Coyote Blog

A few years ago I began to find the hard-core libertarian anarcho-capitalist advocacy to be getting sterile.  I would sit in some local discussion groups and the things we would argue about were so far outside of reality or what was realistically politically possible that they seemed pointless to talk about.  Taking a simplified example, baseball purists can argue all day the designated hitter rule should go away but it is never going to happen (players support it because it creates another starting roster spot and owners like it because it juices offensive numbers which drive ratings).  So I embarked on suggesting some left-right compromise positions on certain issues.

One result was my proposed climate compromise, which fit the classic definition of a good compromise (both sides don't like it) as many skeptics disowned me for writing it and the environmental Left campaigned hard against a similar proposal in Washington State.

I tried something similar with a proposal for restructuring the government role in health care.  First, I defined what I think are the two most important problems a government health care proposal has to address.  Most current and proposed plans fail to address at least one of these:

The first is a problem largely of the government's own creation, that incentives (non-tax-ability of health care benefits) and programs (e.g. Medicare) have been created for first dollar third-party payment of medical expenses.  This growth of third-party payment has eliminated the incentives for consumers to shop and make tradeoffs for health care purchases, the very activities that impose price and quality discipline on most other markets.

The second problem that likely dominates everyone's fears is getting a bankrupting medical expense whose costs are multiples of one's income, and having that care be either uninsured or leading to cancellation of one's insurance or future years.

I think the second point is key.  Everyone keeps talking about a goal of having coverage -- coverage even if you don't have money or don't have pre-existing conditions.  But that is not, I think, the real human need here.  The real need is to be protected from catastrophe, a personal health-care crisis so expensive it might bankrupt you, or even worse, might deny you the ability to get the full range of life-saving care.  Everything else in the health care debate and rolled up in Obamacare is secondary to this need.  Sure there are many other "asks" out there for things people would like to have or wish they had or might kind of like to have, but satisfy this need and the majority of Americans will be satisfied.

And so I proposed this:

So my suggestion ... was to scrap whatever we are doing now and have the government pay all medical expenses over 10% of one's income.  Anything under that was the individual's responsibility, though some sort of tax-advantaged health savings account would be a logical adjunct program.

I found out later that Megan McArdle, who knows way more about health care policy than I, has been suggestion something similar.

How would a similar program work for health care? The government would pick up 100 percent of the tab for health care over a certain percentage of adjusted gross income—the number would have to be negotiated through the political process, but I have suggested between 15 and 20 percent. There could be special treatment for people living at or near the poverty line, and for people who have medical bills that exceed the set percentage of their income for five years in a row, so that the poor and people with chronic illness are not disadvantaged by the system.

In exchange, we would get rid of the tax deduction for employer-sponsored health insurance, and all the other government health insurance programs, with the exception of the military’s system, which for obvious reasons does need to be run by the government. People would be free to insure the gap if they wanted, and such insurance would be relatively cheap, because the insurers would see their losses strictly limited. Or people could choose to save money in a tax-deductible health savings account to cover the eventual likelihood of a serious medical problem.

A few weeks ago I started reading the blog from the Niskanen Center after my friend Brink Lindsey moved there from Cato.  If I understand him, Niskanen has quickly become a home to many libertarian-ish folks who focus on real workable, executable policy proposals more than maintaining libertarian purity.  In that blog, Ed Dolan has proposed something he calls UCC (Universal Catastrophic Coverage) which would work very similarly to what I proposed earlier:

Universal catastrophic coverage is not meant to cover every healthcare need of every citizen. Instead, UCC would offer protection from those relatively rare but ruinous healthcare expenses that are truly unaffordable. (Note: As we use the term UCC here, it is not to be confused with the more narrowly defined catastrophic insurance that is available, in limited circumstances, under the ACA.)

Here is how UCC might work, as outlined in National Affairs by Kip Hagopian and Dana Goldman. Their version of the policy would scale each family’s deductible according to household income. The exact parameters would be subject to negotiation, but to use some simplified numbers, the deductible might be set equal to 10 percent of the amount by which a household’s income exceeds the Medicaid eligibility level, now about $40,000 for a family of four. Under that formula, a middle-class family earning $85,000 a year would face a deductible of $4,500 per family member, perhaps capped at twice that amount for households of more than two people. Following the same formula, the deductible for a household with $1 million of income would be $96,000.

The cost of the catastrophic policy would be covered by the government, either directly or through a refundable tax credit. The policies themselves could, as in the Swiss model, be offered by private insurers, subject to clear standards for pricing and coverage. Alternatively, they could take the form of a public option, for example, the right to buy into a high-deductible version of Medicare.

With UCC in place, people could choose among several ways to meet their out-of-pocket costs, which, for middle-class families, would be comparable to those of policies now offered on the ACA exchanges.

One alternative would be to buy supplemental insurance to cover all or part of expenses up to the UCC deductible. The premiums for such supplemental coverage would be far lower than policies now sold on the ACA exchanges, since the UCC policy would set a ceiling on claims for which the insurer would be responsible. If the supplemental policies included modest deductibles or co-pays of their own, they would be more affordable still. Although UCC itself would be a federal program, the supplemental insurance market would continue to be regulated by the states to meet their particular needs.

Very likely, many middle-class families would forego supplemental insurance and cover all of their routine health care costs from their regular household budgets, the way they now pay for repairs to their homes or cars. Doing so would be easier still if they took advantage of tax-deductible health savings accounts—a mechanism that is already on the books, and could be expanded as part of reform legislation.

The main thing that has always flummoxed me is that I have no idea how expensive this plan might be.  Dolan is claiming it could be done at reasonable cost.

As it turns out, the numbers don’t look all that bad. Because UCC leaves responsibility for routine care with individual families, in line with their ability to pay, it would be far less expensive than a system that offered first-dollar coverage to everyone. Hagopian and Goldman estimate that their version of UCC would cost less than half as much as the projected costs of the ACA.

The impact on the federal budget would be further moderated if the tax deduction for employer-sponsored insurance (ESI) were phased out as UCC came online. Tax expenditures for ESI currently cost the budget an estimated $235 billion per year, an

Here is the Wikipedia definition of  a Pigovian tax:

A Pigovian tax (also spelled Pigouvian tax) is a tax levied on any market activity that generates negative externalities (costs not internalized in the market price). The tax is intended to correct an inefficient market outcome, and does so by being set equal to the social cost of the negative externalities. In the presence of negative externalities, the social cost of a market activity is not covered by the private cost of the activity. In such a case, the market outcome is not efficient and may lead to over-consumption of the product.^[1] An often-cited example of such an externality is environmental pollution.

The Left often tries to justify new taxes based on their being Pigovian taxes.  The classic example is a carbon tax -- it is claimed there is a social cost to carbon-based fuel combustion (e.g. CO2 production and resulting global warming) that is not taken into account by market prices.  By adding the tax, these other costs can be taken into account, likely raising the price of these fuels and thus both reducing their use and providing a higher price umbrella for alternatives.

For years, I accepted these arguments at face value.  I might argue with them (for example, I think that the Left has tended to spot 10 of the last 2 true negative externalities), but I accepted that they really believed in the logic of the Pigovian tax.  I am now becoming convinced that I was wrong, that the Left's support of Pigovian taxes is frequently a front, a way of putting a more palatable face on what is really a naked grab for more taxpayer money by public officials.  To support this emerging hypothesis, I cite two examples.

 1.  Proposed Carbon Tax in Washington State

This last November, a carbon tax was placed on the ballot in Washington State.  In many ways, it partially mirrored my own proposal (here) by making the tax revenue neutral, ie the new carbon tax was offset by a reduction in other regressive taxes, particularly other consumption taxes.  If the Left and environmental groups truly embraced the Pigovian logic of a carbon tax, they should have jumped at supporting this initiative.  I discuss what happened in depth here but Vox has a good summary:

The measure, called Initiative 732, isn’t just any carbon tax, either. It’s a big one. It would be the first carbon tax in the US, the biggest in North America, and one of the most ambitious in the world.

And yet the left opposes it. The Democratic Party, community-of-color groups, organized labor, big liberal donors, and even most big environmental groups have come out against it.

Why on Earth would the left oppose the first and biggest carbon tax in the country? How has the climate community in Washington ended up in what one participant calls a "train wreck"? (Others have described it in more, er, colorful terms.)....

the alliance’s core objection to I-732 is that it is revenue-neutral — it surrenders all that precious revenue, which is so hard to come by in Washington. That, more than anything else, explains why alliance groups are not supporting it.

Opponents say they wanted to use the revenue for climate-related investments, but even if true there are two things wrong with this.  First, it shows ignorance of the economic theory of the Pigovian tax -- the whole point is that by raising the price of carbon-based fuels, markets will find the most efficient way to reduce this fuel use.  The whole point is that it is way more efficient to reduce CO2 production through this simple pricing mechanism than it is through government cronyist winner-picking "investments".  The second problem is that such promises of funds dedication never last.  Supposedly the tobacco settlement was all supposed to go to health care and tobacco-related education, but there is not a single state where even a double digit percentage went to these things (the American Lung Association estimates just 2% of the funds go to the original purpose).  In New York, the entire tobacco settlement stream was securitized and used to plug a single year's general budget hole.  You can be assured the same thing would happen with carbon tax revenue.

2.  Soda Tax in Philadelphia

Last year, Philadelphia passed a large soda tax.  The justification for such a tax is that such drinks cause obesity and other health issues.  Either for people's own good or to reduce the future burden on government health care programs, the whole point of such a tax is to reduce soda consumption.  Or so it was justified.

But now, once the tax took effect, the city government that passed the tax seems to be shocked and surprised that soda consumption is way down.  You would think that they would be declaring victory, ... that is, if the point was ever to reduce soda consumption and not just to raise some extra revenue.  Via Reason:

For now, Kenney and other city officials seem unfazed—dismissive, even—of the problems caused by the new tax. A city spokesman told Philly.com that no one knows whether low sales figures and predicted job losses are anything more than "fear-mongering to prevent this from happening in other cities."

Kenney put an even finer point on it.

"I didn't think it was possible for the soda industry to be any greedier," Kenney said in an emailed statement to Philly.com reporter Julia Terruso. "They are so committed to stopping this tax from spreading to other cities, that they are not only passing the tax they should be paying onto their customer, they are actually willing to threaten working men and women's jobs rather than marginally reduce their seven figure bonuses."

It's not the first time Kenney has tried to ignore basic economics when it comes to the soda tax. A few weeks ago, he blamed grocery stores and restaurants for "price gouging" when they increased prices for sugary drinks to make consumers pay for the cost of the tax (the tax is technically applied on the transaction between distributors and retailers, but, like all other taxes, it gets passed along).

Its clear that this tax justified as a pigovian tax is really no such thing.   City officials seem to be honestly surprised that consumption is down as the result of a Pigovian tax whose purpose is to... reduce consumption.  And if they really did not expect the tax to get passed on to consumers, then how does it work?   In fact, city officials are actually worried that reductions in soda consumption is going to cause the tax to yield less money than they expected, creating a hole in their budgets.

*    *    *

Going forward, I plan to apply an order of magnitude more skepticism to any future calls for Pigovian taxes.  I think the first thing I will ask of each new suggestion is "do you still support this tax if I were to make it revenue neutral, say by offsetting it with reductions in another regressive taxes?"

This is an absolutely fascinating article at Vox on efforts by green forces and the Left to defeat a carbon tax ballot initiative in Washington State.  The ballot initiative was written very similarly to my proposed plan, where a carbon tax would be made revenue neutral by offsetting other taxes, particularly regressive ones.

Apparently, the Left is opposing the initiative in part because

1. It turns out the carbon tax, for many on the Left, is more about increasing the size of government rather than really (or at least solely) for climate policy, and thus they do not like the revenue neutrality aspects.  They see carbon taxes as one of the last new frontiers in new government revenue generation, and feel like it would be wasted to make it revenue neutral
2. The Greens have made common cause with the social justice warrior types, so they dislike the Washington initiative because it fails to allow various social justice and ethnic groups cash in.
3. Apparently, folks on both the Left and the Right actually like government picking winners and tinkering in individual subsidies and programs, such as funding various green energy and conservation initiatives.  To me, that stuff is all a total waste and made irrelevant by a carbon tax, whose whole point is to allow markets to make the most efficient CO2 reduction choices, but looking at this election it would not be the first time the electorate was ignorant on basic economics.

There is a real disconnect here that it is important to understand.  I don't think I really understood how many of us could use the term "carbon tax" but understand its operation in fundamentally different ways, but I think that is the case.

The authors of the law, like me, see the carbon tax as a pricing signal to efficiently change behaviors in the market around use of carbon-based fuels.  The whole point of a carbon tax is to let individual actions and market forces shape how solutions are created.  But the Left seems to see the carbon tax totally differently.  They don't understand, or don't accept, the power of the pricing signal in the market, or else they would not say things like they want a "put a fee on emissions and reinvest that revenue in clean energy" -- the latter is a redundant and pointless government action if one accepts the power of the tax, since individuals will already be responding by making such investments.  The Left instead sees the carbon tax as the source of a new kitty of money that then must be fought over in some sort of political process.

Check out this passage, and consider whether these folks are thinking of the carbon tax as a pricing signal or a source of new money to be spread around:

Either way, state social justice groups did not feel consulted. "Rather than engaging with these communities," wrote Rich Stolz and De'Sean Quinn of environmental justice group OneAmerica, "I-732 organizers patronized and ignored concerns raised by these stakeholders."

White people who work with other white people — and the white people who write about them — tend to slough off this critique. What matters, they insist, is the effect of the policy, not the historical accident of who wrote it down.

Bauman points to a set of policy demands posted by Black Lives Matter. Among them: "shift from sales taxes to taxing externalities such as environmental damage." Also: "Expand the earned income tax credit."

"Well," Bauman says, "we did both those things, right?"

But communities of color want more than for mostly white environmental groups to take their welfare into account. Most of all, affected groups want some say in what constitutes their welfare. "All of us want to be included from the beginning of any decision," says Schaefer. "We don't want to be told after the fact, ‘Hey, by the way, we decided all this stuff for you.’"

This tension within the climate movement has played out most recently in California, where low-income and minority groups have won substantial changes to the state’s climate law, ensuring that a larger portion of cap-and-trade revenue is directed to their communities. Given demographic changes sweeping the country — and climate funders’ newfound attention to building up the capacity of those groups — those tensions are unlikely to remain confined to the West Coast.

These folks see the carbon tax as a pool of money to fund a patronage system, and are thus scared that any groups not involved in crafting the legislation will be left out of the benefits of the patronage -- after all, that is how most programs from the Left are put together.  The Obama stimulus program back in 2009 was such a patronage project, and those who were in on crafting it got windfalls, and those who were left out of the process had to pay for it all.  Either the Left assume that everything works this way, even when it does not, or they want everything to work this way -- I don't know which.

One thing I do know is that I fear I am going to lose this argument in the future.  Here is one way to look at it -- are more people graduating from college looking at the world through the lens of markets and economics and incentives or are more graduating structuring issues in terms of social justice and government authority?

My company exited business in Washington State about 3 years ago, and since then I have routinely turned down new business opportunities in the state.  The workers comp system is expensive, the sales and lodging tax regime is both expensive and complicated, and minimum wage rates are set to crack $10 an hour, and are indexed in some raise that they seem to rise substantially every year.  The state made it very difficult to manage a fleet of vehicles in the state, and generally made it clear that they would rather me not doing business there.  So I don't.

And apparently, Boeing has come to the same conclusion.

What follows is by no means the worst excess of our Congress.  But it is an interesting demonstration of how Congress attempts to disguise legislation that is intended to help just one important contituent.  The program looks moderately innocuous:

[T]his year's farm bill contains a special-interest provision you've
probably never heard of "” the Qualified Forestry Bonds program. This
provides federally funded tax-credit bonds for forest purchases that
meet the following four criteria:

The forest must be adjacent to U.S. Forest Service Land;

Half of the parcel must be turned over to the U.S. Forest Service;

It must include at least 40,000 total acres; and

It must be subject to a "native fish habitat conservation plan approved by the United States Fish and Wildlife Service."

Well, it looks like it might be some land acquisition scheme by the US Forest Service, though by my observation they really aren't staffed or resourced to manage the land they already have.

But here is the truth of it:

But this farm-bill provision offers a lesson on how things are
sometimes done in Washington. Only one parcel of land in the entire
United States meets the criteria set for the Qualified Forestry Bonds
program. You see, the U.S. Fish and Wildlife Service has approved
exactly one "Native Fish Habitat Conservation Plan,"
covering a 1.6-million-acre parcel that reaches from western Montana
into eastern Washington State. And that parcel is owned by the Plum
Creek Timber Company, the single largest private landowner in the
United States.

I must say that I find this state Supreme Court decision from Washington State terrifying.  It is interesting that the State of Washington has exactly the same proprietary attitude over the garbage business as does the Mafia in New York:

In a decision released this morning, the Court stated that hauling
construction waste is not a private enterprise and "is in the realm
belonging to the State and delegated to local governments." The court
found specifically that the provision of waste hauling service is a
"government service" and constitutional protections do not apply to
government-provided services.

I don't know the Washington State constitution, so it may indeed mention "construction waste hauling" as an enumerated power of the government.  If it does not, and by "constitutional protections do not apply" they mean the US Constitution, then this is a stunning over-reading of said document.  Nowhere, in the US Constitution at least, is there a provision for the government providing services of any kind, much less construction waste hauling. 

Nearly every day brings new evidence of what a threat to free speech campaign finance "reform" laws have become.  I found this bit from Brian Anderson very depressing, but not surprising:

Consider what's going on in Washington State as an early warning.
Early in 2005, the Democrat-controlled legislature passed"”and
Democratic governor Christine Gregoire signed"”a bill boosting the
state's gasoline tax a whopping 9.5 cents per gallon over the next four
years, supposedly to fund transportation projects. Thinking that their
taxes were already plenty high... some citizens organized an initiative campaign,
as Washington law allows, to junk the new levy: No New Gas Tax.

Two popular conservative talk radio hosts, Kirby Wilbur and John
Carlson, explained why the gas tax was bad news and urged listeners to
sign the 225,000 petitions necessary to get the rollback initiative on
the November ballot, though they played no official role in the
campaign and regularly featured on their shows defenders as well as
opponents of the tax hike. With the hosts' help, the petition drive got
almost twice the needed signatures, but the ballot initiative, strongly
opposed by labor unions, the state's liberal media, environmental
groups, and other powerful interests, narrowly lost.

Meantime, however, a group of pro-tax politicians sued No New Gas
Tax, arguing that Wilbur's and Carlson's on-air commentaries were
"in-kind contributions" and that the anti-tax campaign had failed to
report them to the proper state authorities. The suit sought to stop
NNGT from accepting any more of these "contributions" until it
disclosed their worth"”though how the initiative's organizers could
control media discussions or calculate their monetary value remained
unclear. The complaint also socked NNGT with civil penalties,
attorneys' fees and costs, and other damages...

The real target of the suit was clearly Wilbur and Carlson, or, more
accurately, their corporate employer, Fisher Communications. If NNGT received the "contributions," that meant Fisher had sent
them by broadcasting Wilbur's and Carlson's support for the initiative.
Washington law limits contributions in the last three weeks of a
political campaign to $5,000. Depending on how one measured the dollar
worth of on-air "contributions," Fisher could thus face big fines and
criminal sanctions if it let Wilbur and Carlson keep talking about the
gas tax. "Thankfully, Fisher assured us that we could keep
talking about the subject on the air, and we did," Wilbur says. The
judge ruled in favor of the pro-tax pols, though he finessed the $5,000
limitation problem by ruling only on the "contributions" that occurred
prior to the campaign's last three weeks.

I find this offensive.  And expect similar "in-kind" donation logic to be coming to a blog near you.  And while Democrats may short-sightedly cheer as long as this logic is applied against conservative talk radio, this "in-kind" logic is a Pandora's Box that will be very hard to close.  For example, lets say my wife's reading club organizes 200 women to go out to a 3-hour rally to support Hillary Clinton.  In doing so, the club just mobilized 600 "man"-hours for Ms. Clinton, which at $10 an hour, which is a low value for a professional person's time, is worth $6000.  Have they violated the law?  Or, lets say a lawyer who normally bills $300 an hour spends all day Saturday and Sunday marching in a rally for George Bush.  Is he over the limit?

We are in the absolutely terrifying and historically unprecedented position of having had Congress pass a law that no citizen (except a few media people and a few government licensed political groups) can criticize a member of Congress by name within 60 days of an election.  And the Supreme Court signed off on this travesty!

In Raich, the Supreme Court determined that marijuana grown, harvested, and consumed at the same house in California constituted interstate commerce and therefore was subject to federal rather than state regulation (via the Consitution's commerce clause).

However, apparently cigarettes purchased over the Internet from an Indian Nation within the boundaries of NY state and consumed in Washington state are not interstate commerce and are therefore subject to Washington State sales tax:

On Thursday, a federal judge ordered tribal Internet
cigarette vendor Scott Maybee to turn over his list of Washington
customers who purchased cigarettes through his Web site,
SmartSmoker.com between November 7, 2004 and April 1, 2005, writes the Buffalo News.
The Washington Department of Revenue is sending letters to those
appearing on Maybee's list asking for full payment of uncollected taxes
from their purchases.

Actually, it is probably not sales tax involved but "use tax", the cutesy way most states get around limitations on taxing interstate commerce.  Basically, they invented a thing called use tax that applies only on goods that you use in state and on which no sale tax was paid to any state.  While the use tax legal evasion is common to most states,  I have written before about other such cute evasions Washington State uses to collect taxes where they are not supposed to.

There is a tendency in politics, once you have an enemy, to attack that enemy no matter what position they take.  Conservatives of late have (rightly) attacked Liberals for being un-supportive of Iraqi democracy, just so they can embarrass their arch-enemy GW Bush.  However, conservatives can be guilty of the same thing. 

Ed Morrissey of Captains Quarters has been on Governor (of Wisconsin) Jim Doyle's case for historically opposing and promising to continue to oppose reforms in election controls, despite very suspicious voting numbers in Milwaukee.  In this case, Captain Ed has done a great job bringing focus to election fraud and "over-vote" issues in Milwaukee, E. St. Louis, and Washington State, especially since the MSM has preferred to focus on potential "under-vote" issues in Ohio and Florida.

However, in piling on Mr. Doyle, I fear that Morrissey has put aside his political and/or philosophical beliefs in favor of giving his enemy another good bludgeon.  His post points out that:

executives involved in a controversial health-care merger gave Doyle over $28,000 in donations shortly after he allowed the merger to go through. Critics at the time wondered why Doyle didn't ask for common-sense economic concessions

OK, lets take this in two parts.  First, lets look at Doyle's decision on the merger.  The article says that Doyle is being criticized basically for NOT holding two companies for ransom.  Often anti-trust law is used as "merger tax" to extract some sort of pay-off from the parties, in the form of reduced prices or a spun-off properties or whatever.  However, no matter what you call it, this is a bribe the government is demanding to let individuals carry forward with a private business transaction.  Usually this bribe is waved around by some politician in order to score some populist political points toward their next reelection (the Europeans and Elliot Spitzer are both good at this).

Is this really what Morrissey thinks Doyle should have done?  As a libertarian, I find that conservatives' support for truly free market capitalism sometimes runs hot and cold, but I would generally expect a conservative to oppose this kind of extortion and interference with the free market.  So does Morrissey really think Doyle did the wrong thing?

The second part of the story, of course, are the campaign contributions.  First, I would argue that if Doyle's merger decision was not wrong, then donations based on this decision are not wrong either.  Many, many companies out there donate to politicians who promise to keep the government off their back.  I certainly do - does that make my contributions graft?  Finally, Morrissey admits that

These donations do not appear to have broken any laws, although the timing strongly suggests some sort of payoff

Look at it the other way around:  If Doyle HAD extracted concessions to approve the merger, it would not have strongly suggested a soft of payoff, it would have been a definite payoff.

Captain Ed- I enjoy your site immensely, even when I disagree with it.  It is OK for you to say that Doyle made the right decision on the merger without backing off of him over the election issue -- just as it is OK for those of us who had concerns about the war in Iraq to gleefully support that country's return to democracy.

By Federal law, U.S. Federal Government lands and property are exempt from state and local property taxes, just like sales to the U.S. Government are exempt from state sales taxes.  This means that, for example, the feds don't have to pay property taxes to Wyoming for the buildings and improvements in Yellowstone National Park.

Most states may sulk about this but they live with it.  However, a few of the most tax-avaricious states, including California and Washington, have found partial way around this. 

I just got my "Leasehold Excise Tax Return for Federal Permit or Lease" from the state of Washington.  What the heck is this?  First, some background.  My business runs campgrounds under concession contract with the US Forest Service in Washington State.  These concession contracts are legally like leases, in that I lease the facilities for a percentage of sales payment in return for running them for-profit.  Washington State can't charge property taxes on the campground itself, since its Federal property, so they charge a steep tax on the rent we pay to the Federal Government.  In Washington, the tax this year is 12.84% of the rent payed.

Yes, that's right.  The state only charges this special tax for rents payed to the US Government. No other rents get taxed.  The tax exists for no reason other than to get around the limitations on taxing the US Government's property.

If asked, Washington would piously state that, oh, we aren't taking any money from the feds, we are taking it from private entities.  Yes and no.  Yes, I as a private entity, I am paying it.  But, given how I bid for these leases, the state tax clearly comes right out of the Feds hands.  When I bid this project, I figured out what rent I could pay the government, and then backed out how much I would have to pay Washington State and bid the lower sum to the Feds.  In this case, Washington State is very clearly taking money right out of the US Government's pocket.

And for what?  Washington State provides no services or utilities to the campground.  The US Forest Service provides the fire protection, its own law enforcement officers, its own water and sewer systems, and its own roads.  There are no residents on the property, so no one associated with the property is using schools or other services.  And, because of sky-high sales and lodging taxes in Washington (from 10-12.5% of sales for camping), the properties are already contributing a ton to state coffers.

Note that this is the newest in my series of "real-world" small business issues.  Other posts in this series include Buying a Small Business and Working with the Department of Labor

One of the things I did not mention in my series on buying a small business was the notion of complexity.  Our business manages over 175 sites with 500 seasonal employees in 10 states.  I have friends who own businesses that have the same sales, and more profit, from working alone from their home.  As I often tell people, I love what I do, working in recreation and spending most of my time in National and State Parks, but it is overly complex for the money we make.

The one advantage of this is that, despite being a small business, I get to observe business practices in many parts of the country.  And one business-related practice that varies tremendously from state to state is sales taxes.  (By the way, before I bought this business, I was a strong Federalist.  Putting most regulatory power in the states slows government encroachment.  It also limits anti-business regulation, because states know that such unilateral regulation will just chase employment across state lines, as California has found out.  However, having to deal with 10 different tax and regulatory regimes every day is causing me to revisit Federalism a bit).

Anyway, based on this experience, I will dedicate the rest of this post to my observations of the good and bad of state sales tax systems.

Continue reading ‘The Good, the Bad, and the Ugly of State Sales Tax Systems’ »

Just pulled out the new Washington State sales tax forms to do my September taxes. The form is now 8 (dense)pages long! This is really getting out of control. In contrast, the sales tax forms for Florida (which has other problems, but we will talk about those later) fit on one side of a 3x5 card.

Washington is the worst offender I have seen in at adding jillions of new small targeted sales based taxes. They have become even more complicated than California. The basic sales tax rate varies by industry and by location - and I am not talking about just by county or city but by town. Each of something like 350 towns have their own tax rate. Then there are add-on taxes that don't follow any recognized borders, such as convention taxes and transit district taxes. Then there are lodging taxes, that vary by town but also depend on the number of sites we have in a campground, but of course that threshold number of sites changes by town as well. I have spent litterally hours with maps trying to figure out what rate we collect at for each of our locations. The Washington State tax return takes longer to prepare than any 4-5 other returns we have.