The Bad News Keeps On Coming. . . For Obama

The Bad News Keeps On Coming. . . For Obama

Yesterday, we talked about some of the problems Obama faces getting re-elected. That made me happy. So let’s do it again. Today, let’s talk about the economic problems Obama faces.

The economy is a mess. We’ve technically been out of recession since May 2009, but growth has been anemic (slightly below the long-term average) and job growth has been nonexistent. This will hurt Obama come re-election time. But “top line” economic numbers don’t bother people. What bothers people are the things that hit them personally. And that is where Obama is really hurting:

● Unemployment: The unemployment rate in February was 8.3%. That means 12.8 million people are unemployed. The actual rate is closer to 16%, which means 25 million people are unemployed. Talk all you want about growth, but as long as most people in the country know one or more of these 25 million people personally, they won’t believe things are getting better.

● Inflation: The official inflation rate is 2.9% in the US. But unofficially, people are recording a 12% rate. That means everyone is taking a 12% pay cut each year right now, and that’s the worst it’s been since Jimmy Carter’s era.

● Home Values: It may not be fair to blame Obama for the housing collapse, but he will still feel the heat because Americans have used their homes as a form of retirement savings. And that means people are hurting. According to Case-Shiller, which provides housing price data to the stock market, home values are at their lowest level since 2003 AND they now suspect that suburban home prices may not recover in our lifetimes. Shiller says the shift toward renting and city living could mean “that we will never in our lifetime see a rebound in these prices in the suburbs.” That’s disastrous for Obama because it means that until things change, people will feel insecure and will spend less, which depresses the economy.

● Gas Price: The biggie is gas prices. Gas currently sits at a national average of $3.90 and is expected to hit $4.25 by mid-May. Some analysts think this will go as high as $4.50 to $4.70 during the summer. Indeed, everyone is now warning that gas will keep going up until the summer is over. And while the MSM has studiously avoided letting anyone blame Obama for this, a Reuters poll shows that 68% of Americans disapprove of Obama’s handling of the issue.

What “handling” could they be upset about? Well, people overwhelmingly favor the Keystone Pipeline, they overwhelmingly favor offshore drilling, and they overwhelmingly favor fracking for natural gas. Obama has stood in the way of each.

● Utility Costs: Obama’s EPA just issued rules forcing power plants to cut their carbon emissions. This means energy costs are about to go up again, just in time for air conditioning season.

Beyond this, seniors are worried the pension system keeps getting closer and closer to bankruptcy and Medicare barely works anymore because it's broke, the budget is out of control which is crushing consumer purchasing power and causing massive inflation, and civil servants have transformed themselves into a permanent elite class of rich, protected jerks living high on the amounts stolen from poor and middle class taxpayers. . . who aren't happy about it.

All of this is disastrous for Obama. That’s the good news.

The better news is that all of this can be fixed. . . just not by Obama. Getting spending under control will solve the budget and inflation problems. Extending the retirement age and capping benefits or running them lower than the rate of inflation will fix the pensions and Medicare issue. Gas prices can be fixed by approving more drilling and switching to natural gas. Republican attempts to break public sector unions are changing the bureaucratic landscape, and Republicans are getting the credit for things like school reform -- an area that once belonged exclusively to Democrats in voter’s minds.

Moreover, one of the biggest imbalances in our economy, the “collapse” of manufacturing is starting to right itself. First, manufacturing never collapsed. The US is still the largest or second largest manufacturer in the world depending on how you count it. Secondly, with wage inflation in China, it is now more cost efficient to open a new plant in the United States than it is to open the plant in China. And with wage growth showing no signs of stopping in China, you will soon see manufacturing return to the US.

The moral here is simple. The Democrats are doing everything wrong and are causing people genuine pain. That will ruin their election chances. And the Republicans have a chance, after the election, to set all of this right and win over the American people probably permanently. Good times will be here again!

Yesterday, we talked about some of the problems Obama faces getting re-elected. That made me happy. So let’s do it again. Today, let’s talk about the economic problems Obama faces.

The economy is a mess. We’ve technically been out of recession since May 2009, but growth has been anemic (slightly below the long-term average) and job growth has been nonexistent. This will hurt Obama come re-election time. But “top line” economic numbers don’t bother people. What bothers people are the things that hit them personally. And that is where Obama is really hurting:

● Unemployment: The unemployment rate in February was 8.3%. That means 12.8 million people are unemployed. The actual rate is closer to 16%, which means 25 million people are unemployed. Talk all you want about growth, but as long as most people in the country know one or more of these 25 million people personally, they won’t believe things are getting better.

● Inflation: The official inflation rate is 2.9% in the US. But unofficially, people are recording a 12% rate. That means everyone is taking a 12% pay cut each year right now, and that’s the worst it’s been since Jimmy Carter’s era.

● Home Values: It may not be fair to blame Obama for the housing collapse, but he will still feel the heat because Americans have used their homes as a form of retirement savings. And that means people are hurting. According to Case-Shiller, which provides housing price data to the stock market, home values are at their lowest level since 2003 AND they now suspect that suburban home prices may not recover in our lifetimes. Shiller says the shift toward renting and city living could mean “that we will never in our lifetime see a rebound in these prices in the suburbs.” That’s disastrous for Obama because it means that until things change, people will feel insecure and will spend less, which depresses the economy.

● Gas Price: The biggie is gas prices. Gas currently sits at a national average of $3.90 and is expected to hit $4.25 by mid-May. Some analysts think this will go as high as $4.50 to $4.70 during the summer. Indeed, everyone is now warning that gas will keep going up until the summer is over. And while the MSM has studiously avoided letting anyone blame Obama for this, a Reuters poll shows that 68% of Americans disapprove of Obama’s handling of the issue.

What “handling” could they be upset about? Well, people overwhelmingly favor the Keystone Pipeline, they overwhelmingly favor offshore drilling, and they overwhelmingly favor fracking for natural gas. Obama has stood in the way of each.

● Utility Costs: Obama’s EPA just issued rules forcing power plants to cut their carbon emissions. This means energy costs are about to go up again, just in time for air conditioning season.

Beyond this, seniors are worried the pension system keeps getting closer and closer to bankruptcy and Medicare barely works anymore because it's broke, the budget is out of control which is crushing consumer purchasing power and causing massive inflation, and civil servants have transformed themselves into a permanent elite class of rich, protected jerks living high on the amounts stolen from poor and middle class taxpayers. . . who aren't happy about it.

All of this is disastrous for Obama. That’s the good news.

The better news is that all of this can be fixed. . . just not by Obama. Getting spending under control will solve the budget and inflation problems. Extending the retirement age and capping benefits or running them lower than the rate of inflation will fix the pensions and Medicare issue. Gas prices can be fixed by approving more drilling and switching to natural gas. Republican attempts to break public sector unions are changing the bureaucratic landscape, and Republicans are getting the credit for things like school reform -- an area that once belonged exclusively to Democrats in voter’s minds.

Moreover, one of the biggest imbalances in our economy, the “collapse” of manufacturing is starting to right itself. First, manufacturing never collapsed. The US is still the largest or second largest manufacturer in the world depending on how you count it. Secondly, with wage inflation in China, it is now more cost efficient to open a new plant in the United States than it is to open the plant in China. And with wage growth showing no signs of stopping in China, you will soon see manufacturing return to the US.

The moral here is simple. The Democrats are doing everything wrong and are causing people genuine pain. That will ruin their election chances. And the Republicans have a chance, after the election, to set all of this right and win over the American people probably permanently. Good times will be here again!

The Bad News Keeps On Coming. . . For Obama

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We’ll Soon Be Number One Again

We’ll Soon Be Number One Again

At which point we should be awarded Esquire Magazine’s Dubious Achievement Award. Step up to the podium and accept your Doobie statuette, America. Unless something changes between now and this same time next month, America will have the highest corporate income tax rate in the developed world. It’s called the federal/state integrated tax rate and we’ll soon be the front runner. It’s an honor we could do without.

This time next month, Japan will lower its corporate tax rate to 35% from its present level of 39.5%. We were already in the running for the top spot at 39.2%, but with Japan’s change we’ll have the award sewed up. At that point, our major trading partners will have the following rates in descending order: Japan at 35%, France at 34.4%, Germany at 30.2%, Mexico at 30%, and Canada at 27.6%. The overall rate among all the developed nations in the Organization for Economic Cooperation and Development (OECD) is an amazing low of 25%.

The Great Economist Barack Obama has proposed to lower the corporate tax rate to 32%, which would put us between France and Germany. Standing alone, that would still be putting a bandaid on a cancerous growth. But it doesn’t stand alone. In exchange for a minor corporate tax rate decrease, Obama also proposed to raise the national debt, increase income and use taxes, borrow more money from China, and create regulating agencies to regulate the regulating agencies. And there’s that extra bonus of setting aside more bailout funds and the double-taxation on capital gains.

Meanwhile, Obama expects to fiercely defend his costly socialist Obamacare scheme which also forces corporations to pay way too much for way too few real benefits (on top of the burden on employees and the interference with religious freedom). At long last, Obama has recognized American exceptionalism. We are exceptionally stupid if we reelect this ivory tower socialist who thinks the Laffer Curve is a new routine over at the local Comedy Club.

At which point we should be awarded Esquire Magazine’s Dubious Achievement Award. Step up to the podium and accept your Doobie statuette, America. Unless something changes between now and this same time next month, America will have the highest corporate income tax rate in the developed world. It’s called the federal/state integrated tax rate and we’ll soon be the front runner. It’s an honor we could do without.

This time next month, Japan will lower its corporate tax rate to 35% from its present level of 39.5%. We were already in the running for the top spot at 39.2%, but with Japan’s change we’ll have the award sewed up. At that point, our major trading partners will have the following rates in descending order: Japan at 35%, France at 34.4%, Germany at 30.2%, Mexico at 30%, and Canada at 27.6%. The overall rate among all the developed nations in the Organization for Economic Cooperation and Development (OECD) is an amazing low of 25%.

The Great Economist Barack Obama has proposed to lower the corporate tax rate to 32%, which would put us between France and Germany. Standing alone, that would still be putting a bandaid on a cancerous growth. But it doesn’t stand alone. In exchange for a minor corporate tax rate decrease, Obama also proposed to raise the national debt, increase income and use taxes, borrow more money from China, and create regulating agencies to regulate the regulating agencies. And there’s that extra bonus of setting aside more bailout funds and the double-taxation on capital gains.

Meanwhile, Obama expects to fiercely defend his costly socialist Obamacare scheme which also forces corporations to pay way too much for way too few real benefits (on top of the burden on employees and the interference with religious freedom). At long last, Obama has recognized American exceptionalism. We are exceptionally stupid if we reelect this ivory tower socialist who thinks the Laffer Curve is a new routine over at the local Comedy Club.

We’ll Soon Be Number One Again

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The “Right” Tax Hikes

The “Right” Tax Hikes

Before Turkey Day, Pat Toomey and Jeb Hensarling were taking a lot of heat for a tax proposal they made as part of their supercommittee work. Let’s talk about why their proposal actually is something conservatives should adopt. The proposal in question involves either capping or eliminating both the state tax deduction and the home interest deduction. Here’s why you should support this.

The arguments against this are that it would constitute a broad-based tax increase. In other words, most taxpayers would see their taxes go up as a result of this. And if you phase this out above a certain income, then you are playing into the Democrats’ class warfare arguments. Also, eliminating the home mortgage deduction would hurt the home industry by eliminating the incentive for people to buy homes, which conservatives see as promoting personal financial responsibility.

The MSM argument for this is that eliminating these deductions would result in a pretty massive increase in tax revenues, and something on this scale will be needed to reduce the deficit or pay off the debt.

Sounds like a loser, right? Well, not so fast. Consider these points.

● As a conservative, the idea of helping a particular industry through the tax code should be anathema to us. We should not be picking winners and losers no matter how much we like particular industries. And we should not look favorably upon social engineering.

● The complaint that this would broadly raise taxes can be offset by lowering rates as part of the agreement. Some people would end up paying more and some would pay less, but overall lower, flatter rates without distorting deductions should always be the conservative goal.

● The class warfare point doesn’t really support the idea of leaving the current system in place either. Instead, it argues against phasing out the deduction for the rich. But if we eliminate these deductions entirely or simply cap them at some amount, then everyone is treated equally and there is no support for class warfare.

● And in favor of capping these deductions, if not eliminating them entirely, consider this. The purpose of the home mortgage deduction is to encourage home ownership because that’s fiscally responsible, but does this argument still make sense when we are talking about people who are buying million dollar homes? Presumably, they don’t need the government trying to tell them where it’s best to put their money.

Those are the preliminaries. Now it gets interesting. See, it turns out that both the state tax deduction and the home mortgage deduction disproportionately benefit liberals and support liberalism.

By allowing state taxes to be deducted, lower tax states are essentially subsidizing higher tax states and making higher taxes more palatable. In other words, through the state tax deduction, the federal government will effectively pick up about a third of the tax burden imposed by the states. Thus, if State A taxes income at 6% and State B taxes income at 12%, the federal government gives State A a hidden 2% subsidy and State B a hidden 4% subsidy by reducing the federal taxes it demands from the taxpayers of those states. Because federal spending is a zero sum game, meaning it is finite, that extra 2% is basically money transferred from other states to State B, i.e. lower tax states are subsidizing higher tax states.

Why should a responsible state like Texas be forced to subsidize an irresponsible state like New York or California? If New Yorkers want to pay 12%, let them pay 12%, don’t let them pay only 8% with tax money from Texas going to make up the other 4%. Make these liberal states experience the full consequences of their stupid policies!

And make no mistake, liberal states are the ones benefiting from this.

Moreover, “the rich” who benefit the most from this deduction and the home mortgage deduction are disproportionately supporters of liberals. In fact, according to Michael Barone, voters in high-tax, high-income states overwhelmingly voted for Obama. Nationally, those with incomes over $200,000 voted for Obama by 6% more than voters below $200,000. And in the high-income-tax states, Obama blew McCain away: Connecticut (55%), New York (56%), New Jersey (52%), Maryland (55%), Illinois (54%), California (57%).

Why should a middle class worker in Kentucky be forced to send tax dollars to Washington so that Washington can support the spending habits of rich liberals and rich liberal states?

It’s time to eliminate these deductions or cap them at a low level which doesn’t subsidize liberal states.

Toomey and Hensarling are right in this. Eliminating these deductions is solid conservative economics and philosophy and it’s solid conservative politics.

Before Turkey Day, Pat Toomey and Jeb Hensarling were taking a lot of heat for a tax proposal they made as part of their supercommittee work. Let’s talk about why their proposal actually is something conservatives should adopt. The proposal in question involves either capping or eliminating both the state tax deduction and the home interest deduction. Here’s why you should support this.

The arguments against this are that it would constitute a broad-based tax increase. In other words, most taxpayers would see their taxes go up as a result of this. And if you phase this out above a certain income, then you are playing into the Democrats’ class warfare arguments. Also, eliminating the home mortgage deduction would hurt the home industry by eliminating the incentive for people to buy homes, which conservatives see as promoting personal financial responsibility.

The MSM argument for this is that eliminating these deductions would result in a pretty massive increase in tax revenues, and something on this scale will be needed to reduce the deficit or pay off the debt.

Sounds like a loser, right? Well, not so fast. Consider these points.

● As a conservative, the idea of helping a particular industry through the tax code should be anathema to us. We should not be picking winners and losers no matter how much we like particular industries. And we should not look favorably upon social engineering.

● The complaint that this would broadly raise taxes can be offset by lowering rates as part of the agreement. Some people would end up paying more and some would pay less, but overall lower, flatter rates without distorting deductions should always be the conservative goal.

● The class warfare point doesn’t really support the idea of leaving the current system in place either. Instead, it argues against phasing out the deduction for the rich. But if we eliminate these deductions entirely or simply cap them at some amount, then everyone is treated equally and there is no support for class warfare.

● And in favor of capping these deductions, if not eliminating them entirely, consider this. The purpose of the home mortgage deduction is to encourage home ownership because that’s fiscally responsible, but does this argument still make sense when we are talking about people who are buying million dollar homes? Presumably, they don’t need the government trying to tell them where it’s best to put their money.

Those are the preliminaries. Now it gets interesting. See, it turns out that both the state tax deduction and the home mortgage deduction disproportionately benefit liberals and support liberalism.

By allowing state taxes to be deducted, lower tax states are essentially subsidizing higher tax states and making higher taxes more palatable. In other words, through the state tax deduction, the federal government will effectively pick up about a third of the tax burden imposed by the states. Thus, if State A taxes income at 6% and State B taxes income at 12%, the federal government gives State A a hidden 2% subsidy and State B a hidden 4% subsidy by reducing the federal taxes it demands from the taxpayers of those states. Because federal spending is a zero sum game, meaning it is finite, that extra 2% is basically money transferred from other states to State B, i.e. lower tax states are subsidizing higher tax states.

Why should a responsible state like Texas be forced to subsidize an irresponsible state like New York or California? If New Yorkers want to pay 12%, let them pay 12%, don’t let them pay only 8% with tax money from Texas going to make up the other 4%. Make these liberal states experience the full consequences of their stupid policies!

And make no mistake, liberal states are the ones benefiting from this.

Moreover, “the rich” who benefit the most from this deduction and the home mortgage deduction are disproportionately supporters of liberals. In fact, according to Michael Barone, voters in high-tax, high-income states overwhelmingly voted for Obama. Nationally, those with incomes over $200,000 voted for Obama by 6% more than voters below $200,000. And in the high-income-tax states, Obama blew McCain away: Connecticut (55%), New York (56%), New Jersey (52%), Maryland (55%), Illinois (54%), California (57%).

Why should a middle class worker in Kentucky be forced to send tax dollars to Washington so that Washington can support the spending habits of rich liberals and rich liberal states?

It’s time to eliminate these deductions or cap them at a low level which doesn’t subsidize liberal states.

Toomey and Hensarling are right in this. Eliminating these deductions is solid conservative economics and philosophy and it’s solid conservative politics.

The “Right” Tax Hikes

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Analysis: Cain's 9-9-9 Plan

Analysis: Cain's 9-9-9 Plan

A couple of you have asked that we provide more detail on Herman Cain’s 9-9-9 plan. With another debate tonight (join us for another play by play), now is a good time to discuss the Hermanator’s plan.

Here’s how the plan works:

● Businesses would pay a flat 9.1% tax on gross income less purchases from other US located businesses, capital investment and net exports.

● Individuals would pay a flat 9.1% tax on income, less charitable deductions.

● A 9.1% national sales tax would be created to make up lost revenue.

Here are the reasons this is a good plan:

● The elimination of deductions ends the incestuous relationship between Big Business and government where Big Business buys politicians who insert deductions into the tax code to allow companies like GE to declare record profits and yet pay $0 in tax.

● This plan ends the economic misallocations caused by the current code because it eliminates the deductions which encourage people to hide their income. It does not give preferences to savings or consumption, capital or labor, or dividends verses income growth. In effect, the government gets out of the business of telling people how to structure their economic lives.

● It reduces the disincentive to work because it lowers payroll taxes. And it boosts the incentive to work, hire and buy new equipment because it lowers the overall tax rates for those activities.

● It encourages spending on American goods and services as only those can be deducted. And it encourages exports.

● This forces everyone to pay taxes, i.e. it broadens the tax base. Right now 47% of the public pays no tax, but gets government benefits. That needs to change to change the incentive these people have to keep demanding bigger government. Making them pay taxes goes a long way toward that.

Here are the arguments against:

● This will create a hidden Value Added Tax! Europe uses the VAT because VATs can be raised without people knowing. But this isn’t a VAT. This is a sales tax and would only apply to the sale of new goods or services to end users. In other words, whereas a VAT gets added at each level, a sale tax only gets added once. Moreover, you would see this tax on your receipts -- something you don’t get with a VAT.

● This weekend Cain admitted that some people will pay more under his plan. So what? Finding a plan under which no one pays more but revenues remain about the same is an impossibility.

● Idiot liberal: “Poor people will pay more!!” Idiot progressive: “The evil rich will pay less!!” A lot of information is being produced to claim this plan shifts the tax burden from the rich to the poor, but that's all fake -- it's based on unreal assumptions about what the rich and poor pay now (like assuming GE actually pays taxes) and it assumes neither rich nor poor will change their behavior in response to the plan. The truth is the 47% of people who currently pay no taxes will pay more. The others (the productive 53%) will pay less. And frankly, that doesn't bother me in the least.

● Grover Norquist: “This raises taxes!!” Grover is again equating the elimination of all those deductions with tax hikes. But if we accept Grover’s logic, then we are trapped in the current tax code forever. What a tool.

● The plan doesn’t raise enough money! Opponents scored the plan and claim it will only raise $2 trillion, not $2.2 trillion as Cain claims. Frankly, that’s more accurate than anything else proposed by Congress. But more to the point, this is standard static scoring where they just take current spending/ income and apply the new rates. They did not determine whether people would work more once they can keep more of their income (they would) or whether people would spend more once they have more income to spend (they would). (They did the same thing to criticize Reaganomics.) No one knows what this plan would actually bring in, but if the critics are claiming $2 trillion, expect it to do much better in reality.

But there is one more problem with the plan. . . this plan ain’t happenin. Our government is specifically designed to prevent radical ideas from being implemented and this plan is deeply radical. This plan would require a complete change in the way Washington works, and that will upset too many vested interest. For example:

● K Street will lose most of its business with the end of the deductions in the tax code.

● The poverty lobby will lose its cherished progressive tax.

● Most tax attorneys and tax accountants would lose their jobs.

● All the people who currently use deductions (everything from home owners to GE) will try to save their own deductions.

● Businesses will whine about the sales tax hurting their sales.

● Foreign countries will complain about “predatory taxation” designed to steal businesses.

That’s too much opposition for Congress to do something this radical. The Democrats will cling like grim death to the old system, as will many Republicans. Still, this plan tells us a lot about Cain and his goals and it is a worthwhile goal.


P.S. Check out Herman Cain singing about pizza: Not, I'm not kidding

A couple of you have asked that we provide more detail on Herman Cain’s 9-9-9 plan. With another debate tonight (join us for another play by play), now is a good time to discuss the Hermanator’s plan.

Here’s how the plan works:

● Businesses would pay a flat 9.1% tax on gross income less purchases from other US located businesses, capital investment and net exports.

● Individuals would pay a flat 9.1% tax on income, less charitable deductions.

● A 9.1% national sales tax would be created to make up lost revenue.

Here are the reasons this is a good plan:

● The elimination of deductions ends the incestuous relationship between Big Business and government where Big Business buys politicians who insert deductions into the tax code to allow companies like GE to declare record profits and yet pay $0 in tax.

● This plan ends the economic misallocations caused by the current code because it eliminates the deductions which encourage people to hide their income. It does not give preferences to savings or consumption, capital or labor, or dividends verses income growth. In effect, the government gets out of the business of telling people how to structure their economic lives.

● It reduces the disincentive to work because it lowers payroll taxes. And it boosts the incentive to work, hire and buy new equipment because it lowers the overall tax rates for those activities.

● It encourages spending on American goods and services as only those can be deducted. And it encourages exports.

● This forces everyone to pay taxes, i.e. it broadens the tax base. Right now 47% of the public pays no tax, but gets government benefits. That needs to change to change the incentive these people have to keep demanding bigger government. Making them pay taxes goes a long way toward that.

Here are the arguments against:

● This will create a hidden Value Added Tax! Europe uses the VAT because VATs can be raised without people knowing. But this isn’t a VAT. This is a sales tax and would only apply to the sale of new goods or services to end users. In other words, whereas a VAT gets added at each level, a sale tax only gets added once. Moreover, you would see this tax on your receipts -- something you don’t get with a VAT.

● This weekend Cain admitted that some people will pay more under his plan. So what? Finding a plan under which no one pays more but revenues remain about the same is an impossibility.

● Idiot liberal: “Poor people will pay more!!” Idiot progressive: “The evil rich will pay less!!” A lot of information is being produced to claim this plan shifts the tax burden from the rich to the poor, but that's all fake -- it's based on unreal assumptions about what the rich and poor pay now (like assuming GE actually pays taxes) and it assumes neither rich nor poor will change their behavior in response to the plan. The truth is the 47% of people who currently pay no taxes will pay more. The others (the productive 53%) will pay less. And frankly, that doesn't bother me in the least.

● Grover Norquist: “This raises taxes!!” Grover is again equating the elimination of all those deductions with tax hikes. But if we accept Grover’s logic, then we are trapped in the current tax code forever. What a tool.

● The plan doesn’t raise enough money! Opponents scored the plan and claim it will only raise $2 trillion, not $2.2 trillion as Cain claims. Frankly, that’s more accurate than anything else proposed by Congress. But more to the point, this is standard static scoring where they just take current spending/ income and apply the new rates. They did not determine whether people would work more once they can keep more of their income (they would) or whether people would spend more once they have more income to spend (they would). (They did the same thing to criticize Reaganomics.) No one knows what this plan would actually bring in, but if the critics are claiming $2 trillion, expect it to do much better in reality.

But there is one more problem with the plan. . . this plan ain’t happenin. Our government is specifically designed to prevent radical ideas from being implemented and this plan is deeply radical. This plan would require a complete change in the way Washington works, and that will upset too many vested interest. For example:

● K Street will lose most of its business with the end of the deductions in the tax code.

● The poverty lobby will lose its cherished progressive tax.

● Most tax attorneys and tax accountants would lose their jobs.

● All the people who currently use deductions (everything from home owners to GE) will try to save their own deductions.

● Businesses will whine about the sales tax hurting their sales.

● Foreign countries will complain about “predatory taxation” designed to steal businesses.

That’s too much opposition for Congress to do something this radical. The Democrats will cling like grim death to the old system, as will many Republicans. Still, this plan tells us a lot about Cain and his goals and it is a worthwhile goal.


P.S. Check out Herman Cain singing about pizza: Not, I'm not kidding

Analysis: Cain's 9-9-9 Plan

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I've Already Paid My Fair Share. . . Jerk

I've Already Paid My Fair Share. . . Jerk

“This is not class warfare, this is math,” said Obama about his latest attack on the rich. And in so saying, Obama proved to us that not only is he a horrible president, but he’s bad at math too. Let’s see who really pays what in the way of taxes.

President Fail and his winged monkeys keep saying the rich need to “pay their fair share.” Chief winged monkey is the Crony Cornhusker Warren Buffett. Buffett, for those who don’t know, is a disaster profiteer, having made several billion during the financial crisis by loaning money to Goldman Sachs and General Electric (both of whom are heavily connected to the White House). Those loans, by the way, were guaranteed by we peons with TARP funds.

To thank Obama for adding to his $50 billion fortune, Buffett is now running around asking that his taxes be raised. And to back up his demand, he’s claiming that his middle class secretary pays a higher tax rate than he does. Clearly, a billionaire should not be paying a lower tax rate than someone in the middle class right? Hence, we need a tax on everyone making more than $250,000 a year. . . I’ll leave you to figure out how $250,000 equates to being a billionaire.

But is what Buffett says true?

Buffett claims he only pays 17% in taxes, which he implies is typical for millionaires and billionaires. But according to the nonpartisan Tax Policy Center (using IRS data), millionaires and billionaires actually pay on average 29% of their income as federal taxes. By comparison, middle class earners ($50,000 - $75,000) pay on average 15%, and the lowest income earners ($20,000 to $30,000) pay on average 5.7%.

So Buffett isn’t typical. In fact, he’s underpaying the average by 43%. Which means he shouldn’t be complaining about tax rates, he should be complaining about all those great deductions he’s using to keep his taxes low. According to the nonpartisan Joint Committee on Taxation, there are about one trillion dollars in deductions, exemptions and credits taken each year. No doubt, Warren uses a lot of those. He also probably lowers his rate by keeping much of his money overseas. Why don’t we eliminate those things first before we start attacking “the rich” (i.e. anyone earning $250,000 a year). Want to bet that Warren would squeal like a stuck pig if we did that?

And while we’re at it, what is a “fair share” anyway? 236,000 Americans made more than $1 million in income last year. As a group, they paid 20% of all federal income taxes. Is that fair? Is it fair that 46% of Americans pay NO federal income tax? Is it fair that 52% of Americans receive a check from the government? Not in my book.

Maybe the “fair” thing to do would be to pay back what each of us took from the federal government. All I’ve really gotten is military protection and crappy roads. So in my book, I’ve already more than covered my tab. I doubt Obama or Buffett can say the same.

But let’s put some perspective on this. Where did all the money go?

Obama spent it.

In 2007, the federal government took in $2.568 trillion and spent $2.728 trillion, giving us a deficit of $160 billion. In 2011, the federal government will take in $2.23 trillion and will spend $3.629 trillion, giving us a deficit of $1.4 trillion -- 8.75 times the deficit we had just four years before.

What caused this?

Social Security and Medicare went up $162 billion and $119 billion. Lost tax revenues cost another $338 billion. But that’s only $619 billion. Where did the other $621 billion come from? That’s spending.

That’s the remnants of Obama’s stimulus bill, which is still wreaking havoc in the system. Says former CBO chief Douglas Holtz-Eakin, “it was essentially a down payment on the Obama domestic agenda. . . it’s spread all through the budget.” Essentially, it raised baselines and kicked off new spending that now continues unabated. That’s Obama’s legacy. Over ten years he’ll cost us $6.2 trillion in new spending. . . double that once you factor in the automatic increases. That’s why we’re broke. And that’s why anyone who tells you we’ve started an “austerity program” is lying.

So before Obama starts whining about other people paying their fair share, maybe Obama and his friends better figure out some way to cover that tab themselves, because it's only fair that they pay that back. Maybe it’s time for a “union employee surcharge”? Maybe it’s time for a “green subsidies refund charge”? Maybe Team Obama better start washing the country's dishes.

“This is not class warfare, this is math,” said Obama about his latest attack on the rich. And in so saying, Obama proved to us that not only is he a horrible president, but he’s bad at math too. Let’s see who really pays what in the way of taxes.

President Fail and his winged monkeys keep saying the rich need to “pay their fair share.” Chief winged monkey is the Crony Cornhusker Warren Buffett. Buffett, for those who don’t know, is a disaster profiteer, having made several billion during the financial crisis by loaning money to Goldman Sachs and General Electric (both of whom are heavily connected to the White House). Those loans, by the way, were guaranteed by we peons with TARP funds.

To thank Obama for adding to his $50 billion fortune, Buffett is now running around asking that his taxes be raised. And to back up his demand, he’s claiming that his middle class secretary pays a higher tax rate than he does. Clearly, a billionaire should not be paying a lower tax rate than someone in the middle class right? Hence, we need a tax on everyone making more than $250,000 a year. . . I’ll leave you to figure out how $250,000 equates to being a billionaire.

But is what Buffett says true?

Buffett claims he only pays 17% in taxes, which he implies is typical for millionaires and billionaires. But according to the nonpartisan Tax Policy Center (using IRS data), millionaires and billionaires actually pay on average 29% of their income as federal taxes. By comparison, middle class earners ($50,000 - $75,000) pay on average 15%, and the lowest income earners ($20,000 to $30,000) pay on average 5.7%.

So Buffett isn’t typical. In fact, he’s underpaying the average by 43%. Which means he shouldn’t be complaining about tax rates, he should be complaining about all those great deductions he’s using to keep his taxes low. According to the nonpartisan Joint Committee on Taxation, there are about one trillion dollars in deductions, exemptions and credits taken each year. No doubt, Warren uses a lot of those. He also probably lowers his rate by keeping much of his money overseas. Why don’t we eliminate those things first before we start attacking “the rich” (i.e. anyone earning $250,000 a year). Want to bet that Warren would squeal like a stuck pig if we did that?

And while we’re at it, what is a “fair share” anyway? 236,000 Americans made more than $1 million in income last year. As a group, they paid 20% of all federal income taxes. Is that fair? Is it fair that 46% of Americans pay NO federal income tax? Is it fair that 52% of Americans receive a check from the government? Not in my book.

Maybe the “fair” thing to do would be to pay back what each of us took from the federal government. All I’ve really gotten is military protection and crappy roads. So in my book, I’ve already more than covered my tab. I doubt Obama or Buffett can say the same.

But let’s put some perspective on this. Where did all the money go?

Obama spent it.

In 2007, the federal government took in $2.568 trillion and spent $2.728 trillion, giving us a deficit of $160 billion. In 2011, the federal government will take in $2.23 trillion and will spend $3.629 trillion, giving us a deficit of $1.4 trillion -- 8.75 times the deficit we had just four years before.

What caused this?

Social Security and Medicare went up $162 billion and $119 billion. Lost tax revenues cost another $338 billion. But that’s only $619 billion. Where did the other $621 billion come from? That’s spending.

That’s the remnants of Obama’s stimulus bill, which is still wreaking havoc in the system. Says former CBO chief Douglas Holtz-Eakin, “it was essentially a down payment on the Obama domestic agenda. . . it’s spread all through the budget.” Essentially, it raised baselines and kicked off new spending that now continues unabated. That’s Obama’s legacy. Over ten years he’ll cost us $6.2 trillion in new spending. . . double that once you factor in the automatic increases. That’s why we’re broke. And that’s why anyone who tells you we’ve started an “austerity program” is lying.

So before Obama starts whining about other people paying their fair share, maybe Obama and his friends better figure out some way to cover that tab themselves, because it's only fair that they pay that back. Maybe it’s time for a “union employee surcharge”? Maybe it’s time for a “green subsidies refund charge”? Maybe Team Obama better start washing the country's dishes.

I've Already Paid My Fair Share. . . Jerk

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Is Warren Buffett A Hypocrite?

Is Warren Buffett A Hypocrite?

Warren Buffett (left) is living proof that amassing great wealth does not automatically imply that the gazillionaire understands how government works. And sitting next to fellow gazillionaire Bill Gates, one can also infer that great wealth does not confer good taste in clothing, either. Where did he get that hideous chartreuse monstrosity? OK, back to the topic.



Buffett, often referred to as the Sage of Oamaha, recently came out in favor of the Obama plan to save the economy by increasing the tax rate on the rich. As we know, that idea is both wrong-headed and not viable either from the viewpoint of economics or simple accounting. If the "rich" were taxed next year at 100%, it would barely make a dent in the annual budget deficit. Yes, the rich can afford to pay more, but that doesn't mean they should be required to do so. Every dollar spent on taxes is a dollar less available for hiring employees and investing in new ventures.



The tax codes allow for anyone who chooses to do so to simply write a check to the U.S. Treasury to help the government to help us. Since Buffett has chosen not to do exactly that, he has been called a hypocrite. The loose change in the crevices of Buffet's couches could probably fund the food stamp programs for Nebraska for a year. Writing a check to the government for 1/1000 of his wealth could provide 52" wide-screen high-def TVs for all the "poor" in the United States east of the Rockies (and probably west of the Rockies as well).



Does this make Buffett a hypocrite? I'm not sure that the term actually applies to him. I think "misguided" and perhaps a little senile are more apt. In his tax-the-rich-until-it-hurts comments, Buffett said that he paid "only" 17.4% of his taxable income while the twenty employees in his home office paid from 33% to 41%. Either those employees have never heard of TurboTax, or they need to hire new accountants. The Congressional Budget Office says that the top fifth of wage earners paid an average rate of 25.1% with the highest end paying 29.5% in 2009.



Despite the provision in the tax codes, the gazillionaires last year contributed a total figure of somewhere between $2 million and $3 million voluntarily toward reducing the government's debt burden. Warren Buffett carries that much every day in his wallet. You never know when he might have to take the President to lunch. Buffett doesn't suggest that his overburdened employees' taxes should be cut, but rather that his own taxes should be increased.



But here's where I think the "hypocrisy" label may go off-track. Buffett (and his associate, Gates) have both set up trusts and other legal vehicles that will ultimately dispose of 99% of their personal wealth to charity. He talks about not being required by tax law to "share the sacrifice" that those who are not mega-rich are saddled with. Yet he gives away almost his entire estate to charity. How many of us plan on doing that?



That is the reason I consider Buffett to be more misguided than hypocritical. The question becomes "why would he prefer giving to charity over simply writing a ginormous check to the feds?" Simple. By his (and Gates's) own admission, he knows the money at the charities will "do far more good and be used more effectively than it would if the government were the disbursement agent." Yet by his own logic, every dollar paid in higher taxes to the government would be used inefficiently and will be a dollar less given to charity which would use it for good. It seems to me his heart is in the right place, it's just his head that's off-kilter.



Buffet simply doesn't understand the clear distinction between coercion ("progressive" income taxes) and volunteerism (giving that money to charity and working for free instead). Sure, many of the mega-rich won't do what Buffett and Gates have done, but so what? It's their money, not the government's. Buffett also doesn't seem to understand that his friend Obama's plan is not to "help people who need it," but to redistribute income from the working "rich" to the idle "poor."



He also doesn't comprehend the Founding Fathers' warning that when the majority can vote themselves largess from the public treasury, they will. He may be paying only 17.4% of his income, but that's a big help to that near-50% who pay no taxes at all. It's a parasitic relationship that eventually sucks all the blood out of the wealth-creators, leaving everyone equally poor. Only the political elite are left with big bucks, and in case Buffett doesn't know it, that's the exact history of every rigid socialist economy which has ever existed.



Buffett knows how to accumulate wealth, and his charitable donations show that he knows how to distribute it. So his suggestion in the New York Times that Americans should "Stop Coddling the Super-Rich" and raise their taxes demonstrates less hypocrisy than plain fuzzy-thinking. Meanwhile, Warren, why don't you just write that big check to the government to prove that you put your money where your addled brain is?

Warren Buffett (left) is living proof that amassing great wealth does not automatically imply that the gazillionaire understands how government works. And sitting next to fellow gazillionaire Bill Gates, one can also infer that great wealth does not confer good taste in clothing, either. Where did he get that hideous chartreuse monstrosity? OK, back to the topic.



Buffett, often referred to as the Sage of Oamaha, recently came out in favor of the Obama plan to save the economy by increasing the tax rate on the rich. As we know, that idea is both wrong-headed and not viable either from the viewpoint of economics or simple accounting. If the "rich" were taxed next year at 100%, it would barely make a dent in the annual budget deficit. Yes, the rich can afford to pay more, but that doesn't mean they should be required to do so. Every dollar spent on taxes is a dollar less available for hiring employees and investing in new ventures.



The tax codes allow for anyone who chooses to do so to simply write a check to the U.S. Treasury to help the government to help us. Since Buffett has chosen not to do exactly that, he has been called a hypocrite. The loose change in the crevices of Buffet's couches could probably fund the food stamp programs for Nebraska for a year. Writing a check to the government for 1/1000 of his wealth could provide 52" wide-screen high-def TVs for all the "poor" in the United States east of the Rockies (and probably west of the Rockies as well).



Does this make Buffett a hypocrite? I'm not sure that the term actually applies to him. I think "misguided" and perhaps a little senile are more apt. In his tax-the-rich-until-it-hurts comments, Buffett said that he paid "only" 17.4% of his taxable income while the twenty employees in his home office paid from 33% to 41%. Either those employees have never heard of TurboTax, or they need to hire new accountants. The Congressional Budget Office says that the top fifth of wage earners paid an average rate of 25.1% with the highest end paying 29.5% in 2009.



Despite the provision in the tax codes, the gazillionaires last year contributed a total figure of somewhere between $2 million and $3 million voluntarily toward reducing the government's debt burden. Warren Buffett carries that much every day in his wallet. You never know when he might have to take the President to lunch. Buffett doesn't suggest that his overburdened employees' taxes should be cut, but rather that his own taxes should be increased.



But here's where I think the "hypocrisy" label may go off-track. Buffett (and his associate, Gates) have both set up trusts and other legal vehicles that will ultimately dispose of 99% of their personal wealth to charity. He talks about not being required by tax law to "share the sacrifice" that those who are not mega-rich are saddled with. Yet he gives away almost his entire estate to charity. How many of us plan on doing that?



That is the reason I consider Buffett to be more misguided than hypocritical. The question becomes "why would he prefer giving to charity over simply writing a ginormous check to the feds?" Simple. By his (and Gates's) own admission, he knows the money at the charities will "do far more good and be used more effectively than it would if the government were the disbursement agent." Yet by his own logic, every dollar paid in higher taxes to the government would be used inefficiently and will be a dollar less given to charity which would use it for good. It seems to me his heart is in the right place, it's just his head that's off-kilter.



Buffet simply doesn't understand the clear distinction between coercion ("progressive" income taxes) and volunteerism (giving that money to charity and working for free instead). Sure, many of the mega-rich won't do what Buffett and Gates have done, but so what? It's their money, not the government's. Buffett also doesn't seem to understand that his friend Obama's plan is not to "help people who need it," but to redistribute income from the working "rich" to the idle "poor."



He also doesn't comprehend the Founding Fathers' warning that when the majority can vote themselves largess from the public treasury, they will. He may be paying only 17.4% of his income, but that's a big help to that near-50% who pay no taxes at all. It's a parasitic relationship that eventually sucks all the blood out of the wealth-creators, leaving everyone equally poor. Only the political elite are left with big bucks, and in case Buffett doesn't know it, that's the exact history of every rigid socialist economy which has ever existed.



Buffett knows how to accumulate wealth, and his charitable donations show that he knows how to distribute it. So his suggestion in the New York Times that Americans should "Stop Coddling the Super-Rich" and raise their taxes demonstrates less hypocrisy than plain fuzzy-thinking. Meanwhile, Warren, why don't you just write that big check to the government to prove that you put your money where your addled brain is?

Is Warren Buffett A Hypocrite?

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For Whom The Poll Tolls

For Whom The Poll Tolls

My next article is up at Big Hollywood! Go take a look: (Linky, Linky)! (It's at the film site too.)



It never rains, it pours when reality intrudes into leftist fantasy worlds. And this week it’s pouring harsh public opinion upon the little world created by Team Obama and the Pelosicrats. Indeed, public opinion has decidedly rejected them forthwith. . .



Let’s do these in bullet point format:



● As you all know, Obama’s approval rating keeps hitting new lows. Gallup has him at 39% approval and 54% disapproval. He's even fading among Democrats, with only 85% of liberal Democrats approving and only 67% of “conservative” Democrats. Maybe he’s just unlucky?



● Not surprisingly, 54% of voters say Obama is more liberal than they are, with only 12% feeling he is more conservative. Another 26% share his ideology. Thus, 38% of the country is stupid. These numbers are virtually identical for Congressional Democrats as well, thereby confirming the stupidity of the 38%.



● And the “generic Republican candidate” continues to beat Obama in a head-to-head match up for the fifth week in a row. Fortunately, we have plenty of generic Republicans hanging around.



● The generic ballot too continues to strongly favor Republicans, 44% to 37%.



● Even worse for the Obamacrats, the public rejects all their plans to fix Obama’s “bad luck” with the economy:

● A vast majority of voters (62% to 20%) say that cutting taxes is better than government spending when it comes to creating jobs. Ironically, that’s the one thing the Democrats won’t consider unless it’s targeted taxes to help certain industries. . . BUT

● 66% of Americans oppose giving targeted tax breaks to help certain companies or industries. They want the government to treat all companies and industries equally. Yeah, the public's funny that way.

● Similarly, Americans now firmly oppose the K Street/Establishment plan of tax code carve outs. Indeed, 64% of Americans want lower tax rates with fewer deductions. Only 16% want higher tax rates with lots of deductions. Somewhere lobbyists are crying right now like that 1970s commercial with the Indian. This is not good news for the establishment and the Democrats who see the handing out of goodies as a means to enrich themselves, and this gives a boost to the Republicans who have been trying to change this (like Sen. Coburn).



● Most Americans also say they are overtaxed. A full 74% say Americans should pay no more than 20% of their income in taxes. Another 55% favor a flat tax where everyone pays the same percentage tax on their incomes. The one caveat on this is that 49% oppose eliminating the home mortgage deduction, although 47% favor limiting it to the “size of the average home mortgage.”



● The one good bit of news for the ObamaCrats appears to be that class warfare continues to work to a degree, with 64% of adults wrongly saying that the middle class pays a larger share of its income in taxes than the rich and 50% saying they are more likely to vote for a politician who promises to raise taxes only on the rich. But those results may not be as comforting for team Obama as they seem as they may be a reflection of the public’s anger at the K-Street manipulation of the tax code, with companies like GE managing record profits and yet paying $0 in taxes.

All in all, none of this is good news for the Democrats. The public sees themselves as overtaxed and unfairly taxed. Their solution is not more liberalism, but a flat tax stripped of K Street influence. They see tax cuts as the means to economic success for the country, not dependence on government spending. And they don’t seem to like the Democrats very much.



So much for the Democrat’s 2008 dream of a hard left turn for America.

My next article is up at Big Hollywood! Go take a look: (Linky, Linky)! (It's at the film site too.)



It never rains, it pours when reality intrudes into leftist fantasy worlds. And this week it’s pouring harsh public opinion upon the little world created by Team Obama and the Pelosicrats. Indeed, public opinion has decidedly rejected them forthwith. . .



Let’s do these in bullet point format:



● As you all know, Obama’s approval rating keeps hitting new lows. Gallup has him at 39% approval and 54% disapproval. He's even fading among Democrats, with only 85% of liberal Democrats approving and only 67% of “conservative” Democrats. Maybe he’s just unlucky?



● Not surprisingly, 54% of voters say Obama is more liberal than they are, with only 12% feeling he is more conservative. Another 26% share his ideology. Thus, 38% of the country is stupid. These numbers are virtually identical for Congressional Democrats as well, thereby confirming the stupidity of the 38%.



● And the “generic Republican candidate” continues to beat Obama in a head-to-head match up for the fifth week in a row. Fortunately, we have plenty of generic Republicans hanging around.



● The generic ballot too continues to strongly favor Republicans, 44% to 37%.



● Even worse for the Obamacrats, the public rejects all their plans to fix Obama’s “bad luck” with the economy:

● A vast majority of voters (62% to 20%) say that cutting taxes is better than government spending when it comes to creating jobs. Ironically, that’s the one thing the Democrats won’t consider unless it’s targeted taxes to help certain industries. . . BUT

● 66% of Americans oppose giving targeted tax breaks to help certain companies or industries. They want the government to treat all companies and industries equally. Yeah, the public's funny that way.

● Similarly, Americans now firmly oppose the K Street/Establishment plan of tax code carve outs. Indeed, 64% of Americans want lower tax rates with fewer deductions. Only 16% want higher tax rates with lots of deductions. Somewhere lobbyists are crying right now like that 1970s commercial with the Indian. This is not good news for the establishment and the Democrats who see the handing out of goodies as a means to enrich themselves, and this gives a boost to the Republicans who have been trying to change this (like Sen. Coburn).



● Most Americans also say they are overtaxed. A full 74% say Americans should pay no more than 20% of their income in taxes. Another 55% favor a flat tax where everyone pays the same percentage tax on their incomes. The one caveat on this is that 49% oppose eliminating the home mortgage deduction, although 47% favor limiting it to the “size of the average home mortgage.”



● The one good bit of news for the ObamaCrats appears to be that class warfare continues to work to a degree, with 64% of adults wrongly saying that the middle class pays a larger share of its income in taxes than the rich and 50% saying they are more likely to vote for a politician who promises to raise taxes only on the rich. But those results may not be as comforting for team Obama as they seem as they may be a reflection of the public’s anger at the K-Street manipulation of the tax code, with companies like GE managing record profits and yet paying $0 in taxes.

All in all, none of this is good news for the Democrats. The public sees themselves as overtaxed and unfairly taxed. Their solution is not more liberalism, but a flat tax stripped of K Street influence. They see tax cuts as the means to economic success for the country, not dependence on government spending. And they don’t seem to like the Democrats very much.



So much for the Democrat’s 2008 dream of a hard left turn for America.

For Whom The Poll Tolls

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Taxes: Main Street v. eStreet

Taxes: Main Street v. eStreet

Today’s topic involves an issue about which I am conflicted. Should states be allowed to “tax” internet merchants? I put “tax” in quotes because that's not actually what's going on. The real question is: should states be allowed to force internet merchants to collect sales taxes from customers? This is a much more complicated issue than it seems at first glance. Here is the problem as each side sees it:



1. The State View: Americans buy about $10 billion a year from the internet (and growing). But as a practical matter, states can’t tax this. Technically, they can and do tax it, but they can only collect the tax from the purchaser. Indeed, most states have laws requiring you to report what you purchase and pay tax on that. . . fat chance.



From the state perspective, this is lost revenue. To solve this problem, states keep trying to force internet retailers (e-tailers) to collect sales taxes just like bricks and mortar retailers do. Right now, e-tailers don’t do that, and states don’t have the power to force them.



The reason states can’t force this is the way jurisdiction works in the United States. To be able to regulate (and tax) a business, that business must have some “nexus” to the state. But the term “nexus” isn’t clearly defined. Operating a warehouse within a state clearly constitutes a nexus. Having a retail operation does too. But what if people buy from your catalog or off your webpage? So far, the courts have always said that is not enough to form a nexus. Thus, states can’t force e-tailers to collect sale tax for them. . . though they keep trying.



California is the latest state to try. What they’ve done is to declare that any e-tailer who deals with local sellers has a nexus to the state. Amazon falls into this category because it partners with small businesses all over the country including California. Because of this bill, Amazon has begun terminating its relationship with all of these people if they are located in California (10,000 were terminated in July). Amazon is also trying to get this bill repealed by referendum.



2. The Main Street Retailer View: Main Street retailers hate companies like Amazon. They have no choice but to collect the sales tax imposed by the state. Thus, they are at a disadvantage to the e-tailers, and the disadvantage can be serious. In liberal states like Illinois, for example, it can reach nearly 12% with local surcharges. That’s a significant handicap when the e-tailer doesn’t have to collect those taxes.



Extending this argument to its natural conclusion, retailers argue that if this situation is not remedied, then e-tailers will eventually wipe out retailers. But keep a couple things in mind. First, these are the same retailers who wiped out the mom and pop shops two decades ago. . . so their argument rings a little hypocritical. Secondly, there are other benefits the retailers get (like property tax breaks) that are not given to the e-tailer. Third, the retailer business model may be defective, and rather than trying to force a tax hike on e-tailers, maybe they should be looking for new services to lure customers back into their stores. Fourth, some products simply aren't amenable to the e-tailer model.



3. The eStreet Internet Retailer View: The e-tailer response is twofold. First, to allow states to force them to collect the tax would make them a special case that violates 200 years of jurisprudence. It’s the business equivalent of letting New York haul you into court just because you sent a letter to someone who lives in New York.



Secondly, e-tailers make a practicality argument. There are 8,000 different tax jurisdictions in the US, each with different rules, procedures and rates, which change at a moment’s notice. Moreover, these jurisdictions don’t align with zip codes. Thus, it would be a practical nightmare for a company like Amazon to assess and collect the right amount of tax. It would be impossible for smaller e-tailers. This change could effectively kill off all but the largest e-tailers.



4. My View: Politically, I am conflicted on this. As a firm believer in federalism and the 10th Amendment, I generally favor letting states handle their own affairs. . . even if they make a mess of it. So they should be allowed to tax whatever activity goes on inside their borders provided they don’t discriminate against out-of-state companies. But that argument really doesn’t apply here because they can tax these transactions, they just can’t get it collected the easy way. States have a right to regulate themselves, they don’t have a right to regulate outsiders just because it makes things easier for the state.



And practically speaking, I think it would be disastrous to allow 10,000 tax regimes to force themselves upon e-tailers. What’s more, how can we then be sure they are being treated fairly (i.e. that there is no discrimination against out-of-state companies)? Suppose a single sales tax is imposed on both retailers and e-tailers. That sounds fair, but what about the property tax breaks, utility discounts or other things the retailer gets that reek of local favoritism?



I don’t care for the idea that in the long run we are likely to end up with most retailers going out of business in favor of e-tailers (e.g. book and music stores). But on the other hand, these e-tailers have been very good for consumers even beyond the sale tax issue and the death of the retailer may be inevitable unless retailers find some way to improve their business model.



Right now Senate Democrats are trying to come up with a bill (the Main Street Fairness Act) to “solve” this problem. Amazon supports it, eBay opposes it. Frankly, this sounds like it will impose a fairly heavy regulatory burden on e-tailers. I suspect Amazon likes it because it will make it hard for smaller competitors to enter its market. eBay probably opposes it because eBay relies on thousands of small sellers, who would likely end up violating the new rules.



There may be no good answer, but when in doubt, I find myself coming down against any solution offered by Democrats with the support of the biggest company in the field and with the support of trade groups looking for a little protectionism for their members. So if I had to vote right now, I would vote to leave the system as it is.



What do you think? How would you solve this problem?

Today’s topic involves an issue about which I am conflicted. Should states be allowed to “tax” internet merchants? I put “tax” in quotes because that's not actually what's going on. The real question is: should states be allowed to force internet merchants to collect sales taxes from customers? This is a much more complicated issue than it seems at first glance. Here is the problem as each side sees it:



1. The State View: Americans buy about $10 billion a year from the internet (and growing). But as a practical matter, states can’t tax this. Technically, they can and do tax it, but they can only collect the tax from the purchaser. Indeed, most states have laws requiring you to report what you purchase and pay tax on that. . . fat chance.



From the state perspective, this is lost revenue. To solve this problem, states keep trying to force internet retailers (e-tailers) to collect sales taxes just like bricks and mortar retailers do. Right now, e-tailers don’t do that, and states don’t have the power to force them.



The reason states can’t force this is the way jurisdiction works in the United States. To be able to regulate (and tax) a business, that business must have some “nexus” to the state. But the term “nexus” isn’t clearly defined. Operating a warehouse within a state clearly constitutes a nexus. Having a retail operation does too. But what if people buy from your catalog or off your webpage? So far, the courts have always said that is not enough to form a nexus. Thus, states can’t force e-tailers to collect sale tax for them. . . though they keep trying.



California is the latest state to try. What they’ve done is to declare that any e-tailer who deals with local sellers has a nexus to the state. Amazon falls into this category because it partners with small businesses all over the country including California. Because of this bill, Amazon has begun terminating its relationship with all of these people if they are located in California (10,000 were terminated in July). Amazon is also trying to get this bill repealed by referendum.



2. The Main Street Retailer View: Main Street retailers hate companies like Amazon. They have no choice but to collect the sales tax imposed by the state. Thus, they are at a disadvantage to the e-tailers, and the disadvantage can be serious. In liberal states like Illinois, for example, it can reach nearly 12% with local surcharges. That’s a significant handicap when the e-tailer doesn’t have to collect those taxes.



Extending this argument to its natural conclusion, retailers argue that if this situation is not remedied, then e-tailers will eventually wipe out retailers. But keep a couple things in mind. First, these are the same retailers who wiped out the mom and pop shops two decades ago. . . so their argument rings a little hypocritical. Secondly, there are other benefits the retailers get (like property tax breaks) that are not given to the e-tailer. Third, the retailer business model may be defective, and rather than trying to force a tax hike on e-tailers, maybe they should be looking for new services to lure customers back into their stores. Fourth, some products simply aren't amenable to the e-tailer model.



3. The eStreet Internet Retailer View: The e-tailer response is twofold. First, to allow states to force them to collect the tax would make them a special case that violates 200 years of jurisprudence. It’s the business equivalent of letting New York haul you into court just because you sent a letter to someone who lives in New York.



Secondly, e-tailers make a practicality argument. There are 8,000 different tax jurisdictions in the US, each with different rules, procedures and rates, which change at a moment’s notice. Moreover, these jurisdictions don’t align with zip codes. Thus, it would be a practical nightmare for a company like Amazon to assess and collect the right amount of tax. It would be impossible for smaller e-tailers. This change could effectively kill off all but the largest e-tailers.



4. My View: Politically, I am conflicted on this. As a firm believer in federalism and the 10th Amendment, I generally favor letting states handle their own affairs. . . even if they make a mess of it. So they should be allowed to tax whatever activity goes on inside their borders provided they don’t discriminate against out-of-state companies. But that argument really doesn’t apply here because they can tax these transactions, they just can’t get it collected the easy way. States have a right to regulate themselves, they don’t have a right to regulate outsiders just because it makes things easier for the state.



And practically speaking, I think it would be disastrous to allow 10,000 tax regimes to force themselves upon e-tailers. What’s more, how can we then be sure they are being treated fairly (i.e. that there is no discrimination against out-of-state companies)? Suppose a single sales tax is imposed on both retailers and e-tailers. That sounds fair, but what about the property tax breaks, utility discounts or other things the retailer gets that reek of local favoritism?



I don’t care for the idea that in the long run we are likely to end up with most retailers going out of business in favor of e-tailers (e.g. book and music stores). But on the other hand, these e-tailers have been very good for consumers even beyond the sale tax issue and the death of the retailer may be inevitable unless retailers find some way to improve their business model.



Right now Senate Democrats are trying to come up with a bill (the Main Street Fairness Act) to “solve” this problem. Amazon supports it, eBay opposes it. Frankly, this sounds like it will impose a fairly heavy regulatory burden on e-tailers. I suspect Amazon likes it because it will make it hard for smaller competitors to enter its market. eBay probably opposes it because eBay relies on thousands of small sellers, who would likely end up violating the new rules.



There may be no good answer, but when in doubt, I find myself coming down against any solution offered by Democrats with the support of the biggest company in the field and with the support of trade groups looking for a little protectionism for their members. So if I had to vote right now, I would vote to leave the system as it is.



What do you think? How would you solve this problem?

Taxes: Main Street v. eStreet

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