Monthly Archives: July 2009

Why the Income Tax must Die

When the founding Fathers built this country, there was no such thing as income tax. Your earnings were yours to spend as you wish.

In fact, at the time, a tax on Income would actually have been illegal (under Article 1, section 2, Paragraph 3 of the constitution, if you were wondering)

Over the years, there were several attempts to introduce a Federal income tax, but every time it was ruled as unconstitutional. It wasn’t until the Seventeenth Amendment was ratified in 1913 that a tax on Income actually became legal. This is important because there is a school of thought that says “we’ve always had an income tax”. It is simply not so; in this country, income tax is a more modern invention than the electric light or the motor car.

What we do have now is Big Government, with expense to match. And it is getting bigger. Whether or not we agree about the size of Government, it has to get its money from somewhere, and some kind of taxation is required. The question is what kind?

I would favor a national sales/consumption tax such as the FairTax. Under the Fair Tax, you pay a National Sales Tax of 23% (30% if you calculate it as an inclusive tax) on all new goods purchased.

The main objections to the fair tax are as follows:

  • It is regressive” That is an economist’s way of saying that it punishes the poor. WRONG: A major component of the FairTax is the “prebate”, a rebate of the taxes for your basic needs. If done right, the poor will pay little or no tax.
  • It would cause massive inflation” True… sort of. Adding a 23% tax will push prices up, but that’s not the whole story. Imagine your business kissing goodbye to FICA, Social Security Tax and Income tax with no more Federal payroll paperwork; this would simplify payroll dramatically. Because of this, businesses would be able to convert the majority of their useless paper-pushers into productive personnel. John Stossel put it well: “If more energy and money is spent on accountants and lawyers instead of engineers and scientists, it’s not good for the stock market or for anybody, with the exception of the accountants and the lawyers“.
  • It would represent a massive upheaval“. So did World War II. There is no reason that it has to be done right away…
  • It would decimate the accountancy profession“. And whom would that inconvenience? Re-read the John Stossel quote above.
  • It would decimate the IRS” Ditto. While the rest of us jump for joy. This is a disadvantage how?
  • It’s not really fair” What is? Is Income Tax Fair? Is Life Fair?
  • It would punish retirees“. True. They paid income tax all their working life, now we raise their cost of living. Easy solution; given them a double or triple-prebate.
  • It would punish those with young children” The needs of a small child are many: I suggest doubling the prebate for those of pre-school age.
  • Some people would try to avoid paying taxes“. Last time I looked, tax avoidance was legal, tax evasion wasn’t. And evading a sales tax is more difficult than evading income tax; think of all of those illegal immigrants and others currently “flying under the radar” who are not paying taxes now, and imagine them paying sales taxes.
  • There would be a huge black market for tax-free goods” And there would also be a corresponding market for ex-IRS men in big black boots. Problem solved.
  • It would decimate the financial services industry“. No, just the part of the industry that tries to take advantage of tax loopholes.

Now let’s look at the advantages:

  • Less bureaucracy: With no income tax, employees wouldn’t have to muck about with payroll deduction, which would effectively cut their human resources/personnel requirements in half.
  • Less Paperwork: We, the People would not have to keep tax records all the days of our lives on the off-chance that we might get audited one day.
  • Privacy: Without an income tax, the Government loses it’s biggest reason to go poking it’s nose into the financial dealings of we, the people.
  • More incentive to frugality: The money you receive is not taxed. The money you spend is taxed. If you want to save taxes, you spend less.. This also removes one of the two great disincentives to saving (taxes and inflation). Your savings, incidentally, grow tax-free…
  • Everybody Pays: Illegal Immigrants, and those who work “off the books”, will be finally assets rather than liabilities.
  • Easier accounting: Corporations who sell stuff are already used to charging sales taxes; it is a lot less hassle for them than it is for we, the people.

To implement the FairTax requires more than just passing another law in Congress. It requires the repeal of the Sixteenth Amendment. If you don’t do this you will end up with both income and sales taxes and a double-whammy for we, the people.

The best solution I can think of would be to repeal the 16th at some point in the future – say 16-20 years away. This gives people ample time to manage their careers so that they are not “caught out” when the tax regime changes.

I would actually be worse off under the Fair Tax. But America really needs this.

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How eBay lost its mojo…

…and how to get it back.

I have been using eBay for ten years as a bidder; eight of those as a seller. I have an all-positive feedback above 600. I have even written my own guide to eBay. One might almost consider me an expert on the subject.

These days, however, I don’t use eBay as much as I used to. I check out the site once or twice a week, and bid on something maybe once or twice a month. Instead, I frequent Craigslist a lot more, and also frequent several of the zillions of Bargains websites out there.

So why the change? Why has eBay lost the edge that made it an exciting place to go? I can think of a few obvious reasons.

First, eBay has become predictable. The same stuff is there every day. This is because the sellers are mostly “MegaSellers” – my pet term for businesses selling large quantities of the same products day in, day out, at predictable slightly-less-than-retail prices, most of which do not sell. The small sellers – people like you and me, cleaning out their attics and basements, and posting odd and unique items at absurdly low prices – are gone.

Second, eBay’s fee structure is ridiculous. eBay is one of the most fabulously profitable business models I can think of: Minimal liability, minimal physical investment, no stock, no shipping, no storefront. eBay is the ultimate middleman.

It occurs to me that it requires the same number of electrons to serve up web page for a ten-cent item as a thousand-dollar item – so why is the cost of the listing tied to the cost of the item? And it doesn’t end there… as well as listing fees, there are final-value fees, which are calculated as a percentage of the final bid amount. This encourages sellers to pad the shipping to make a few dollars that eBay does not “tax”. There are extreme examples of this – ever seen a small 99c item with a $15 shipping fee? eBay fees, that’s why. And while I don’t like it (and eBay is looking for ways to crack down on this) I can’t say I blame ’em. As if that is not enough, there are Paypal fees as well…

Third, eBay is suffering from an identity crisis. Nobody buys stuff from eBay; we really buy stuff from eBay sellers. When eBay started all those years ago, it was a “bazaar”, where virtual street-vendors with virtual handcarts hawked their wares to virtual passers-by. eBay is, and always has been, a venue. Now they are trying to pretend that they are a supermarket – except that they aren’t one. I am not sure what eBay is today, and I’m not sure it does either. They are trying to be an “Amazon”, without actually doing any of the work that Amazon does. Personally, I prefer the bazaar…

Gone are those basement-and-attic gems that made surfing eBay such an intriguing experience – what’s left is an infestation of mega-sellers hawking cookie-cutter items stuff just a little cheaper than retail (or selling them at low prices and then tacking on outrageous shipping charges). Often the same item will stay on eBay at the same ridiculous price, getting re-listed again and again for months on end.

Their acquisition of PayPal did not help at all. The combination of these two neo-monopolies makes for what I believe to be the most arrogant business on the Internet (and I am including Microsoft here).

So… what would I do to revive eBay?

  • Rethink the fee structure to reflect the  listing, not the item – flatten listing fees by having a basic listing fee, with additional charges for pictures and additional features.
  • Get rid of the final value fee.
  • Bring the small sellers back – make the first (say) ten items per month free, then next ten at half-price. This would bring back low-volume sellers (note, since I wrote this, eBay started doing something similar, offering ten free listings per month).
  • Get rid of bulk-discounts for big sellers. MegaSellers – businesses that list huge quantities of items that mostly don’t sell – are the bane of eBay, as they turn an interesting bazaar into a boring and predictable MegaMall.
  • Remove the “all-you-can-eat” eBay stores (where you can list a large number of items for a set fee) would encourage sellers to “price to sell”, rather than the current “throw-a-thousand-against-the-wall-and-see-what-sticks” model.
  • Get rid of the banner ads. eBay has gone through many redesigns in order to make best use of the space available. But they keep holding on to the banner ads – and some of the worst-of-breed at that. In the past those ads have included the exceptionally odious “dancing baloney” ads of lowermybills.com and their ilk (the first “punch-the-monkey” ad I saw was on eBay). And I still see Classmates (who recently got sued when their “somebody is looking for you!” claim proved untrue) ads daily. Get rid of that crap. Please. It’s not like you need the money…
  • Leverage the user community to settle disputes. eBay has a really bad reputation for handling disputes. Instead, why not let the user community handle it? It would be easy enough to allow users in good standing to opt-in to a panel where they can be the “jury” in a dispute, and have eBay give them a credit for their time and a little logo that they can use. They could also police or report some of the more aggravating abuses that go on. Craigslist does something similar, allowing users to flag and remove bad listings. This would also allow them to reduce the cost of the joke that they call Customer Service.
  • Stop restricting payment methods. Ever since eBay acquired PayPal their universe has been contracting to the point that you can no longer accept a check or money order. If they could outlaw cash, the probably would. They have stubbornly resisted any real competition (Google Checkout is not allowed because it is “not secure”). eBay may recommend PayPal as their soup-to-nuts secure solution, but if the users agree to use a different payment method, eBay should not get in the way. They are, after all, only a venue. It’s about time they started acting like one…
  • Admit that PayPal is a bank. PayPal, for those who did not know, is the “online payments processor” that  looks like a bank, walks like a bank and quacks like a bank – but it ain’t a bank… cos that would mean having to obey laws and regulations that they would desperately rather avoid. It is time to put an end to this incestuous relationship and spin-off PayPal as the bank that it always has been.

Yes, the money-men will tell you that this represents a huge dent in cashflow, but the money-men don’t “get” what eBay was and has become. eBay has stopped being a fun place to visit; their top priority should be to get that “mojo” back.

Inflation

The first Wembley Stadium was completed in 1923, and cost £750,000 to build.
The second was completed in 2007, and cost £798,000,000.
That’s more than one thousand times as much.

Alan Rufus or Alain le Roux (“Alan the Red”) died in 1089 with an estimated wealth of £11,000, which made him the richest man in England and the 9th richest man in history (in those days, money actually meant something, think about it: eleven thousand pounds of silver…)

A pound in 1750 had more purchasing power than 150 in 2005

From Wikipedia:
“In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time… inflation is also a decline in the real value of money”

What causes inflation? “Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply”.
In other words, inflation is caused by printing too much money.
This makes the existing pool of notes worth less.
The dollar has lost over 90% of its value in the past 100 years this way.

Or, to put another way:

The Dollar is the new dime

The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring permanent ruin. But both are the refuge of political and economic opportunists” Ernest Hemingway