Tuesday, March 12, 2013

Senate Bill 226 Moves The Needle…In The Wrong Direction

A newly proposed bill that would extend Utah’s taxing authority to out-of-state businesses is making its way through the Utah Senate.  It comes as no surprise that the bill, which is already being flagged as unconstitutional, is being sponsored by a Utah Republican lawmaker, Sen. Wayne Harper.  Despite all the rhetoric about their desire to lower taxes and thus improve living standards for Utahns, the data suggests Republicans are just as willing to dip into your wallet to benefit certain privileged lobbyists or special interests as Democrats.  After all, taxes and penalties on business are always passed on to consumers.

The bill, in effect, would mandate that out-of-state businesses, using Utah companies to advertise their products and services, collect a sales and use tax from Utah customers.  Aaron Schubach, owner of Standard Optical, arguing for the bill (and his own special interest) notes that the $180 million in anticipated tax revenue could be reinvested in schools, government insurance expansion, “and some of those other things”.  I’m sure he’s right.  There’s always some pet program out there to throw money at when you have as large a budget surplus as Utah does.  Undoubtedly, Standard Optical, like brick and mortar bookstores, pet stores, and pharmacies, is feeling the pressure of competition from online retailers like 1-800-CONTACTS which figured out a more cost-effective business model and is capitalizing on it. 

The genius of this bill is that it doesn’t directly affect Utah businesses (like 1-800-CONTACTS or Overstock.com), since it specifically targets out-of-state businesses.  Why then would in-state, e-commerce companies take a position against a bill that would apparently give them competitive advantage over out-of-state businesses?  The answer is found in the classic oversimplification of economic consequences used by special interests and lawmakers to foist new taxes and legislation on the masses.  By pointing only to the immediate consequence our wise legislators look like advocates for local businesses, schools, and citizens.  However, the unintended consequence of this bill surviving a vote and imminent Supreme Court challenge would be that all states could then go after out-of-state businesses for sales and use tax collection.  The question needs to be asked:  If use tax collection from Utah taxpayers is already the law, why then press private, out-of-state businesses to collect it on behalf of the states?  This creates a burden and cost on these businesses that does not currently exist, which will eventually be passed on to consumers in Utah and elsewhere.  The real reason for sponsoring a bill that makes an end run around Utah’s unsuccessful collection of use taxes from its own citizenry, is that lawmakers recognize that most Utahns don’t pay the use tax; hence the $180 million dollar figure which was not randomly pulled out of thin air.

In some respects, Mr. Schubach and other advocates like Scott Hymas of RC Willey are sympathetic characters.  They are paying taxes that their competitors don’t have to.  That is unfair (unless they believe that those taxes benefit them or their companies through improved local education, Medicaid, and “some of those other things”; which out-of-state businesses don’t enjoy to the same degree).  However, their proposed remedy for this burden placed upon their respective businesses by the state is to encourage the state to place the same burden upon others; much like a disgruntled sibling who derives joy from the punishments of his brothers and sisters.  Rather than adapting more fully to the changing consumer model, Schubach and Hymas have chosen to support the expansion of taxing authority beyond Utah’s constitutional limits; to get back at those pesky online stores which save Utah consumers too much money. 

A better solution would be to advocate for lower taxes across the board.  This solution puts more money in the hands of Utah consumers directly, a good deal of which would be spent in-state.  The more money people have, the less they quibble about spending an extra $20 on a pair of corrective lenses or a couchside lamp; especially when they can walk out of the store with them immediately, rather than wait for shipping.  In this way Schubach, Hymas, and others could capitalize on one of the few advantages they have over online stores, while making life better for all Utahns.
I recommend reducing or eliminating sales tax altogether to boost consumer spending, improve quality of life for individuals and families, and build upon Utah’s reputation as a great place to live, work, and run a business.

Why Economics Should Matter To You

This may be a difficult article for many to read.  We like our news spoon-fed and interpreted for us, broken down to the “nitty gritty” of what we think really matters. Rather than take the time to understand the causes of our present state, most simply want to know where we are heading and how to fix this mess we’re in. Those skilled in the art of statistical, economic, and political distillery are well aware of this general malaise and use it frequently to promote a particular agenda. In the spirit of full disclosure, I am trying to do the same. My motive, however, is to increase understanding and to encourage individuals to more stridently defend those rights that are naturally theirs.

When I was first introduced to what some call the “dismal science” in a university economics course, I was a bit confused by the jargon, equations, and the mental gymnastics necessary to arrive at (what can only ever be) an approximation of outcomes, based completely on the quality of the inputs. I say approximation because modern economics is concerned with mathematical models that attempt to quantify the aggregate effect of billions of interactions; any one of these interactions not performing as predicted could conceivably throw a wrench in the whole model. In other words, economic modeling has not arrived at a point where the random preferences of billions of people interacting can be mathematically predicted, so we’re stuck with a choice to:
  • force the imperfect conclusions of a model on people who do not always act according to the desires of central planners; or
  • allow individuals to make decisions freely in a marketplace of competing ideas, products, and services.

Most politicians and bureaucrats prefer the first choice, simply by virtue of their position as some of the chosen few who get to act upon others. These social engineers supposedly care for us and make decisions which are in our collective best interest. This is the world in which we live.

Somehow, we all know deep down that this is not right. We want to captain our own ships, be the masters of our own fate. However, when faced with real world manifestations of control, we make excuses for our passive obedience. We casually accept the various edicts of government regulators, yet bristle at the meddling of the neighborhood busybody telling us to park somewhere else, pull our weeds, or cut down a tree obstructing their view. So, does one meddler have any more right to know and direct your business than another?

Those who subscribe to the classical or Austrian view of economics see no difference between these two forms of intervention. Classical economics concerns itself with rational decision making, market preference, and cause/effect. In the classical view, intervention distorts how or whether we satisfy our natural hierarchy of needs. These distortions have a multiplier effect as bad decisions lead to equal or opposite bad reactions by other market participants, necessitating more intervention, and causing further harm. This cycle continues to spiral until we experience an artificial boom or bust as a result. Without this multiplier effect the business cycle still has hills and valleys, but nothing like the peaks and gorges we’ve seen over the last 80 years. Economic manipulation has given us the Great Depression, the Oil Shocks of the 70s, Black Monday, the Dot-Com Bubble, the Real Estate Bubble, and the Great Recession.

Economics should therefore matter to you and I because we are all affected by this turmoil. Those placed in positions of power who then attempt to centrally plan a diverse and uncontrollable economy wreak havoc on our personal finances, creating unemployment, higher insurance premiums, more expensive bills, and a variety of other outcomes that cause significant and intimate economic hardship.

One of the most powerful interventions promoted and implemented by central planners is interest rate manipulation. In a future installment we’ll discuss the purpose and importance of interest rates in a free market and the way rates are manipulated to force certain economic outcomes (in violation of the free market).

Utah's Hairbrained Scheme To Protect Special Interests Needs To Be Upbraided

A recent dust up in Utah courts pitted African hair braiding specialist, Jestina Clayton, against the State of Utah, over a current statute that requires 2000 hours of cosmetology coursework to become a licensed hair braider.  Clayton, 30, who learned how to braid at age five and has been practicing longer than most cosmetology students have been alive, won the case on the basis of her constitutional right to earn a living. The judge cited the lack of evidence for any threats to public safety as grounds for his decision.

I applaud U.S District Judge David Sam for this common sense and correct opinion.  In doing so we recognize that while many can see the restrictive absurdity in making a hair braider take 2000 hours of coursework, there are many who still believe that some licensure is necessary for hair braiders and other common service providers. Enter Republican Rep. Jim Dunnigan, who wants to “reduce” the licensure requirement to 300 hours despite a judge’s opinion stating no credible threat to public safety exists.  This all sounds well and good if all you’re trying to do is move the needle on bureaucratic overreach.  However, we interpret the judge’s decision as a mandate for the legislature to remove this particular licensure provision completely or supply evidence that there is a threat to public safety—something no lobbyist or special interest has been able to do. We therefore support legislation, which we expect to be introduced in the 2013 general session, that will require state officials to demonstrate a clear public safety threat prior to imposing such burdensome regulations.

Clayton’s case has exposed a single egregious example of state overreach and overregulation, but it also suggests that other similar statutes may exist. We are willing to give our legislators the benefit of the doubt that perhaps they were unaware of this burdensome statute, since it and many others are probably buried in the depths of obscure, outdated state code.  However, in view of our state’s reputation for conservative governance and given our state’s heavy conservative bent, it would seem a popular and appropriate opportunity to dig deeper into all existing occupational licensing requirements and identify cases where such regulation is not at all necessary, and inimical to individual liberty and free enterprise.

Capitulating to special interests or promoting the lesser of two evil propositions simply keeps the door open for future legislative abuses and further erodes essential freedom. I prefer a principled approach to governance and recommends the removal of all licensure requirements that do not quantifiably and demonstrably protect the life, liberty, or property of Utah residents.  In most cases the unintended consequences of licensure laws is ignored while legislators attempt to mitigate the most remote possibilities for abuse or harm in the marketplace.  Most recognize the need for reasonable protection of public safety.  Conversely, a nanny state can severely degrade the ethic of personal responsibility. So, what is the appropriate balance?

We recommend a bias towards personal, familial, and local responsibility whenever possible.  This long-practiced Utah ethic can shield society from many abuses and disasters where regulation often falls short.  It teaches individuals to provide for their own personal, educational, and economic well-being which is truly the best protection against abuse.  It’s time we start seeing with a wider angle lens the real consequences of bureaucratic overreach. We believe that a streamlined government will result in more jobs, better quality of life, and greater economic opportunity for all who live and work in this great state.