JimSwift.net

Have you ever wondered why many small business owners are conservatives? Try paying your own taxes and get back to me if you’re not sure. Paying your own taxes is about as much fun as taking a quiz on the EULA you agreed to but didn’t read.

It’s a royal pain in the ass. 

For the past five years, I have had subsidized access to Washington D.C.’s public transportation system. Now, I pay for it entirely on my own, which is considerably less fun and even less fun for my wallet.

If you live in D.C. or a city with a train system or get free parking at work that would ordinarily cost you money, odds are you are familiar with how this system works. (It was $125 for years until Congress nearly doubled it in the Stimulus, and that higher rate expired, or was ‘cut’ as they put it.)

Which brings me to this thought: what if everyone had to physically pay for it?

The way Smart Benefits worked is that the employer (in my previous case, Congress) paid WMATA money and it went on my card. If I didn’t use my money to the full extent, it was forfeited — presumably to pay for workers suspended with pay that the union somehow kept from the firing block. Seriously though, I have no idea where the money goes, except not into my pocket, but I digress.

If tax reform comes to a point where deductions, credits and carve outs are on the board, I propose putting this one immediately on the chopping block.

It’s not that I hate public transportation entirely — just mostly — but I still take it 80% of the time to work. (I drove for a while, thus the reduced figure.)

Eliminating this deduction likely won’t change things for many people, their employers will likely still pay for their Metro in an effort to compete with other employers that also offer that benefit, it’s just that those will be taxable. Which isn’t the end of the world.

Why? Because people will feel a little more vested in the system if they have to do that. Just like people (including me) feel when paying their own income taxes as the self-employed.

If you feel you’re getting trips to and from work at no direct cost to you (even though there is a cost), you’re less likely to a.) complain b.) get involved when service gets really bad and c.) seek alternatives.

Paying for it yourself, in my opinion, seems like an easy way to change that.

I don’t think this suggestion will be popular, nor is it likely to happen. Transit unions and consumer groups will cry foul if anyone touches their magical exemption, which no doubt provides them with some sweet benefits and nearly guaranteed revenue.

To be fair, consumers benefit from it as well — but do they trade that benefit for quality service? I think so. 

What do you think? Sound off in the comments and vote in the poll!

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I grew up in Shaker Heights.

I lived the first 18 years of my life in this beautiful suburb of Cleveland, Ohio, which is largely isolated from real world problems.

In Congress, people refer to Senate staffers as ‘Senate snobs’ — because they think (rightly) that the Senate is better than the House.

Shaker is pretty much the same way, except “the House” is every other city in the Cleveland area.

Cleveland Heights? Inferior. Warrensville / Highland Hills? Home of abandoned things and hotels where people get murdered. Beachwood, University Heights? Their homes aren’t as nice as Shaker’s. The west side? Let’s not even go there. In the mind of a Shakerite, Shaker always = better.

This is kind of the mindset that Shaker Heights produces. “Shaker Heights is special.” And if you’re from Shaker, guess what, you’re special too.

If you want to understand the civic ethos of Shaker Heights, watch How I Met Your Mother and observe Ted Mosby.

In the show, Ted is from Shaker Heights, and this is because one of the show’s main writers is from Shaker Heights.

Mostly apolitical, but definitely liberal, Ted is an idealist, and is afflicted with making socially awkward romantic gestures (the kind that would go over well in Shaker, but poorly everywhere else.) He also likes drugs, er, or “sandwiches” as the show describes marijuana, has odd and kooky liberal parents who are divorced, and he never seems to worry about money. In short, Ted largely epitomizes Shaker Heights.

Did I mention Shaker Heights is liberal? Like really, really liberal? I often wonder why Shaker’s sports color is red.  Most people who meet me and know of Shaker Heights are really sort of surprised to realize that Conservatives live there.

To my knowledge, there were four households (out of about 40) on my street that were Conservative, and one of them (my former neighbors) was a household divided that had both Bush and Gore yard signs. Shaker’s conservatives largely keep quiet, though, putting up Republican yard signs is an easy way to get it stolen, or your house egged. So much for tolerance!

The land Shaker Heights was built on was an old Shaker religious settlement. The Shakers were a weird religious group that didn’t believe in sex, and not surprisingly, they died off. Naturally, to survive, they served as religious sort of adoption service, bringing in new members through adoption and focusing their sexual frustration on making really nice furniture.

Everybody knows the Van Sweringen name in Shaker. But, BUT! Did you know the Van Sweringens were evil corporate fat cats who speculated on land? Well, that’s what you might think of the Van Sweringens today if you hold typical Shaker views, and that’s what bothers me. People who don’t know their past.

To me,  it’s pretty darn ironic that Shaker Heights was founded by a corporation that focused on land speculation. Hard to believe that a city where government and government intervention can rarely do wrong was founded not by government, but by “evil” speculators.

Even what is now part of the government-run Regional Transit System (RTA) started out as a private entity as part of Shaker Village. Private corporate fat cat speculators did this! The horror!

A co-worker once asked me: “Why are there so many Shaker people in DC?” I responded:

Because they like telling other people how to live their lives.

This is where I think Shaker fails its youth, failing to teach them the true origins of the city, which were investment, risk, and reward. The Van Sweringens had to do things to please consumers and attract their money. Strange how the market works that way.

But Shaker has diverged wildly from its humble origins into a town that loves telling people how to live. The Shaker Heights zoning code and housing laws are over 286 pages long. They outline everything from the basics to what colors you can paint your house, what types of shingles you can use your roof, what kind of fences or walls your property can have, and even what kinds of railings your balcony can have.

Shaker’s zoning code is but one example where they’ve surpassed reasonable policies and gone crazy with regulation. It keeps property values high, for sure, but it also keeps living expensive, and it keeps poverty largely outside of Shaker.

Shaker Heights is regarded by many as one of the most successful planned cities in American history. However, few ever focus on what it has become, and what trade offs were made (knowingly or unknowingly) to achieve that status. Keep in mind, it started much like a McMansion community — private developers speculating on the land, investing in building it up, and selling plots. Not all too different than Home Owners Associations today, but on a city-wide scale.

A town filled to the brim with wealthy class warfare warriors and an civic ethos that largely dislikes free enterprise (unless it’s “local” and something they approve of!) was founded by the types of people today they would despise. Today, Shaker is mostly lawyers, doctors and academics — not so much a town filled with business folk. This explains a lot.

If you don’t think Shaker is a hotbed of free enterprise skeptics and regulatory zealots, consider this: When McDonald’s wanted to build a location in Shaker, a group of local mothers formed “Mothers Against McDonald’s.” The Wendy’s in town, however, is totally fine.

And remember when Office Max got bought out by Boise? Their headquarters left Shaker Heights for the third least friendly state for business in the country: Illinois. Ouch. (It could be due to many factors, but Shaker’s extremely high property taxes and restrictive zoning laws hurt too.)

Criticizing Shaker Heights is like speaking ill of the party leadership in Communist Russia. It’s verboten. But as I go back, I see Shaker suffering economically. And while its storefronts are looking increasingly like Randall Park Mall, it’s not just because of the economic downturn.

In my opinion, it’s because Shaker largely doesn’t want the business, tax revenue or jobs that certain businesses, like McDonald’s, would bring. And while it’s fine for cities to pursue dumb policies like that, they’re still dumb policies.

Shaker Heights could use a McDonald’s. Or a White Castle. It could also use a dose of the real world problems (like poverty, which its policies effectively force out) and businesses that are normal just about everywhere but Shaker Heights.

Sadly, Shaker Heights doesn’t want that. It would prefer vacant storefronts and rose colored glasses for all.

From the trailer, I can tell that this is not a movie I will enjoy seeing. Invariably, I am sure I will watch it and write about it here because I do enjoy writing about tax policy and tax reform.

The movie’s billed as follows:

WE’RE NOT BROKE tells the story of U.S. corporations dodging billions of dollars in income tax, and how seven fed-up Americans take their frustration to the streets…and vow to make the corporations pay their fair share.

From the scenes depicted, it doesn’t look like it offers a serious and thoughtful dialogue on our tax code: what it is, and how it got to be the way it is. The film makers are not tax experts. And while I caution against overly trusting tax experts, since they profit most from the code’s complexity, people who aren’t tax experts don’t have a history of making good movies about taxes or espousing rational fixes.

I think Alec Baldwin’s tweet of support pretty much confirms this:

Watch this movie and it will indicate why I support the spirit of OWS, if not every action.

When I think of brilliant tax minds, the very first who jumps into my mind is Alec Baldwdin.

The film makers have jumped on and supported a bill by Sen. Levin called the “Cut Unjustified Tax Loopholes Act” — which is just a wordy and complicated attack on the territorial aspects of our tax code. Levin and others tend to support a “worldwide” system of taxation, which subjects foreign earnings to U.S. taxes. We are one of the few countries in the world that still have this tax system.

I don’t deny that corporations try to minimize their tax bill, but given a whole world of alternatives, is it really in our best interest to pursue policies that are likely to encourage them to take further action to that end? Obviously not. The goal is to reform the tax code in a way where they are less likely to do that.

But what I wanted to post is this scene from the trailer with some commentary by yours truly. In the scene below, people are saying they pay their taxes, so why isn’t Bank of America?

Well, no, collectively the odds are they all don’t pay their taxes. Maybe it’s possible 100% of the people in the picture do, but the statistics aren’t in their favor. Between 41% and 50% of individual filers either owe no taxes or receive money back beyond what they actually paid in taxes.

The reasons why people owe no income taxes are complex. From the Earned Income Tax Credit, to the Child Tax Credit, Mortgage Interest Deduction, buying a home (since expired) or a hybrid, or even simply writing off investment losses — there are a multitude of reasons why a significant portion of income earners don’t actually pay income taxes.

Just as conservatives are wrong to broadly malign those who owe no taxes, liberals are wrong to make similarly broad assumptions about corporations. The best remedy is to have a serious discussion on the history of the provisions, examining why they were enacted. Failing to do so is violating the fallacy of Chesterton’s fence.

In the matter of reforming things, as distinct from deforming them, there is one plain and simple principle; a principle which will probably be called a paradox. There exists in such a case a certain institution or law; let us say, for the sake of simplicity, a fence or gate erected across a road. The more modern type of reformer goes gaily up to it and says, “I don’t see the use of this; let us clear it away.” To which the more intelligent type of reformer will do well to answer: “If you don’t see the use of it, I certainly won’t let you clear it away. Go away and think. Then, when you can come back and tell me that you do see the use of it, I may allow you to destroy it.”

This paradox rests on the most elementary common sense. The gate or fence did not grow there. It was not set up by somnambulists who built it in their sleep. It is highly improbable that it was put there by escaped lunatics who were for some reason loose in the street. Some person had some reason for thinking it would be a good thing for somebody. And until we know what the reason was, we really cannot judge whether the reason was reasonable. It is extremely probable that we have overlooked some whole aspect of the question, if something set up by human beings like ourselves seems to be entirely meaningless and mysterious. There are reformers who get over this difficulty by assuming that all their fathers were fools; but if that be so, we can only say that folly appears to be a hereditary disease. But the truth is that nobody has any business to destroy a social institution until he has really seen it as an historical institution. If he knows how it arose, and what purposes it was supposed to serve, he may really be able to say that they were bad purposes, that they have since become bad purposes, or that they are purposes which are no longer served. But if he simply stares at the thing as a senseless monstrosity that has somehow sprung up in his path, it is he and not the traditionalist who is suffering from an illusion.

Just as individuals can owe no taxes for seemingly complex reasons, the same can be said of corporations. Whether it’s carrying forward losses, taking advantage of tax credits or deductions (like green energy!) there is not a simple way to determine whether or not a company’s tax bill is “fair” or not. Especially since “fair” is such a subjective term that has become a code word by the left, even if undefined.

And, my math is wrong and Congress made a mistake, they’re not “loopholes.” We need to stop using this term if Congress and the President made a conscious decision to make these policies law. True tax loopholes, ones that are mistakes, are more rare than you might think. Disliking the law or how people respond to it and other aspects of the law does not justify use of the term “loophole.”

One thing is for sure, we desperately need tax reform. However, if it’s along the lines of what Levin, Sanders and others are offering, count me out.

The film’s trailer features Sen. Sanders — The Democratic party has far better thinkers on tax policy than him. If Bernie Sanders can’t stand the thought that museum trinkets are made elsewhere, I tell you, I am sure his solutions on international tax policy will be equally backwards. In short, I highly doubt that if you care seriously about tax issues, this movie will be for you.

However, if you’re like my grade school classmate, and want something to get angry about something without being open to a discussion about it, I bet you’ll like it.

Further critique forthcoming.

I saw this in my monthly BJ’s membership magazine. BJ’s is like CostCo for the East Coast, and doesn’t have the nightmarish parking problems that CostCo in Pentagon City has.

I snapped this pic because it made me think of a quote Russ Roberts blogged over on CafeHayek. 

“I often say that we’ve tried the “buy local” experiment, it’s called the Middle Ages. In the Middle Ages, we mainly bought local and pretty much everyone was poor.”

If people want to buy local just for buying local’s sake, they’re of course free to do so. I don’t think it’s appropriate for government to tell people how they should have to buy their goods, what goods to buy, or from whom to buy them. (Take note, anti-Walmart, buy American, and buy local activists.)

Consumers are free to petition the stores they frequent or stores they are members of (like BJ’s) to carry locally grown or produced items. I buy local all of the time, but I don’t buy into it as a mantra. I want things from across the country or across the globe. I want them when they’re in season or out of season, and (like most consumers) I want them at the best possible price. If Canadian beef is cheaper than beef from the Midwest or Brazil, I’ll thank my neighbors to the north.

Consumers value a variety of things — but all of them care very much about price. If anyone tells you otherwise, they are either filthy rich or liars.

Before you get all “commercialized beef isn’t as healthy/good for the environment as grass fed beef” — consider a few things:

1. Grass-fed beef, while very good and delicious, isn’t sustainable environmentally or in land use.
2. “Food miles” depends a lot on each situation.

I don’t fault BJ’s for wanting to cater to the wishes of some consumers. However, I disagree that it has become popular again for “all the right reasons.” This is just BJ’s making buy local activists feel better about themselves. Then again, I doubt many of the serious activists stop at big box stores over co-ops and farmer’s markets.

On the contrary, I think it has become popular for silly reasons (which I have written about at length.)

Either way, yes, buying local was commonplace for centuries until we evolved into a truly world market that has fascinatingly high levels of trade, an unparalleled availability of goods not available centuries ago, and best of all, affordability.

As long as the market is free and open, and people are not trying to place barriers to free and open trading, it’s fine to buy whatever you want for whatever reason you want, even if I think those reasons are silly.

RELATED:

When buying local from co-ops goes online (or when they really don’t care about food miles.)

On Tumblr, I saw this interesting fact.

In 1995 Michael Howard was charged £20 for a £10 overdraft on his bank account at Yorkshire Bank’s Horsforth branch. The 30-year-old marketing consultant changed his name by deed poll to “Yorkshire Bank plc are Fascist Bastards”

I looked up the story, and it checks out.

A couple thoughts:

1. This guy probably spent more on a name change than he did in overdraft charges, which brings me to
2. This guy’s decision to change his name is just indicative of his poor judgement, which shouldn’t be surprising in that he somehow cannot manage his own money.

I think Michael needs a copy of this book:

Don’t get me wrong, there are legitimate criticisms of banks, but I don’t think that not being good with your money is one of them. 

Well, some of America’s liberal Mayors sure are giving it the old college try. I was outraged to read in Bloomberg Businessweek this morning on the metro about Houston Mayor Annise Parker and Philadelphia Mayor Michael Nutter (both liberal Democrats) efforts to crack down on private groups helping the homeless. Of course, what article about Mayors going nuts with regulations would be complete without a reference to New York Mayor Bloomberg?

This isn’t to say that liberals are the only bad guys here, it’s just that they are often the worst offenders. And let’s face it, there aren’t many conservative Mayors of big cities, where homelessness tends to be more prevalent.

For people who supposedly care so much about the impoverished, these Mayors have an odd way of showing it. Many liberals believe that government should regulate out of existence things they consider “bad” or “not good.” However, it would appear they are now pushing for regulations to extinguish privately run efforts to help the homeless. This is wrong.

The article does a very good job at painting a picture for readers: heartless elected officials versus caring activists. I think it misses a point that we’ll get to later: competition with government.

Some key takeaway facts from the article:

• There are restrictions on sharing food in at least 23 towns and cities in the U.S.
• New York City prohibits private donations of food to homeless shelters as part of a policy partly aimed at ensuring meals are nutritious.
• Philadelphia’s mayor last week instructed the parks department to issue a regulation in 30 days banning outside feeding in all city parks, with exceptions for picnics and permitted events.
• Houston this month considered making those who feed the homeless register, banning the storage or preparation of food in private homes and requiring that one person obtain food-safety training. Fines would have been as much as $2,000.

The article largely focuses on the Mayors’ supposed interest in the public good and public health. Clearly, these are two responsibilities of local government, I get that. But it’s hard not to conclude that these liberal mayors are using regulatory power to make feeding and helping the homeless both harder and more costly.

However, there aren’t many facts out there to support the need for such regulations. Typically, at least at the federal level, there is a cost benefit analysis completed and usually a written record of why the regulation is needed. Cities don’t always have those requirements, and can regulate willy nilly and at the arbitrary and capricious whims of the Mayor and the council.

There has not been a compelling argument made by proponents of these regulations, in my view, to justify them.

“It’s a red herring,” Randall Kallinen, a civil rights lawyer in Houston who has organized opposition to the city’s plans, said in an interview. “They can’t provide one example where someone got injured or sick. This is really a way to push homeless out of downtown.”

Public good? Really? All of these cities had (or sanctioned through permits) Occupy Wall Street protests. (Eventually, there was sort of an ad-hoc nationwide crackdown, but some are still there.)

Ask yourself this: what’s a greater public good — hippies and miscreants destroying public and privately owned property to demonstrate their lack of economic understanding, or neighbors getting together to help homeless neighbors? The choice is pretty clear to me.

I agree with Randall: It’s a red herring.

Competing with Government is a quick way to get regulated out of business.

I have a different theory:

These Mayors care more about control and money than they do the homeless.

I’m not saying these three Mayors don’t care about the homeless. Rather, I’m saying they care more about their city’s power and ability to get federal and State funds than they do the homeless. It’s not unreasonable to think that.

Combating homelessness is something the federal government (and State governments) devote a fair amount of money to. HUD offers grants, HHS offers grants, the Education Department offers grants, the VA offers grants.

All of these grants have strings, and those strings (while attempting to prevent fraud or achieve certain goals) have costs that make the intended help less efficient. Costs that make private entities more efficient at helping the homeless.

It should come as no surprise that State and local politicians want to hamstring private entities in an effort to make the competition “fair” or biased in the government’s favor.

From McKinney-Vento to the HEARTH Act, the government has certainly devoted a lot of resources and bureaucrats to combat homelessness.

I’m not saying they shouldn’t, but put yourself in the Mayor’s chair for a second:

• Private groups are raising funds and doing things to help the homeless.
• This can diminish the needs of the homeless for government services, and thus, less of a need for federal grants and city employees administering those programs.
• Patronage is not dead, and anybody who tells you otherwise is either uninformed or a liar.
• Mayors love control, and doling out favors. After all, they’re politicians.

Helping the homeless is a noble goal, and I think it’s despicable that these mayors are using regulations under the guise of public good and public health to retard the ability of private groups to help the homeless when they’ve demonstrated practically no need for them.

I hope that readers will encourage their elected officials to stop pursuing policies to harm good people like Brian Jenkin’s efforts to help the poor.

Jenkins equates Mayor Nutter’s recent policy proposals as “an attack on the poor.” He is right. Maybe the etymology of Nutter’s last name is rooted in some historical and subliminal truth: He’s nuts. 

YOUR TAKE:

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Sound off in the comments  below.

Those of you who knew me back in 2007 have probably heard my infamous moving story. After living for a few weeks with practically no furniture, I finally got my stuff around Easter time.

ABF, which was good on the pick up of my cubes in St. Louis was nightmarish in Washington, D.C. — if I ever leave town, I will use somebody else. The rub is that to have these cubes dropped off, you had to be there to sign for them. Then you had like 24 hours to unpack them before they got hauled back. Seeing as I started a new job in town, I didn’t want to immediately take days off, as I thought that was unprofessional.

So, I waited. Holy week came around, and my boss was kind enough to give us Good Friday off. Not a federal holiday, I called ABF and said “Can you deliver them on Good Friday?” They said “Well, we’ll be short staffed, but sure, even though we won’t know for sure when they’ll come on Friday.” That was fine with me, I responded. I had the whole day off.

Holy Thursday comes around and I am on a Capitol tour. The Alexandria Police Department calls. ABF had dropped off the cubes, without my signature, on my neighbor’s front lawn. He called my landlord, and I got the call. The tour ended.

I set up a temporary command center at my desk, conferencing in ABF and my parents. People were not pleased. If this wasn’t resolved or handled appropriately, the police would tow my goods and impound them. Likely damaging them in the process.

Thankfully, I sweet talked (read: bribed with a big ass bottle of Maker’s Mark) my neighbor into calming down. Postal Service retirees can get really cranky. Crisis averted. My college buddy “Random” was a saint and helped me move all my stuff into the cramped basement on Buchanan Street. I’m not complaining, all of my stuff made it cramped.

Now, most people get pissed off when the cable guy or other service provider gives you a broad window for them to visit. Nobody likes taking a half day or working from home.  There are fewer infuriating things than hearing:

An associate will be at your house between the hours of 9am and 5pm.

I mean, come on, seriously? Yesterday, IKEA confirmed that they will make a delivery at my house today between the hours of 6pm and 10pm. They called twice to confirm. One robot, one human.

Today, the delivery guy calls me and says they are ahead of schedule, and asked if anybody is going to be home before 6. I said, no, I won’t be home until just before 6.

The guy was sort of dejected, because here I was telling him that he’s gotta abide by that 4 hour window I was promised.

At first, I was happy. You know “haha, sticking it to the man.” But then I sort of felt bad, nobody wants to work late, and presumably, this guy is good at his job since he’s ahead of schedule (or people didn’t hold up their end of the bargain.)

It got me thinking, isn’t there a better way we could structure this? Right now, companies do deliveries in a variety of ways:

• Some just tell you the time and you gotta be there or make another appointment
• Others fine you if you set up an appointment and aren’t there
• Others tell you a time and give you the option to cancel/reschedule it.

The old saying is “Time is money.” Not many folks are going to be able to take deliveries during the daytime, unless they work at home, have days off, or have a spouse who stays at home. More people get off work early sometimes, and most people are available in the evenings.

Maybe companies could build a feature into their system that gives people a discount to be subject to the whim of the system, another discount for those who choose times of lesser demand, and a premium for those who can only accept goods at a certain time (if it is busy.) Similarly, if people could rush home, like what I’d have to do to help this guy finish his deliveries early, they could get a discount for helping cut costs.

Of course, this would have to be dynamic and vary from day to day, and from business to business. And it would have to be clearly explained to consumers — who have sometimes a hard time understanding relatively simple concepts like “overdrafts.”  I am surprised that adopting a system like this isn’t all too common. It should be. 

In a previous post where we examined the nonsense behind the “don’t export our oil!” hysterics, I wanted to use beer as a related example. Ultimately, I didn’t.

However, thankfully Beer Advocate came to my rescue.

American Craft #Beer Exports Increase 86% in 2011 beeradvocate.com/community/thre… source: @brewersassoc #craftbeer

— Beer Advocate (@BeerAdvocate) April 10, 2012

To those who don’t think that U.S. companies should be able to export their oil, a few questions:

1. Do you think we should enact the same policies for beer?
2. Would stopping the export of U.S. beer keep prices low?
3. If not, why would it for oil?

Of course, the answers should be obvious.

The Small Business Tax Cut Act of 2012 is a bad idea, and worse, it’s a waste of time.

While most of this blog is focused on critiques of liberal policies and ideas, I would be remiss if I didn’t comment on the impending vote on the Small Business Tax Cut Act of 2012. This bill is a Republican bill being pushed by Majority Leader Cantor.

Liberals are, of course, maligning the bill as corporate welfare for Oprah and in other predictable class warfare-esque ways. They are opposed to the bill for all of the usual, often unrelated, reasons.

Majority Leader Cantor’s office describes the bill as follows:

Our 20% small business tax cut goes straight to the bottom line so small business owners can retain more capital, invest in their businesses and create more jobs. Small businesses would be allowed to deduct 20% of their income from taxes irrespective of how they are organized, up to 50% of their W-2 wages (in some cases distributions made to partners may be treated as W-2 wages for these purposes).
…
Eligible small businesses must have fewer than 500 employees. The 50% W-2 wage limitation is similar to thelimitation under the domestic manufacturing deduction (section 199).

To which I say: No. No. No. THIS IS NOT TAX REFORM!

Yes, we now have the highest statutory corporate tax rate in the world. But that doesn’t mean you throw away all of the work done on tax reform by the House Ways and Means Committee and the Senate Finance Committee with a new tax deduction for some businesses (and not others) that the Senate will never pass.

I get it, this is politics. I generally know how Hill politics works. However, I think this just damages the prospects for tax reform and prolongs the wait before Congress will actually be able to replicate 1986 and pass comprehensive tax reform. Which is why I think pursuing it is a bad idea.

Moreover, isn’t tax reform about fewer deductions? Isn’t tax reform about not picking winners and losers — like small over mid-size and big businesses, or wage-intensive entities over capital-intensive entities?

Don’t get me wrong, I want lower taxes. I want them for businesses of all sizes and shapes. Lower the rates, broaden the base, cut back (if not eliminate nearly all) deductions and credits.

Sadly, the bill does pick winners and losers, adds a new deduction. It fails the test of getting towards tax reform, and will never be passed by the Senate. Thus, it’s an absolute waste of time. 

A friend of mine who still works in Congress solicited my opinion on a trade matter, since that is a.) my favorite policy issue and b.) because I worked on it for four years.

A constituent asked his boss something along the line of the following:

Why do we export oil to other countries? It seems to me if we banned the export of oil to other countries, gas would be cheaper.

I remember often being asked similar questions as a staffer. It’s hard to answer this question in a convincing manner because most people (including Members of Congress and many staffers) do not truly understand how global trade, oil markets, and gasoline prices work.

Also, adding a degree of difficulty, many times the person asking the question is (sadly) an opponent of free trade. Which means they will never believe anything that is associated with a world market — they sincerely believe the world doesn’t have to operate this way. This is because they think that before World War Two, the world (and America) never really engaged in global trade.

Of course, this notion is very wrong, and people who think that should read these books:

A few thoughts on this topic. First:

It would start a trade war.

Banning exports of oil may have few short-term benefits if domestically produced oil is cheaper than other alternatives from foreign trading partners. However, not all oil is equal. Light sweet crude (West Texas Intermediate) and Brent blend crude (from the North Sea, England) are not the same. Some oils are found in multiple places, others only in one. The varying crude oils are used for different purposes based on their intrinsic nature, and the cost of converting them to a final product.

As the BBC notes in Understanding Oil Markets:

“Crude oil comes in many varieties and qualities, depending on its specific gravity and sulphur content which depend on where it has been pumped from.”

To think that we can just flip a switch and require domestically made oil to be sold in the U.S. would be a gross misunderstanding of commodities markets, and any attempt to interfere with this market will have bad unintended consequences.

Oil, like other commodities (including Frozen Concentrated Orange Juice) is sold by futures contracts:

In this type of transaction, the buyer agrees to take delivery and the seller agrees to provide a fixed amount of oil at a pre-arranged price at a specified location.

Meaning, some of the oil that we make domestically has already been bought, sometimes by foreigners. It would be pretty much legally impossible (and bad policy) to have the government invalidate those contracts.

This would spark a trade war, and the countries with whom the individuals we trade with reside would probably respond in equally harmful ways, screwing American companies and investors on their oil futures.

But what if we said: “OK, as of the completion of the last oil futures contract, all domestic oil must be used in the United States.”

This government interference would seriously distort the world market for oil.

It would:

1. Probably result in other countries refusing to export oil to us,
2. Lead to shortages of some sorts of oil or oil-derived products,
3. Drive gas prices and the prices of oil-intensive domestic goods higher, and
4. Potentially result in all of the above occurring.

Keep in mind that not all oil is alike, and it can be costly to refine that oil for alternate uses. This, too, would likely start a trade war because these barriers to trade would not only harm our consumers and producers, it would harm them across the globe. So, in addition to the direct harms caused by such a policy, a trade war would likely double down the economic pain, erasing any short-term economic benefit we may get.

Getting oil from other places far away can be cheaper than getting it from domestic producers

What are those red arrows traveling through? Oceans. Water is an extremely cost-effective way of transporting things, like oil. Imagine living in Fairfax, Virginia, and you are a car driver or a producer of some oil-intensive product. Price matters to you. What will be a cheaper and more efficient way of getting oil for gasoline or other uses?

(You can vote in this poll)

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The answer, of course, is shipping it where you have an advantage in scale and cheaper transportation. Now, of course, the oil doesn’t come straight from Saudi Arabia to your local Hess Station. It  goes to the buyer of the futures contract, to its customers, through refiners, etc. before it gets to a gas station. (Not all oil is ideally suited for every purpose, which is why refiners exist.)

In some cases, like making Pepsi, refrigerators, or diapers, it makes more sense to source production closer to consumers. Shipping things like that across the globe can be costly, especially when diapers and fridges are mostly filled with air.

The market exists to allow individuals to put scarce resources to their most efficient use. That means that people across the globe buy and sell various types of crude oil for their optimal purposes, or absent that, their second most optimal purpose.

Restricting exports, a bad idea, will likely lead to our imports being restricted by others.

The President often focuses on exports, paying no lip service to the value imports have.  And while President Obama’s trade policies have been bad (see: trade war with Mexico), exports do create a lot of jobs. But we shouldn’t be encouraging one at the expense of another.

This also means that people are going to try and use their scarce resource of money in the most efficient way too.

People aren’t going to pick the most expensive option for producing something unless the government makes them, which is what an export ban would amount to, and why it is not desirable.

Artificial barriers to trade distort the market, and that usually means higher prices. Competition and free trade are good things, and our policy should be to impose as few barriers as possible.

(Addendum: I am pretty sure that an export ban would probably run afoul of our trade agreements and WTO rules, but since most anti-trade folks hate trade agreements and the WTO, I didn’t bother to check.)