Monday, May 20, 2013

Tax the Internet?

I buy quite a bit of stuff online. I also bank online. At first I was a bit trepidatious so the card I use for internet purchases is for that purpose only while my bank password is as close to random as possible. Indeed the two times my credit cards have been compromised were with cards I do not use for the internet. Tennessee’s republican governor is actively pushing for taxing the internet and has the backing of the state’s two senators. The house delegation however has not rushed to embrace the initiative. Many are saying that they would like to protect small businesses but don’t advocate an increase in taxes period. This got me thinking. The small businesses that I used to frequent that went out of business said that the big box stores, not the internet, were the culprit. The owner of my local pro archery shop said that Gander Mountain and Bass Pro could sell high-end bows cheaper than what he could buy them for and customers would come shoot his bows and then go buy them at Bass Pro. Of course you have heard the same regarding the impact of Wal-Mart on a community. The choice is cheaper or more expensive. Usually cheaper wins. The same is true with the internet. Itunes and Amazon have put the record stores out of business. Remember Tower Records? Amazon also threatens the book stores (re: Borders) and Barnes and Noble has countered with its own internet service and reader. I download all my music but not my books. I still like the physical entity in my hands. So what else do I buy online? I just bought a new microwave from Amazon. Not only did it list for $30 cheaper than at the big box stores (Sears, Walmart, Best Buy), I also got free shipping and saved $20 in sales tax. Choice? No brainer. Now I don’t think that Tennessee governor Bill Haslam particularly wants to go on record has trying to save the profits of Sears, Walmart and Best Buy so it is more fashionable to advocate raising taxes to save the small appliance dealer, bookseller or small archery pro shop. The question is whether this works as a solution to the problem of diminished sales. The obvious answer is no. I will still buy my music and books online. The microwave will still be at least $30 cheaper and the state’s coffers will swell from the increased “revenue”. Now if the governor were really concerned about small business, he would then advocate that any increase in tax receipts from internet sales would not be held by the state but would be allocated 100 percent to small businesses to compensate for revenue loss. How likely is that?

Sunday, May 5, 2013

Despite sequester, federal spending will grow

Knoxville News-Sentinel May 5, 2013 When Congress adopted the president’s idea of sequestration to force a budget compromise, the word from Washington was that its implementation would be a disaster. The cut in discretionary spending amounted to $85 billion dollars. Of course this is a piddling 2.4 percent of the federal budget. Nevertheless, the White House said the cuts would “threaten hundreds of thousands of jobs, and cut vital services for children, seniors, people with mental illness, and our men and women in uniform.” It further stated “these cuts will make it harder to grow our economy and create jobs by affecting our ability to invest in important priorities like education, research and innovation, public safety, and military readiness.” Of course this White House would regard any cut in government spending as having disastrous consequences, and to that end, the sequestration was a touch of genius. Because the government has an incentive to increase spending since that increases its power, there is a total disregard for cutting the federal budget. As a consequence, the sequester was designed to inflict as much pain as possible. Logically if faced with the decision as to where to cut spending, the typical household would select those expenditures that were the least vital. On the other hand, the government’s strategy would be to cut those programs that inflict the most pain to the public. Instead of trimming staff at the White House or Congress staffers or faceless bureaucrats, instead of rigorously attacking waste, the government will make the cuts both visible and painful. Thus, the sequestration mandated across-the-board cuts, leaving the agencies little discretion in which programs to cut. Thus, the agencies cannot be blamed for inflicting pain. The first case in point was the Federal Aviation Administration furloughing its air traffic controllers for two days a month, resulting in long flight delays. Naturally there was a hue and cry from airline passengers, and Congress rushed through a fix to restructure the $600 million cut to the FAA. Note that the fix does not increase the funding to the FAA. Rather, it allows the agency discretion in where it can cut. The House vote was 361 to 41, while the Senate was unanimous in its support. This was an opportunity lost. Instead of changing the sequester law to allow all the agencies discretion in where to cut, it only gave that power to the FAA. What the air traffic controller fix does is to show the public that the sequester is nothing more than a publicity stunt. This is not a serious attempt at budget reduction; rather, Washington is taking us all for fools. As to the budget reduction touted in the press and by our politicians, despite the sequester, federal spending will grow by $15 billion this fiscal year.