Politicians and Retailers Conspire to Impose Sales Tax Cartel

As reported by Tax-news.com, a collection of trade associations is calling on Congress to impose the so-called Streamlined Sales and Use Tax Agreement on all states. Their argument is that it is unfair to let online companies make tax-free sales to out-of-state consumers (states routinely choose not to tax their retailers who make such sales). There is an inequity in the current approach, to be sure, but politicians (with help from naive business groups) are picking the wrong solution. Creating a nationwide tax cartel - one that will require a massive invasion of privacy because of a database of online purchases – will insulate politicians from competition by making it extremely difficult for consumers to shop where taxes are lower. The right way to deal with the inequity is for states to apply their sales taxes (ideally at a low rate) on a non-discriminatory basis. In other words, the sales tax would apply to all sales made in a state, regardless of whether a good is sold in person or online, and regardless of whether the customer is an in-state resident or out-of-state resident. This would eliminate an inequity, preserve tax competition, and protect privacy.

The US National Retail Federation and nearly 100 retailers and trade associations are urging Congress to approve legislation making it easier to require internet merchants, mail-order houses and other “remote sellers” to collect sales tax across state lines. Coalition members are hoping to see action this fall on the Sales Tax Fairness and Simplification Act, which is pending in both the House and Senate. The measure would allow states that have implemented the Streamlined Sales and Use Tax Agreement to require that out-of-state merchants collect sales tax on merchandise sold to residents of their states. …While the Streamlined Sales and Use Tax Agreement went into effect on a voluntary basis in 2005, the coalition says that passage of federal legislation is needed before sales tax collection can become mandatory. Thus far, 22 states have passed legislation implementing the agreement. In addition, more than 1,000 companies have participated in the agreement voluntarily, and have collected more than $125 million in state and local sales tax that would otherwise have gone unpaid. The NRF helped draft the Streamlined Sales and Use Tax Agreement, and has long argued that remote sellers enjoy an unfair price advantage in situations where they are not required to collect sales tax. The NRF wants a level playing field where all retailers are subject to the same tax rules when their merchandise is sold from a store, through a catalog or over the internet.

Potemkin School Reforms

Walter Isaacson, president of the Aspen Institute, has a piece on New Orleans education reform in the current issue of Time. In describing a system of increased public school choice and charter schools he writes that it is “a voucher system in all but name that blows up the monopoly.”

If by “voucher system,” Mr. Isaacson means a system in which:

  • there are no market-determined prices (schooling is paid for entirely by the state and spending does not vary based on quality, demand, or any other market factor)
  • there are substantial barriers to the entry of new schools (the need to for a state charter)
  • schools can be closed for other than market reasons (charters are temporary and revocable)
  • for profit enterprise is inhibited (non-profit charter boards can contract out to for-profit management firms, but do so solely at their discretion, inhibiting expansion)
  • devotional religious school options are foreclosed

then, yes, you could call the N.O. model a “voucher system.” But to do so is to blur the distinction between a weak public school choice reform with only modest prospects and genuine market reforms which could spark the kind of innovation and excellence we have seen in every other sector of the economy over the past century.

Blurring that distinction is toxic to the school choice movement. If readers of Mr. Isaacson’s article take him at his word, and, five or ten years hence, fail to see dramatic results N.O., what will they conclude? They will conclude, mistakenly, that market reforms were tried and failed. In essence, Isaacson has built a straw man and given it to school choice critics to attack at their leisure.

So let us not use the word “voucher” to describe a hobbled public school choice program that does not even vaguely resemble the sort of free educational marketplace Milton Friedman had in mind when he wrote “On the Role of Government in Education” more than fifty years ago.

Trade Telltale

Since the “Great Compromise” on trade policy between the administration and Congress last spring, I have been outspokenly skeptical about prospects for further trade liberalization before 2009.  In that deal, the administration bowed to the wishes of Congressional Democrats to include enforceable labor and environmental provisions in pending and prospective trade agreements. 

For that accommodation, the Congressional leadership was supposed to help secure passage of the pending bilateral agreements with Peru, Panama, Colombia, and Korea.  Almost immediately, though, the leadership voiced additional concerns about Colombia and Korea, which are widely considered to be very long-shots at best.

But after visiting Peru last month and getting his own fingerprints on the final details of the deal, House Ways and Means Committee Chairman Charles Rangel of New York returned home and voiced his support for the agreement.  And, it appears, there is support for the Peru agreement among members of Ways and Means and Senate Finance.  Several Congressional staffers have suggested that if the Peru vote garners relatively strong Democratic support, there may be hope for the others.

The problem, however, is that the House Democratic Caucus may not be prepared to follow.  Remember all of those freshman Democrats who campaigned in ’06 on an anti-trade message?  It seems they won’t go quietly into the night.  Whereas the veteran Democratic trade leadership may be inclined to use protectionist rhetoric to shift the terms of the trade debate in their favor, the new blood in their caucus is more inclined to believe it.  In that regard, the Rangels and Levins and Baucuses on the Hill (guys that probably know better) have helped create a potential Frankenstein.

On Friday, rank and file Democrats addressed a letter ($) to their Caucus Chairman, Rahm Emanuel of Illinois, asking that the next caucus meeting be devoted to the U.S.-Peru Agreement.  The letter notes that there isn’t much support for the agreement among Democrats and that the Ways and Means Committee markup scheduled for tomorrow will prove divisive.

There were only seven signatories to the letter and it is unclear how representative it is of Democratic sentiments.  But if the topic proves divisive and rancorous – a development Nancy Pelosi wants to avoid – it will be interesting to see which side the House Speaker chooses to rein in.  The outcome of this potential impasse will tell much about the direction Democrats want to go on trade.

Bush the Budget Warrior

After six and a half years of spending faster than LBJ, President Bush has decided to proclaim himself the guardian of the taxpayers, accusing Democrats of “working to bring back the failed tax-and-spend policies of the past.” The very recent past, perhaps? Today he complained that Congress has not yet completed appropriations bills for the fiscal year that begins Monday, and warned that Democrats shouldn’t send him an omnibus bill that would “make it easier for members to sneak in all kinds of special projects, put in wasteful spending or pork barrel that they are not willing to debate in the open.”

Republicans protecting the taxpayers from the tax-and-spend Democrats. It’s a golden oldie. But it doesn’t have much relevance in the past decade. As the chart below indicates, spending has risen more than twice as much in Bush’s first seven budgets as it did in Clinton’s eight years.

If President Bush is indeed going to be a fiscal conservative for the last one-sixth of his term, that’s good news. But he has already raised annual federal spending by more than one trillion dollars, and he’s not planning to reduce spending, just to slow the growth from a massively bloated base. Fiscal conservatism remains an orphan in today’s Washington.

They Call Me Mr. Cynical

Or they will, after they read this

The author was pursuing the angle that, whereas in the past health care reform had been about altruism (the public wanting to help those in need), now it’s more about self-interest (workers, employers, etc. feeling like they themselves need help).  

I explained that health care reform is and always has been largely about self-interest, but self-interest of another sort:

Michael Cannon, the director of health policy studies at the Cato Institute, said he thought that self-interest had always dominated the discussion.

“From my vantage point, all of the special interests, they’re all out for themselves,” Cannon said. “The pharmaceutical companies want their enormous Medicare prescription drug program without any controls on it. Insurance companies, pharmaceutical companies and physicians want government programs for the elderly and the poor to shower them with subsidies. Physicians and the insurance industry want more tax benefits for private insurance, because that works to their benefit.”

…all of which is making health care more expensive than it need be.

Regarding the altruism of the good ol’ days, the article unfortunately did not include my comments about the helpless millionaires who were enrolled in Medicare, nor about Medicaid, which actually targeted the poor and was added to the Medicare law as an afterthought.

European Central Bank Mocks French Fiscal Policy

An amusing public fight is taking place, with Germany and the European Central Bank on one side and France on the other. I’m not sure whether this calls for a surrender joke or a wry reference to the Iran-Iraq war and how it would be nice for both sides to lose, but I will demonstrate uncharacteristic maturity by instead focusing on the policy implications.

The French, not surprisingly, are wrong. They have been badgering the European Central Bank to mimic the mistakes of America’s Federal Reserve by creating too much liquidity in order to artificially lower interest rates.

Germany is on the side of the Central Bank, which wisely has focused on maintaining the value of the currency (which helps explain why the dollar has been falling compared to the euro). As part of this spat, the head of the European Central Bank very publicly pointed out the wretched state of France’s bloated government budget. The EU Observer reports:

European Central Bank (ECB) chief Jean-Claude Trichet has said that France’s public finances are in “very great difficulty.” “In 2007, according to statistics from the European commission, France will be the country spending the most in public expenditure in relation to gross domestic product, not only within the eurozone but among the 27 members of the European Union”, Mr Trichet told Europe 1 radio on Sunday (23 September). On top of that, “the development of France’s public finances has on average been significantly worse than that of other European countries”, he added. …Mr Trichet’s comments also come as a reply to French president Nicolas Sarkozy, who has repeatedly criticised the ECB lately on a number of points, notably for not cutting interest rates. …Mr Trichet, who has also repeatedly stressed the need for the ECB to remain independent from any political pressure and has been riled by Mr Sarkozy’ comments, pointedly took Berlin as an example of a government which has managed to lower its public expenditure. Currently, Germany’s public spending is nine percentage points of GDP lower than that of France, which has to “adapt faster”, if it wants to benefit best from a global economy, Mr Trichet said.