Monday, April 29, 2013

Bricks, Clicks, and Balance

Fairness and equity like we mean it

I'm a regular Twitter user, following a broad spectrum of news and views on politics, economics, and business. One of my follows is James Pethokoukis of the American Enterprise Institute. I don't always agree with him but I find him to be clear, concise, and – in a geeky economist kind of way – very readable. A recent tweet pointed to his blog post on the Internet sales tax bill currently under consideration by Congress known as the Marketplace Fairness Act. While the post is ostensibly about the bill, Mr. Pethokoukis invokes some general principles for good government.

Government should look like it was "designed on purpose". Though Mr. Pethokoukis is writing about our infamously complicated and inefficient income tax code, the same design hope can be imprinted on the organization of government. When I ran from Congress in 2012, I suggested this structure.

Government shouldn't favor any group. The Marketplace Fairness Act seeks to acknowledge that shopping habits have changed and to facilitate a level playing field for traditional storefront ("bricks") and Internet-based ("clicks") retailers. Likewise our income tax code should treat wage and nonwage income equally and integrate Social Security and Medicare taxes to give taxpayers a clear and consolidated view of the taxes they pay.

Government shouldn't pick winners and losers. There are lots of examples of trying to pick winners in energy policy: battery-powered cars, solar cells, and the Renewable Fuel Standard. Picking winners and losers is an exercise in economic bias, creating an uneven playing field for competing technologies and innovations.

Government should use taxes to compensate for harm. Here's the geeky economist-speak I love: externality. Pollution is the classic externality: it imposes a cost on people and the environment that is not borne by the producer. Taxing pollution puts a price on pollution and imposes accountability on the producer.

Taxes should be broad with low rates. When the tax base is all-inclusive, rates can be kept low to reduce the incentives for avoidance, the costs of compliance and enforcement, and the disincentives associated with high marginal rates.

Federal government policies shouldn't subsidize state government choices. Mr. Pethokoukis cites an article by Alex Brill that advocates repeal of the income deduction for state taxes. The effect is two fold: the deduction – like all deductions – increases federal tax rates and skews state spending decisions. Combined with Congress taking fiscal responsibility for all Federally mandated programs, eliminating state tax deductibility puts the onus of accountability on the appropriate level of government.

Governing a large country is complicated. All the reason to do so with some simple, commonsense principles.