Tax Planning

The Raisin Administrative Committee Strikes Back!

With an annual budget now approaching $4 trillion, it’s not surprising that the US government has quite a few departments that most of us know nothing about.

And with a budget deficit of $486 billion projected for 2015, you would hope that Congress is diligently striving to abolish agencies whose functions are no longer needed. Perhaps that’s what Congress had in mind in 1996, when it voted to disband the “Board of Tea Examiners.” For nearly a century, this group of tea tasters met twice a year to inspect tea to determine if it was of a high enough quality to be sold in the US. But for nearly two decades, US tea drinkers have somehow survived without it.

But many agencies with responsibilities just as esoteric as the Tea Board continue to exist, courtesy of US taxpayers. Take the Board on Geographic Names (BGN), for instance. This government agency performs the vital function of “maintaining uniform geographic name usage.” Only, it’s not doing a terribly effective job. Take my hometown of Charleston, West Virginia, for instance. If the BGN was doing its job, wouldn’t it make the other 40 cities named Charleston change their name to something else? After all, to avoid confusion, shouldn’t there just be just one Charleston?

While the BGN seems unlikely to foist any serious harm on the US, I can’t say the same about every obscure federal agency. A great example would be the “Raisin Administrative Committee” (RAC).

This intrepid bureaucracy, with an annual budget of around $5 million, came into being in 1949. It performs the indispensible task of administering a “price stabilization” program to ensure that raisin prices don’t fall too low. After all, we wouldn’t want to risk letting the free market decide how much raisins should sell for, would we? As we all know, bureaucrats do this job so much more efficiently than market forces ever could. For proof, just look at the glorious achievements of socialist economies like Cuba, Venezuela, Zimbabwe, and the former Soviet Union!

In any event, back in 2002, after consulting crystal balls, goat entrails, and other economic forecasting tools, the RAC decreed that raisin farmers would be required to divert 47% of their crop into a raisin “reserve.” In other words, the farmers wouldn’t be allowed to sell nearly half of their raisins. Most raisin farmers went along, but one farmer named Marvin Horne didn’t. He thought he had found a loophole in the rules that allowed him to actually sell all the raisins he wanted.

Naturally, the RAC didn’t agree. A free market in raisins was such a grave threat to the US economy that the RAC originally fined Horne $650,000, now over $1.5 million, for not permitting it to confiscate nearly half his raisin crop. Horne appealed the fine, and for the last decade, the case has bounced up and down through the federal court system. The case is now before the Supreme Court, which mercifully appears ready to overturn a lower court decision ruling in favor of the RAC. That decision, from the 9th Circuit Court of Appeals held – get this – that the constitutional requirement to pay “just compensation” for regulatory “takings” applies only to real estate.

It’s what happens after the Court overrules the RAC where things will get interesting. Would the decision invalidate all price support programs run by agencies like the RAC? We can only hope that it would, but the frightening specter of a free market in agricultural commodities may be too much for even a Republican-controlled Congress to bear.

Of course, the power of eminent domain – the authority of the sovereign to take private property for public use – isn’t only abused in the US. Among other countries, courts in Belgium, France, and Germany have upheld some very questionable regulatory takings.

On the other hand, in many of the most popular international jurisdictions our clients live, invest, and do business in, regulatory takings of this type are virtually unknown. The Commonwealth of Dominica is a great example. Dominica does use eminent domain in public works projects, but doesn’t discriminate against non-Dominica property owners and also pays what is widely believed to be just compensation for such regulatory takings.

Yet, Dominica makes no effort to restrict agricultural output. At the local farmers market in Roseau, farmers can sell their bananas, coconuts, and other produce for whatever price the market will bear. Even raisins!

There’s a larger lesson here as well. Wealthy countries like the US have a tendency to develop the “Nanny State” to absurd proportions. Less developed countries like Dominica have better things to do than to tell farmers and other entrepreneurs what they can or cannot do.

Keep that in mind when you’re looking for offshore jurisdictions to live, invest, or do business in.

Mark Nestmann

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