Lee Hachadoorian on Dec 7th 2013
Last weekend I saw an episode of The Good Wife (it’s a few weeks old, I’m a little behind) in which the governor-elect of Illinois decides to send a message to fictional tech giant ChumHum by publicly floating the possibility of collecting taxes on the sales of out-of-state, internet-based companies. Then at the beginning of this week the Supreme Court declined to hear Amazon’s appeal of New York State’s real-life law requiring just that. (ChumHum always struck me as a Google stand-in rather than an Amazon stand-in, but, whatever.) People tend to view Amazon as the evil giant in this case, with some commenting that “It’s about time” they started paying their fair share. But I think there’s a tendency to lump this in with more general concerns about corporate tax avoidance, and I want to suggest some reasons why the new regime is undesirable.
First, Amazon isn’t necessarily going to be the one paying the tax. Sales taxes tend to get split between the seller and the consumer, with consumers absorbing more of the tax on necessities (it’s difficult to stop buying food, or, for that matter cigarettes), and sellers absorbing more of the tax on luxuries. Now, Amazon is probably mostly selling things that fall more toward the luxury end of the spectrum, but some of the tax will be absorbed by consumers. Of course, the real point of the law is that requiring Amazon to collect sales taxes levels the playing field between out-of-state and in-state businesses, but some sales Amazon would have made won’t be substituted by an in-state purchase, because the consumer will decide that the after-tax price is too high. This represents a loss to Amazon, no gain to any in-state seller, and a loss to the consumer. Some consumers will still make purchases, so the state government will still collect new revenue.
Second, and more important, sales taxes are fairly regressive. Lower-income households spend a relatively greater proportion of their income than upper-income households, so if we consider the tax as a percentage of income, lower-income households are paying a higher percentage. New York tries to make the sales tax less regressive by exempting necessities like food, but it’s tax exemptions are notoriously bizarre. For example, nuts are not taxable, unless they are honey-roasted, in which case they become taxable again. Rather than extend a regressive tax to out-of-state purchases, New York could reduce the sales tax on in-state purchases. The lost revenue could be made up by increases in the income tax or (for localities like New York City that rely on a sales tax increment) the property tax. This would be a more progressive outcome, but of course it is much harder politically to raise taxes on in-state sources than to impose a tax that seems to fall on an out-of-state source. But since the sales tax reduction would increase in-state sales, in theory the lost revenue could be offset (this would need to be modelled) by increased revenue from business income taxes and from property taxes, even without an increase in those tax rates.
Third, the whole reason this is an issue is because it was relatively easy for consumers to avoid the sales tax by ordering from out of state. One could argue that governments should try to avoid taxes which are easily avoided. Out of the big three, sales taxes are most easily avoided, income taxes less so (there is some debate over the impact of tax-related migration, but one recent study flat out calls tax flight a “myth”, Gerard Depardieu’s move to Russia notwithstanding), and property taxes are least easy to avoid. In fact, the land portion of the property tax is completely unavoidable, while the capital (structure or building) portion may cause some capital flight if the tax is much higher than in competing jurisdictions. Because sales taxes are relatively easy to avoid, and because there are a large number of taxing jurisdictions that businesses have to keep track of, there have been some noises in Congress about standardizing sales tax rules across the states. This is a bad idea for reason number two, regressivity. Consumption taxes are pretty popular among conservatives as an alternative to the income taxes, I would argue specifically because consumption taxes are so regressive (but see Robert Frank’s discussion of a progressive consumption tax). My concern is that if we back ourselves into a national sales tax, it will gradually eat away at the income tax, leading to an overall more regressive tax system.
Finally, to the extent that this tax does fall on Amazon, we can ask what kinds of businesses we want to be taxing. The Mining, Quarrying, and Oil and Gas Extraction sector pays on average 6% of corporate income in taxes [gated link]. So if we were looking for new revenue…
Lee Hachadoorian on Jul 3rd 2012
Mayor Bloomberg’s proposed ban of sugary drinks larger than 16 ounces has been making national news. Industry groups are lined up against it, and 64% of New Yorkers are opposed to it. The industry is organizing opposition around the concept of “freedom of choice”. Jon Stewart has repeatedly made fun of the fact that in New York, carrying 25 grams of marijuana is now “legal” (actually, a violation which can be ticketed but which one cannot be arrested for), while drinking a large soda is “illegal”.
It of course would be silly (so I will do it) to criticize a humorist on facts, but pot smokers (or carriers) will still be issued citations, but can no longer be arrested. This change was necessary because the police, under the controversial Stop-and-Frisk program, were regularly stopping young black and Latino men, asking them to turn out their pockets, and then arresting them for “displaying” marijuana, when merely “carrying” marijuana was a violation. Now displaying or carrying are treated the same. This is not a major shift in drug policy, and to my mind doesn’t do nearly enough to rein in the utterly offensive Stop-and-Frisk program.
Soda carriers, or displayers, won’t be subject to ticketing or arrest under the proposed “ban”, but certain businesses won’t be allowed to sell large sodas. As far as I can tell (I couldn’t find an “official” proposal—if you can find one, please let me know in the comments) this would only apply to food service establishments. You could still buy a two-liter bottle of Coke at the corner bodega and walk down the street drinking it. Meanwhile, let’s compare the damage done by soda versus the damage done by marijuana. Estimates of obesity-related mortality are in the hundreds of thousands annually. Estimated deaths due to marijuana use are approximately zero, give or take nothing. (In fact, a Google search of “marijuana mortality” turned up this study indicating that marijuana use may lower mortality among people suffering from psychotic disorders.)
But Stewart’s comparison of food policy and drug policy is apt. Certain foods (sugary drinks, but not broccoli) and certain drugs (methamphetamine, but not marijuana) lead to extremely serious health problems for some people. And many users, of sugar and of meth, want to use less, but have a hard time stopping. One message of the poll linked above is that almost 3 million New Yorkers (36%) approve of the proposed ban. How many of them are people who want to reduce their caloric intake, but find it hard to avoid when every fast food joint tries to upsell them to the larger cup size? It is well-established at this point that (a) behavior is strongly influenced by the social environment, and (b) short-term gratification usually trumps long-term rationality, even in people who want to make and stick to the long-term rational decision. So freedom of choice should include the freedom to drink soda, but also the freedom to live someplace where one isn’t continually encouraged to engage in unhealthy behaviors.
Robert Nozick, philosophical champion of libertarianism, concludes his influential Anarchy, State and Utopia with a chapter entitled “A Framework for Utopia”. After spending a book defending the idea that there is no justification for a more-than-minimalist state—i.e., no paternalistic prohibitions, no economic redistribution—he argues that this only applies to a national or central state. Local communities, from which people would be allowed to exit at any time, could allow things, such as public nudity, which many or most other communities find offensive; or prohibit things, such as large sugary drinks, that many or most other communities find unexceptionable.
The main complaint that can be leveled against Mayor Bloomberg’s plan is not that it isn’t good policy, but that it is policy not democratically arrived at. If people should be free to live someplace that prevents them from drinking too much soda, they should also be free to live someplace where they can drink as much soda as they want. The questions become (a) at what scale should the rule be implemented, and (b) how do you deal with the transition? Clearly these kind of rules should be applied at the local level, not the federal level, and probably not at the state level either. Nozick argued these kind of restrictions should only be allowed in “face to face” communities. I take that to mean something approximating a neighborhood, though I think in order to be effective that many policies (particularly economic and planning policies) would have to be implemented at something like a metropolitan area. New York City is a unique case, as it is larger by itself than many metropolitan areas, but still only one part of its own metropolitan area. Thus a policy which would be thoroughly justifiable if enacted by a small suburban municipality, is more ambiguous in the case of New York.
Here Mayor Bloomberg would be well-advised to consider the opinion of New Yorkers, which appears to be against the plan. But if people should be free to choose to live in a place with a soda ban (or a drug ban, or a cheese ban), what do you do when a substantial minority wants such a policy, but no single place has a large enough majority to enact it? That is, what if 34% of the nation wanted a local soda ban in their community, but no single municipality had a majority in favor of the ban? In this case, it might be allowable for some local government to enact the ban in spite of local opposition, and expect population to gradually equilibrate to the new reality—as some residents found that they did indeed like the ban in spite of their earlier opposition, and others moved away and were replaced by new residents who moved in with full knowledge of the rule. Again, New York City’s unique size in the American system of cities makes the justifiability more ambiguous. A better approach for Mayor Bloomberg might be to implement the policy only in certain neighborhoods, with opportunity for public participation in choosing which neighborhoods would be affected.
Lee Hachadoorian on Oct 12th 2011
One of the more interesting issues to emerge during the recent Republican primary debates was the division of powers in our federal system of government. Often this gets called something like “states’ rights”, but that phrase is probably irreversibly entwined with Jim Crow and other state curtailments of civil rights. The present issues perhaps require a new term, along the lines of “states’ responsibilities”, which would emphasize things that states should do for their citizens—in the absence of federal action, or perhaps even in preference to federal action. Continue Reading »
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Lee Hachadoorian on May 23rd 2011
The Bloomberg administration announced recently that it had chosen the new model for the New York City taxi cab, the minivan-like Nissan NV200. The van has a number of interesting features, including outlets and USB ports for charging cell phones and PDAs, and sliding doors for reducing dooring of pedestrians and cyclists (OK, neither USB ports nor sliding doors are exactly rocket science). The van also gets a respectable 25 mpg. Certainly not revolutionary, but a significant improvement over the roughly 15 mpg of the fleet-dominating Ford Crown Victoria. Not as good as the one-third of the fleet which are already hybrids Continue Reading »