Comment Of The Day, Rebuttal #2: “Morning Ethics Warm-Up, 4/4/2018:…A Presidential High Crime…”

This is the second rebuttal to my criticism of the President’s effort to use his influence and power to harm Amazon. I’m very impressed with it, but I have to give a rationalizations alert, for there are several evoked here, including, a few versions of #1, Everybody does it,” #2 A. Sicilian Ethics, or “They had it coming,” #3. Consequentialism, or  “It Worked Out for the Best” #39. The Pioneer’s Lament, or “Why should [He] be the first?,” #45. The Unethical Precedent, or “It’s Not The First Time,” and probably others.

Here is Greg’s Comment of the Day on the #2 in “Morning Ethics Warm-Up, 4/4/2018: Baseball Lies, A Presidential High Crime, And A Judge Makes A Panty Raid”:

There is nothing wrong, much less anything impeachable, about the President making valid, policy-based attacks that target specific companies, even though the attacks may “suppress the companies’ stock values.” Attacks on Standard Oil were justified, even though stockholders in Standard Oil may have suffered. Trump’s comments about Amazon are fair. In any case, there is no reason to think that his remarks were intended to drive down Amazon’s stock price and very little reason to think that they will cause any particular harm to Amazon or its stock.

Trump’s recent tweets have made three points about Amazon, all of which he has made many times before: (1) Amazon benefits from a sales tax loophole that unfairly costs states money and disadvantages brick-and-mortar retailers, (2) Jeff Bezos uses the Washington Post to lobby for the continuation of this advantage and (3) the US Postal Service undercharges Amazon and should negotiate higher rates.

Trump has been making the first two points since at least 2015. He made them repeatedly during his campaign in tweets, in interviews and in speeches. Here’s the earliest reference that I found: https://www.washingtonpost.com/news/the-fix/wp/2015/12/07/donald-trump-called-out-jeff-bezos-on-twitter-then-bezos-called-his-bluff/?utm_term=.8573b4279b6d.

Trump has continued to make both points since he became president. Here’s just one example: https://www.bloomberg.com/news/articles/2017-08-17/trump-s-bruising-tweet-highlights-amazon-s-lingering-tax-fight. His Treasury Department has been studying the sales tax issue for over a year, http://thehill.com/policy/finance/343972-mnuchin-trump-administration-is-examining-online-sales-tax-issue, and his Justice Department last month filed an amicus brief in South Dakota v. Wayfair, a case currently before the Supreme Court, arguing that the Court should close the sales tax loophole that benefits Amazon and other online retailers.

Trump has been making the third point (about USPS rates) since at least December last year. http://fortune.com/2017/12/29/trump-amazon-post-office.

None of those previous statements and actions by Trump and his administration caused Amazon’s stock price to fall. Trump could not have expected that thisweek’s tweets, repeating exactly the same points that he has made many times before, would have any effect on Amazon’s stock price.

Moreover, Trump’s tweets haven’t made any threats against Amazon and he doesn’t seem to have any intention of taking any unilateral action to hurt Amazon. To the extent that his tweets may have affected Amazon’s stock price, they most likely did that by drawing investors’ attention belatedly to genuine issues regarding Amazon’s business model, in particular the possibilities that the Supreme Court might actually close Amazon’s sales tax loophole and that the USPS might actually negotiate a better deal with Amazon. If his tweets have pointed out concerns that investors previously hadn’t given proper weight, then he has done a valuable service for the markets. If these concerns turn out to be unjustified, then Amazon’s stock price will soon recover and Trump’s tweets will have done no harm.

But it’s not even clear that his tweets have been responsible at all for Amazon’s stock fluctuations. Stocks in the tech sector have fallen dramatically in the past month. Amazon’s stock hasn’t fallen more than the sector in general over that period. Online retailers have been hit particularly hard, but Amazon’s stock has fallen much less than other online retailers. Overstock, for example, has fallen more than 40% in the past month compared to less than 8% for Amazon.

It has pleased Jeff Bezos and Trump’s enemies to claim that Trump’s positions on sales taxes and USPS rates are motivated by his hatred of the Washington Post, and Trump, as is his wont, has personalized the issue by attacking Bezos by name. But there’s no evidence that personal animus rather than policy beliefs are his motivation. The Washington Post article that I linked to, written after his first three tweets about Amazon in 2015, noted that, “The first three tweets seem to come out of nowhere. There appears to be no obvious provocation from The Post or Bezos — or any sort of story that would set Trump off.” And it is not true that Trump has been just Bezos-bashing. He has given valid reasons for his positions on these issues, and those reasons are consistent with the broader themes that he has consistently struck since he started running for president.

(1) Regarding the sales tax issue, Trump has claimed that the current sales tax loophole costs local and state governments money and harms local, brick-and-mortar retailers. This is consistent with his larger theme that local heartland businesses are being destroyed by ill-conceived policies that benefit a handful of coastal elites. In his campaign rallies, he used Amazon as only one of his many examples of how this is being done.

And Trump’s claims are true. There is no question that the current sales tax loophole costs local and state governments significant tax revenue. The GAO has estimated the lost revenues at $8 billion to $13 billion. https://www.gao.gov/assets/690/688437.pdf. The state and local governments affected by the loophole certainly think that the amounts involved are significant. Amicus briefs agreeing with Trump’s position were filed in the Wayfair case by 41 states, two territories and the District of Columbia; by the Multistate Tax Commission and the Federal of Tax Administrators, which collectively represent all 50 states, the District of Columbia and the cities of New York and Philadelphia; and by many other organizations representing state and local government officials and employees, including the National Governors Association, National Conference of State Legislatures, Council of State Governments, National Association of Counties, National League of Cities, US Conference of Mayors, International City/County Management Association, International Municipal Lawyers Association, Government Finance Officers Association, National Public Labor Relations Association, International Public Management Association for Human Resources, National Association of State Treasurers, National School Boards Association, School Superintendents Association, National Association of Elementary School Principal and Association of School Business Officials.

There is also no question that the current sales tax loophole disadvantages local, brick-and-mortar retailers, and at least some experts agree with Trump that the disadvantage is significant. http://www.nber.org/papers/w20052. The retailers themselves certainly think so. Dozens of retailers and trade associations have filed amicus briefs agreeing with Trump.

In fact, the sales tax issue is one that, until Trump began pushing it, had been more a Democratic issue than a Republican one. The Wall Street Journal has been vocal for many years in support of the loophole, as have other conservative organs. Several bills have been introduced in Congress to revoke the loophole, but they consistently have been shelved by the votes of Republicans, joined by Democrats from states that do not charge sales taxes.

If the Supreme Court rules in favor of closing Amazon’s loophole (as I think is likely, given various remarks that certain justices, particularly Kennedy and Gorsuch, have made about the relevant precedents) and Trump’s tweets forestall Congress from yielding to the inevitable, intensive lobbying effort by Amazon to reinstate it, then Trump will have done the country a service.

(2) Trump claims that Bezos uses the Washington Post to lobby Congress and regulators. Who can deny that? Of course, that’s what Bezos uses it for. It loses money. He didn’t buy it as an investment in its own right. He bought it so he could make his voice heard in DC.

I’ve never agreed with Jack that it’s always wrong for a President to “punch down” at a private citizen. I think it’s often appropriate for the President to call out malefactors by name. And when a “private citizen” happens to be the world’s richest man and own the world’s first- or second-most influential newspaper, I think “punching down” is scarcely a fair description. Was Teddy Roosevelt “punching down” at John D. Rockefeller?

Personally, I think Trump’s use of Bezos has been rather well-calculated. The “3-D chess” explanation of why he keeps attacking Bezos by name goes like this: Heartland retailers are suffering at the hands of online retailers. One reason is that online retailers have an unfair tax advantage. The ethical and fair thing to do would be to eliminate the tax loophole. But any proposal to do so will be countered by opponents who will tell voters that “Trump is trying to make you pay more for your purchases from Amazon.” The rational, policy-centered answer to this argument is that local and state governments need to raise taxes somehow and if voters don’t pay sales taxes on their purchases from Amazon, they will just have to pay the same amount of taxes in some other way, either by raising sales taxes even higher for brick-and-mortar retailers or by raising other taxes. But that statement has no emotional resonance at all and, though true, will fall completely flat with voters. The answer that will resonate emotionally with voters is that “Jeff Bezos is an arrogant, spoiled jackass who shaves his head and stuffs his pockets with money that ought to be going to the states, local school boards and local mom-and-pop retailers.” This statement is also true and, unlike the policy-centered answer, might actually persuade voters to support the wise policy of closing the tax loophole.

(3) Trump claims that the USPS can and should negotiate higher rates with Amazon. This is consistent with his larger theme that he is the president who is best qualified to negotiate better deals with everybody about everything. Trump is unquestionably right that the USPS should negotiate the most favorable rates that it can get, and if he is also right that the current deal with Amazon is lousy, then the USPS should certainly try to negotiate a better one. I don’t know whether he’s right or not, but experience suggests that the USPS is probably not as good at negotiations as its for-profit competitors such as UPS and Fed Ex. (If you read Trump’s tweets and his spoken remarks, you’ll notice that his complaints about postal rates have been couched as attacks on the USPS’s leadership for being lousy negotiators, not just as attacks on Amazon for getting a great deal — just as his attacks on the Chinese trade deal have been couched as attacks on Obama for negotiating a lousy deal, coupled with grudging admiration of the Chinese for being such superior negotiators.) And in fact, at least one stock market analyst who follows the shipping industry has estimated that the USPS charges Amazon only half as much per package as UPS and Fed Ex do. http://fortune.com/2017/12/29/trump-amazon-post-office/. I don’t know whether that’s because the USPS has negotiated a worse deal than UPS and Fed Ex or because the USPS provides worse service. But if the President can use his influence to negotiate better rates for the USPS, thus eliminating a de facto subsidy of Amazon by the USPS, that would save money for American taxpayers, decrease another unfair advantage that Amazon has gained over brick-and-mortar retailers, and be an entirely a proper use of his office.

9 Comments

Filed under Business & Commercial, Comment of the Day, Ethics Alarms Award Nominee, Government & Politics, Leadership

9 responses to “Comment Of The Day, Rebuttal #2: “Morning Ethics Warm-Up, 4/4/2018:…A Presidential High Crime…”

  1. Chris Marschner

    Very much enjoyed reading this. It should also be pointed out that the USPS partners with both Fedex and UPS to deliver last mile delivery in a revenue sharing model. This model shifts the highest costs of delivery onto the USPS.

  2. Rusty Rebar

    (1) Amazon benefits from a sales tax loophole that unfairly costs states money and disadvantages brick-and-mortar retailers,

    I am under the impression that a sales tax is ostensibly a tax on businesses that have some sort of infrastructure within the state. For example, to contribute to the use of roads / bridges its many customers will likely use on their way to the establishment. It has to do with having a “locus” within a specific territory (typically a state, but some cities have sales taxes as well). This is why I do not pay New York sales taxes on items I buy in California — even if they are made in New York. This is true of Amazon, just as it is true of Walmart.

    When these companies do have facilities that are involved in the transaction (for example a warehouse in California), then I do have to pay sales taxes on those items.

    So, it really does not seem like a “loophole”, unless you consider a crosswalk a j-walking loophole.

    (2) Jeff Bezos uses the Washington Post to lobby for the continuation of this advantage and (3) the US Postal Service undercharges Amazon and should negotiate higher rates.

    It is really hard to argue with this point.

    (3) the US Postal Service undercharges Amazon and should negotiate higher rates.

    If the USPS is not meeting it’s cost with package delivery then either they need to raise their prices, or we all need to accept that they are delivering at a loss as a public benefit. Police and Fire departments do not run a profit, but we find the service to be useful so are accepting of the fact that they are subsidized. Going off on a single company for using a service that they are encouraged to use is pointless.

    • Chris Marschner

      Rusty,
      Sales taxes collected in states where the firm has infrastructure is not because it is to contribute to roads but because it has legal dominion over all persons and entities in the state. Many states including Maryland have a law that requires citizens buying items out of state to pay any difference in taxes. Virtually no one abides by this unenforceable law. Sales taxes are part of the total revenue a state appropriates from its citizens and visitors and is fungible. None of it is dedicated to roads or other infrastructure. In fact it is probable that the developer of commercial property was required to pay an impact fee to the locality to cover access roads, water & sewer capacity increases, etc.

      If I operate an enterprise that is totally virtual and all sales are consumated via the we such that I sell software that buyers order online and I deliver via download I am required to collect and pay sales tax to Maryland for items delivered to buyers in MD but not other states. There is no store, no roads, no bridges or any other marginal cost of my activity.

      Firms the size of Amazon do not need physical operations in every state as would a typical retailer seeking share in new markets. As a result, they have a significant advantage over brick and mortar stores that is unrelated to efficiency gains through economies of scale or techonology employed.

      I have no problem with a subsidized postal service that is not trying to compete directly with for profit taxable entities.

      • Chris Marschner

        I should point out that ALL online retailers have this sales tax loophole, not just Amazon.

      • I’ve been paying my state’s sales tax on Amazon purchases for like a decade. It was particularly annoying as they changes shortly after I lost a job and that extra few percent meant more ramen. I just checked an archived order from 2012 and they’d collected state sales tax, maybe it was phased in earlier on a state by state basis. Most other businesses started to around the same time, even if it was crossing state lines. I didn’t know it WASN’T universal until I heard this griping.

    • “When these companies do have facilities that are involved in the transaction (for example a warehouse in California), then I do have to pay sales taxes on those items.”

      Speaking strictly from foreign expertise, I doubt this is true. I’m not going to completely reject the possibility, because American tax law is ridiculously fractured and complex, even compared to a ridiculously complex Canadian tax law…. But generally, the sales taxes applied to a transaction are the taxes where the transaction is deemed to have taken place*, and that decision can hinge on any of a number of factors, but most commonly it is determined by where the customer takes possession of the purchase, and that is most commonly determined by whether the vendor or the purchaser paid the freight. Like I said… I won’t say that I know you’re wrong, but I can’t even picture a scenario where the vendor merely having a warehouse in California would change the calculus of the transaction so that you would be on the hook for California’s sales taxes.

      *With a few exceptions, the most common being big ticket, easy to move or transport items, like vehicles.

  3. Given the way government squanders my tax dollars, I don’t see that they have a right to tax online purchases just because I live in their state. The get the taxes from the business that reside within their jurisdiction. More that that is a money grab to pad the pockets of the Establishment politicians and their cronies.

  4. JutGory

    Public service announcement: we are talking about the “use tax.” Sales tax covers what I pay for sales by someone that has a presence in my state. If there is no sales tax, I have to pay a use tax for things I buy from out of state. Individuals are rarely, if ever, audited to see if they paid it. However, my company was audited once. They wanted to see 3 years of transactions. If something was bought out of state, they wanted to see if we paid sales tax on it; of course, it was our burden to show that we did; if we did not have an invoice, or could not explain the transaction, they wanted to tax it. They wanted to tax us on several hundred dollars for several purchases until I was able to recall and explain that the transactions were purchases of stamps from the post office across the street for our Christmas cards. Many, many, many hours were wasted and, in the end, we paid taxes, penalties and interest of about $700.00. Some of that may have actually been owed (I seem to recall an invoice where we paid sales tax that was 2% lower than our sales tax amount, meaning we had to pay a 2% use tax on that $80.00 purchase.
    -Jut

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