Homeowner's Blog

A Plan to Provide Broadband to all Americans

Many rural and other homeowners either do not have access to broadband or don't have Internet access at fast enough speeds and affordable costs to support home-based businesses or sophisticated healthcare applications that would allow them to remain in their homes instead of moving to nursing facilities. Chairman Genachowski  and the staff of the Federal Communications Commission have developed a proposed National Broadband Plan for dramatically improving broadband networks and extending their benefits to all Americans. In terms of the practical impact of technology on the daily lives of most Americans, this effort far surpasses the importance of the space program other technology-related areas. As Chairman Genachowski noted, "The starting point to solve these problems is a set of goals that are ambitious but achievable with a national commitment."

The proposed National Broadband Plan is the first step to reaching a common agreement on the specifics and priorities of those goals. Once we reach a consensus on the goals, we will face significant challenges regarding the mechanics of its implementation. Those challenges will involve complicated decisions between alternative ways to achieve the nation's broadband goals. Policymakers will have to make those tough choices, but the Plan is the critical precursor to the day when all American homeowners and other consumers can fully realize the benefits of broadband.

Chairman Genachowski  and the staff of the Federal Communications Commission deserve our thanks for taking this first step.

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.

How to Fix the Financial System

Congress is considering financial-system-overhaul legislation. Right now there are no laws in to prevent another financial meltdown. It's clear that major reform is necessary. The problems are complex, and there are many complicated proposals out there. Sometimes someone comes up with a fairly simple solution to a complicated problem.  One of them came from the famous investor and "Oracle of Omaha" Warren Buffet. His recent suggestion: "In my view a board of directors of a huge financial institution is derelict if it does not insist that its CEO bear full responsibility for risk control," Buffett wrote. "If he's incapable of handling that job, he should look for other employment. And if he fails at it -- with the government thereupon required to step in with funds or guarantees -- the financial consequences for him and his board should be severe."

Buffet's concept can be formalized in federal legislation by requiring that the CEO and any other senior staff or board members who had been active proponents of the company's irresponsible policies be asked to seek new career opportunities elsewhere as a precondition for future federal bailouts of companies that substantially contributed to the financial crisis. This policy should provide for an orderly executive transition, and it should not apply to any employees or board members who weren't involved in the decision making process regarding these policies, or who only provided staff support. In most of the offending companies, you would be talking about only a small handful of employees, and in the last crisis probably only in the low hundreds.

Creating a career hazard for those who created the current moral hazard in the financial services sector would discourage their successors and potential imitators from such  choices in the future.

Regardless Of The Health-Care Summit Outcome, The Political Math Is Pretty Easy

The political math on this issue is really very simple. The public supports a health care bill, but believes the current Democratic alternatives are too expensive and the current Republican alternatives are too stingy. The public wins if both sides meet each other half way and Congress passes a consensus bill, which would also give Congress and both parties a badly needed boost in the public's eye. This would be the safe route for both parties. In alternative scenarios, either party could lose big time at the polls this fall, depending on how things play out.

Democrats will certainly lose a lot of seats this fall if they game the reconciliation process in order to pass a bill that the public perceives is too expensive. Republicans will hammer them mercilessly on both the cost of the measure and the unfairness of the process. Moderates will desert the Democratic party in droves, whether the healthcare bill passes or not. Conversely the Republicans risk losing their current polling advantage on this issue if they refuse to meet the Democrats in the middle and the Democrats then take the more moderate approach in order to pass a health care bill without gaming the process. The risk for Republicans is that the Democrats might voluntarily reduce the cost and coverage of their bill as much as it takes to get 60 votes in the Senate, which would require the vote of one moderate Republican and make it a "bipartisan bill" in Washington parlance. The bill would only have to be affordable and just a little better that the Republican alternatives to achieve wide public support, and that is not a big challenge.  If the Democrats took the latter approach and succeeded, the current Republican polling advantage on this issue would evaporate.

Of course the latter approach also assumes that the liberal House Democrats would support such a Senate bill. Betting against such an outcome could be a smart move from a Republican perspective. The resulting bill could easily fail because of Democratic intraparty fights, and the outcome could be a disaster for the Democrats in November. Democrats would deserve the punishment because of their failure to respond to the need for moderate support.

The risk for Republicans of betting on Democratic self destruction is that the Republicans then have no control over the outcome. If the Democrats do manage to pass a bill that is broadly perceived as both affordable and better than the Republicans are offering, they will recapture public support on this issue. The polling advantage could turn against the Republicans if the public also perceives the failure to reach a compromise in the current discussions was more because of Republican inflexibility than Democratic inflexibility.  

As the Olympic games in  Vancouver wind down, the health care policy game finals are starting in Washington. Step right up and place your bets, folks. The final score will be announced this November.

Some Proposed Administration Tax Increases are Needed; Others are Bad Policy

The Obama administration has proposed a number of new tax increases. The President deserves credit for recognizing that the ballooning federal deficit, resulting both directly and indirectly from the subprime mortgage crisis that preceded his election, must be addressed. It cannot be addressed by the needed budget cuts alone, and unfortunately some tax increases will be necessary. However, reducing tax system support of home ownership by cutting home mortgage interest and real estate tax deductions for high-income individuals and couples for housing is the wrong way to raise taxes.

Allowing the Bush tax cuts for high income individuals (over $250,000 per couple) makes more sense. At that income level those couples currently pay about 20% of their income in federal income taxes after deductions. Not that taxing people is a desirable goal, but the average total federal income tax currently paid by U.S. couples in that bracket is among the lowest in developed countries. While the wealthy owe President Bush their thanks for cutting their taxes by much more than they were cut for an average taxpayer, the expiration of the Bush tax cuts will only raise the effective tax rate on the wealthy to 22%. This should not cause an undue hardship on individuals at that income level, and they will still pay among the lowest federal income taxes compared to their peers in other countries. The new tax rates will also help home values and encourage home ownership in one respect, because the mortgage interest deduction will be worth more to high income individuals and couples at the higher tax rates.

While the expiration of the Bush tax cuts will raise the value of mortgage interest and real estate tax deductions for high income individuals, the Administration's proposal to cap those deductions for those high income individuals and couples is not a smart idea timing wise in the current weak real estate market. It is also unfair to those who had bought their home with the reasonable historical expectation that the mortgage interest and tax deduction would remain sacrosanct. Better revenue generation alternatives are to raise the capital gains rate on high income individuals after first giving them a reasonable time to dispose of fairly liquid capital assets, such as stocks and bonds. However, such capital gain tax increases should not be applied to residential real estate investments, whose values have dropped substantially in the current market, for the aforementioned reasons.

Home equity has historically been the single largest form of savings for most homeowners. With home values down dramatically, their savings rates at near all time lows, and their stock market and retirement plan investments devastated by irresponsible financial services sector practices, this is not the time to adopt any tax policies that would discourage home ownership.