Homeowner's Blog

Don't Tax Internet Purchases

Colorado last week joined a growing list of states that are expanding Internet sales tax collection. North Carolina and Rhode Island last year passed similar laws. We sympathize with the need of many states to raise money in this troubled economy, but state lawmakers have no business promoting the collection of a tax so widely disliked by their constituents. According to a Parade Magazine reader survey, 85% of consumers oppose sales taxes on Internet sales. Not that consumers are big fans of new taxes, but surveys show consumers are much less opposed to other types of taxes if necessary to plug budget gaps. By substantial margins they prefer alternatives such as higher sin taxes, income surtaxes on the wealthy, etc. to address budget shortfalls. In addition, taxes on alcohol and tobacco tend to discourage behavior that is very costly to society, and U.S. taxes on the wealthy, thanks to a series of tax cuts over the last half century, are among the lowest among the developed countries.

Sales tax collection on Internet purchases should not be expanded. It should be repealed. More and more consumers have their yard sales on Amazon, EBay, and Craig's list. If we apply sales tax to virtual garage sales, the next logical step will be to require that consumers collect sales taxes on real garage sales. Other consumers, including those pinched by the economy and low income consumers, are saving substantial amounts of money by purchasing second hand and heavily discounted items on the Internet, so Internet sales taxes discriminates against lower income consumers..

E-commerce helps the environment in several ways. Odd items (and sometimes really, really odd items) that might otherwise end up in a landfill, find a home with a consumer in another state who always wanted one of those. E-commerce also saves a lot of gas and wear and tear on our transportation infrastructure, and reduces traffic jams. Instead of individually driving their vehicles to the mall, the UPS or FedEx trucks, or your postal carrier can drop off your purchases, and they go down your street every day anyway.  

An e-commerce state sales tax exemption would be consistent with other sales tax exemptions for worthy purposes (back to school sales tax holidays, sales tax exemptions on prescription drugs, etc.). State legislators should consider the wishes of their constituents and repeal sales tax collections on Internet purchases. They should pursue alternative sources of revenue more palatable to their constituents if the state needs additional funds.

A New Stimulus Program

President Obama outlined new incentives to ease the unemployment and strengthen the economy on December 8. Among the components are a "cash for caulkers" proposal that would provide tax incentives for home weatherization. With only the slightest progress towards economic and job recovery so far, it was important to the national psyche that the President reaffirm the commitment to whatever steps are necessary to avoid risks of further economic erosion, and to create confidence that more will be done to start reducing unemployment. It was also important to the national psyche that the President reaffirm that some of the repaid TARP funds will be allocated to budget deficit reduction, an objective that is critical to our long term economic health.

Congress won't start seriously looking at the President's recommendations until early next year. That's also appropriate, because we'll then have a better idea of how the funds from the previous stimulus package that are only now beginning to impact the marketplace are working, and Congress will be better able to gauge how to balance deficit reduction goals with the need for more stimulus as it exists at that time. Best news of all would be that the current stimulus program is beginning to significantly reduce unemployment by then, and much more of the money could be used for deficit reduction.  All in all, there was only upside in the President's announcement.

Providing Universal Broadband  to all American Homeowners

On February 29 Federal Communications Commission Chairman Julius Genachowski said that bringing basic broadband Internet service to American households without access could cost as much as $20 billion This will be expensive, but the penalty paid by Americans who do not have broadband access grows every day. They don't have the growing number of educational, economic, healthcare, or many other options available to those who do, and they are destined to becoming even  more disadvantaged over time as the digital divide widens. Devising the most cost-effective way to bring broadband Internet service to the three million to six million American households without access is by far the most important priority for U.S telecom policy today.

The immediate challenge is spending the $7.4 billion in broadband economic stimulus funding efficiently, since that process is already underway. The goal here is universal broadband availability and there are several common sense conclusions:

• Spend all of the money on deploying broadband to areas that do not have it now, and are not in the path of private broadband build-out for the next few years.

• Rely on temporary subsidies to help those who have broadband services available to them but can't afford them. As competition evolves, available speeds and choices will increase, prices, will  drop and many subsidies can be cut back.  

• Tap the $7 billion federal fund that subsidizes phone services in rural areas and for low-income Americans. The use of land lines is declining as both broadband and cell phone use (and mobile computing) is increasing. There is no longer any point in subsidizing a rural telephone company's land line expenses where mobile voice/computing service is available, so subsidize the latter. Rural telephone companies have the choice between morphing into broadband solution providers or else becoming the 21st century's buggy whip manufacturers.

• It is worth investing reasonable amounts in efforts to try to improve adoption rates, but important to recognize that they will increase organically anyway as more technology oriented generations succeed their elders.

Agencies in charge of distributing the funds will have to make subjective decisions in many cases on whether to spend the same amount of  money on higher speed broadband to fewer unserved or slower speed broadband to more of the unserved. They will get criticized even when they make the right decisions. It is inevitable that in any major ramp-up of this magnitude that some bad choices will be made as well. The most that we can expect, but what we all have a right to expect, is that the FCC and other organizations involved in the path to universal broadband availability keep their eyes on the ball, be willing to admit mistakes, learn and improve as they go, and continue their role as universal broadband evangelists until broadband is available to every home in America. So long as they are doing a reasonable job of it, the rest of us also need to continue to stand up for the importance of achieving universal broadband availability, and support the FCC and other involved agencies in this critical mission.

The $7.4 billion in broadband economic stimulus funding alone is not going to achieve universal funding. The government can't afford to pay for all of the costs anyway. We also need to think about new economic incentives to encourage the private sector to increase its investment in broadband rollout and related areas.

Obama Announces Major Financial Regulatory Reforms

President Barack Obama proposed sweeping changes to the way the U.S. government regulates financial markets. It is unfortunate that many large financial institutions adopted the unsound business practices that caused tremendous losses to their stockholders and American homeowners, and still threaten both the U.S. and the global economy. No government regulations forced them to cause this economic debacle. Unfortunately there is currently nothing but their short memory spans to prevent the same thing from happening again in the future.

The current economic crisis makes it clear that we must take action to prevent future meltdowns of the financial services sector. We applaud President Obama for this proposal and hope that reasonable financial services sector leaders who recognize this reality will be willing to work with other stakeholders to craft a solution that erects needed protections without unnecessary restrictions on the private sector.

Homes Are Still Good Investments

In a May 27 Wall Street Journal article, writer Brett Arends concluded that very safe long-term inflation protected government bonds are better investments than buying a home. The bonds will likely provide a higher annual return than historical long term home appreciation rates, which are just above 4% (that historical average, by the way, has been changed very little by the combination of unprecedented run up in home prices during the first half of this decade, followed by the unprecedented retreat of those prices in the second half). The author did not consider other important factors that make homes a much better investment in reaching his conclusion, however. 

Continue reading Homes Are Still Good Investments.

What Will Put An End To Our Economic Decline?

The GDP (Gross Domestic Product) has now declined in the last three quarters, the latest decline (6.1%) was greater than expected by most economists. Housing accounted for much of the decline. Business investment and state and local government spending also declined. So when is all this going to end?

On the plus side home prices are showing some signs of stabilizing, and the number of homes sold are finally increasing in many areas. Business inventories have also been drawn down substantially in most sectors, which will lead to more manufacturing activity in the future. Another positive is that most of the stimulus spending has either not yet occurred or had the chance to impact the marketplace. When it does there's a good chance that it, combined with some of the other positive economic factors, will put an end to our economic decline. That end may not signal the beginning of an extremely robust recovery, but it will be nice to see the economy moving forward again, more job openings, and a further recovery of the housing market.

The Right Way to Punish AIG

The House of Representatives has passed legislation that would tax the bonuses of senior AIG representatives at a 90% rate. In one sense that approach is a good first step forward, and serves as a good example for how to approach similar abuses in other financial services firms. The step forward is that it is aimed at individuals rather than the companies. Companies don't make decisions, their senior executives do. Fine a company and you're really only punishing the stockholders, who in many cases are consumers who own the company's stock in their IRs, 401Ks or stock market accounts.

The mistake is that the House approach uses a shotgun where a scalpel is needed, it leaves the real culprits in place to wreak future havoc to our pocketbooks and the economy, and it micromanages personnel policies. 

Continue reading The Right Way to Punish AIG.