From San Jose’s business weekly:

At a time when California is trying to find money to balance the budget, fund a statewide health-care plan and build roads and schools, lawmakers have backed away from one potential source of money: the Internet.

Eliminating that possibility was, in the words of Board of Equalization member Bill Leonard, “a non-decision” that occurred last year when the Legislature declined to fund California’s involvement with other states in an effort to synchronize state sales taxes. Simplifying the taxes charged by the nation’s 7,500 tax jurisdictions is the first step before asking Congress for the right to require sellers on the Internet to collect sales tax for local jurisdictions.

Organizers of the tax effort say California’s absence doesn’t doom the effort, but without the nation’s most populous state as well as the absence of New York, Texas and Florida, it appears unlikely that the 15 smaller states can prevail with the idea, although they plan to lobby Congress this year for the taxing legislation.

According to the Board of Equalization, California forfeits about $2 billion a year in taxes by not collecting on out-of-state sales made over the Internet.

The state does require Internet retailers who have physical stores in California to collect sales tax on sales made to Californians. The state also requires its residents to report purchases made over the Internet and pay taxes on them. Apparently few people do. (There’s a line on the income tax form, in case you’ve missed it.)

It is ridiculous to expect consumers to keep separate track of every single out-of-state online and direct-mail purchase, and it is doubly ridiculous to expect businesses to figure which combination of 7,500 different jurisdictional taxes to assess on each and every sale they make — and then to sit down and write the checks to all the various jurisdictions and get them all to the right places at the right times every single month. Absent the harmonization effort described above, which won’t work without the biggest states involved, no one except the very largest operators could handle staying in business online under those conditions.

Believe it or not, I’m sympathetic to the idea that online transactions should be taxed uniformly, but ….. not until all federal and state income taxes, and all state sales taxes, are replaced with the Fair Tax.

In the meantime, cry me a river over the “forfeited” revenue. The states are generally flush with revenue because of the strong economy, but for tax-and-spenders, it’s never enough — as we saw with Connecticut Governor Jodi Rell earlier in the week.

The article subtitle to “Deferral Games” in Forbes’ February 26 issue reads as follows (requires subscription; KeepMedia version here):

Take your choice when you sell an appreciated asset. Pay a 15% tax, or buy a convoluted tax shelter that will bleed you with fees and expose you to big trouble with the IRS.

The article points out that some tax-avoidance obsessives are falling prey to such shelters, and how silly it is to do so given the relatively low current level of cap-gains taxes (though some states’ taxes, like California’s, as noted in this previous post, push the rate up to 25%).

In other words, most people who have their wits about them are paying the tax, and moving on. Money flows into the US Treasury. The money that remains gets reinvested, more likely that not in something that has a better chance of achieving a high return than what the person just sold (otherwise, the people involved wouldn’t have sold).

BUT…. imagine if the tax in question was 35% (45% when including certain states’ taxes) instead of 15%. The calculus changes considerably:

• Many, if not most, won’t sell, or will put it off to a future year. Tax immediately collected: Zero. Amount of money put into probably more deserving investments: Zero.
• Some will sell, but will attempt to shelter it by playing “Deferral Games.” Tax collected in those instances (at least immediately): Zero. Amount of money put in those instances into probably more deserving investments: Almost always zero (investments sold by tax-shelter purveyors are rarely the cream of the crop). Expenses involved in enforcing laws against abusive tax shelters: Steep.
• Those who do sell will have a much larger percentage of the proceeds siphoned off by Uncle Sam and whatever state is involved. Tax collected: Substantial from those sellers, but there are so many fewer of them that the total tax collected from all sellers is less than in the current 15% situation. Amount of money put into probably more deserving investments: Much less, because much less remains after the Greedy Hand of the federal and state governments have pulled out theirs.

The above explains why capital gains tax collections have skyrocketed since the Bush tax cuts of 2003 — and why they will drop like a rock after 2010 if those tax cuts are allowed to expire, as they unfortunately will under current law. Also, expect the tax-shelter business to begin booming yet again.

Here’s the story (HTs to RAB and Right on the Right):

First posted: 2/14/2007 9:33:42 PM

COLUMBUS, Ohio (AP) — Gov. Ted Strickland on Wednesday had a message for President Bush: any plan to relocate thousands of refugees uprooted by the Iraq war to the U.S. shouldn’t include Ohio.

The Bush administration plans to allow about 7,000 Iraqi refugees to settle in the United States over the next year, a huge expansion at a time of mounting international pressure to help millions who have fled their homes in the nearly four-year-old war.

The United States has allowed only 463 Iraq refugees into the country since the war began in 2003, even though some 3.8 million have been uprooted.

Perhaps Compassionate Ted’s next step, in the name of consistency, will be to see if any of the previous 463 refugees ended up in Ohio — so he can deport them.

Others noting: Pajamas, Right Angle (follow-up post), Right on the Right, Lorain Morning Journal (”Gov. Strickland sells Ohioans short in role as Good Samaritans”).

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UPDATE: Bill Sloat at the Daily Bellwether digs into the detail and finds that the Bush Admin’s relocation plans face difficulties — not the least of which is that “it looks doubtful that the Bush administration can move large numbers of refugees, not because they would be unwelcome, but because the background checks would be a near-impossible hurdle.”

It looks like Compassionate Ted revealed his true colors over something that might not even happen. That’s known as a substantive “gotcha,” and it’s too late for “never minds.”

UPDATE 2, Feb. 16: State Senator Kevin Coughlin responds (HT RAB in an e-mail) — “Strickland Should Apologize, Change Views on Iraqi Immigrants”

It’s not the New York Post (whose related article is still accessible), but it will nicely suffice — BizzyBlog’s post on the Monthly Treasury Report and the deficit situation was referenced in an opinion piece at dnronline.com, the web site for the Daily News Record in Harrisonburg, VA. It said, in part:

According to “Bizzyblog,” a Web site that specializes in business news, “There is a very real possibility that the federal budget will be in a surplus situation when President Bush hands over the keys to the White House in January 2009.”

Whichever side you are on in regard to the national and international issues of the day, this is astonishingly good news.

Obviously, there are still problems in such federal programs as Medicare and Social Security that need to be dealt with by fiscal reforms.

However, since the national economy is doing very well, the Congress needs to remember one basic law if members seek to tinker with it. It’s a rule usually applied to physicians, but is also pertinent to congressmen – First, do no harm.

Thanks to the DNR folks for noticing. Oh — There are two capital Bs in BizzyBlog.
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There’s pork, and then there’s P-O-R-K: The Council for Citizens Against Government Waste (CCAGW) has been fighting a humdinger (”billion” capitalized by me):

The Council ….. today highlighted taxpayers’ opposition to a record $2.3 BILLION federal loan from the Federal Railroad Administration (FRA) to the Dakota, Minnesota, and Eastern Railroad (DM&E). In less than a week, outraged CCAGW members and supporters have sent 10,258 letters to their representatives in Congress, telling them to stop this special-interest giveaway that puts taxpayers on the hook for billions of dollars.

….. According to BearingPoint (a strategic consulting firm), the loan would require an annual payment from DM&E of $246 million on top of the $15 million payment from another loan. Even if the rail upgrade increases DM&E’s current annual revenue of $200 million, the deal presents a poor credit risk to taxpayers, who will be forced to foot the bill if the company defaults.

I’m supposed believe that DM&E can more than DOUBLE its revenue with the loan? If true, why can’t they find private funding for this deal? From the facts presented (anyone with contrary facts is welcome to comment or e-mail), this would appear to be a default in the making that could cost the government taxpayers up to 10 times the $230 million that was involved in the infamous Alaska Bridge to Nowhere.

There’s much more at the link. Further explaining why the party of Ronald Reagan finds itself in the minority in Washington, the primary pork-pusher in this instance is a Republican, Sen. John Thune of South Dakota.

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Earth to Kings Island Amusement Park — These are politicians and bureaucrats we’re talking about here. You expect them to honor a promise never to have an admissions tax made by a previous City Manager that was never voted on by Council? You’re claiming that the city “has a moral obligation to keep its word.” That’s a bad argument. Better argument, if supportable –

….. a University of Cincinnati study showed that a 6 percent admissions tax at Kings Island, which attracts more than three million visitors a year, would negatively impact other businesses in the region such as hotels and restaurants by as much as 14 percent because fewer tourists would visit.

For what it’s worth, though I don’t support a tax, the estimated negative impact seems to be a big stretch. A different article on the same controversy claims that UC’s study project that the park’s revenue would fall by 14% with a 6% admissions tax. That seems flat-out ridiculous for something that economists would normally agree has an inelastic demand.

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Here’s another negative result from Sarbanes-Oxley:

Typically, if a company had a bond offering, it would have to register that with the SEC, a process that’s become quite burdensome. But, if the bonds are just traded among institutions, with no plans to make them available to the public, then the company doesn’t have to file anything. This practice has grown by 50% in the last two years, far outstripping the rest of the market. Of course, unregistered bonds carry a higher degree of risk, but because there’s a high demand for bonds these days, it’s a risk that buyers are willing to take. This is obviously the opposite of what Sarbanes-Oxley intended, but it’s the natural result of a law that imposes higher costs on companies that report publicly.

A major barrier to further improvement in processor speed has been pushed to the wayside (link is to KeepMedia, where about 20% of the article and none of the material excerpted below is present; full article requires Forbes subscription):

Last month (Intel) said it was exiting the silicon business–in a manner of speaking.

….. as wires and switches are shrunk and packed ever closer together, with thinner and thinner silicon insulation, the chance of current leakage rises. Experts have long predicted that this leakage, or “tunneling,” would bring Moore’s Law to a halt. And when that happened, there would be a dramatic slowing of new technology products and tech-driven industrial productivity.

Bad news indeed. Not just for the tech industry but for the American tech-driven economy.

Thanks to Intel, it seems we’ll dodge this bullet. Intel’s new insulator replaces silicon dioxide with a metallic alloy called hafnium. This alloy isn’t new–it’s been used as a neutron absorber in nuclear power plants–but hafnium’s use as a chip insulator required a fabrication breakthrough. Intel apparently has made it. Using hafnium insulators, Intel has built prototype chips that are 45 nanometers wide and run Windows, Mac OS X and Linux software. No leakage. These chips require much less electricity and generate less heat, too.

New Era of Products–and Productivity

Intel’s breakthrough–a competitive IBM-AMD joint project that also uses hafnium is close behind–will give new life to Moore’s Law. We’ll soon see cell phones capable of storing movie-length videos. Better yet, we’ll see products we can’t even imagine today, just as few of us imagined the iPod ten years ago.

Best of all, the motive force in today’s dynamic U.S. and global economies still has room to run. As Brian Wesbury, chief economist of First Trust Advisors, notes: “This type of progress is symbolic of the entire New Era Economy. Productivity is booming. And rapid productivity growth explains why corporate profits, jobs and income growth have all accelerated at the same time.”

Moore’s Law triumphs again. Full speed ahead.

The only downside I see is that “Hafnium Valley” doesn’t have the same ring to it.

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UPDATE: Here’s more from USA Today.

Last year, at this post (see Update 2), I found a subscriber-only Wall Street Journal article saying that it’s running at about $1 trillion in the US (you read that right).
Here’s an update from Mike Franc at Heritage.org (quote was originally seen at a Forbes subscriber-only list of comments at other locations, which said that it also appeared at HumanEvents.com):

Federal regulation is a hidden tax on American consumers and the U.S. economy, and the total cost, according to a recent study conducted for the Small Business Administration, is a staggering $1.1 trillion—about the same amount the federal government collects in income taxes every year. These costs come in various forms: the cost of paperwork filled out by businesses, higher prices at stores, hampered innovation, and sometimes even reduced health and safety. While some regulation is necessary, such as rules to protect against fraud, much of it is both unneeded and counterproductive.

Geez, that’s only federal regulation. Who knows what you’d have to add to include the states?

Never forget that the costs of regulation are in general not very related to a person’s income, and that they therefore fall disproportionately on those least able to afford it.

The Pepperdine prof prefers prudence, something Chirac and those who support this idea are clearly all out of:

This, incidentally, is the same Jacques Chirac who recently announced that he did not consider it particularly dangerous for Iran to have a nuclear bomb or two. (New York Times, Feb. 1, 2007). Nuclear bombs in the hands of lunatics are not a problem for M. Chirac. Sane people, pursuing their material self-interest by means of increasing production—that’s a problem for M. Chirac. That’s what he considers dangerous and needing to be stopped.

Unfortunately, Reisman’s fears that productive economic activity may be criminalized does not seem so outlandish.

From a subscription-only story at Investment News:

February 9, 2007

American Bank Inc. said its board approved a plan to deregister the company’s common stock to reduce costs associated with regulatory compliance, including costs related to the Sarbanes-Oxley Act of 2002.

The Allentown, Pa.-based online banking provider said the plan will be accomplished through a merger transaction with an interim corporation to be established by the Company, together with a share reclassification, according to a statement.

The merger and reclassification will reduce the company’s number of record shareholders of common stock to fewer than 300, thus enabling it to stop filing reports with the SEC.

“The Board firmly believes that the costs and burdens of continuing to remain a public company in today’s regulatory environment are just not warranted,” said Mark W. Jaindl, president and chief executive of American Bank, according to a statement.

I suspect that very few Valentines arrived in Michael Oxley’s mailbox from small-company CEOs and CFOs.

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UPDATE: Ironman at Political Calculations had a great post Monday about how the equity markets have been shrinking since SarBox took effect. I said “great post,” not “great news.”

A classic story of what happens when you seize an opportunity (HT Writes Like She Talks):

Bradley Krause, who by raising his hand in his college graphics arts class became a founding partner of Kinko’s, the office supply and printing company, died on Jan. 24 near his home in Cutchogue, N.Y. He was 58.

The cause was cancer, his wife, Stuie, said.

Mr. Krause was a long-haired, 24-year-old Vietnam veteran sitting in a graphic arts and photography class at Santa Barbara City College in California one day in 1972 when another young man, Paul Orfalea, walked in and asked if anyone knew how to operate a printing press. Mr. Krause’s hand shot up.

Within days, Mr. Krause was working at a tiny former hamburger stand in Goleta, Calif., just outside Santa Barbara, which Mr. Orfalea had converted into the first Kinko’s copy shop.

Soon after, they decided to become partners and to open more stores, particularly near colleges. By the time Mr. Krause retired in 1999, the company had grown to more than 1,500 stores and 23,000 workers.

Mr. Krause was one of four early partners in the company, which eventually grew to have more than 100 partners — each owning his own store in partnership with Mr. Orfalea. Mr. Krause became president of the company’s western division, with a majority share in more than 100 stores in six states, including Texas, Hawaii and Alaska.

In 2003, the entire Kinko’s chain was bought by FedEx for $2.4 billion.

Bradley William Krause was born in Los Angeles on July 24, 1948, one of three children of Maxwell and Elizabeth Price Krause. His father was a projectionist at Paramount Studios.

As a teenager, Mr. Krause was an avid photographer and surfer. At Hollywood High School, he excelled in graphic arts. In 1972, he graduated from Santa Barbara City College with an associate degree in photography.

Besides his wife and his mother, who lives in Woodland Hills, Calif., Mr. Krause is survived by his sister, Carol Norton of Sun Lakes, Ariz. His brother, David, died in 2003.

Three years ago, the Krauses moved from Santa Barbara to the North Fork of Long Island, where they began restoring Quawksnest, a large 1896 Dutch colonial home on Peconic Bay built by Mr. Krause’s great-grandfather.