The Tax Foundation Can't Win for Losing

Even when I somewhat agree with the Tax Foundation, I am somewhat astonished by their cavalier abuse of the facts. Case in point: The recent post Is Maryland Gambling on Gambling to Balance the Budget?

I agree with the Tax Foundation that funding government via a state operated gambling operation is poor tax policy. My primary objection is that the revenue garnered through gaming operations is, in effect, a regressive form of tax. However, I would not say, as the Tax Foundation does (quoting an article from the Lottery Post),that:

The lottery's diminishing contribution to the state budget is one of many reasons why Maryland is facing nearly $8 billion in deficits over the next five years, analysts say.

That's a great point. It is, alas, basically not true. In the last six fiscal years, the gross revenue and net revenue (after expenses) from the lottery to Maryland's treasury were as follows:

Year	Gross Sales	Net Revenue
2001	$1.2 Billion	$407 Million
2002	$1.3 Billion	$443 Million
2003	$1.32 Billion	$445 Million
2004	$1.395 Billion	$458 Million
2005	$1.485 Billion	$477 Million
2006	$1.561 Billion	$501 Million

Source: The Maryland Lottery Agency.

As shown in the above table, the total net revenues over the six year period from the lottery increased by about 25%. Maryland State's expenditures over that period increased by less than 29%, that is, a percentage that is only slightly more than percentage growth of the lottery. Thus, while it is literally true that the lottery's contribution to the state budget has been "diminishing," neither the rate nor amount of decline could be said to materially contribute to a looming $8 billion budgetary shortfall (in a budget that, in FY 2006, was slightly less than $26 billion). (Note: The shortfall is projected over a 5 year period. My back of the envelope estimation tells me that the shortfall will be about 6% of the budget. That's a problem, but hardly a catastrophe.)

Note to The Tax Foundation: Even good arguments are undermined when their proponents substitute truthiness for truth.

Net Neutrality

Net neutrality explained:



Misleading mumbo jumbo on net neutrality:



If you still can't figure out what net neutrality is all about, follow the Ninja:

America's Pastime

Apparently the Boston Red Sox will, on their own, cause approximately a 0.1% increase in the U.S. trade deficit in the month of December.

In October, the U.S. trade deficit was $58.9 billion. The $51.11 million that the Red Sox have to pay to the Seibu Lions by December 21 for for negotiating rights to Japanese pitching ace Daisuke Matsuzaka will therefore constitute a measurable portion of the December deficit if the December figure is in approximately in the same range as the October amount.

Of course, the foregoing calculation does not include the bats, gloves, shoes, etc., that the Red Sox and other Major League teams will purchase from offshore suppliers.

Update

A commentator pointed to a discussion in The Hard Times which stated that:

Okay, no one is going to bid $51 million to negotiate with a player just because they think he’s good. Obviously, the Red Sox expect that signing Matsuzaka will give them marketing inroads in Japan, and make them a lot of money in the Far East. How much can they expect to make?

I’ll start off by saying that I have no idea, but we can still try to generate an estimate. There have been two situations in the past similar to this one: The Mariners’ signing of Ichiro Suzuki and the Yankees’ signing of Hideki Matsui. Why not examine how much money they made from that?

Unfortunately, there are no direct numbers on the teams’ revenues in Japan, so the only estimate we can make is going to be based off indirect evidence. Using Forbes reports on team revenues for the past seven years, here is what I found:

* In 2001, Ichiro’s rookie season, the Mariners made $27 million more than they had the previous year. The five teams closest to Seattle in revenues in 2000 increased their income by an average of just $6 million.

* In 2003, Matsui’s rookie season, the Yankees increased their revenues by $8 million. The five teams closest to the Yankees in 2002 revenues upped their earnings by an average of $4 million.

* Between 2000 and 2006, Seattle’s revenues have increased by $67 million. The five teams closest in revenues to Seattle in 2000 have seen their income increase by an average of $54 million.

* Between 2002 and 2006, the Yankees’ revenues have gone up $62 million, versus an average increase of $21 million for the five teams closest to them in revenues in ’02.

If average all of that together, we can estimate that signing a Japanese star player is worth something like $9 million a year. But wait, we’re not done. $9 million in 2001 is not the same as $9 million in 2007. Adjusting for inflation (in baseball, inflation has held at a pretty steady 10% a year), we find that the Red Sox should expect to see their revenues in 2007 to increase by about $14 million should they sign Matsuzaka. That’s a sizeable chunk of change.

In other words, by selling additional products, media rights, etc., back to Japan, the balance of trade flow moves in the other direction, back to the U.S.

I don't know enough about the overall economics of baseball to tell whether the Matsuzaka deal is good or bad. However, I still think that its overall effects on the balance of trade are likely to be negative.

Presence

The case of Tax Commissioner of West Virginia v. MBNA America Bank, N.A. is a very big deal. In that case, the Supreme Court of West Virginia held that the state could impose a corporate income tax on MBNA even though MBNA had no physical presence in West Virginia.

A state cannot impose a tax on a business engaged in interstate commerce unless, inter alia, the business has a substantial nexus with the state. In the sales tax area, in Quill Corp. v. North Dakota, the U.S. Supreme Court has held that there is such nexus only when the seller of taxable goods or services has a physical presence in the state attempting to impose the tax. The question remains open, however, whether substantial nexus sufficient to support the imposition of income tax requires the physical presence of the taxpayer.

In MBNA, the West Virginia Supreme Court held that the actual physical presence of a taxpayer was not required to allow the state to impose income tax. The money quote is the antithesis of the doctrine of original intent:

[P]rior to concluding, we simply wish to acknowledge the great challenge in applying the Commerce Clause to the ever-evolving practices of the marketplace. James Madison, Benjamin Franklin, and the other Framers at the Constitutional Convention who adopted the Commerce Clause lived in a world that is impossible for people living today to imagine. The Framers' concept of commerce consisted of goods transported in horse-drawn, wooden-wheeled wagons or ships with sails. They lived in a world with no electricity, no indoor plumbing, no automobiles, no paved roads, no airplanes, no telephones, no televisions, no computers, no plastic credit cards, no recorded music, and no iPods. Likewise, it would have been impossible for the Framers to imagine our world. When they fashioned the Commerce Clause, they could not possibly have foreseen the complex and varied ways that commerce is conducted today, especially via the internet and electronic commerce. It would be nonsense to suggest that they could foresee or fathom a time in which a person's telephone call to his or her local credit card company would be routinely answered by a person in Bombay, India, or that a consumer could purchase virtually any product on a computer with the click of a mouse without leaving home. This recognition of the staggering evolution in commerce from the Framers' time up through today suggests to this Court that in applying the Commerce Clause we must eschew rigid and mechanical legal formulas in favor of a fresh application of Commerce Clause principles tempered with healthy doses of fairness and common sense. This is what we have attempted to do herein.

Since I represent clients in this area, I will not offer any editorial comment on the West Virginia opinion. I would note, however, that the Court's holding is diametrically opposite to the holding of an intermediate appellate court that considered the same issue and was presented with essentially the same facts. See J.C. Penney Nat'l Bank v. Johnson, 19 S.W.3d 831 (Tenn.Ct.App. 1999). My guess is that this case will either go to the Supreme Court or it will set off a chain reaction of tax litigation in other states that will ultimately have to be resolved by the Supreme Court.

Hat Tip: The Tax Foundation's Tax Policy Blog which criticizes the MBNA opinion.

Why Bloggers Are Not Enough

Today, the Baltimore Sun published an article on statutory ground rents, a form of real estate interest little-known outside of the Baltimore area. The thrust of the article was that, as real estate prices in Baltimore City have risen, there has been a dramatic increase in homeowners being ejected from their property due to delinquencies in their payment of ground rents.

I am not certain that the situation is as much of a public policy problem as the article contends. However, the article sheds some light on the continued need for and vitality of newspapers. It also shows how newspapers can produce an important product in the age of cyber information.

As to the first point, the article online omits a sidebar that was presented in the print version of the paper. That sidebar gave some background on the manner as to how the article was prepared. It is obvious that the Sun put substantial resources into the piece. I would ask anyone who contends that blogs could displace newspapers as a primary source of news whether any blog could muster the resources necessary to research and write a similar article.

As to the second point, it is of some interest that the article was designed with web-multimedia in mind. In addition to the text that appeared in the print version, on the web there are two video presentations and two audio presentations. It appears that the Sun understands that it can't limit itself to producing a print product.

Finally, it is worthy of some note that the subject of article is inherently local. At one time, the Sun was truly a national newspaper. That is no longer the case because it can't compete with WaPo, the NYT, the WSJ, the LAT, etc. However, there is still important work to do locally and it's comforting to see that the Sun remains committed to covering local stories in a serious way. Of course, it remains an open question as to whether papers such as the Sun can make money with this more narrow focus.

New Blog In Town

I am pleased to announce the creation of a new weblog, Maryland Courts Watcher, that I will edit along with a number of other people.

Maryland Courts Watcher will post synopses of all formal opinions issued by the Court of Appeals and Court of Special Appeals of Maryland and synopses of selected opinions from other courts in Maryland. It will not contain any editorial comment, but will link to commentary posted on other blogs.

The blog is designed both to alert readers to new developments in Maryland courts that they may be interested in and to also provide a research tool outside of the commercial services. Thus, all postings can be searched through a Google custom search and each entry has subject tags.

He is the Walrus

The following headnote is from Judge Charles Moylan's opinion in the case of Nils, LLC v. Antezana:

Confessed Judgment - Purchase of Residential Property - The Provisions for Payment - Partial Defaults of Payment - The Attorneys' Negotiations - The Confessed Judgment Notes - Confessed Judgment - The Allocation of the Burden of Proof - What is a Meritorious Defense? A Question of Law for the Court - A Meritorious Defense to What? - The Antecedent Debt - Section 14-1315 Applies - Late Fees - Of Ships and Shoes and Sealing Wax . . .

(Emphasis added.)

The Front (Climate Not Warming Division)

Larry Ribstein has been carrying on a virtual one-man jihad against NYT's Gretchen Morgenson. (Start here and just work back.) I have absolutely no intention of getting caught in that crossfire. However, when he takes off as a defender of the "rights of corporate free speech," well, that's a little much.

The occasion was a letter written to Rex Tillerson, the CEO of ExxonMobil by Jay Rockefeller (D. W.Va.) and Olympia Snowe (R. ME). The letter attacked ExxonMobil's past efforts as a leader of the global warming deniers and the Senators urged Tillerson to lead ExxonMobil to:

end its dangerous support of the "deniers" . . . . [and] to guide ExxonMobil to capitalize on its significant resources and prominent industry position to assist this country in taking its appropriate leadership role in promoting the technological innovation necessary to address climate change and in fashioning a truly global solution to what is undeniably a global problem.

Ribstein cheered the WSJ editorial that characterized Rockefeller and Snowe as "bullies." According to Ribstein:

The letter doesn't threaten explicitly. But if a 300 pound bouncer is standing over you and asking you pretty please to stop, no explicit threats are really necessary. These are two prominent senators and, as the WSJ editorial points out, there's any number of things the government can do to a corporation.

A few points:

First, Rockefeller and Snowe are not the "government." They are two senators, one from each side of the aisle. Thus, their actions differ significantly from, for instance, the last six years of Rove-lead shakedown of corporate interests to fund the partisan advantage of the Republican party. (An effort, by the way, that the WSJ editorial board joined in as cheerleader-in-chief.)

Second, ExxonMobil does not attempt to speak to these public issues directly. Rather, it hides behind front groups that it funds lavishly.

Third, ExxonMobil does not fund science. It funds pseudo-science designed to advance its short-term economic interests at the expense of the commonwealth. Between 1998 and 2005, it gave over $2 Million to the Competitive Enterprise Institute ("CEI"), a right-wing think tank. See here. Further, according to Rockefeller and Snowe:

A study to be released in November by an American scientific group will expose ExxonMobil as the primary funder of no fewer than 29 climate change denial front groups in 2004 alone. Besides a shared goal, these groups often featured common staffs and board members. The study will estimate that ExxonMobil has spent more than $19 million since the late 1990s on a strategy of "information laundering," or enabling a small number of professional skeptics working through scientific-sounding organizations to funnel their viewpoints through non-peer-reviewed websites such as Tech Central Station.

It is a false analogy to compare, as the WSJ editorial does, ExxonMobil's and CEI's efforts to those of "the Pew Charitable Trusts, the Sierra Club, [and] Environmental Defense [sic]." These organizations have no predetermined economic interest in taking one side or the other in any scientific dispute. Obviously, that is not the case with respect to ExxonMobil. The recipients of its largess are intended to merely mouth the party-line.

Senators Rockefeller and Snowe have it precisely right:

ExxonMobil and its partners in denial have manufactured controversy, sown doubt, and impeded progress with strategies all-too reminiscent of those used by the tobacco industry for so many years.

And, one could add, all-too reminiscent of those used by the lead mining industry, the asbestos industry, etc.

Let's be candid here: ExxonMobil is not funding the "other side" in some spirited and free scientific debate. Rather, ExxonMobil is engaged, as the Senators say, in a campaign of misinformation designed to support its narrow economic interests.

In an amicus brief in the case of Commonwealth of Massachusetts v.EPA, climate scientists David Battisti, William E. Easterling, Christopher Field, Inez Fung, James E. Hansen, John Harte, Eugenia Kalnay, Daniel Kirk-Davidoff, Pamela A. Matson, James C. McWilliams, Mario J. Molina, Jonathan T. Overpeck, F. Sherwood Rowland, Joellen L. Russell, Scott R. Saleska, Edward Sarachik, John M. Wallace, and Steven C. Wofsy, stated that:

The evidence of . . . changes [such as rising global temperatures, the shifting of plant and animal ranges, the global retreat of glaciers, and the retreat of arctic sea ice, with sea levels rising and oceans becoming more acidic], though attended by the uncertainty or caveats that appropriately accompany scientific knowledge, is nonetheless so compelling that it has crystallized a remarkable consensus within the scientific community: climate warming is happening, and human activities are very likely a significant causal factor. The nature of this consensus may be obscured in a public debate that sometimes equates consensus with unanimity or complete certainty.

To be blunt, large corporate interests are simply too well-heeled to allow them to have free rein in their efforts to influence the public debate, camouflaged by front groups. As we've seen with tobacco, lead, asbestos, auto design, and in so many other cases, the outcome of allowing this "corporate free speech" is all too often massive injury, sickness, and death.