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Competition Matters
Posted By:  - 12/01/11

From Philly.com:

 U.S. Sen. Robert Casey (D., Pa.) has urged the chief executive officer of US Airways Group Inc. to rescind the airline's fare hike planned for flights between Philadelphia and Pittsburgh in early January, when only US Airways will fly between the two cities.

The Pittsburgh Post-Gazette reported Tuesday that when Southwest Airlines Co. drops its flights between Philadelphia and Pittsburgh on Jan. 8, the price for a US Airways round-trip ticket will jump from $118 plus tax, to $698 plus tax.

I wonder if that's the standing room only price.

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Help Fight Unfair Taxes Online
Posted By: Andrew Moylan - 11/15/11

The Wall Street Journal has an interesting poll up on its site today regarding taxation of retail sales on the internet. The question seems relatively simple: Should states require online retailers to collect sales tax? The thought process for most people probably goes a little something like this..."If it's a sale, it should be subject to sales tax." That probably explains why a huge number of people voted for the (misleadingly-worded) answer "State sales taxes should apply always." Problem is, the "right" answer (from NTU's perspective) is "State sales tax only with physical presence." So please, for the love of all that is holy in proper tax policy (hah!), head over to the WSJ and cast a vote for taxes only with physical presence.

As intuitively appealing as the answer that state sales tax should always apply is, it ignores years of Supreme Court jurisprudence and small-business protections that only require businesses with a legitimate physical presence in a state to collect and remit that state's sales tax. In other words, Andrew Moylan Incorporated would be required to collect Virginia state sales tax because Andrew Moylan Incorporated is physically located in Virginia, but should AM Inc. also be required to collect sales tax for California, New York, Michigan, or any of the other states where it is NOT located? The Supreme Court says no, and rightly so, because that would impose enormous burdens on businesses to navigate more than 7,400 different sales tax jurisdictions across the country.

Keep in mind that, technically, every single sale that is made online is ALREADY subject to taxation. If the seller has a physical presence in the buyer's state, they'll collect and remit sales tax just like your local Target or Wal-Mart. If the seller does NOT have a physical presence, then the buyer is supposed to report the purchase and pay a "use tax" on it directly with the state government. Unfortunately, this use tax regime is a disaster. Most buyers have no clue they owe these taxes and very few actually pay them, so it's not as if there's no problem here at all.

But if proponents of burdensome tax-collection plans were serious about "fairness," they'd advocate a revenue-neutral system that respects our Constitution and preserves tax competition. As NTU noted in a recent news release, one step to explore would be requiring all firms to collect sales taxes only for the jurisdiction where they're based, rather than for multitudes of governments around the country. Another would be supporting Senate Resolution 309 from Senators Wyden (D-OR) and Ayotte (R-NH), which affirms Congress' intent not to give states "the authority to impose any new burdensome or unfair tax collecting requirements on small internet businesses."

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A&P, I-1183 & Economic Disruption
Posted By:  - 11/14/11

I'm part way through Marc Levinson's book -- The Great A&P and the Struggle for Small Business in America -- which chronicles the company's rise from small tea dealer to retail giant with 16,000 stores and over $1 billion in sales.  As A&P expanded during the 1920s and 1930s, small grocery stores -- like the one where my grandfather worked with his father, uncle, and brother -- closed.  Even though the Diers Bros. Grocery in Gresham, Nebraska, survived the Depression and competition with chain stores, A&P was an economically disruptive force in hundreds of communities across the country.  I thought of that economic disruption while reading about last week's passage of Initiative 1183 in Washington State.  [Hat Tip to John Taylor of Tertium Quids for the article.]

While it brought lower prices to consumers, A&P also forced less profitable and noncompetitive retailers out of business.  As a result, there was a significant pushback against A&P and other chain retailers during the Depression.  States tried to impose taxes based on the number of stores that a retailer operated.  The federal government tried to outlaw the bulk purchasing discounts that large retailers received from manufacturers and tried to prevent retailers from selling items below cost as loss leaders.  All of this was done in the name of preserving local jobs, even though it meant higher prices for consumers.

Last week, Washington State voters decided to get their state out of the liquor business.  I-1183, which was supported by Costco, succeeded just a year after a similar Costco-backed initiative failed at the polls.  Much like A&P, I-1183 will be an economically disruptive force.  Washington state residents can expect liquor prices to fall as state-run stores are closed and private retailers open shops.  However, 900 or more state employees will lose their jobs.  This, obviously, doesn’t sit well with those employees.  From The Seattle Times:

Tom Geiger, communication director for the union representing more than 700 workers in state-run liquor stores, said he thought the results raised questions about democracy itself.

"If a private company decides to spend tens of millions of dollars to pass a new law, to buy an election, can they do it?" Geiger asked. The results in this case, he said, suggest they can.

Putting aside the issue that Geiger seems to be ok with Costco spending millions and losing last year's ballot measure, his reaction is similar to the anti-chain advocates of the '30s:  preserving jobs is more important than any of the benefits that customers might derive.  Actually, I-1183 looks like a win-win for consumers and taxpayers.  Consumers will see lower prices, and the state is expecting to collect $80 million more in revenue over the next six years.  Bottom line:  economic disruption can be good for consumers but bad for the status quo.

Speaking of disrupting the status quo, I bought Levinson's book via the iTunes bookstore, and I'm reading it on my iPad.  No printer.  No wholesaler.  No shipper.  Just a little economic disruption and a lot of customer satisfaction.

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Net Neutrality: A Solution in Search of a Problem
Posted By:  - 11/10/11

A solution in search of a problem. That’s the best way to describe the Net Neutrality regulations that the Senate is currently debating in anticipation of a vote later today.

The Internet is not broken. Given the present state of our economy, it is one of the few sectors that could be described as such. In just the past decade the number of Internet users has soared from 513 million to more than 2.1 billion. It has not only fundamentally changed how individuals learn, communicate, and work, but has spawned an entire economic ecosystem, without which Google, Apple, Facebook, and thousands of other companies (and the jobs they created) would not exist.

Moreover, all of this growth and innovation has occurred in large part without government regulation. Indeed, it is not a stretch to say that the Internet is the definitive free-market success story of our generation. Sadly, that hasn’t stopped Washington from wanting to gets its hands on it. And unlike Midas (or Steve Jobs, if we’re sticking to the theme), everything the government touches does not turn to gold.

By way of background, Net Neutrality is the principle that Internet service providers should not block or slow-down consumer’s access to networks. The fear, as Sen. John Kerry (R-MA), explained on the Senate floor yesterday, is that “the people who control those access points [to the Internet] can start discriminating about who gets access at what speed . . . and begin to charge mo"re for [faster access].”

Except there is little evidence that would ever happen. What supporters of Net Neutrality seem to forget is that consumers tend to not like getting shoddy, slow, or overpriced service.

That’s one of the reasons  internet service providers have been falling all over themselves to invest in the needed infrastructure. Consider the recent battle between Verizon Wireless and AT&T – each of which have spent millions of dollars in an ad war about the relative strength of their mobile “3G” networks. Consumers are increasingly savvy about these sorts of things and the free market has worked to keep them not only honest, but pushing for improvement. That’s one of the reasons that 93 percent of broadband subscribers are happy with their service – more than 10 times higher than the 9 percent approval rating Americans give Congress.

But while Net Neutrality proponents rest their claims on unfounded predictions of some future harm, the threat of the FCC’s proposed regulations are very real.

Implementing Net Neutrality regulations would require the FCC to have deep access to the business practices of the regulated internet service providers. This would include the ability to constantly monitor and draw data from network structures, content types, delivery modes and speed, applications, user preferences, and usage activity. This is not merely a privacy concern. It would equip the FCC with a vast body of information that could enable the implementation of a long-sought Internet taxation scheme. And with Democrats constantly on the search for more revenues to fund their spending habits, the temptation for Internet tax schemes grows.

In searching for a solution to a phantom problem, the federal government threatens to create a very real one – stifling investment in our most promising source of economic growth. There is no market failure here that requires the government to regulate. Rather, the Internet is a free market success story that, if Net Neutrality regulations proceed, could end up with a very sad ending.

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The 99%
Posted By: Andrew Moylan - 11/10/11

What if I told you that Congressional leaders were maneuvering right now to enact a policy that literally benefits only the top 1% of Americans? If you were an "Occupy" protester, you'd probably tell me that's the only thing Congress ever does! Others know better, of course, but in one way it's absolutely true. Despite overwhelming opposition from conservatives, including NTU, I'm hearing lots of buzz that negotiators on the "minibus" appropriations bill are considering including a provision to raise conforming loan limits for the FHA (which insures mortgages) back up to an absurdly-high $729,750 (from an already-high $625,500 limit).

In a hilariously convenient coincidence, it turns out that the higher limit would quite literally only benefit roughly the top 1% of home purchasers. Not content to insure mortgages at a level that would cover 92% of all home purchases (like we did at the pre-bailout loan limit of $417,000), or even 97.8% of home purchases (which a $625,000 limit would cover), some in Congress are apparently insisting on allowing FHA to insure mortgages at a level that would cover nearly 99% of all home purchases. It would be funny if it wasn't so sad (and angering).

Federal involvement in the mortgage market has already cost taxpayers a staggering $169 billion, but that is apparently not enough of a disincentive for some Members of Congress. Not only would the higher conforming loan limit increase risk for taxpayers, it would stomp on a willing private mortgage insurance market and dramatically undermine the prospects for true housing policy and GSE reform in the future. We should be spending this time figuring out how to wind down Fannie and Freddie and the FHA's outsized role in housing finance. 

The "99% movement" protesters are wrong as it relates to income taxes, where the top 1% of earners paid nearly 37% of all income taxes in 2009. When you broaden the scope to all federal taxes (including corporate, social insurance, and excise taxes), the story is basically the same: the top 1% shouldered 28% of the burden in 2007. Our tax code is not, by and large, rigged for rich folks. But if the conforming loan limit reports are true, we're about to hand the gift of federal backing to the richest 1% of homeowners in the country in a shameful and completely unnecessary act.

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William Niskanen, RIP
Posted By: Andrew Moylan - 10/27/11

I was very saddened to hear that William Niskanen, famed economist and Chairman of the Cato Institute, passed away yesterday at the age of 78. Bill was a giant in the limited-government movement and his contributions will live on for generations to come. His pioneering work in public choice economics, his turn as Chairman of President Reagan's Council of Economic Advisors, and his more recent role as a respected scholar at Cato all contributed mightily to shifts in economic thought and public perceptions of government. George Scoville wrote a nice piece at United Liberty documenting his lasting influence.

Unfortunately, I can't claim to have known Bill terribly well myself. Back when I graduated from the University of Michigan, I moved to Washington and began an internship at the Cato Institute during his tenure as Chairman. I can only recall running into him once (at a large organization like Cato interns don't often have occasion to work with the top brass) when we shared an elevator ride to the top floor. In my mind, he seemed about 6'5" and looked every bit the part of the brainy economist (a sentiment apparently shared by Cato's Randal O'Toole, as Bill was apparently less than 6' tall) and I was too intimidated to say more than an awkward "Hello."

The "his legacy will live on" stuff one hears after someone's death is often lionizing pablum, but not with Bill Niskanen. His work truly serves as the foundation upon which many of NTU's efforts are built. As but one specific example, our recent support of Representative Justin Amash's "Business Cycle Balanced Budget Amendment" is directly informed by Bill's work in identifying a better structure for fiscal limits.

He will truly be missed, and the thoughts and prayers of NTU are with the Niskanen family and our friends at the Cato Institute for their loss.

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Video: Why Are Living Standards So Different In Chile and Venezuela?
Posted By: Dan Barrett - 10/24/11

Occasionally, the Internet gives you a gem. This video is the second in a planned series about how economic freedom results in better conditions for everyone. Episode 2 compares 10 countries with the most economic freedom and 10 with the least.

Compared to countries with more regulation and more economic paternalism, countries with greater economic freedom have the following bright points. Freer nations sport populations with 20 more years in life expectancy and the poorest 10% earn eight times more than those in more closed economies.

The United States has enjoyed great success as an economically free nation. However with more government intervention in our economic affairs, the US is falling in economic freedom and the consequences were perfectly illustrated in the video. Imagine a fishing boat (representing private enterprise) cruising in the ocean when a large wave (representing government regulation and spending) approaches. Private businesses must climb the wave to avoid sinking and that climb slows their progress. We’re seeing the mountains of paperwork and compliance costs washing over small and large businesses. What are we going to do about it?

We can start with cutting spending -- the heart of our financial disarray. NTUF maintains a spreadsheet of all scored savings proposals. This is just the start of what we can cut and how we can do things differently. Next, figure out long-term entitlement reform of Social Security, Medicare, Medicaid, federal retirement systems, and state and local pensions. The video displayed a 1000% of the private economy worth of promised obligations US governments have made. And it is just going to get worse. Third, regulations are cutting down progress. It’s about time the US advances to the 21st century with simplified and realistic regulations. If the US continues on the path of more regulation, more spending, and less economic freedom, entrepreneurship will fall and we will no longer be the economic superpower.

 

You can check out the first Economic Freedom video here.

 

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With Many Businesses Closing Their Doors, It's Time to Open a "Repatriation Window"
Posted By:  - 08/25/11

Remember the good ol' days? Back when the United States only had the second highest corporate tax rate in the industrialized world? Those were good times. But with Japan having implemented a 5 percent cut in their corporate rate (and potentially seeking further reductions) America is left with the ignominy of taxing it's businesses more than any other developed country. 

Permanent and fundamental reform is needed to reduce America's corporate income tax burden. Unfortunately, beyond punitively hiking taxes on a few disfavored industries (oil), President Obama has shown little willingness to make any wholesale changes to our uncompetitive tax regime.

But as NTU has argued, while we're waiting on the politics of larger reform, can't we at least build a consensus around a common-sense corporate tax holiday? The idea would be to create a period of time in which U.S.-based businesses could repatriate, that is to say, bring back, foreign earnings that they were stashing overseas so as not to pay our sky-high tax rates.

Sure, it's not ideal, but it could allow companies to reduce debt, increase investment, and jumpstart hiring. And in case you've been living under a rock (or vacationing in Martha's Vineyard) those are three things the American economy could sorely use right about now.

So what's the hold up? Well, some have begun to argue that the cost of a repatriation window is just to high, especially at a time of deep deficits. They say that the expectation of future tax holidays would lead businesses to simply park their cash overseas rather than bring it back at normal tax rates.

A new study out by NDN, a progressive think tank, should allay these fears. "Rather than the $78.7 billion revenue loss projected by the JCT, enacting a "repatriation" provision similar to H.R. 1834 this year would likely bring in a net $8.7 billion over 10 years to the U.S. Treasury," says the group via press release.

The study also found that the last repatriation holiday led to significantly more money being brought to the U.S. than expected under the JCT model and did not lead to a sharp decline in money repatriated at the standard 35 percent rate.

 

Washington should absolutely push for more fundamental corporate reforms to ensure American businesses remain competitive in the global economy, but in the meantime a corporate tax holiday could provide a useful boost to GDP while also helping to pay down our staggering deficit.

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Friendly Reminder: FCC's Actions are Stifling Job Creation
Posted By: Andrew Moylan - 08/12/11

Remember back in 2009 and 2010 when Democrats in Congress were debating how best to craft government intervention in the health care sector, which accounts for about one-sixth of the American economy? Good times! (Not really) Well, at about the same time the Federal Communications Commission was debating how best to craft government intervention into the world of the Internet, which itself accounts for another one-sixth of our economy. Despite the vigorous opposition of NTU and innumerable other public policy groups and Members of Congress, the FCC plowed ahead with an ill-advised "net neutrality" scheme giving bureaucrats regulatory power over network management. This power-grab threatens to undermine one of the most vibrant portions of our increasingly fragile economy. Unfortunately, it's par for the course for the present Administration.

Once again, the President is trying to have it both ways on job creation. Allies in Congress and his executive agencies have pursued policy after policy that reduce growth potential, while at the same time trotting out tired plans that they can tout as economic progress. Meanwhile, whether you look at start-up companies, tech operations, energy concerns, or small business owners, the only thing most entrepreneurs have received from the President and his agencies has been more red tape, more burdensome regulations, and more hoops to jump through. 

Just last week, the FCC unveiled a plan to create jobs and boost our stalled economic recovery. OK, you might say, sounds like progress. Did they announce they'd be abandoning net neutrality and its stifling effects, something that would help to clear out barriers to job creation? No, of course not! Their plan involves getting more Americans working in call centers.

When it comes to the world of telecom, the solution to our job market woes is not another tour of federal regulators touting a poll-tested message about innovation. The solution lies in the Administration finally taking steps to empower business owners to grow their companies, reach new markets, generate a new wave of technology innovation, and hire new employees. In short, the solution is getting government out of the way, just as it was out of the way for the unprecedented explosion of the Internet.

Job creation is more of an art than a science, but one thing that is certain is that the federal government is all thumbs when trying to point the way to our economy's future. Instead of empowering bureaucrats to solve non-problems, the President and the FCC should immediately ditch harmful net neutrality policies and pursue a regulatory streamlining that will ease burdens on Internet users and businesses.

While that path would be a much smoother one than we're currently on, I would simply say (to use my favorite phrase) that I'm crossing my fingers, but not holding my breath. Let's hope the President and his FCC proves my cynicism misguided. 

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After the Downgrade, Decline or Fall for America?
Posted By: Pete Sepp - 08/07/11

The fallout from late Friday’s downgrade of the U.S. sovereign debt rating has only begun to settle on the global economic landscape – and the pundits are busily sweeping their analytical Geiger-counters over the scene to determine the extent of the damage as well as the prospects for clean-up. But even before S&P dropped its bomb, the protective measures that just might have kept us out of the mess were self-evident. Look no further than earlier that day, when markets reacted positively to the “somewhat stabilizing news” that debt-riddled Italy would more aggressively pursue fiscal consolidation through entitlement reforms and a Balanced Budget Amendment to its constitution.

At least one chamber of the U.S. Congress understood the importance of such an approach earlier in July, when the House passed the NTU-backed Cut, Cap, and Balance plan and later a bill that required passage of a BBA before a medium-term increase in federal borrowing could occur. When House Speaker John Boehner released the first version of the Budget Control Act, which did not contain the BBA enactment clause, we cautioned that, “What should really terrify Members [of Congress] … is the very real prospect that even enactment of the Boehner plan, which may prove a career-ender for lawmakers who promised bolder action, will not be enough to fend off a downgrade in our nation’s credit rating …”

In the end, lawmakers balked at a mandatory BBA provision, a major reason behind NTU’s opposition to the final version of the Budget Control Act that President Obama signed into law. But our warning was hardly gifted insight: as many other scholars have shown, successful fiscal adjustments in other nations are largely marked by a reliance to tackle spending (especially benefit programs) rather than raise taxes, and to institute solid budget-process reforms.

So now America’s era of fiscal exceptionalism is over. Welcome to the ugly new reality. Am I being a doomsayer? All right then, here are the obligatory caveats:

  • Only one agency has reduced our rating so far, and the immediate impact on U.S. debt-service costs and other borrowing sectors may not be huge;
  • Rating agencies certainly don’t have an unblemished record when it comes to handicapping the fiscal stability of governments;
  • Market analysts and financial planners say “the fundamentals are still there” for investment in the U.S.;
  • Other countries have, over time, recovered their triple-A ratings; and
  • After initially reacting to S&P’s decision like a kleptocratic regime with its hand caught in the cookie jar, the Administration is now calling for a major, unified push on behalf of deficit reduction (which, from the White House’s perspective, likely includes punitive tax hikes).

Feel better now? Me neither. No matter what else happens, our leaders have irrevocably squandered the intangible but still valuable “confidence dividend” for investors that comes with an unbroken AAA rating. From this point forward, at best we can hope for an asterisk beside the name “United States of America” in the record books on countries’ fiscal stability. At worst … well, let’s not go there. And if indeed we don’t want to arrive there, Washington had best get serious about ways to avoid it. Harry Reid didn’t want to “waste time” on Cut, Cap, and Balance, but maybe now his colleagues in the Senate will see fit to clear their crowded recess calendars and give it the consideration it deserves.

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