Perverse Incentives Promote Disasters

In the wake of any industrial accident there follows a predictable chorus of pundits lamenting “market failure” in order to justify further interference of the state into every facet of business function. On the surface this might sound plausible, surely we need Big Brother looking over our employer’s shoulder to make sure everything is safe, right? The only problem with this narrative is that the pundits tend to conveniently omit the crucial fact that such disasters happened on the watch of government. There is no place in the world immune to at least some level of government oversight related to safety. Even in Bangladesh where there has been a recent spate of factory fires and building collapses they at least had building codes even if they weren’t followed. And there in lies the rub. The people entrust their government with the task of ensuring their safety (a dubious decision at best) but when that same government fails to adequately carry out that mandate and such failure is the proximate cause of some disaster oddly blame is 100% shouldered by the regulated entity rather than the regulator. If you had a jail in your community that routinely had prisoners escaping and killing people it seems like at some point the people running the prison should share in the culpability.

So whether it is financial misdeeds on Wallstreet, a factory explosion in West Texas, or a building collapse in Bangladesh, we see the same failure of the state regulators to do their job. But the regulators are just employees, they can’t be held personally liable. And their employer is the state, and the state can’t be held liable. So where does that leave us? No one is responsible. What is the solution? Rub some bacon on it – err I mean throw some more money at it.

If regulators fail, then they just get more money and scribble down yet more regulations based on their clairvoyant 20/20 hindsight; more words on paper that will be ignored by more regulators in the future. The perverse incentive of this system should be obvious and yet it continues. The perverse incentive is that (a) failure is rewarded with (b) more resources; therefore failure is what is incentivized. Now that is not to say that all the regulators individually are these evil monsters failing on purpose in hopes of one day obtaining a raise. But what it does mean is that the system itself cannot cure itself. A market system is self-regulating in that failing firms (assuming they are not bailed out by the government) disappear into the graveyard of failed businesses. In a market based regulatory system failure means you lose all your money and go out of business. Success means you make money and you stay in business. Competition among the successful firms drives further improvements. There is no competition in the monopolistic government run regulatory system; Soviet style stagnation reigns supreme. A successful private regulator (e.g. Underwriter’s Laboratories, Consumer Reports, etc) prevents harm and is rewarded for successfully doing so. Government can’t go “out of business” and so the same old failing system stays in place, at least until we vote in illusory “change” only to discover nothing has changed at all.

May 13 / 2013
Author Greg Morin
Category Big government is the problem, Current events, Libertarian opinion, Regulation
Comments No Comments

Bangladesh Robber Baron fallacy

Just read this article about the Bangladesh factory disaster this morning. Truly terrible what happened, however the usual progressive/statist smugness comes to the surface pretty quick in the comments “oh see what the free market causes, we need government to save us from these evil people.” Here’s my response on the board to that sentiment (longer article coming this weekend):

Except that the “Robber Barons” is a progressive statist myth. Please see Tom Woods on this: http://www.youtube.com/watch?v=BbIIPtLEVbA

Basically those that compare working conditions of the late 19th and early 20th century or those in emerging 3rd world countries to those today in the US are guilty of a “ceteris paribus” fallacy, that is, you are making a comparison and drawing a conclusion that is flawed because not all of variables are held constant, namely the variables wealth and technology in a given society. Do people value safety? Sure, but value is subjective and we arrange things on our value scale ordinally (we rank them in order of preference). Do we value safety MORE than we value not starving to death? I think not. So if our choice is a) not starving to death or b)comfortable/100% certainty of safe working conditions we will choose (a) every time. We will work so that we can buy food and not starve to death and we will do so in an environment that while not ideal is the only option available and in fact is the better of all other options available.

Now I’m not excusing the owners of that building/business for building an unsafe building, but consider the alternative proposed by progressives. Government mandating to the nth degree every aspect of building design. It would cost so much to build that building there that they simply would never have built it, and thus there would have be NO jobs for anyone and they would have been left to scratching in the dirt to make a living. Is the current outcome good? No, but it is still BETTER than the alternative, where instead of 1000 people dying and 2000 surviving maybe 2500 die of starvation and 500 live through subsitence farming.

They likely built it this way because of crooked govt, paying off inspectors, and never thinking they could get in trouble. In a free market there is no one to pay off. They would have built it better knowing 100% with certainty they would go to jail were it built shoddily

May 10 / 2013
Author Greg Morin
Category Current events, Economic Fallacies, Libertarian opinion
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The Fallacy of Prevention

Gun Control Advocate: “We need more/better gun laws to eliminate gun violence.”

Gun Rights Advocate: “Gun laws do not decrease gun violence because criminals do not follow the law.”

Gun Control Advocate: “So we should just get rid of all laws because they fail to stop all crime?”

And that’s where this little exchange usually ends. The gun right’s advocate typically stutters through some non-sequitur argument that doesn’t at all address the apparent “gotcha” from the now smug gun control advocate. Sadly courses on logic are no longer taught in our schools, because if they were, we would easily spot logical fallacies such as this one. This is an example of a false analogy or comparison, that is, assuming two things are equivalent and inferring they must share the same properties. Not all laws are the same.

Laws against violations of person or property (murder, rape, theft, etc.) are primary laws. Their sole function is punitive. They prescribe the consequences for violation of the law. If the consequences are severe enough there may be a small preventive tendency but overall people breaking these laws really aren’t concerned with the fact that somewhere there are words on a piece of paper saying they shouldn’t do such and such. In short, these laws can only affect criminals (i.e. those who broke the law).

Laws like gun control (i.e. interventionary laws) are secondary laws. They attempt to prevent the violation of a primary law through interventionist procedural means. Whereas primary laws affect only their violators, secondary laws affect only non-violators of the related primary law. Prospective violators of a primary law simply ignore the demands of the related secondary law. Because there is no way to know who these potential violators might be, secondary laws must by necessity cast a wide net and attempt to inconvenience everyone. Sadly they fail in their attempt, they catch all the fish you don’t want and allow all others to escape. In short, these laws can only affect non-criminals.

And so the fallacy is exposed. Abstractly it is implied that gun laws (“B”) are beneficial because: eliminating primary laws (“Not-A”) is “bad”, therefore “A” is “good”, and because “A” is assumed to equal “B”, it follows that “Not-B” is likewise “bad”, and so “B” must be “good”. As I’ve shown above A does not equal B, and without that the argument fails.

Laws against murder ARE anti-gun laws. They are also anti-knife, anti-bomb, anti-poison, anti-anything that could be used to kill someone. Laws against specific types of weapons are a fear driven whack-a-mole style attempt to prevent future violence. The futility of this preventive approach is clearly seen in our nation’s prisons. In the most highly controlled, rights restricted environment one can imagine there are still drugs, there is still violence, and there is still murder. If preventive efforts fail in prison, how could they possible be expected to work in a free society? Some often cite Australia’s stringent gun controls laws of 1996 as proof that tight restrictions can “work” by pointing to the drop in gun violence since enactment. While such violence has dropped, what they conveniently leave out is that the statistics clearly show the rate of gun violence was already on a decades long decline prior to and after the 1996 laws. In fact armed robberies had a dramatic increase shortly following the new gun restrictions. I don’t suppose that had anything to do with the fact that criminals opted not to follow the law and instead kept their guns?

May 06 / 2013
Author Greg Morin
Category Current events, Guns
Comments No Comments

Smokers in California escape their fair share

I heard a story on NPR this morning about how California is doing something about that evil Obamacare rule that allows insurers to “discriminate” against the most unfortunate of those among us – smokers. Obamacare actually (gasp) allows insurers to charge up to 50% more on premiums to smokers! How unfair, doesn’t Obama understand that these poor smokers have no choice, they are poor helpless victims of the big evil tobacco companies! Apparently smoking is much more prevalent of a lifestyle choice among the “poor” – so where Obamacare provides the “poor” with “affordable” health insurance, the smoking allowance allows insurers to basically add back all the “savings” – yes, that is the world’s smallest violin you hear in the background.

Funny, somehow the “poor” can afford to buy cigarettes (anywhere from $300-$3000/year depending on where they live and how much they smoke), yet they can’t afford the additional premium on their insurance policy attributable solely to something they choose to do. “Affordability” is one of those words thrown around a lot without any thought to what it actually means. Affordable simply means that one prioritizes the expense. Affordability all depends on how you order those things in your life that you value. One could claim a private school education for their child is unaffordable – and that would be true if they choose to spend their money first on a larger fancier house, on fancier cars, on cable TV, on high speed internet, on new clothes every month, then yes, not much is left for a private school education. But, one could pay for the education first, and then with what is left over structure their life around that so that they live in a smaller house, drive older cars and then at that point they would find cable TV and high speed internet become the “unaffordable” goods. To claim that health insurance or any other good is “unaffordable” is to simply be proclaiming it is not the thing you most highly value. Now one might argue that a $10 million mansion is unaffordable to nearly everyone and no amount of prioritization will make it so, true enough. But we are talking about affordability within the context of normal consumer goods and services, not about super luxury goods and services for which their lacking in the market is a concern to anyone. No one is crying about the “unaffordabiilty” of 50 foot yachts among the general public.

Not that I agree with the mandates Obamacare makes upon insurers in terms of what they can charge and how they can determine what they charge but at least I can understand why those who support Obamacare don’t want insurers to discriminate based on characteristics we can not control (i.e. gender, age, health status) – you are who are and there is no choice in the matter. Of course this “equality” mentality just means those who cost insurers less must pay more to subsidize the more costly demographics (witness France, where female drivers must now pay MORE for their auto insurance because in the name of equality it was deemed unfair that safer, more prudent female drivers be charged less than their male counterparts). But come on, cigarettes? Please, this is ENTIRELY the choice of the smoker. Are they addictive? Sure, but it is not IMPOSSIBLE to quit, plenty of people do it all the time. They are treating smokers like they are helpless victims who have no control over themselves. Please, give me a break.

This story highlights all that is wrong with socialized medicine. Those who willfully engage in bad behavior that affects their health must not be made to bear any of the cost of associated with their behavior – that is the job for the rest of society.

April 30 / 2013
Author Greg Morin
Category Current events, Insurance, Libertarian opinion
Comments No Comments

War Against the Constitution

In the wake of the Boston bombing many of those who claim a deep and abiding respect for the Constitution show a curious tendency to ignore those parts of the Constitution that tend to interfere with their desire for instantaneous revenge (i.e. 4th, 5th and 6th Amendments). The desire for revenge is understandable. Those desires exist today just as they did 200 or 2000 years ago. However, human passions, being irrational as they are, must be put in check so that human reason may triumph in our collective attempt to mete out justice. Fortunately for us, the founding fathers of this country realized that perhaps there was a more ethical manner to ensure justice than relying on a pitchfork-wielding mob. Thus was born the 4th-6th Amendments.

Ensuring that everyone accused of a crime, no matter how heinous, is afforded their full Constitutional rights does not protect the guilty – it protects the innocent. It protects you. It ensures that if YOU are wrongly accused YOU have the right to demonstrate how your accuser’s evidence is flawed. The greater the heinousness of the crime one is accused of does not increase the likelihood of one’s guilt. If the accused is truly guilty, then evidence of that guilt should not be terribly hard to uncover.  A guilty verdict will be assured and the validity of that verdict made public. It is curious how the more sure people are of an accused’s guilt the more annoyed they get with the idea of “wasting time” on a trial. If you are that certain of the guilt then what could possibly be lost by burying the accused in a mountain of evidence at trial? To suggest trials are not needed because no one would ever be accused of a crime without evidence is to accept man as an infallible being.

Although some people have often desired to dispense with trials involving particularly gruesome crimes they had resigned themselves to the fact that the Constitution said they had to follow these rules so they just put up with it. But now the war on “terror” has given these types a novel avenue by which they can circumvent the restraints of the Constitution. It’s the same old ruse all totalitarian governments play: foment fear over an imagined or provoked enemy. In their fear the people will do anything the government tells them if they believe it will ensure their safety. But tangible enemies come and go. The ideal enemy for the state would be one that could never disappear. An incorporeal enemy such as the concept of “terror” is just such an enemy. But people aren’t quite that stupid, they need to see a real human face for their enemy. Simple enough – label anyone you believe to be on the wrong side of this war as an “enemy combatant” and “poof” their rights are gone, because the rules in war are different after all. This is not to suggest such “combatants” have done nothing wrong, rather that all should be allowed to prove as much.

Sadly these circumventions of the Constitution will become permanent, just as this state of war is now permanent – how would one sign a treaty with “terror” after all? These circumventions of the Constitution will take place on US soil because naturally “terror” can exist anywhere in the world. We can bomb our enemies abroad, but here at home, that would be too messy. At home we simply declare an emergency and invoke “temporary” martial law. Boston was sadly our first taste of what that martial law may look like: a band of heavily armed Gestapo barks orders at you at gunpoint to your face to vacate your house and then searches it to their heart’s content, without a warrant, all in the name of “law and order”.

The application of the label “enemy combatant” means one has no right to confront their accusers, to see the evidence against them or to even attempt to provide evidence showing their innocence. Better hope you don’t have a similar name or appearance to an accused “enemy combatant” or were in the wrong place at the wrong time – because you have no right to demonstrate that you aren’t the person they think you are. We should be wary of our clever traps, as we ourselves may become ensnared in them.

April 30 / 2013
Author Greg Morin
Category Civil Liberty, Current events, Libertarian opinion
Comments No Comments

The Triumph of Spontaneous Good

What are the lessons from the recent Boston Marathon bombing? That evil does exist. But, also that good vastly outnumbers evil. The moment the bombs exploded the world witnessed evil engulfed by good as people ran toward the source of the blasts. Not just police or emergency medical personnel, but ordinary people who just happened to be there. Following the orchestrated disorder of sick and twisted minds came a response of spontaneous order to cure as quickly as possible the destruction that was wrought. Everyone helped as they were able, the strong carried the injured, the knowledgeable provided first aid, and runners, who had just finished a 26 mile marathon, ran further to local hospitals to give blood. Individuals came together spontaneously and voluntarily to fix what had been destroyed. These self-less acts only serve to undermine the narrative of the statist who believes mankind is fundamentally incorrigible and only through compulsive state coercion can any true good come about in society.

Now some might argue “first responders” who are supported through taxation played an essential role. You’ll get no argument from me on that, they did indeed play a vital role. However to imply, as David Sirota of Salon did, that such first responder would not even exist in society absent taxation is to reveal oneself to posses an extraordinarily limited imagination (“they should remind a tax-hostile country of the value of public investment — in this case, in first responders who miraculously limited the casualties” http://goo.gl/pPpaj). To question how such and such could exist absent the state is to join the intellectual ranks of those in the 19th century who would question the abolition of slavery (a government supported institution in society by the way) with their queries of: “but who will pick the cotton?”

Some might then argue how would we have caught the suspects absent the state providing an overwhelming police/FBI (military?) presence. Yes, indeed, how would we pick the cotton?  Of course with one suspect dead and another on life support through the process of capture it would seem the tool of the state is perhaps not the sharpest one in the shed. As they say “your tax dollars at work” – thanks, but I’d like a refund please as I didn’t get what I paid for. Those in charge of capture always try to take all the credit in these types of cases (publicized manhunt) but more often than not (as in this case) it is a tip off from that disorganized, decentralized mass we call “the people” that provides them with the “who” and “where” in order to make such arrests. Once again, spontaneous order of the good attacks and flushes out the cancer in our midst.

The tragic events in Boston only reinforce the idea that We the People are in fact fundamentally good and can take care of ourselves.

April 22 / 2013
Author Greg Morin
Category Current events, Libertarian opinion
Comments 2 Comments

Communal children?

One of the most oft-cited justifications for the state is the “what of the children!” plea. It employs what I call “the fallacy of the isolated example” and it goes something like this: parents are humans, humans are imperfect, therefore at any given time there will exist some set of human parents making imperfect choices, sometimes those choices will negatively impact their children, ipso facto these negative impacts can only be prevented by compelling the enlistment of others via that entity which possesses the exclusive legal right to engage in unilateral violence within a defined geographical region: the state. No other possible remedy is considered. Further, the state must intervene on behalf of ALL children, as we certainly can’t predict who might be harmed. This argument is fallacious because there always exists isolated negative cases in any system. In order to justify any action simply find a singular example you believe your “solution” will remedy.

Given the prevalence of this child-based state apologia it should come as no surprise that Melissa Harris-Perry (of MSNBC fame) last week uttered these words in an MSNBC promo: “We have never invested as much in public education as we should have because we’ve always had kind of a private notion of children: Your kid is yours and totally your responsibility. We haven’t had a very collective notion of these are our children. So part of it is we have to break through our kind of private idea that kids belong to their parents, or kids belong to their families, and recognize that kids belong to whole communities. Once it’s everybody’s responsibility… then we start making better investments”

Setting aside for the moment the bizarre notion that “communities” somehow have a non voluntary obligation in children within that community (most likely in order to establish a basis for that same community extracting its “fair share” of their earnings in the future) the listener is left to wonder exactly what dream world does Harris-Perry live in? She says, “we have never invested as much in public education as we should have…” As the kids say today “Are you serious?!?” We spend three-times the inflation adjusted amount on K-12 public education today as we did in 1970 with ZERO change in reading, math or science scores. If you pump air in a tire and the pressure does not increase, the problem isn’t the pump. Time to look elsewhere. She then says, “Once it’s everybody’s responsibility and not just the households…” Alas, it is already everyone’s responsibility. That’s what the “public” in “public education” means. Our collective (everybody’s) taxes pay for public education. Public education means it is incumbent upon the community to pay for the education of all the children, or more to the point, it is incumbent upon some people to pay the (inflated) educational costs of other people’s children, particularly the children of those who exercise no reproductive restraint as those parents bear little of the actual cost in raising them – that’s society’s job after all.

In a follow up statement over her original comments she says “This is about whether we as a society…have a right to impinge on individual freedoms in order to advance a common good.” On this she is correct – that is exactly the question we should be asking, because the answer to that question is a resounding NO. “No” must be the answer not merely for utilitarian reasons (i.e. competition would more effectively solve problems than a monopolistic government) but also for ethical reasons (a society that justifies theft because it might increase the “common good” is a fundamentally unjust and morally bankrupt society).

So as shocking as her comments were, they were merely a bolder rewording of our current public educational system, a system, I might add, both the left and right strongly support. If you took issue with the sentiments she expressed, then to be intellectually honest you must begin to question the legitimacy of any government having any hand in education at all. If you would like to take the next step on that journey I invite you to read Rothbard’s “Education: Free and Compulsory”.

April 16 / 2013
Author Greg Morin
Category Education, Libertarian opinion, Statist Myths
Comments No Comments

Monsanto Protection Act

Whether you are anti-GMO, pro-GMO, or couldn’t-care-less-about-GMO you should be angered and frightened not only by the content of what lawmakers slipped into the unremarkably named “H.R. 933: Consolidated and Further Continuing Appropriations Act, 2013” last week, but the manner in which they did so.

Why should you care? The inserted language sets a dangerous precedent. It does so by carving out an exception in which a regulatory agency (the USDA in this case) may become answerable to no one. Traditionally such agencies fall under the purview of judicial review, meaning their practices, policies, or actions may be halted either temporarily or permanently upon a judge or judges finding issue with their actions. The judiciary in this case acts as the only mechanism the people have to prevent such agencies simply doing whatsoever their heart desires. This bill inserts language that allows the USDA to simply ignore judicial opinion and proceed under their own unbound and unchecked authority. Even laws passed by Congress may be nullified by judicial review, but no such limitation would exist for certain decisions of the USDA.

What exactly is being permitted? For the full gory details please see Title VII, Section 735. In layman’s terms it says this: if a decision of the USDA is found to be invalid (by a court) with respect to USDA’s approval of a particular plant cultivation, then if a farmer, grower, farm operator or producer requests a “temporary” (“temporary” being defined no where in the statute) permit to cultivate said plant anyway then the Secretary of Agriculture is empowered to grant such a permit, i.e. completely ignoring any court finding to the contrary. Since this language was specifically inserted with the knowledge of the very real prospect of a court eventually overturning USDA’s approval of certain GMO-seeds (principally produced by Monsanto) it has been dubbed the “Monsanto Protection Act”. Monsanto need no longer worry about some meddlesome activist judge interfering with USDA approval of the planting of their seeds. This is just another example of crony capitalism at its most blatant. Big business helps lawmakers get elected and they in turn pass laws that benefit those same big businesses. I will pause for a moment while the irony that President Obama actually signed this piece of legislation into law sinks in. To those that believed Obama was all about the “little guy” and was going to stick to “big business” – I rest my case.

How did this even happen? The truly scary part is that this not at all unusual. These types of unrelated “riders” are routinely inserted into bills (recall the “rum rebates” in the fiscal cliff bill earlier this year?). In this case, perhaps anticipating the firestorm that would erupt, it was inserted anonymously. That’s right, our wonderful system of governance allows random bits of text to mysteriously appear in bills without any accountability. Even better they show up at the last minute so no one even knows they are in there (so I guess Nancy Pelosi was right after all, we really do have to pass a bill to find out what’s in it).

Some may say this was just an unfortunate breakdown of the “system” and is simply a sign that we have gotten “off track” and must “reform” or otherwise “fix” the system. That is a fool’s errand. The system does not, has not, and can never work. As long as a handful of people have the legal authority to hand out lucrative favors that everyone else must pay for or comply with then the whole system is doomed to go over a much larger cliff.

April 08 / 2013
Author Greg Morin
Category Big government is the problem, Current events, Libertarian opinion
Comments No Comments

State Marriage Benefits Betray State Intrusions

Last week the Supreme Court heard oral arguments concerning two different cases that relate to the constitutionality of the Defense of Marriage Act (DOMA). DOMA was signed into law in 1996 in order to delegitimize any attempt by the states to legalize homogender marriage by disqualifying members of such unions from receiving certain federal “benefits.” So even if a state did legalize and recognize such marriages they would always remain somehow second-class in terms of government-mandated benefits. However DOMA proved to be an irrelevant impediment and several states have since enacted laws recognizing homogender marriage. So, once again the question of federalism falls before the court: wherever federal and state law conflict, which shall take precedence? The constitution was written in such a way that state law supersedes in all cases except where the constitution has expressly delegated such authority to the federal government. Progressives typically fall into the category of those who believe the constitution to be a “living document” insofar as they routinely discover new “expressly delegated” authority that tends to align with their worldview. Conservatives however view the document more through an “original intent” lens. Oddly enough though the rolls are reversed with respect to DOMA. Now it is the progressives insisting that the constitution does not give Congress any implied authority to regulate marriage and it is the conservatives claiming there is clearly an unwritten mandate in the constitution to defend “pillars of our society” such as marriage. My, my, it seems the constitution can be all things to all people when it suits their partisan purpose.

The more compelling message of DOMA, which both sides and the media have managed to ignore, is the idea that there even exists such a thing as “federal benefits”. Every so-called benefit is connected in some way to some illegitimate intrusion of government in our lives. Government takes away our liberties and intrudes on our rights and then graciously metes them back out piecemeal as “benefits” for those that play nice and follow their rules. Consider the following contested benefits: Tax benefits (income and estate tax are immoral confiscation of productivity), insurance benefits (employers should have no role in providing insurance of any kind), Social Security benefits (Social Security is a fraudulent compulsive quasi disability/ponzi scheme that should not exist in a free society), immigration benefits (there should be no limits on immigration).

But the biggest intrusion of all: Marriage itself – the government, neither at the federal nor state level has any business whatsoever in regulating, validating or approving of marriage. Marriage (for legal purposes) is simply the voluntary association of one or more individuals for a specified or unspecified length of time. Advocates of marriage regulation base their argument on an appeal to the concept of government playing a role in maintaining the structure of society. There is only one problem with that argument: government has no such role. Churches may play that role for some and to the extent people freely associate with those churches and abide by those teachings that is entirely legitimate. But the state has no role in embodying in law the teachings of certain religious institutions.

Remember, democracy is a dangerous weapon as it cuts both ways. For example a law passed last year (by majority) in Denmark forces churches there to marry gay couples by some representative of that church. Using government to either require or forbid some action is equally wrong no matter who does it. All sides should join together in dismantling the ability of government to intrude on our rights. Government is a powerful weapon. We need to stop using that weapon against each other.

April 01 / 2013
Author Greg Morin
Category Big government is the problem, Civil Liberty, Current events, Libertarian opinion
Comments No Comments

Internet Tax

“The word bipartisan means some larger-than-usual deception is being carried out” – George Carlin.

 

The above quote may be from a comedian but the sentiment is no laughing matter. Late last week the US Senate held a vote on a budget resolution and decided they would sneak in a wholly unrelated bill, the euphemistically named “Marketplace Fairness Act”. Sadly there was strong bipartisan support for this embedded bill (75 for 25 against). The putative goal of this legislation is to put brick and mortar stores on an equal footing with online retailers with respect to sales tax collection. Presently, if you purchase goods online from a seller that has no “nexus” (that is, no physical presence) in your state then YOU, not the reseller, are responsible for submitting the appropriate sales tax to your state. As I’m sure you’re aware this is hardly ever enforced (as it would be political suicide).

The politically expedient route then is to go after out of state retailers who have no voice or vote and shake them down for tax money. So apparently if Party A is harmed and Party B is not, it makes more sense to start harming Party B rather to stop harming Party A. Brilliant.

My goal is not pick through everything wrong with this bill (and there is a lot) but rather to suggest a simple and viable alternative. Instead of forcing retailers to keep track of a myriad of different taxing authorities and a multitude of filing deadlines and burdensome paperwork (the claim that this bill simplifies filing is a ruse), why not simply impose the sales tax on the source of the sale rather than the destination? This is how our current sales tax system operates. Brick and mortar retailers do not vary the tax they charge based on their customer’s zip code. There is no functional difference between a buyer driving out of state, buying a good, then driving back home versus that same buyer buying that same good on-line and paying a shipper to retrieve said good.

Internet based retailers should therefore collect sales taxes just as though the customer walked into their premises and made the purchase. Then they only have one tax rate and one taxing authority to deal with and their locality benefits from those sales just as they would from a local sale. This approach entirely undercuts the arguments of brick and mortar stores. 1) Most of the country has sales taxes so anything bought on line will not be “tax free” but will bear the cost of the local sales tax of the seller and 2) for every sale “lost” to a remote seller the local retailer can also “steal” sales by selling their wares on line (this is already taking place: Amazon and Ebay have become a virtual shopping mall of brick and mortar stores selling on line).

The only plausible objection to this plan would be that online retailers would move their operations into low or no sales tax regions of the country or that high tax region retailers would be at a disadvantage relative to low tax regions. Tough. If that is the case then either (a) those businesses can leave or (b) they can bring political pressure to bear on their LOCAL politicians to lower their rates. The tax competition arising from this system will tend to equalize tax rates across the country as they are shifted downward toward the absolutely minimum sustainable level (just as competition pushes prices down in any market). Source based taxing exposes the tax policies of each region to the worldwide “wallet voting” of potential customers. However destination based taxing limits interregional competition and removes the possibility of locals benefiting from lowered taxes due to outside tax competition. Government doesn’t like competition, so it is little wonder the destination based system is favored by the political class.

At the end of the day it’s a gamble: you can go with the destination taxing and gain taxes on internet sales to locals while losing out on taxes on internet sales to non-locals or go with source taxing and have the reverse. The former is an untested, complicated and burdensome system, the latter far simpler and requires no procedural changes from our current method of sales tax collection. Of course the simplest way to “level the playing field” would be to simply eliminate all sales taxes. But that is an altogether different discussion.

March 25 / 2013
Author Greg Morin
Category Current events, Taxes
Comments No Comments
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