We are all tax dodgers

Ever bought anything on the Internet? If you have, I’m guessing you didn’t pay any sales tax on it. Now, that’s all well and good, except for one little thing: you’re supposed to. That’s right, states should be collecting sales tax on most online purchases, but they aren’t. Congress is attempting to change that with the Marketplace Fairness Act.

According to some estimates, states miss out on almost $23 billion a year because of the Internet sales tax loophole, and at a time when state coffers are badly in need of replenishing, it makes sense to reevaluate this policy. And since an Internet sales tax wouldn’t technically be new, it also allows members of Congress (read: Republicans) to vote in favor of what is essentially a tax increase without voting to explicitly raise taxes.

On May 6, the Senate passed the Marketplace Fairness Act (MFA), with 69 Senators voting in favor of it. This bill allows states to collect sales tax from online purchases, but exempts companies that make less than $1 million in out-of-state sales. Companies that conduct business online will be expected to use software that allows them to collect sales tax on behalf of states, though the government will pay for the development of the software.

The underlying logic to the MFA is to level the playing field between brick-and-mortar businesses and online retailers, in addition to providing states new ways to raise revenue. Since every store has to collect sales tax, physical stores are automatically at a price disadvantage compared to online retailers.

The bill isn’t without its flaws, however, and it will likely face some major hurdles in the House. Mega-online retailers, such as Amazon, support the MFA because they believe it will help push out competitors. Companies like Amazon are already so huge, it would be relatively easy to implement the new regulations and processes set up in the MFA. But that’s not the case with every business with an online presence, and Amazon stands to benefit if these small companies go under.

So, is an internet sales tax a good idea? It’s hard for me to say with 100 percent confidence, but I think so. States need money, online retailers have an advantage over brick-and-mortar businesses, and this will – in theory – level the playing field. On the other hand, critics say it may discourage entrepreneurs and/or muscle smaller businesses out of the online market. With the right legislative language, I think it could be done, but that requires an awful lot of faith in Congress.


Heritage Foundation has a new standard for citizenship, low wage workers need not apply

Jim Demint heads the Heritage Foundation, authors of a sketchy report on the fiscal effects of immigration reform.

Jim Demint heads the Heritage Foundation, authors of a sketchy report on the fiscal effects of immigration reform.

As the Senate’s Gang of Eight prepares to bring their immigration plan up for a vote, the usual players are coming out of the woodwork to scare lawmakers into voting no. Chief among them is the Heritage Foundation, which released a report today that uses some rather crude accounting to claim that immigration reform would add $6.3 trillion to fiscal deficits over the next several decades. Major economists on both the left and right beg to differ, but the report’s bad math is small potatoes compared to its troubling view of the average American taxpayer.

Let’s start with the basics.  Heritage looks at the average value of government benefits received by undocumented, lawful immigrant and low-education households and compares it to the value of the tax receipts those households pay. Many of those households, on paper, receive more in government benefits than they pay in taxes. Heritage looks at projected demographic changes caused by immigration reform over the next fifty years and does some basic multiplication to come up with the $6.3 trillion number. It gives the impression that immigration reform would be the nail in the coffin for U.S. fiscal policy over the coming decades. Luckily we have some smart people on both sides of the debate telling us that it is total bunk.

In 2006, the Congressional Budget Office scored an earlier Senate proposal that contains many of the same policies as actually reducing the ten year fiscal deficit by $12 billion. David Bier at the Competitive Enterprise Institute, a major free-market public policy group, recently concluded that a more ambitious immigration program that actually allows more guest workers into the country would “boost the economy [and] protect American businesses,” and he isn’t alone.  The right-leaning Manhattan Institute for Policy Research has put out a report that argues, “Embracing a more flexible legal immigration system can dramatically improve” the country’s fiscal situation.

So with so many smart people arguing for the economic benefits of immigration, what is driving the Heritage report?  It has a lot to do to with contempt for the average American taxpayer, regardless of their immigration status.

“Following amnesty, the fiscal costs of former unlawful immigrant households will be roughly the same as those of lawful immigrant and non-immigrant households with the same level of education. Because U.S. government policy is highly redistributive, those costs are very large.”

In essence the problem isn’t immigrants – it’s poor people.

In the view of Heritage, most households are “net tax consumers” and take in more in benefits than they provide in taxes. They argue these people are a drag on the economy and that reducing the number that come into the country is a good thing. However, using Heritage’s methodology, these immigrants are economically identical to “non-immigrant” households, i.e. existing citizens.  It stands to reason that shipping these people out of country would be good for the economy, as well.  Of course that is absurd. Shrinking populations generally are not good for growth – just ask Russia and Japan. But that’s the logical conclusion of the Heritage’s reasoning.

So the report isn’t really about immigration as much as it’s a rehash of Heritage’s existing concerns with mainstream fiscal policy. That said, I’d encourage the Heritage staffers to submit their tax returns so we can evaluate whether or not they are worthy of legal status.

The Bad, the Bad, and the Ugly: 3 Options for U.S. Intervention in Syria

(Photo credit: NewsOne)

After more than a week of tip-toeing around claims from Israel, the UK, France, and Qatar, the U.S. acknowledged on April 25 that supporters of Syrian President Bashar al-Assad likely used chemical weapons against opposition forces. If these initial intelligence assessments hold up – and it seems like they will – it would represent a major turning point in the 2-year long conflict.

After a few false starts that the Syrian regime had used chemical weapons – in December 2012, especially – it seems like the conflict has reached a definitive tipping point. For months, President Obama has said chemical weapons were a “red line,” and would force a strong U.S. response. Now it’s time to see what that response is.

I’m not optimistic the U.S. will formulate a perfect policy. In fact, I don’t think it’s even aiming for perfect – and it shouldn’t. The situation in Syria is so complex, nuanced, and unpredictable that the real policy goal is to find the “least worst” way to get involved. Here are a few thoughts on what some options may be, ranging from the wildly impractical to the extremely difficult.

1) Full-scale involvement – Definitely the least practical and most unlikely scenario. The United States does not want a repeat of its Iraq “quagmire,” and that’s what a full-scale, boots-on-the-ground response would lead to. By our own estimates, it would take 75,000 troops just to secure all of Syria’s 50+ chemical weapons facilities. Keep in mind that these troops would be entering an all-out war zone, complete with Hezbollah militants and Iranian-trained fighters. There would likely be a significant number of casualties. However, with the exception of 200 U.S. troops recently being sent to Jordan to assist with the refugee crisis, there have not been any major military movements that suggest an invasion of Syria is imminent.

Then there’s the whole political element of this strategy. Regardless of how strong or weak this policy may be, domestic politics make it a non-starter. Do the American people really have the stomach to occupy another Middle Eastern country less than 2 years after formal combat operations in Iraq ended? My guess is no.

2) No-fly zone and/or safe zones – This option seems to have the most traction in Congress, as members recognize the policy behind door #1 is not going to happen. It would also incorporate the international community to a large degree, and it recently came out the U.S. has been debating carrying out air strikes with European allies. Putting a no-fly zone or multiple safe zones in Syria is certainly possible, but definitely no cake walk. We don’t know exactly what kind of air defenses Syria has, but we do have a good idea. The Russians have provided the al-Assad regime with a number of different weapons systems over the years, and though Western forces would eventually prevail, it would not be as “simple” as NATO’s 2011 foray into Libya.

In June 2012, Syria shot down a Turkish jet that was flying a reconnaissance mission, probably with the SA-22 antiaircraft system, which is a relatively advanced and mobile system that can pack a wallop. More worrisome, however, is whether Syria possesses the S-300, one of the most advanced missile defense systems in the world. Among other things, the S-300 can track 100 targets at once while simultaneously engaging with 12 – certainly nothing to sneeze at. However, it’s important to note that just because Syria has advanced weapons systems, it doesn’t mean it knows how to use them very well. After all, Israel conducted several successful air strikes deep inside Syrian territory this past weekend, and the Israeli Air Force had little trouble destroying a Syrian nuclear reactor in 2007.

Safe zones are also possible but not easy. A number of different players, including Turkey, have called for the establishment of safe zones inside Syria, but many obstacles exist.

“Safe zone” is more or less a thinly-veiled term for direct military involvement. A safe zone requires a guarantee that those providing it will keep it, well, safe. This open-ended guarantee can turn into a slippery slope pretty easily. The 1995 Srebrenica massacre in Bosnia showed us a safe zone has to be well-armed and willing to fight. As the Center for New American Security’s Marc Lynch pointed out:

In practice, safe areas would require carving out a part of Syria from the sovereign control of the state and providing the military means to defend it. Safe areas could most easily be established and protected in open rural land, but the threatened civilians live in dense urban centers. Creating and protecting urban safe areas would require establishing military control over those areas, which is effectively equivalent to direct military intervention.

See how quickly that turned into option #1?

3) Negotiated settlement – This is undoubtedly what the Obama administration would prefer, but is extremely unlikely. In order to make this happen, the U.S. would need a significant amount of cooperation from Russia, al-Assad’s most important patron. Russia has a robust intelligence network inside Syria and a naval base in Tartus. And perhaps most importantly, it holds the money. If a superpower were to take the lead on negotiating a settlement, Russia is in the best position to do it. But it won’t.

Russia has warned the Syrian regime not to use chemical weapons but is unlikely to throw itself into the middle of the conflict if al-Assad ignores those warnings. Russia probably realizes the game is up – al-Assad’s downfall is inevitable – and it will lose a long-term and reliable foothold in the Middle East. With that in mind, Russia’s interests are best served if the U.S. takes the lead and gets bogged down and stuck in Syria.

Geopolitical considerations aside, there’s the simple fact that the al-Assad regime has committed war crimes, and more than 70,000 people have died. Any negotiating the Syrian regime did would be prefaced on immunity for al-Assad and his allies, and that makes a negotiated settlement an extremely hard sell. I find it very hard to believe the international community – let alone the Syrian people – would let Bashar al-Assad walk free, and I don’t think they should.

So where does this leave us?

The U.S. is stuck, and the three general policy options the Obama administration has all come with serious shortcomings. On a number of levels, the U.S. can’t afford an intervention, but it also may not be able to avoid one.