Thursday, May 31, 2012

A Regulatory Tide Sinks Pools

Thousands of swimming pools throughout the USA will shut down, and many spas, clubs and resorts will have to close also. It seems odd for the government to be imposing greater costs on enterprise and destroying jobs when the economy is struggling to recover, but the timing will minimize political damage, as pool providers have until January 2013, just after the election of November 2012, to comply.

The ADA, the Americans with Disabilities Act, requires that services available to the public be provided to those with disabilities in a way that they are able to use the services on an equal basis with the general public. Now the federal government is interpreting the ADA and the Standards for Accessible Design to apply to the act of entering a body of water. The goal is to provide access to every open-to-the-public swimming pool to people with disabilities.

Some handicapped people (officially referred to as "disabled") are unable to use steps or ladders to get into a swimming pool or to step into a hot tub. To enable the handicapped to be able to use such pools, the federal government is now requiring swimming pools open to the public to have elevators or lifts to transport the handicapped. ADA-compliant pool lifts cost several thousand dollars. The fine for failure to comply is $100,000 fines, in addition to a lawsuit liability.

The ADA requires both Title II (governmental) and Title III (private-sector) enterprises to provide "accessible means of entry for swimming pools." The ADA pool regulations do not apply to apartment buildings unless there is some amount of public accommodation. Whether a private club is included depends on their rules and fees. Of course the existence of this regulations will make many homeowners' associations, apartment owners, and clubs avoid any public accommodation.

When a private-sector enterprise or club makes a financial decision, it does a cost-benefit analysis. Rationally, an activity is worth doing if the benefit is greater than the cost. But governments typically do not do cost-benefit. Those who seek greater welfare for the poor only talk about the benefit to the poor and to the handicapped. But if costs are ignored, and costs are greater than the benefits, then the regulation creates waste that has a general social cost.

Thousands of smaller hotels, spas, clubs, and towns will have to shut down their pools, because the cost of installing lifts is too high. Others will install them, but will have to reduce other services. Some clubs will have to shut down entirely. Organizations just barely able to survive will not be able to bear the extra cost. Many community pools will shut down to avoid a large expense for the benefit of very few users. A pool provider would have to tear up the deck to install a fixed elevator. The elevator would also make the provider much more vulnerable to lawsuits from people injured. Children will be jumping on and off the lifts, and they could be injured. The added liability would probably be a bigger concern than the cost of the lift.

If the people of the United States want to provide greater access and use of pools for handicapped persons, they should bear the cost, rather than impose the cost on the providers of pools. Regulations act as a tax, and it is unjust to impose a tax on a club that is barely able to survive already, for a benefit that only a few may use, or maybe none.

It would be humane and benevolent to enable the handicapped to be able to use swimming pools and hot pools. The question is whether providers should be forced to do this, and whether they should be forced to be vulnerable to lawsuits rather than have an "at your own risk" policy.

One of the problems for policy is the semantics and terminology. "Handicapped" implies that a person needs some help to be able to do some task. "Disabled" implies that a person has no ability at all. Most people with a physical impairment are able to do tasks, and just need some help. There once was a slogan, "hire the handicapped." Now they are "disabled" and are legally entitled to receive benefits and to sue those who don't provide them in quite the right way.

Dare I ask whether a handicapped person could just as well get into a pool with some human assistance? It seems to me that a handicapped person would be with a friend or family member who would be able to help that person get into and out of the water. But it seems our modern age requires robots to replace human aid.

This pool rule is another example of ever greater US federal governmental impositions and restrictions. By the 10th Amendment of the US Constitution, such powers belong to the states and to the people, but this amendment along with the Ninth Amendment have been put to death by the courts. Few Americans know about these two protections against federal intrusion, and few care.

Those who in January 2013 see signs saying "pool closed" or "pool open to members only" will blame the hotel or the city or the club, and not think about the greater moral or economic or constitutional issues.

Saturday, May 19, 2012

Ireland's Ire

The people of Ireland are suffering from a self-inflicted economic depression. They voted for a government policy that subsidized land values, hoping to get rich before their real estate bubble collapsed. The “Celtic Tigers” were, rather, opportunistic hyenas, financial scavengers capturing the gains from economic growth. The cause of economic depression is always the distortions of the previous boom due to massive subsidies to land values, captured by speculative scavengers.

If one seeks to play the land bubble, one needs to understand the timing, and the Irish speculators failed to understand that the three elements of real estate gaming is not “location, location, location” but rather “location, location, and timing.” Now the collapse of the Irish land boom has plunged the nation into business failures, high unemployment, and once again, emigration.

The response of the government of Ireland has been austerity. But as with its southern European peers, austerity is self-defeating. Higher taxes on production and consumption shut down even more business, and the government programs that are cut are not the subsidies for the landed rich but life support for the poor.

The German philosopher Hegel wrote in his Philosophy of History that “Nations and governments have never learned anything from history.” The Irish did not learn from the failed head tax that brought down Margaret Thatcher’s government in the U.K. Ireland's households were ordered to register to pay a new lump-sum tax of 100 Euros. But half of the families refused. Thousands of protestors have rallied in the streets. They chanted“can’t pay, won’t pay.”

The protestors understand that the real estate speculators, the bankers, and their political allies created the artificial boom, and that the deals made by the IMF and European Union force the poor and the deprived middle class to bear the burden of a regressive head tax. But they should ask themselves why they voted for the government officials who designed the land boom.

On May 31 there will be a referendum in Ireland on a fiscal union for the EU. This would restrict the power of taxation and government spending of the members of the European Union. If voters regard the European fiscal union as further strengthening austerity, they will vote against it, just as they have overturned austerity chiefs in France, the Netherlands, and Greece.

In 2013 the government of Ireland is scheduled to implement a property tax. Ireland has had no real estate tax for several decades. The government is assembling a data base for the tax.

Ireland’s new real estate tax will backfire if the government mishandles it. The tax will benefit Ireland if it only taxes land value. Buildings and all other improvements should be tax-free. The land-value tax will have greater acceptance if it is implemented as a tax shift rather than a tax increase. The value-added tax should be reduced to the minimum amount allowed by the European Union. The employee pay-as-you-earn (PAYE) tax should be abolished, along with other taxes on income, including the corporation tax and the dividend withholding tax. Excise taxes on goods should be eliminated. “Stamp duties” on property transfers should be abolished. The government should also abolish the “capital acquisitions tax”on gifts or inheritances.

The replacement of this complex tax structure with a single tax on land value would make Ireland truly a Celtic Tiger, this time sustainable, and without rent scavenging. This efficiency and equity tax shift would need to be explained to the people, and there should be provisions for the few who would have significant net losses or hardships.

Ireland is a wonderful nation with great music and a history of valuable contributions. During the Medieval Dark Ages, monasteries in Ireland preserved Latin Learning. Now Ireland has an opportunity to lead Europe out of its economic dark age. With just a bit of economic enlightenment, Ireland could have a tax structure that would unleash its entrepreneurial spirit. The Irish-language name for the island is Eire, derived from the Old Irish name of the goddess of the land. With public revenue from the land, Ireland would replace its ire over punitive taxation with a happy Eire that has reclaimed its land.

Thursday, May 03, 2012

Political Parties and Taxes

It is curious but understandable why none of the American political parties on the ballot are proposing the sound tax policies that would spur the U.S. economy to grow faster than China.

The mantra of the Democratic Party is “tax the rich.” They want to increase the marginal tax rates, the rate on extra income, of the wealthy. They say the rich can pay more without being affected. That flies against both economic theory and the evidence of history. Theory and experience say that the higher the tax rate, the greater the reaction of less production and less investment, and the reduction is proportionally greater than the tax increase. Theory says the ideal tax is on things that do not get reduced when taxed, the prime example being land. But the Democratic Party ignores economics, exploiting the ignorance of the masses to cater to the landed interests.

The chiefs of the Republican Party understand the concept of marginal tax rates, and seek to reduce them to spur growth, but to pay for this, they reject a tax shift to land value, and instead seek to cut government welfare to lower-income folks. If the Republican policy is implemented, we will see mass protests, violent occupy movements, general strikes, and an increase in crime. The Republicans don’t understand that before we remove the roof from a poor man’s house, we should first lay the foundation for a new house.

The Green Party seeks to stop the destruction of the environment, yet instead of a pollution tax, its members seek a wasteful welfare state financed by a graduated income tax high enough to prevent “excessive” wealth. They don’t seem to understand that the deadweight loss from high tax rates results in a waste of resources. They reject the free-market environmental policies that would protect nature with incentives and property rights.

The Constitution Party wants to abolish the income tax and levy excise and import taxes. In addition, that party would enact a "state-rate tax," with revenues apportioned among the states in accordance with their proportion of population. With the abolition of the income tax, and the shift of government spending more towards the states, it would be more difficult for the states to have their own income taxes, so tax competition would move them towards property taxes. The party also approves of taxing corporations, which legally taxes the privilege of incorporation. This is a much better tax proposal than that of the Democrats, Republicans, and Greens.

The most ridiculous tax proposal is that of the National Sales Tax Party. They seek what they call a “fair tax” on goods bought by households and governments. Used goods would not be taxed. The federal tax rate would be 30 percent. State sales tax rates have a national average of 6 percent, thus the combined rate would be 36 percent, leaving out higher rates caused by the conversion of state income taxes to sales taxes, and the added tax due to tax evasion.

The exemptions for used goods and businesses would cause huge distortions. For example, a new coin or bar with $1000 worth of gold would sell for $1360, so nobody would buy it at that price, since one could buy gold bought prior to the adoption of the national sales tax for $1000 as a used good. There would be massive tax evasion for new coins sold as used goods, as well as smuggling gold and silver from foreign sources. As for real estate, a new building that has a cost of production of $100,000 would be a new good, and sell for $136,000, while a similar building built prior to the enactment would have no tax. Real estate construction would come to a halt. In practice, Congress will not levy a ridiculous sales tax on buildings.

The “far tax” movement recognizes that there would be a big incentive for tax evasion by starting a business and buying good as a business expense. They acknowledge that there would be audits and registration requirements. There would be massive intrusion into both business and households to prevent tax evasion, but as with illegal drugs, much underground activity would happen anyway.

It is unrealistic to suppose that the federal government would let private enterprise be exempt from taxes, while imposing a tax on government. Under the “fair tax,” a private school’s purchases would be tax free, but a government school would have to pay the sales tax. This tax punishment of governmental schools would be politically impossible. In practice, government spending would be exempt from taxation, resulting in a sales tax rate higher than 30 percent.

Land is, of course, always a used good, and the sale of land would be exempt from taxes. As with the income tax, the tax policy of the National Sales Tax Party would provide public goods that subsidize land value. With the income tax, a business that makes no profit pays no tax. With a national sales tax, if a zero or low-profit firm cannot pass on the tax to customers in the global economy, it would shut down. Professor Mason Gaffney calls this a “quantum leap effect,” as high taxes on gross receipts would result in a massive shift of land use to firms that can pass the tax on, resulting in a massive destruction of production and employment.

The National Sales Tax Party was previously called the Libertarian Party. The party is holding its convention on May 2-6 2012 in Nevada. The party will elect Gary Johnson as its presidential candidate. He is popular as the former government of New Mexico and advocate of legalizing marijuana. Johnson also promotes a national sales tax to replace the income tax.

The federal budget and tax reform are the major issues of the 2012 presidential campaigns. By electing a sales-tax advocate as its presidential candidate, the “Libertarian” party will have transformed itself into a sales-tax party. It was to a large extent that already, as its previous candidates favored tariffs and excise taxes instead of free trade.

Now the transition will be complete, and if they still label themselves the “party of principle,” since the principle in 2012 is to tax goods and subsidize land value, the party should honestly call itself the National Sales Tax (and land subsidy) Party. I’m now confident that Gary Johnson will get millions of votes, but these will be sales tax votes by those fooled by the “fair tax” propaganda, not votes for liberty. Genuine libertarians and free-marketeers will either refuse to vote or else turn in a blank ballot.

In 1913, Americans rejected the high taxation of consumption when they adopted the federal income tax, and as Hegel remarked, we don’t learn from history. Sales taxes are for losers, and regardless of the vote, the unfair National Sales Tax is a big loser issue that fortunately has no chance at all of being implemented.