Sensible taxation strategy

Reward the good behavior, penalize the bad- that’s management 101. Unfortunately, the American economic ecosystem isn’t sensible, rational or working very well for most of us.

What passes for debate is more like a game of “gotcha” than a discussion of the merits and failings of our systems. Instead we talk about irrational ideas like the “Flat tax” that are just as regressive as the current system.

My discussion partner, Greg Hunter, forwarded me this post from the Arch Druid Report” blog that I found fascinating. The comments are good too- and I highly recommend you head over and spend some time reading it- but here is the meat of this postulate on a better tax strategy:

The primary economy, which is nature, and the secondary economy, which is the production of goods and services by human labor, are subject to negative feedback loops that tend to hold them in balance. The tertiary economy, which is the exchange of money and other forms of abstract wealth, is subject to positive feedback loops that drive it out of balance in ways that unbalance the other two economies as well…

The taxes on natural goods and services follow the same rough line of logic as property taxes do at present. The federal government, as trustee for the American people, already effectively owns all the real estate within its borders – when you buy property, what you’re buying is the right to use that property within the limits of the laws and the national interest, which is why China can’t just contract with private landowners to buy a couple of disused fishing harbors on our west coast as bases for its navy. The same principle could reasonably apply to every other resource in the country. When you pump oil from the ground, you’re depleting part of the patrimony of the American people, and you should have to pay the government for that privilege. When you dump smoke out of a tailpipe, equally, you’re using the nation’s atmosphere as the gaseous equivalent of a landfill, and once again you should have to pay to do that. Every natural resource of every kind would be subject to the same sort of tax.

Now of course this would mean that the prices of many goods and services would go up considerably. Since everyone would have the money they wouldn’t have to spend on income and sales taxes, this may be a little less of a burden; but the crucial point is that people can avoid resource taxes by their personal choices. If you buy a hybrid car, you’re going to pay a lot less in petroleum tax, and a lot less in tailpipe tax as well – though the extraction taxes for the rare earth minerals in the batteries and electronics may set you back a bit, as they should. If you don’t own a car at all, you laugh all the way to the bank. Similarly, the price of a product made from metal mined from the earth includes the extraction tax for the mining, but the price of a product made from recycled material doesn’t; thus the manufacturer has a big incentive to use the recycled material and undercut the competition….

A tax code that burdens the secondary economy – which is the economy that actually produces goods and services, remember – while encouraging the wasteful plundering of nature and the bubble-blowing antics of the tertiary economy is not going to help us weather the storms of the near future. A tax code, any tax code, that does the opposite – that makes it more profitable to employ human labor to meet human needs, and less profitable to disrupt the natural cycles that undergird our survival or to feed speculative excesses that pump imbalances into an already troubled economy – could be a very helpful asset in a time of crisis, and could be put in place tolerably easily, without having to tear an entire society to pieces and rebuild it from the ground up.

via The Archdruid Report: Immodest Proposals.

It’s the basis for today’s Dayton Grassroots Daily Show- which we just call “Taxation”

We share these discussions with you to try to get you to share your thoughts with us- and to stimulate out-of-the-box new thinking in our community. We believe that the same kind of original thinking that put Dayton on the map- will be the same thinking that brings prosperity back to our community. It’s just going to take a lot more of you watching, sharing and commenting.


The problems with property taxes- an opening discussion

Beauty is only skin deep.

Beauty is in the eye of the beholder.

When it comes to property tax appraisals in Dayton- both of these come into play. However, neither is helping us.

I’ve heard people say: “I don’t want to fix up the outside of my house because the property taxes will go up” and they are perfectly right. However, their home values may drop in the meantime.

I’ve heard people complain that their neighbors fixed up their houses and it cost them more, because their property taxes wend up, and they’re right too- but, their home may have appreciated thanks to their neighbors’ work.

Right now, with property values in a state of flux due entirely to factors beyond our control (thanks to the “casinoization of Wall Street”) an appraisal of your home value for sale or for tax value is as accurate as a corporate valuation by a rating service just before the crash- remember that 2 weeks before AIG folded, someone gave it a premium rating.

Just because someone is willing to pay a price for my home, according to an appraiser, it may not be worth it. There is no scientific system in place, it’s like arguing over who the greatest baseball player ever was- it’s all conditional.

How should we build a fair, honest, property tax valuation system? One that will do what the current system fails to do- namely, increase everybody’s wealth and make our community stronger.

Right now, we’re continuing to build new inventory, while our population is shrinking. This causes oversupply, and causes prices to drop. If we realized this, we’d put a cap on the number of homes that can be built when population is not growing, or require the removal of real estate from the market to allow new construction. Call it a cap and trade system for homes.

Secondly, what decides property value? Raj Soin has had a running argument with Greene County that his mansion isn’t worth that much to anyone but him- and he may be right. But, then again, the former Hook estate was looked at as a pink elephant when it was owned by the county- which gave it away, only to have a savior pump a lot of money into it and restore it- only to have its property tax go up (after the abatement ends). Should taxes penalize someone for fixing something up? Obviously not- since we want nice neighborhoods.

Since buildings are one of the leading consumers of energy, which is of finite supply, and has environmental consequences for all of us- maybe we should look at taxation based on energy consumption? Sound like the Fair Tax argument?

While we may want to look the other way about the cost of heating and cooling homes- in the long run, that’s what costs all of us. Wars are fought over fossil fuels (mostly oil) and with the environmental damage affecting everything from the oceans to our crops, we’ve got to start being proactive.

I had originally thought that an equation of square footage, year built, and condition of the home should be factors to use, but when I thought about age of homes- and conditions, value judgments came to play. I like old homes better- others like new. Where do we set the premium. From a basic accounting/depreciation standpoint, old homes require more upkeep- and the value over time decreases- but, then again, you have something like the Hook estate make it too complicated.

But, then again- does that mean an empty home, that uses little energy is a good thing? Not at all. We want people, preferably employed in our community- living in those homes. Without people, homes are worthless, they become a liability. Not only that, but higher density living (more people per square foot) is more efficient. The American dream of a single family home is actually hurting us because of the energy demands. So, the more people in a building, the better it is for the community- as long as it is still a useful steward of energy. Efficiency should be rewarded.

We also need to look at commuting costs- since transportation is another way we burn fuel. If we rewarded both homeowners with lower property taxes for living closer to work (or working from home- or using public transport) we’d burn less fuel. If we rewarded commercial properties based on the number of people they employ who live close- we’d incentivize Here In My Backyard as opposed to the Not In My Backyard type connections to the community. I proposed a “walk to work tax credit” idea long ago on this site, right after seeing “An Inconvenient Truth.”

Healthy communities in the future have to find different ways to do the things they’ve always done. Choosing how to tax people and their property has to be not only fair- but as a way to further goals of the whole community. Getting people to use less energy is critical to our nation’s survival and future growth.

While the condition of a home is all a matter of opinion, the amount of water, gas, electricity used, per person in a building- and their commutes to and from work, are all a matter of record- and it would put you in charge of what your tax impact will be, not some appraiser. All of a sudden, those new “Lite House” green homes on Patterson start to make a lot more sense.

I’m just starting my idea process on this matter, I’d like your help and input. Do you have better ideas on how to properly and fairly value real estate for taxation? If you do, please contribute to the conversation in the comments.


The long view on the current crisis: time for an Internet sales tax for education

Spending is down, sales tax revenues are falling, real estate values and the correlating property taxes are falling- and even the “Fair tax” advocates are pro-consumption taxes, so it’s time to institute a fixed national sales tax on all items purchased over the Internet, collected Federally, and distributed per capita, by student- for education.

Not only is this a better way to fund education, it would make it easier for business to have to worry about only one tax rate and one tax collector nationally (the idiots in Columbus try to have it be businesses’ responsibility to collect different rates for all 88 counties- stupid). But, most importantly, we can stop having to rely on local governments to fund our most valuable future investment: our future workers.

The concept of investing in social capital (or as Robert Reich calls it: human capital) is one that will always pay back. Read this portion of his commentary on American Public Radio’s Marketplace:

ROBERT REICH: Our preoccupation with the immediate crisis of financial capital is causing us to overlook the bigger crisis in America’s human capital. While we commit hundreds of billions of taxpayer dollars to Wall Street, we’re slashing our outlays for public education.

Education is largely funded by state and local governments whose revenues are plummeting. As consumers cut back, state sales taxes are shrinking, and as home values decline local property taxes are taking a hit. Three-quarters of our states are facing budget crises. As a result, schools are being closed, teachers laid off, after-school programs cut, so-called “noncritical” subjects like history eliminated, and tuition hiked at state colleges.

It’s absurd. We’re bailing out every major bank to get financial capital flowing again. But we’re squeezing the main sources of our human capital.

Yet, the future competitiveness and standard of living of America depend on our peoples’ skills, their capacities to communicate and solve problems, and innovate — not their ability to borrow money.

What’s more, human capital is rooted here, while financial capital moves around the globe at the speed of an electronic blip. Right now global capital markets are frozen, but the big money — mostly in Asia and the Middle East — will come back here eventually, bailout or no bailout.

via Marketplace: Where’s the bailout for human capital?.

In all this talk about bailing out the banking industry and the American auto manufacturers for ungodly sums of money- and Barack Obama’s talk about investing in infrastructure- very little has been said about what kind of work force we want to have in the future. If we don’t invest in our people, we may not have the brain power to continue to matter in the world.

With our financial system in tatters, and the dollar becoming little more than monopoly money, used to buy off politicians- why would anyone want to invest here instead of the fastest growing, larger economies of China or India?

The reality is, Internet sales need to be taxed, without making online commerce more difficult. Eliminating local education taxes and the expensive mechanisms used to collect them, as well as the insanity of school levies – should help make this an easy transition- that even businesses will see a benefit through simpler collection processes.

Look at the cuts that every State is facing. If not now, when? It’s time to get serious about funding our social capital, before we don’t have any left.

Sales tax legislation gone bad

The first time I shopped for groceries in Atlanta in 1981 I was shocked to see sales tax added to my bill- I was buying milk and bread (really). Welcome to the crazy tax laws of different states.

Ohio has long excluded taxes on food- as it’s not really optional for survival. This is a good way of providing a tax break to poor people- who would, proportion to income, be paying a higher percentage of tax if food was taxed.

Buried in the paper today- was an article that the Governor wants to start taxing groceries to make up for changes in the business inventory taxes that penalized companies who carry large inventories year round (another stupid system).

Interesting to see who is supporting the higher food tax: Doctors and Lawyers- people who are generally higher up on the food chain:

The Strickland administration asked the Ohio Supreme Court on Friday to restore a tax on groceries that was struck down by a state court of appeals.

The commercial activity tax was a key part of a massive tax code revision by the Legislature in 2005 and was expected to start generating $188 million a year in 2010, when it was to be fully phased in. The Ohio Grocers Association challenged the tax in a 2006 lawsuit.

A Franklin County court ruled in favor of the state, but that was overturned by the 10th District Court of Appeals last month. The appeals court determined that the tax, known as CAT, unconstitutionally taxed sales of food by supermarkets and wholesalers for consumption elsewhere.

The state contends that the tax is beneficial because it’s structured to be business-friendly and to replace taxes that discourage major business investments in Ohio.

Several organizations, including the Ohio State Medical Association and the State Bar Association, filed briefs Friday supporting the state’s position.

“Businesses have a vested interest in ensuring that this tax is applied fairly and equitably,” said Eric Burkland, president of the medical association. “Fair tax policy enhances our business climate and our quality of life.”

Ohio seeks restoration of grocery tax.

If we were really looking for a failure to tax evenly- we would place a national sales tax on Internet sales, that was distributed nationally per capita. This is an area where those with means shop to avoid paying sales tax while those who can least afford to pay higher prices don’t have a way to escape it.

The state tax coffers across the nation have seen declines in sales tax revenue because of this loophole, yet trying to implement systems online for collecting and distributing sales tax at different rates for every jurisdiction would be next to impossible and a huge burden on business.

Tax on groceries bad. Tax on Internet purchases good. Tax collection simplified for business- extra good. Dayton Daily News burying this story: priceless. And, btw- there is no sales tax on newspapers in Ohio…. go figure.

And if you want to know why sales tax revenues are decreasing…

If you’ve heard any of “Team Montgomery County” talk (that’s what the three county commissioners are now referring to themselves as), you’ve heard “We live and die by the sales tax.”

So, if you are wondering why the county is feeling a squeeze, look at online sales:

Report: Online retail sales could reach $204B – Dayton Business Journal:
The National Retail Federation is forecasting $204 billion in retail sales over the Internet in 2008, while the rest of the retail industry expects sluggish growth.

According to the NRA’s annual survey, The State of Retailing Online 2008, the expected $204 billion is a 17 percent increase over last year.

The sales categories expected to do the best include apparel, with $26.6 billion, computers at $23.9 billion, and autos at $19.3 billion.

If you buy from, you aren’t paying sales tax. Same goes for any other business that doesn’t have a physical presence in Ohio.

That’s why I believe we need to institute a national online sales tax- at one simple rate, say 3% and put it all into education doled out per student. A nice equitable way to help balance education funding across the nation.

Obama asks? Esrati Answers: How can the next president better help small business and entrepreneurs thrive?

While I’m lucky to have 20 or so people engaged in a discussion online, being a celebrity presidential candidate with a 100 million dollar plus budget gets a lot of attention. So when Senator Obama asks a question on the business social networking site LinkedIn- he gets a lot of great feedback:

LinkedIn: Answers: How can the next president better help small business and entrepreneurs thrive?

And while I doubt he has anyone willing to read through all 1,496 answers (before it was closed)- I can read enough of them to tell you what’s on small business peoples minds (’cause I am one of them) and offer some of my ideas.

Health Care Costs: Beyond a doubt, small business and big businesses have been hammered by cost increases. When GM says $1,500 of each car goes to health care, you can rest assured, it’s affecting everyone. I can’t raise my prices 40% in a year and keep my customers- unfortunately health insurers can. Instead of trying to sell a program of “National Health Care”- how about “National Work Insurance™” which guarantees taxpayers that they will be healthy enough to go to work and pay taxes.

Tax Simplification: Different filing deadlines, different taxes, different forms, different websites, and that’s just federal. By the time a small business makes it through all these hoops – it may just be able to concentrate on adding something to the economy. There has to be a better system. One site, one place to pay everything- with a schedule of when the next payment is due, automatic notifications and full tracking of payments applied. All communications should be electronic, and through this central portal. We have to also eliminate the patchwork of local income and sales taxes.

Sales Tax: I’m not advocating “Fair Tax”- but, the fact that Internet retailers aren’t collecting State sales taxes is unfair. We need a national fixed sales tax that is doled out to the states by the Fed. State sales tax collection has been dropping, Internet sales have risen. It’s unfair.

Eliminate Corporate Welfare: Small business generates jobs that pay taxes. Big business generates tax breaks. My suggestion of granting business tax breaks only based on “walk to work” employees will help cut the dependence on oil, stop sprawl, create livable/workable communities.

Immigration: Ask any farmer about the need for low cost labor in the SW. They can’t survive without migrant farm workers. Ask Google how many H1B visas they need. Ask any economist about the ability of our country to continue with our low birthrate without immigrants. I support a path to citizenship for all legal immigrants- through service. I believe my plan to end HUBzones as we know them by allowing unlimited H1B visas is a great way to solve two problems at once: investment in the poorest parts of the Country- and the addition of high value talent.

Education: Without a well trained, well educated work force, small business won’t be able to innovate. I’ve been convinced we have to start issuing laptops to all school aged children. See my posts on Dayton Public Schools and the XO laptop.

Technology Infrastructure: We need faster Internet access. The United States is falling behind. Wireless spectrum is another debacle waiting to happen.

After reading a ton of the answers, there are some things terribly missing:

Campaign Finance Reform: Small business can’t exert pressure on government the way big business can through lobbyists, PACs etc. If politicians weren’t forced to pander for campaign loot, we may have a fairer system.

Corporate Responsibility laws: Face it, access to capital markets is a gift. Where else can a CEO get access to billions, without taking any personal risk? At some point, we need to make sure that CEO’s aren’t wildly rewarded for things like “share value” for cutting jobs here and sending them overseas. You want to do that? Fine- do it with your own money. As long as you have access to capital markets- you have to provide shareholder and stakeholder (your employees) with real value. Corporate compensation has gotten wildly out of hand.

Restore Sanity to Wall Street: It’s not a casino. Investing in companies isn’t something you do for a matter of minutes- its supposed to be long term. With so much of our credit market tied to the moves on Wall Street, wild fluctuations in value impact small business much more significantly than big business which can leverage money at lower rates. Too much of our economic policy has become tied to the markets- instead of the other way around. Share value should be only realized with a minimum investment of a year. We now trade more shares in a day than we did in a whole year when I was born (1962): this has changed the way we create wealth in this country from making things- to gambling on things. We need to return to making things.

I don’t have time to read all the answers, and as always, the number of repetitive answers makes forums like these somewhat useless, however, there are some good ideas in the pages- and I’ve added my thoughts as a small business owner.

I taught a kid to fish yesterday

The old proverb goes, give a man a fish, he eats today, teach him how to fish and he eats for a lifetime.

Yesterday, I taught a kid to fish. When I’m your congressman, I plan on teaching every American child how to fish and I’ll share the secret: it’s a $10 billion dollar investment that is much more important than a new joint strike fighter jet or continuing the Iraq war for another month and change.

There isn’t a job in this country that doesn’t require a computer, or won’t require computer skills by the time junior enters the workforce. Yet we are still using books made of paper, taking tests on paper and teaching with the tools of a society based on paper.

When we factor those costs in, as well as the additional time it takes to grade those tests, the additional waste it creates, the obsolescence factor of the information in the text books, the cost of the program I plan on pushing from the first day I get to Washington, the cost savings will be phenomenal.

Photo of the XO LaptopYesterday I bought an XO laptop for a kid in a developing country. A “third world” nation, that is going to give that child an opportunity to learn in a way that our “First World” nation can’t. Embarrassing, but true. I believe real battles are won in the minds, not the battlefield, and that our chances of staying a world power rest in a well educated future generation.

This computer and the idea of “One Laptop Per Child” was the brainchild of Nicholas Negroponte, formerly the head of the MIT media lab. His goal was the $100 laptop, and in volume, this could be true. Right now, each machine costs approximately $180, and the minimum purchase for a country is 1 million units. With 55,628,000 school aged children in the United States right now, we’re looking at a sizable investment. However, it is the best investment we can make. It’s definitely better than the 2 billion that will be spent on electing a president this year (consider the election still isn’t in full swing, and we’ve already seen the first 1 million dollar spent on election ads in a day, Dec 10, 2007).

Please note: paper companies, textbook publishers, educational testing companies all invest money in candidates to support their business model. It’s why we absolutely must have campaign finance reform if we hope to see change in the way decisions are made in DC.

And while I’m the first to admit that computers aren’t the answer for everything, there is no excuse for a student in the worlds “most advanced” country, not to have a computer.

This is not my first post on this subject, I talked about how providing Dayton Public Schools students laptops would be a game changer here:Dayton Public Schools- Now what?

We’ve all heard of “No Child Left Behind” for the last 7 years, yet, other than a focus on testing, and unfunded mandates on education from the Federal Government, we’ve yet to see tangible reform on the way we educate our children in this country.

Sending children to school without a laptop in todays global economy is a crime greater than sending a solider to war without body armor, yet, we have seen no outcry on their behalf.

This November, you have a choice to make in what kind of congressman you want. Our current congressman is good at bringing military industrial pork home to our district. Your next congressman wants to teach our children to fish.

If this is what you want in Congress in Ohio 3- please consider a donation. I only accept money from individuals, no textbook publishers, unions, or military contractors.

If you don’t feel comfortable in giving money to a campaign, please consider giving to instead. Teach someone something, somewhere. It’s good karma.

In 1913 Dayton got the Sportsplex idea

Regular readers know I have an idea to build a giant sportsplex downtown on the former Parkside homes location. It’s central to the city, highly visible, a great addition to Riverscape and the Ballpark, dovetails perfectly with the new Kroc center just across the river and would be a strong statement about our belief as a community about the importance of being healthy. It’s something for all of us- as opposed to a subsidized clone of “The Greene” as proposed by Mandalay Entertainment et al currently with the working name “Ballpark village” which is an example of corporate welfare and doesn’t bring anything truly new or unique to the region.

Sportsplex would also provide the facilities needed for the new Sport Tourism Taskforce- which lamented about lack of facilities for what they envision (more on this when I have my notes from Tuesday’s briefing to the County Commission).

Back in 1913, besides the flood, something else happened in Dayton, and it showed that back then, they understood the value of community recreational facilities- and the value of that location. Read from today’s Dayton Daily:

City gives Dayton Canoe Club building key status
Completed in 1913, the Dayton Canoe Club building reflects the Progressive Era interest in social and health benefits of outdoor recreation and exercise, according to the Ohio Historical Society.

Architecturally, the Dayton Canoe Club building reflects the influence of the Arts and Craft Movement in the early 20th century with an emphasis on simplicity and natural materials.

The two-story building with stone lower story and overhanging veranda above appears to be one story from Riverside Drive, gently extending above the horizon.

The canoe club just got the nod as a historic landmark. Let’s look at Sportsplex as a kind of Taxes are Good*™ investment into the health and wealth of the region. It was the right idea in 1913, and it’s the right idea now.

The Mentor tax credit: a Taxes are Good*™ Program from Esrati

Photo from IMDB site of Bad News BearsWe give the über rich people all kinds of tax credits. Face it, our tax system has become so complicated only those who are either empty-pockets broke and do their 1040ez themselves, or the super rich who can afford accountants and financial planners to work the system get treated well. The rest of us in the middle- it’s a crapshoot.

When Taxes are Good*™ they reward policy and practices that move us forward as a society, not as individuals. That’s why I want to introduce the Coaches Credit™  – a tax credit for all those Little League, AAU, Pop Warner coaches (and don’t think it’s just for sports- cheerleader coaches, theater group directors, Scout leaders etc.) should get something back for giving back from Uncle Sam.

We understand that the time you invest in a young persons future- is an investment in the future of America, because kids who play sports are too busy to get into other trouble (David Wright and your Mom’s station wagon and the 17 stop signs, you, my High School friend, were the exception).

When I say I plan to invest in the future of our Country- I mean it. I’m starting with you Mr. Tris Speaker Coach, we salute you.