Topic: Tax and Budget Policy

More Internet Sales Taxes—and Your Privacy Compromised

By
Jim Harper

Yesterday, Senator Mike Enzi (R-Wyo.) and 19 cosponsors introduced a bill to promote the collection of taxes on Internet sales. I can’t recall seeing a bill so universally condemned in the libertarian, free-market, anti-tax, and pro-innovation communities. The National Taxpayers Union issued a press release, a “myths & facts” one-pager, and wrote it up on their blog for good measure. Here’s the Heartland Institute’s press release. The Competitive Enterprise Institute calls it a raw deal. R Street seems to hate this bill with a burning passion. Our sweethearts at NetChoice went with a Valentine’s theme.

[Update: The Center for Freedom and Prosperity also does not like this bill.]

[Update 2: Americans for Tax Reform does not like Internet sales taxes.]

I think differently from these groups. Oh no, I don’t think it’s a good idea to let state and local tax authorities impose complex taxes on businesses around the country just because they sell online. Doing so would cause Internet sales taxes to soar because tax authorities would be able to impose taxes on people who can’t vote them out of office.

But I think it’s important not to forget the consequences for privacy if Congress were to approve interstate tax collection like this.

Dig down into the bill and you start to see what it takes for states and localities to tax products sent into their states by remote sellers.

For purposes of [collecting taxes], the location to which a remote sale is sourced refers to the location where the item sold is received by the purchaser, based on the location indicated by instructions for delivery that the purchaser furnishes to the seller. When no delivery location is specified, the remote sale is sourced to the customer’s address that is either known to the seller or, if not known, obtained by the seller during the consummation of the transaction, including the address of the customer’s payment instrument if no other address is available.

That means that sellers all over the country would have to turn the addresses of the people they sell to over to state tax authorities. You could design a system to minimize the privacy problems here, but not eliminate them—especially when the time comes for the officials in one state to audit the sales in another.

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Topics: 
Tax and Budget Policy, Telecom, Internet & Information Policy

Jack Lew’s Cayman Adventure

By
Daniel J. Mitchell

Every so often you get a “teaching moment” in Washington. We now have one excellent example, as President Obama’s nominee for treasury secretary has been caught with his hand in the “tax haven” cookie jar. Mr. Lew not only invested some of his own money in a Cayman-based fund, he also was in charge of a Citi Bank division that had over 100 Cayman-domiciled funds. This provides an opportunity to educate lawmakers about the “offshore” world.

As you can imagine, Republicans are having some fun with this issue. Mitt Romney was subjected to a lot of class warfare demagoguery during the 2012 campaign because he had invested some of his wealth in a Cayman fund. GOPers are now hoisting Lew on a petard and grilling him about the obvious hypocrisy of a “progressive” utilizing—both personally and professionally—a jurisdiction that commits the unforgivable crime of not imposing income tax.

In a sensible world, Lew would be able to say what everyone in the financial world already understands: the Cayman Islands are an excellent, fully legal, tax-neutral platform for investment funds because 1) there’s no added layer of tax, 2) there’s good rule of law, and, 3) foreigners can invest in the American economy without creating any nexus with the IRS. But we don’t live in a sensible world, so Lew instead wants us to believe he didn’t realize that the funds were domiciled in Cayman.

I guess all the other wealthy progressives with offshore-based investments were probably also unaware, right?

Anyhow, I’m taking a glass-half-full perspective on this kerfuffle since it gives me an opportunity to educate more people on why tax havens are a liberalizing and positive force in the global economy.

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Topics: 
Government and Politics, International Economics and Development, Tax and Budget Policy

Those Phantom Spending ‘Cuts’ from 2011

By
Tad DeHaven

The Washington Post’s David Fahrenthold recently took a look at the $38 billion in spending cuts that Republicans and Democrats agreed to in 2011 in order to avoid a government shutdown. Fahrenthold estimates that $17 billion of those “cuts” were little more than budgetary gimmicks. For instance, $6 billion in authorized spending for the previous year’s decennial census were merely wiped off the books and counted as a “cut.” 

Fahrenthold’s piece is a good reminder of how unserious politicians from both parties are about cutting spending. But I want to make two additional points. 

First, real or not, let’s not forget that the $38 billion in “cuts” were a drop in the bucket that year compared to total spending, the deficit, and even interest on the debt: 

 

Second, unless entire agencies or programs are terminated, spending cuts will probably end up only being temporary. Following the 2011 agreement, I demonstrated this by noting that many of the programs that were cut were also cut in a 1995 deal: 

Agricultural Research Service, Animal & Plant Health Inspection Service, Rural Development programs, Women, Infants & Children, Foreign Agricultural Service, National Institute of Standards & Technology, National Oceanic & Atmospheric Administration, Economic Development Administration, National Telecommunications & Information Administration, Small Business Administration, State Department foreign aid, Fund for African Development, International Development assistance, Economic Support Fund, Peacekeeping Operations, Trade Development Agency, Army Corps of Engineers, Bureau of Land Management, Fish and Wildlife Service, National Park Service, Bureau of Reclamation, National Forest System, Appalachian Regional Commission, Department of Energy administration, Fossil Energy Research & Development, energy conservation programs, National Endowment for the Arts, National Endowment for the Humanities, National Gallery of Art, Community Service Employment for Older Americans, National Institutes of Health, Centers for Disease Control, Low Income Home Energy Assistance, Administration on Aging, Youthbuild, Adult Education, programs for K-12 and higher education, Corporation for Public Broadcasting, Federal Aviation Administration, Federal Highway Administration, rail subsidies, Federal Transit Administration, Financial Management Service, Veterans Affairs construction projects, Housing Counseling Assistance, public housing programs, Community Development Financial Institutions Funds, Corporation for National & Community Service, Legal Services Corporation, Environmental Protection Agency, National Aeronautics & Space Administration, and the National Science Foundation. 

They were all cut in 1995 under a rescissions package engineered by then-Speaker Newt Gingrich and cut last week in the budget agreement reached by Republican and Democratic leaders. 

The lesson here is that there’s a big difference between spending cuts and terminating entire agencies and their programs. Like the mythological Hydra, the stump has to be burned after the head is cut off or else it’ll grow back.

Topics: 
Tax and Budget Policy

Live Blog of the 2013 State of the Union Address and the GOP Response

By
Zach Graves

Please join us at 9:00PM ET on Tuesday, February 12, for live commentary during President Obama’s State of the Union address, the GOP response by Sen. Marco Rubio, and the Tea Party response by Sen. Rand Paul. Here is our panel of policy experts by research area:

General Comment and the Presidency:

Banking and Financial Regulation:

  • Mark Calabria, Director of Financial Regulation Studies (@MarkCalabria)

Infrastructure and Fiscal Policy:

Law and Civil Liberties:

Telecom and Information Policy:

  • Jim Harper, Director of Information Policy Studies (@Jim_Harper)

Health Care:

Immigration:

Education:

  • Andrew Coulson, Director - Center for Educational Freedom (@Andrew_Coulson)
  • Neal McCluskey, Associate Director - Center for Educational Freedom (@NealMcCluskey)

Energy and Environment:

  • Patrick J. Michaels, Director - Center for the Study of Science (@CatoMichaels)
  • Chip Knappenberger, Assistant Director - Center for the Study of Science (@PCKnappenberger)

Foreign Policy and National Security:

Follow their comments directly on Twitter, or come back to this page at 9:00 PM ET on Tuesday, February 12, to join us. We look forward to having you, and sharing our insights with you.

You can also follow the conversation on Twitter by following @CatoInstitute and the hashtag #SOTU.

Also watch Cato’s Libertarian State of the Union.

Topics: 
Education and Child Policy, Energy and Environment, Finance, Banking & Monetary Policy, Foreign Policy and National Security, General, Government and Politics, Health Care, Law and Civil Liberties, Tax and Budget Policy, Trade and Immigration

Federal Infrastructure for Private Profit

By
Chris Edwards

In my recent study on infrastructure, I noted that federal spending is often designed to aid private interests, not the general public interest. As one example, I pointed to the Army Corps’ “MRGO” canal in Louisiana that was aimed at helping the shipping industry, but ended up being a wasteful boondoggle and harming the public interest.

The Washington Post today focuses on another dubious Army Corps project: the New Madrid Floodway project in Missouri. The aim of the project is to confer taxpayer benefits on a small group of private landowners, but it will harm the environment and undermine effective flood management on the Mississippi River.

Why would Congress consider going ahead with such a counterproductive project? Because the Army Corps has an institutional pro-construction bias and the agency is under the sway of certain powerful members of Congress, who do the bidding of private interests in their states. From the Post:

[Senator Roy] Blunt — who told reporters on Feb. 4 that he and Rep. Jo Ann Emerson (R-Mo.) ‘spent all of last year trying to browbeat the EPA and the Corps of Engineers into doing this job’ — tweeted Friday that he would ratchet up the pressure.

Blunt’s comments make clear that political power, not sound economics, dominates policy in Washington. Yet many pundits and wonks continue to believe the fairy tale that if we boost federal infrastructure spending it will allocated in an efficient manner by impartial experts toward high-return projects that benefit the general welfare.

Perhaps there are exceptions, but, in general, the federal government has never worked that way. With regard to the Corps, pork barrel politics, boondoggles, and environmental harm have been the modus operandi for more than a century. Here’s what I noted regarding the New Madrid Floodway project in my study of the Corps:

The Corps and some members of Congress have pushed a $108 million project to drain tens of thousands of acres of flood-prone land in Southeastern Missouri to benefit a small number of corn, soybean, and cotton farmers. The area currently acts as a beneficial relief valve for the Mississippi River during floods. Many experts think that this project is absurd, but the Corps sought to speed project approval on the basis of a manipulated cost-benefit analysis. In 2007 D.C. District Court Judge James Robertson harshly criticized the Corps’ analysis as ‘arbitrary and capricious,’ and he said that ‘the Corps has demonstrated its willingness to do whatever it takes to proceed.’

Topics: 
Government and Politics, Tax and Budget Policy

Matt Yglesias Cools Out the Marks

By
Michael F. Cannon

Ben Smith has a mostly excellent piece titled, “Obama Prepares to Screw His Base”:

[T]he health care overhaul known as ObamaCare [is] calculated to screw his most passionate supporters and to transfer wealth to his worst enemies.

The passionate supporters are the youth, who voted for him by a margin of 60% to 36%, according to exit poll samples of people 29 and under. His enemies are the elderly: Mitt Romney won 56% of the votes from people 65 and over…[W]hat follows may come as an unpleasant surprise to many of the president’s supporters. The provisions required to make any sort of health insurance plan work — not just ObamaCare, but really any plan of its sort — require healthy young people to pay more in health insurance than they consume in services, while the elderly…consume far more than they pay in…[T]his year will be spent laying plans to shift the burden further toward the young…

And so this vast transfer or resources from young to old — just the latest in a long line of these transfers — hasn’t been discussed much because it is totally uncontroversial.

The piece falls shy of totally excellent because Smith incorrectly asserts, contrary to the economics literature, that young people have to subsidize old people for health insurance markets to work. Smith correctly notes that ObamaCare screws young people, but thinks that’s unavoidable, if unfortunate. Since there’s no reason to screw young people at all, ObamaCare is even worse than Smith portrays it.

But Matt Yglesias takes the cake. ObamaCare does not screw the young, he writes. Sure, millions of young adults will pay more for health insurance, even after accounting for ObamaCare’s subsidies. But young adults shouldn’t sweat the triple-digit premium hikes ObamaCare forces them to pay solely for the benefit of subsidizing older people who have more resources than they do. Why? Because today’s young adults will benefit later when ObamaCare does the same for them at the expense of subsequent generations. You know, if they don’t die first. What could go wrong?  

Social scientists have a term to describe the role that people like Yglesias play in a confidence game. It’s called “cooling out the mark.” In his classic 1952 article, sociologist Erving Goffman explains. See if you can find any similarities:

The confidence game – the con, as its practitioners call it – is a way of obtaining money under false pretenses by the exercise of fraud and deceit…

The typical play has typical phases. The potential sucker is first spotted and one member of the working team (called the outside man, steerer, or roper) arranges to make social contact with him. The confidence of the mark is won, and he is given an opportunity to invest his money in a gambling venture which he understands to have been fixed in his favor. The venture, of course, is fixed, but not in his favor. The mark is permitted to win some money and then persuaded to invest more. There is an “accident” or “mistake,” and the mark loses his total investment. The operators then depart in a ceremony that is called the blowoff or sting. They leave the mark but take his money. The mark is expected to go on his way, a little wiser and a lot poorer.

Sometimes, however, a mark is not quite prepared to accept his loss as a gain in experience and to say and do nothing about his venture. He may feel moved to complain to the police or to chase after the operators. In the terminology of the trade, the mark may squawk, beef, or come through. From the operators’ point of view, this kind of behavior is bad for business. It gives the members of the mob a bad reputation with such police as have not yet been fixed and with marks who have not yet been taken. In order to avoid this adverse publicity, an additional phase is sometimes added at the end of the play. It is called cooling the mark out. After the blowoff has occurred, one of the operators stays with the mark and makes an effort to keep the anger of the mark within manageable and sensible proportions. The operator stays behind his team‑mates in the capacity of what might be called a cooler and exercises upon the mark the art of consolation. An attempt is made to define the situation for the mark in a way that makes it easy for him to accept the inevitable and quietly go home. The mark is given instruction in the philosophy of taking a loss.

So remember, young voters. ObamaCare doesn’t screw you. ObamaCare is good for you.

See you next time.

Topics: 
General, Government and Politics, Health Care, Political Philosophy, Social Security, Tax and Budget Policy

So You Want to Cut Spending

By
David Boaz

Back in 2011 there was a titanic fight between President Obama and the newly energized House Republicans over the federal budget. The ballyhooed result, which averted the frightening specter of a “government shutdown,” was “the largest annual spending cut in our history,” in the words of President Obama and the national media. I raised some doubts about it at the time, noting that it certainly wasn’t the largest budget cut in history and then pointing to a National Journal story suggesting that the cuts weren’t really there.

Now, in the Sunday Washington Post, David Fahrenthold follows up: What happened to the much-touted $38 billion in cuts (out of a $3,800 billion budget)? Oops. Not so much: 

Nearly two years later, however, these landmark budget cuts have fallen far short of their promises.

In some areas, they did bring significant cutbacks in federal spending. Grants for clean water dried up. Cities got less money for affordable housing.

But the bill also turned out to be an epic kind of Washington illusion. It was stuffed with gimmicks that made the cuts seem far bigger — and the politicians far bolder — than they actually were.

In the real world, in fact, many of their “cuts” cut nothing at all. The Transportation Department got credit for “cutting” a $280 million tunnel that had been canceled six months earlier. It also “cut” a $375,000 road project that had been created by a legislative typo, on a road that did not exist.

At the Census Bureau, officials got credit for a whopping $6 billion cut, simply for obeying the calendar. They promised not to hold the expensive 2010 census again in 2011.

Today, an examination of 12 of the largest cuts shows that, thanks in part to these gimmicks, federal agencies absorbed $23 billion in reductions without losing a single employee.

Read it all. It’s just an amazing investigation into what happens in the bureaucracy when Congress announces it’s cut the budget, and the reporters move on.

Which is why I wrote last week that if you really want to cut spending, you should shut down agencies and programs. Then you have some hope that the spending will actually stop.

Topics: 
Government and Politics, Tax and Budget Policy

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