Archives: February, 2011

Actually, Texans Save $600 Million a Year

A Texas tax official estimates in this story that Texas loses an estimated $600 million in Internet sales taxes every year. Its part of a long-running debate about whether state governments should be able to collect taxes from out-of-state retailers who send goods into their jurisdictions.

What happens with the $600 million depends on what you mean by “Texas.” If you mean the government of the state of Texas in Austin, why, yes, the government appears not to collect that amount, which it wants to. If by “Texas” you mean the people who live, work, and raise their families throughout the state–Texans–they actually save $600 million a year. They get to do what they want with it. After all, it’s their money.

The Texas tax collector is complaining because the last thing state taxing agents want to do is collect money in the form of use taxes, which means something like going door to door to collect money from voters based on what they bought from out of state. Revenuers intensely prefer to hide the process, collecting their residents’ money from out-of-state companies.

Amazon.com is Texas’ target–it’s the great white whale for tax-hungry jurisdictions nationwide. With no retail outlets and few offices or fulfillment centers around the country, it’s not subject to tax jurisdiction in lots of places that would like to tap it for revenue. Having a fulfillment center in Texas may make Amazon liable for $600 million of its customers’ money, so it’s doing the sensible thing: getting out.

And thank heavens it can! Amazon is a cog in the extremely virtuous process of tax competition. Its ability to move operations means that it can escape states with burdensome taxes and tax collections oblibations, like Texas. Tax competition among states puts downward pressure on taxes, which in turn puts upward pressure on the wealth and well-being of state residents.

The pro-tax folks have been working for years to eliminate tax competition. The “Streamlined Sales Tax Project” continues work it began in 2000 to pave the way for nationwide sales taxation. “Streamlining” sounds so good, doesn’t it? But the result would be uniform–and uniformly high–sales taxes that every state might impose on every retailer that sends goods across state lines.

The Web site of the pro-tax coalition sounds good, too: the “Alliance for Main Street Fairness,” at the URL standwithmainstreet.com. Who wouldn’t want to “stand with Main Street”? Lovers of limited government, for one.

“Fairness” here means uniform high sales taxes and interstate tax collection obligations. The site doesn’t say who’s behind it, but the campaign to impose taxes on Amazon and other remote sellers is almost certainly a project of big national chain retailers. Rather than fight to lower taxes nationwide, they think they should just saddle their online competitors with tax collection obligations.

As long as the Streamlined Sales Tax Project continues to fail, tax competition in this area survives, and retailers like Amazon can provide lower costs to all of us–including that $600 million in savings enjoyed by Texans each year.

Cyber-Intrigue and Miscalculation

If you haven’t been following the intrigue around Wikileaks and the security companies hoping to help the government fight it, this stuff is not to be missed. Recommended:

The latter story links to a document purporting to show that a government contractor called Palantir Technologies suggested unnamed ways that Glenn Greenwald (author of this excellent Cato study) might be made to choose “professional preservation” over his sympathetic reporting about Wikileaks. A later page talks of “proactive strategies” including: “Use social media to profile and identify risky behavior of employees.”

Wikileaks has no employees. I take this to mean that the personal lives of Wikileaks supporters and sympathizers would be used to undercut its public credibility. Because Julian Assange hasn’t done enough…

While we’re on credibility: This may well be Wikileaks’ rehabilitation. Wikileaks erred badly by letting itself and Julian Assange become the story. We’re not having the discussion we should have about U.S. government behavior because of Assange’s self-regard.

But now defenders of the U.S. government are making themselves the story, and they may be looking even worse than Wikileaks and Assange. (N.B.: Palantir has apologized to Greenwald.) That doesn’t mean that we will immediately focus on what Wikileaks has revealed about U.S. government behavior, but it could clear the deck for those conversations to happen.

The concept of “miscalculation” seems more prominent in international affairs and foreign policy than other fields, and it comes to mind here. Wikileaks and its opponents are joined in a negative duel around miscalculation. The side that miscalculates the least will have the upper hand.

This Week in Government Failure

Over at Downsizing Government, we focused on the following issues this week:

  • Another example of cost overruns and mismanagement in government.  This time it’s the National Archives.
  • President Obama will release his budget blueprint for fiscal 2012 next week. If an op-ed penned by his budget director is any indication, the administration intends to continue fiddling while the government’s finances burn.
  • End, don’t mend, the dozens of wasteful federal job training programs.
  • With House Republicans and the White House proposing tiny cuts, get ready for a barrage of slasher stories in the press. Readers are invited to submit the best (worst?) “slasher story” they come across.
  • Vice President Joe Biden’s recent pitch for high-speed rail brings to mind the classic Simpsons episode in which a con-man convinces the town’s residents to waste money on an exciting-sounding high-speed train that turns out to be a boondoggle. Watch the clip and judge for yourself.

Rising Exports — and Imports — Are Good News for U.S. Economy

The U.S. trade deficit rose in 2010, and the bilateral deficit with China reached a record high last year, according to the monthly trade report released this morning by the U.S. Commerce Department. The usual critics (such as Peter Morici of the University of Maryland) are already spinning it into yet another indictment of trade, but the report contains a lot of good news for the U.S. economy.

Last year, Americans bought $2,330 billion worth of goods and services from other countries, while selling $1,832 billion, for a trade deficit of $498 billion. Our bilateral deficit with China grew to a record $273 billion.

Politicians and commentators love to focus on the trade deficit, as though it were a scorecard of who is winning in global trade. But the real measure is the total volume of trade. As economies expand, so does trade, both imports and exports. Exports help us reach new markets and expand economies of scale, while imports bless consumers with lower prices and more choices, while stoking competition, innovation, and efficiency gains among producers.

By this measure the trade report was good news all around, and one more sign that the U.S. and global economies continue to recover from the Great Recession. Last year, U.S. exports of goods were up 21 percent from 2009, while imports were up 23 percent. In contrast, in the recession year of 2009, exports of goods dropped 18 percent from the year before while imports plunged 26 percent. (Unemployment soared in 2009, but, hey, at least the trade deficit was “improving”!)

Our trade with China last year tells the same story. The value of goods imported from China rose 23 percent in 2010 (the same rate as imports from the rest of the world), while the value of the goods we exported to China jumped by 32 percent. That’s a rate of export growth that is 50 percent higher than export growth to the rest of the world. Members of Congress who complain that China’s managed currency is somehow a major barrier to U.S. exports should take note.

Young Man Control

Instead of directing their energies on gun control, P. J. O’Rourke says liberals might want to focus on the real source of violence in our society and propose some “Young Man Controls,” such as longer young man waiting periods and young man registration. Not a ban, but common sense young man controls.  

Hey, there’s already some movement in that direction—in the crucial pre-young man phase.

For Cato work on gun control, go here.

Administration Punts on Reform of Fannie and Freddie

Remember that “tough study” promised by Senator Chris Dodd to deal with Fannie Mae and Freddie Mac?  Well it is finally out.  All 22 pages (of doubled-spaced large font).  And less than half those pages actually discuss Fannie and Freddie.

While the report does say a lot of the right things — such as protecting the taxpayer — it is awfully short on any real details.  And in many areas, the report makes clear that the Obama administration intends to keep the taxpayer on the hook for future losses arising from Fannie and Freddie.  For instance, after assuring us that the GSEs will have sufficient capital to meet their obligations, including debt, the report tells us that such capital will not come from investors, but from the taxpayer.  One has to wonder whether this report was written for the benefit of the Chinese Central Bank (one of the largest GSE debtholders) or for the benefit of the U.S. taxpayer.

Equally vague is the discussion of “winding down” Fannie and Freddie.  While that sounds great, how is this to be accomplished? And how long will it take?  Again it seems that this “wind-down” will be financed by the taxpayer.  It is suggested that the GSE guarantee fees will increase.  Again, by how much and when?

Paragraph 2 of Section 1074 of the Dodd-Frank act, which required this study, also requires an “analysis” of various options and impacts.  In all due respect to HUD and Treasury and their efforts, there is nothing in this report that remotely resembles an “analysis” — just vague generalities.

I appreciate the administration’s stated desire to move us closer to a private market solution, but we’ve heard these empty promises before.  Remember that financial reform was going to end “too big to fail” and bailouts?  Health care reform was going to “bend the cost curve”?  It is past the time of fluff.   We need actual details and an actual plan.  

For details of immediate action that can be taken, see my testimony from earlier this week.

Mubarak Steps Down … Finally

Hosni Mubarak’s decision to step down as president of Egypt is welcome news. He could have taken a cue from Tunisia’s Zine El Abidine Ben Ali, resigning quickly in the face of overwhelming popular opposition. Such a move on Mubarak’s part would have avoided much of the confusion that has gripped Egypt for more than two weeks. At least 300 people have been killed during the protests, but thankfully Mubarak’s exit was achieved without even more bloodshed.

These protests were driven by popular discontent with Mubarak, rising food prices, rampant corruption, and limited political and economic opportunity. The Obama administration generally resisted calls to place the United States in the middle of what was a purely internal matter.

Those who called for a heavy-handed U.S. role in this whole affair—many of them the same people who have called for U.S. intervention in dozens of other places over the the past few decades—have been proven wrong once again. While the ideas of liberty are universal, the spark for change, and the energy that carries it forward, must come from within. The Egyptian people started this, and the Egyptian people should finish it.