currency fluctuations had played a role in the Panic of 1987.
  Offered here is a graphic illustration (figure #1) of the
  net capital flow movement for that period. The upper portion of
  the graph plots trade and the lower portion capital
  movement which included, stocks, bonds and real estate
  investment. What is important to note is that ever since
  1987, the fluctuations in net capital movement have become more
  than 10 times as volatile when compared to the
  pre-1987 era.

  The second most important factor influencing net capital flow
  movement is none other than taxation. However,
  taxation is more than a pure income tax. Taxation contributions
  imposed on business based upon social objectives
  involving labor are of greater importance than the mere
  superficial level of corporate income tax rates alone.

  It is wrong to assume that manufacturing jobs flow to merely the
  lowest possible labor cost. If this were true, then
  all manufacture should be conducted in Mexico, South East Asia or
  better still -Africa. In our capacity as a
  corporate advisor helping to make such strategic decisions as to
  where companies should or should not locate,
  there are 5 primary considerations that go into the final
  decision process on this level.

  1) Rule of Law
  2) Labor Skill availability
  3) Taxation Contributions Required on Labor
  4) Corporate Tax Rate
  5) Regulation

  We have clients who have turned down what appeared to be
  lucrative business ventures in 3rd world nations as
  well as Russia or China based upon the lack of a Rule of Law that
  is required to secure the capital at risk. Without
  a solid Rule of Law, business cannot operate. Such ventures that
  do develop in those parts of the world depend
  upon government guarantees from their native country of origin in
  an effort to underwrite the political risk at hand.

  While it is obvious that labor costs are closely associated with
  labor skills, what is largely overlooked are the
  social taxation and regulations associated with a work force. We
  found Asian companies who wished to open
  manufacturing plants within the EC made their decision based upon
  the level of skills available and then secondly
  chose the lower total cost of labor. For example, the UK
  attracted more than 40% of all foreign investment into
  Europe due to the fact that it had a skilled labor force but its
  cost was much less compared to that of Germany or
  France. This cost factor was determined not by mere wages, but
  included the social taxation that companies were
  required by law to provide. On that score, the labor costs in the
  UK were 40% less than Germany.

  When a company did NOT require a major work force but instead
  merely needed a legal entity within the EC,
  then the primary deciding factor became the corporate tax rate.
  While the UK corporate tax rate was 19% less
  than Germany, they were still more than twice that of nations
  such as Spain and Ireland. Therefore, corporate
  headquarters or low skilled labor requirements tended to
  gravitate to the lowest possible corporate rate within the
  EC. This is illustrated by the impressive Irish economic growth
  rates of 9% compared to European economic
  growth rates of 2.5%. We have found that there is a correlation
  between high unemployment and high total
  taxation and regulation costs across Europe today.

  Of course, regulation was a major factor as well. This we can see
  within our own US borders as well. Southern
  States are actively competing for Northern corporations and jobs.
  If we look at those states where regulation is
  the least intrusive and taxation is the most favorable, you will
  find the highest number of corporate relocations and
  new foreign business ventures within the United States.

  Domestic Taxation policy must take into consideration our new
  global economy. We must be sensitive to being
  competitive not merely on labor costs, but also on the total
  taxation and regulation costs if we hope to avoid the
  dismal European example with its chronic unemployment in excess
  of 10% year after year. We must also keep in
  mind that taxation itself is largely influenced by philosophical
  decisions made by governments without considering
  the true total economic impact. For this reason, taxation has
  been a major factor in altering world capital flows as
  well as economic growth levels. When the US corporate tax rate
  hit nearly 70% during 1968-1969, virtually
  every American company began shifting manufacture offshore.
  Today, over 65% of the US trade deficit is made
  up of US companies importing their own goods manufactured
  somewhere else. In fact, if we allocate world trade
  according to the flag a company flies instead of the last port of
  assembly, you will find that the US has a net trade
  surplus in excess of $150 billion.

  Much of the economic turmoil in Japan today is being caused by
  excessively high tax rates. In fact, three of the
  first section listed companies on the Tokyo Stock Exchange have
  renounced their Japanese heritage and moved to
  Hong Kong due to a 15% tax rate compared to nearly 70% in Japan.
  Our economy contracted from the 1960s
  for 12 years. Japan appears to be facing the very same long-term
  trend. After 6 years, the Japanese economy
  remains in the throws of a near depression and taxes have still
  not been reduced. Despite the fact that interest
  rates have fallen in Japan to 0.25%, there remains no interest in
  borrowing for domestic economic expansion.

  The method of taxation through domestic social objectives is also
  a key factor in shifting global capital flows. For
  example, the US is one of the very few nations that seeks to tax
  their citizens and corporations on worldwide
  income. Most British Commonwealth nations tax worldwide income if
  earned in a tax free zone. Therefore, if the
  US were to totally eliminate the corporate income tax, we would
  run the risk of corporate earnings in the US
  being considered as income from a tax free zone.

  Furthermore, US tax code classifies income made overseas as if
  any overseas income is derived solely to avoid
  domestic taxation. The 50% and/or control rule for US companies
  as the sole criteria for taxation penalizes US
  enterprises forcing many into joint ventures simply to avoid
  double taxation in the US. We also discriminate
  against American companies trying to enter foreign markets by
  passing the tax burden directly to personal income
  even if such earnings are not distributed. Our tax code assumes
  that any offshore entity is merely trying to avoid
  taxes without testing whether or not an actual business is being
  developed as compared to an offshore account for
  investment purposes.

  In addition, our prejudice against capital gains versus
  short-term income within our tax code provides a incentive
  to manufacture and develop domestic products offshore. The US is
  one of the few nations whose tax system
  punishes long-term investment while rewarding short-term
  speculation. Again, the capital gains taxation has
  exported more American jobs not because of the mere rate, but due
  to the fact that losses have been treated
  differently from short-term income while disallowing the impact
  of inflation indexing. Consequently, while virtually
  every electronic product from VCRs, CDs and assorted appliances
  were designed and patented in the US, their
  final development and manufacture have been more fairly treated
  by nations such as Japan. This uncompetetive
  social philosophy inherent within American tax code has been one
  of the major causes of forcing US companies
  offshore into joint ventures than even the net level of income
  tax itself.

  While many will argue that corporations pay little in income tax,
  what is grossly ignored is the taxation of labor that
  is a huge direct cost to business. If we look at our own revenue
  statistics, you will find that the taxation
  contributions to the payroll tax paid by corporations is
  substantial - generally twice the level of corporate income

  We must also take into consideration the net cost of taxation
  upon the nation as a whole. While it is true that the
  national debt doubled under Ronald Reagan moving from $1 to $2
  trillion, this alone does not mean that lower
  taxes or Reaganomics failed. Under Bush and Clinton, the national
  debt has now more than doubled from $2 to
  $5 trillion despite raising taxes.

  We must honestly review the economic facts of the past 16 years
  in order to understand our future. Since Ronald
  Reagan, we have actual ly had a balanced budget from the
  perspective of revenue vs spending. At 8%
  compounded, you double your money in a bank in about 8 years. The
  interest expenditures during the Reagan
  period were equal to nearly $1 trillion. Today, we actually
  collect about $100 billion more in revenue than
  Congress actually spends on programs. This is being absorbed by
  our interest expenditures. In fact, since 1950,
  the total interest expenditures paid now equal 68% of the total
  outstanding national debt. We are indeed becoming
  a Banana Republic.

  At times, up to 40% of our national debt has been held by
  offshore investors who pay no income tax in the US.
  This means that domestic spending from Congress is no longer
  stimulating our domestic economy. If fact, an
  analysis of capital flows reveals that the Japanese earned more
  from the US on their investment income in the past
  16 years than they did on trade.

  By taxing interest income, we penalize Americans and overpay
  foreign investors exporting more capital than
  would otherwise take place. If we eliminate the income tax on
  government bonds, we could reduce the interest
  rate to the actual net return after taxation. This alone could
  result in an instantaneous balanced budget since we
  currently collect more in revenue than we spend on programs with
  the excess being consumed by interest.

  Capital is rushing around the globe today much in the same manner
  as it did going into the Great Depression.
  Herbert Hoover wrote in his Memoirs that "capital acted like a
  loose cannon on the deck in the middle of a
  torrent." In 1985, the largest futures mutual fund was $100
  million. Today, $1 billion funds are a dime a dozen.
  Everyone is investing somewhere else to avoid local taxation. It
  is now estimated that over $2 trillion sits offshore,
  untaxed and unregulated emanating from all nations. If we
  eliminate the personal income tax, then America itself
  will become the international magnet for this vast pool of
  capital. Our interest rates would decline as it always
  does whenever excess capital emerges. This single step alone,
  combined with creating a tax free government bond
  structure, could spark untold economic growth and help to
  actually begin reducing our national debt rather than
  waiting for everything to go bust beyond the year 2000.


  1) End the discrimination against long-term investment by at
  least allowing capital gains to be indexed to inflation

  2) Promote honest reform of the Social Security System whereas
  contributions made should be privately managed
  as is the case in many other nations. The Postal Savings System
  in Japan actually has on deposit in real funds
  nearly $10 trillion which is then managed by the private sector
  under the watchful eye of government. This will
  help reduce the cost of labor in the US, create jobs through
  increased savings, and result in lower payroll tax
  contributions for business over the long-term while safeguarding
  the long-term viability of these critical social

  3) Eliminate the taxation on government bonds.

  4) Eliminate the personal income tax and replace it with a
  national sales tax of 10% as originally intended by the
  founding fathers with just cause.

  5) Reduce the corporate tax rate to 15% matching Hong Kong
  thereby transforming the US to the international
  magnet for capital. Allow interest paid to be deducted as a part
  of the cost of doing business.


  Mr. McCrery. I just want to ask a few questions before going to
  my colleagues. There seems to be, and maybe
  I misunderstood, but there seems to be some disagreement among
  the panelists on the efficacy of going from an
  income tax system to a consumption tax in terms of encouraging
  foreign business to relocate in the United States.

  Mr. Armstrong, I thought you said that if we did away with the
  income tax, went to a consumption tax, you would
  find that those businesses would simply have to pay their
  domestic income tax and, in many cases, that would
  discourage them from coming to the United States, while the other
  two panelists seem to imply that going from an
  income tax system to a consumption-based system would encourage
  foreign investment.

  Did I miss something there or is that a correct interpretation?


  Mr. Armstrong. From my perspective, we see two types; one, if you
  are talking about a company that is setting
  up a plant. Because of the international tax code, for example,
  many British Commonwealth nations do not tax
  foreign income, however, there is a kicker to it. If it is income
  earned in a tax-free zone, then it is subject back.
  They do that for offshore investors, etc.

  Our concern is that if you had a complete zero income tax rate
  here and even though the company would be
  subject to a consumption tax in some way or another along the
  line, that could be interpreted from a foreign
  perspective as being a tax-free zone, and I would like to point
  out that last April, Germany was very interested in
  how it is dealing with its budget crisis.

  Germany surrounded all of the offices of Merrill Lynch and
  several other banks. They attacked the company as if
  it was a drug raid. They cut off all the phones of Merrill Lynch,
  all the hand-held cellular phones that the brokers
  had. They went in, raided all the files, looking for German
  citizens putting capital offshore.

  The net result of those raids effectively sent the Deutsche Mark
  down, the Swiss Franc up, and the London
  Financial Times even reported that it was incredible the amount
  of capital that was suddenly leaving Germany for

  That has not resulted in if you are in the financial industry,
  you are better off working out of London. You cannot
  do business in Germany.

  If I were to go to Germany and answer a question on taxes to be
  more competitive and if my answer can be
  interpreted as helping someone avoid taxes, that is a 5 year jail
  term for me personally now in Germany.

  So you have to be very careful about the international tax code.
  My lawyers go crazy every time I even have to go
  to Munich. So I think there is a different side to that.

  Now, a consumption tax with zero income tax, from an investment
  perspective -- we are talking about interest
  income, etc., investments in stock markets -- absolutely
  positive, you would have capital flowing in here. This
  would be like the Cayman Islands of the global economy.


  Mr. Houghton. I guess the issues that I worry about are fairly
  simple. They have to do with cash. The United
  States generates about, I would say on the previous figures -- I
  guess it was 1995 -- $800 billion in terms of
  income taxes and about $600 billion in terms of other taxes, FICA
  taxes, things like that.

  So, all of a sudden, you really sort of throw that out and you
  move towards a different tax system. You have got
  to generate at least $1.4 trillion, and it will probably be up
  now to $1.5 trillion or $1.6 trillion. How do you do
  that? I mean, that is a real tricky question because somebody
  sitting here or elsewhere has to make that decision.

  We can talk about this thing intellectually, and we can talk
  about it in terms of competitive reasons, but the
  question is how do you make that switch. How can you make sure
  that we don't end up with a $500 billion deficit
  because we have miscalculated this thing? Maybe you would like to
  make a comment on that, anyone.


  Mr. Armstrong. We looked at some of those numbers to perhaps
  answer that question, and we were looking at
  taking the BEA numbers.

  We found that if you instituted a 10% sales tax with also a 2%
  sales tax on real estate transactions, that in
  combination with only a 15% flat or fairer- type corporate tax
  was actually scored revenue neutral, and it is quite
  surprising when if you really start putting in some of the other
  aspects which would be more dynamic

  For example, the Internal Revenue Service itself claims that
  close to 17% of the economy is underground. You
  are never going to capture any form of an income tax from that
  side, from the illegal aliens or things of that nature.
  They will contribute to their local sales taxes, but they will
  never file an income tax return.

  So if you look at the income tax versus a consumption tax from
  the total GDP perspective, the revenue would
  actually increase because income tax will never capture that 17%
  portion of the economy that the IRS says is
  underground. The other problem is -- there is a very interesting
  article on the front page of the New York Times
  today where 600 are suspected in plots to evade taxes on income.
  These are 600 government employees.

  The income tax is, quite honestly, easier to avoid than the sales
  tax. It is much easier to do so. If you really look at
  the numbers objectively, I think that you are looking at least at
  a potential of actually collecting more revenue.

  Then, if you look at the income tax and its effect on interest
  rates, I mean, we can supply you with a study of
  interest rates for this country back for 200 years. Every time
  the government raised income taxes, interest rates
  rose basically in direct proportion. Capital invests on a net
  basis. It doesn't want to hear, well fine, I will pay you
  20%, but by the way, I want 95% of that back. Capital looks at
  whatever it is going to have on the table at the
  end of the day.

  So, consequently, the points in my opening statement about
  Japanese earning more money from us on investments
  versus trade is very important to understand because, in effect,
  we are paying more in interest expenditures on our
  national debt than maybe is really necessary. We are paying a
  higher rate to compensate Americans that are
  paying a very high tax rate, but foreigners are buying our bonds
  paying zero in income taxes.

  Mr. Houghton. But you are not suggesting that the foreigners pay
  a tax on interest.

  Mr. Armstrong. No, no. They won't pay it. What I am suggesting is
  that you perhaps even the playing field and
  make at least interest paid on government bonds tax-free.

  Mr. Houghton. Sure.

  Mr. Armstrong. If you could reduce the interest rate itself on
  the national debt by a third, you have created a
  surplus, eliminating the deficit. You can create about a $150
  billion surplus.


  Mr. Gibbons. Mr. Armstrong, you have more experience in exchange
  rates than I do, and let me pump your
  mind for a while.

  What really controls the exchange rates? In the long, long run,
  probably international trade has something to do
  with it, but in the short run, is it more financial
  considerations than it is trade considerations?


  Mr. Armstrong. Yes. Quite frankly, trade is minimal.

  Mr. Gibbons. That is my impression.

  Mr. Armstrong. If you look at the U.S.-Japanese trade deficit, it
  has not changed dramatically in 2 years. Yet,
  the Japanese Yen went up 40% and down 40%.

  If you look at, for example, Nippon Life, the largest insurance
  company in Japan, they have a portfolio of about
  $1.2 trillion. If they decided to move 10% of their portfolio to
  the U.S. stock market, that is more than 2 years
  worth of trade numbers.

  The trade is more of a psychological impact, but in my opinion,
  the currency markets have been reduced to the
  fact of almost an international polling.

  Mr. Gibbons. An international what?

  Mr. Armstrong. An international poll where the markets and
  capital is voting on the confidence of countries on a
  daily basis.

  So, consequently, you will find with the elections with Yeltsin,
  the dollar restrengthened because of concerns that,
  well, maybe if Yeltsin lost, then you are going to have problems
  in Europe.

  So you have capital movements that are taking place for a variety
  of reasons: geopolitical security, financial
  security, rules of law. Trade is also part of it, and the other
  part of it is taxes and how they impact investment, and
  that is the point I was trying to make about the national debt.

  You really have foreigners paying no tax and penalizing
  Americans. Then, you look at our American corporations,
  we tax them on worldwide income. Nobody else does. It seems like
  when you look at the broad scope of
  everything, Americans are the number-one prejudiced people in the
  entire world. Nobody else is as punitive on
  their citizens as the United States, and it seems ironic that we
  are supposed to be the leader of the free world, but
  when it comes to tax code, we seem to be absolutely backwards.

  Mr. Gibbons. I apologize for taking this extra time.

  I am amazed that America has done so well when I look at our
  system and the penalties that we put on our
  people for jobs and for taxes and for everything else, and that
  really concerns me. We have got a very expensive
  system to administer.

  I don't know how expensive, but it is horribly expensive,
  probably the most expensive system in the world to
  administer, and I worry about America's future when I see us
  dragging along as economic baggage, useless
  baggage, our horribly expensive tax system, and then not doing
  perhaps as much as we should as far as education
  is concerned because I think the future of our country depends
  upon how well we educate our minds and how
  efficiently we operate our economy.

  I am very pessimistic that we seem to be headed in the wrong

  Mr. Armstrong. I agree. I am always impressed by some of my
  European friends whose little children may be
  five or six and they are speaking four different languages.

  Mr. Gibbons. Yes.

  Mr. Armstrong. It is quite impressive to see, quite honestly, but
  I totally agree with you.


  Mr. McCrery. Mr. Armstrong, do you happen to know the current
  percentage of public debt that is held by
  foreigners? You said in your testimony that we have had up to 40%
  of it.


  Mr. Armstrong. I would have to check the 1995 numbers. The
  highest number I have seen that fluctuate to is
  about 42%.

  Mr. McCrery. Was that recently?

  Mr. Armstrong. Yes, within the last several years. It has been
  coming down largely because of concerns about
  the dollar. It has caused a lot of foreigners to sell government
  bonds, particularly in the United States, also
  Canada. One of the largest institutions in Japan lost so much
  money on the foreign exchange on our bond markets
  here that they actually announced that they are no longer going
  to buy government bonds from anybody in the
  world again.

  Mr. McCrery. But it is still a significant portion. Is that your

  Mr. Armstrong. I would only be taking a guess. I think it might
  be down to maybe the 25-30% area at this


  Mr. Portman. I wish I had more time, Mr. Armstrong, but maybe
  someone else can go into this further. This
  fascinates me, this notion of tax-free bonds because it would put
  us in a level playing field with foreign investors
  and government bonds.

  You mentioned the figure of $250 billion. Where do you come up
  with that? Our interest on the debt is, what,
  about $200 billion a year?


  Mr. Armstrong. We now, I believe are collecting close to $100
  billion more than we are spending on actual
  programs, which is being absorbed by interest.

  Mr. Portman. Okay. so what would be the net effect of your
  proposal in terms of government revenues' impact
  on the budget?

  Mr. Armstrong. It would really depend on how much of the national
  debt you could shift over.

  I can tell you in the financial community, there is something
  else that has happened here, and that is that in 1993,
  the Treasury began trying to take advantage of the steep yield
  curve in this country, and they started shifting the
  national debt short term. I will be glad to provide the
  Commission with a chart on that. We are now 70%.

  Mr. Portman. This was in 1992 or 1993?

  Mr. Armstrong. In 1993.

  Mr. Portman. Okay.

  Mr. Armstrong. Yes. We are now funded 70% 5 years or less.
  One-third of the entire national debt is funded 1
  year or less. All right. This is why short- term interest rates
  have doubled in the last 2 years, and we now have a
  yield curve that is practically flat.

  Initially, the Treasury was doing that, trying to save on
  interest expenditures to bring the deficit down.

  Mr. Port



jewn McCain

ASSASSIN of JFK, Patton, many other Whites

killed 264 MILLION Christians in WWII

killed 64 million Christians in Russia

holocaust denier extraordinaire--denying the Armenian holocaust

millions dead in the Middle East

tens of millions of dead Christians

LOST $1.2 TRILLION in Pentagon
spearheaded torture & sodomy of all non-jews
millions dead in Iraq

42 dead, mass murderer Goldman LOVED by jews

serial killer of 13 Christians

the REAL terrorists--not a single one is an Arab

serial killers are all jews

framed Christians for anti-semitism, got caught
left 350 firemen behind to die in WTC

legally insane debarred lawyer CENSORED free speech

mother of all fnazis, certified mentally ill

10,000 Whites DEAD from one jew LIE

moser HATED by jews: he followed the law Jesus--from a "news" person!!

1000 fold the child of perdition


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