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The Political Polarization Index

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The Philadelphia Fed recently  released a report that illustrates the “political polarization index”. The report is a working paper presented by Marina Azzimonti and the index is intended to quantify the divide between the Republican and Democratic parties  at different points in time from 1981 to 2013.

This is a startling chart that tells the whole story and should be viewed by every US taxpayer.  A high reading indicates maximum polarization.  We would expect that this phenomenon would naturally occur during election season and may even be considered a healthy process.  Not so, when our leaders are charged with working with one another to solve critical problems.  This graph confirms the dysfunction but also highlights the  constant upward trend of this divide – literally off the page.

Conversely, look at the drop in polarization (inflection points) at crises times:  9/11, the Iraq invasion and during the financial upheaval between 2007 – 2009.

A picture tells a thousand words.

Get Ready for: Marketplace Fairness Act of 2013

Most states impose a sales tax on certain goods and services.  For example, if you live in a state that has a 6% sales tax on clothing, you would expect that the price charged would increase by  6% at the register, when you pay for clothing purchases.  Sounds simple and straightforward.

A state can only charge tax to purchases within that state’s borders and ONLY require businesses to collect the tax if that business maintains as physical presence in that state (commonly referred to as “nexus”).  A typical scenario is that of a retail store based in the state that charges sales tax to anyone who comes into the store to make a purchase.  Okay, still simple.

The complication arises when a consumer  makes a purchase in a state that does not charge sales tax OR  places an order online from a business that does not maintain a physical presence in the state.  The business does not charge sales tax so it sells the items at a “discount”.

The state then requires the purchaser (who lives within its borders) to pay the sales tax to the state, directly – only it is then referred to as “use tax”.  So if you live in a state that charges sales tax, but you are not charged the tax, you are required to remit it directly to the state (say $6 on $100 of clothes purchases, in the example).

The upshot is that online retailers are not obligated to collect and remit the sales tax in most states and consumers rarely remit the use tax.  States are losing a lot of revenue.  Worse, the consumer has every incentive to order online at a cheaper price, if they do not intend to remit the use tax consequently, the “mom and pop” shops are at a pricing disadvantage.

Thus the need for the Marketplace Fairness Act of 2013, which seeks to put the online retailers on equal footing with “bricks and mortar” shops.  The basic provisions of the law is that the online/catalog retailers must participate in a “simplified” sales tax reporting, collection and remittance system.

The appeal of this tax is clear to anyone who wants to protect the smaller shops in their local town.  Typically, an older taxpayer can appreciate this.  However, overwhelmingly, younger consumers (under age 50) reject this tax, as it “feels” like a tax increase.  In fact, the tax was there all along and if sales tax is not paid at the time of sale, the consumer has always been required to remit the use tax to the state – on the honor system.  Most states even have a line for you to claim the unpaid tax on your income tax return.  To omit this is could subject the taxpayer to the tax,  penalties and interest.

Stay tuned for the inevitable debate on this.  Perhaps the Republicans, traditionally against high taxes, will score a “win” with younger voters by fighting this bill.  Ironically, this legislation started out with great popularity, in the quest for “marketplace fairness”.  Now, many taxpayers see “fairness” in a different light.