Category Archives: Corruption

Tesla Whines About Protectionist Legislation for Auto Dealers While Using Government Largesse to Compete

Last week, I wrote about rent seeking auto dealers lobbying for protection from competition with manufacturers utilizing direct-to-consumer sales models. I mentioned direct-to-consumer manufacturer Tesla by name, and suggested such legislation would prevent consumers from enjoying the savings that might otherwise be realized from Tesla’s efforts to “eliminate the middle-man.”

I should have taken the opportunity to address Tesla’s own abundant receipt of government largesse.

And to be clear, “government” largesse is always paid for by the taxpayers.

In a piece entitled “If Tesla Would Stop Selling Cars, We’d All Save Some Money,” Forbes contributor Patrick Michaels details all the ways Tesla benefits from government handouts. Michaels concludes that taxpayers shell out $10,000 for every car Tesla sells.

Michaels starts with a claim that purchasers of Tesla vehicles receive a $7500 “taxback bonus that every buyer gets and every taxpayer pays.” Since the tax credit appears to be non-refundable, I would not count it as a cost to other taxpayers, as Michaels does.

But the federal tax credit is only the tip of the crony capitalist iceberg for Tesla.

There are also generous state subsidies paid by taxpayers to the wealthy people who buy Tesla’s expensive vehicles. Purchasers in Illinois, for example, can receive a $4,000 rebate from that state’s “Alternate Fuels Fund,” a $3,000 rebate to offset the cost of electric charging stations, and reduced registration fees. California likewise offers a long list of rebates and subsidies to buyers of electric vehicles.

One of the hidden costs to consumers comes in the form of the increased price tag on cars sold by manufacturers who do not qualify for California’s mandated emissions credits, which they instead have to buy from Tesla, allowing it to earn a profit despite selling cars at a massive loss. As Michaels explains:

Tesla didn’t generate a profit by selling sexy cars, but rather by selling sleazy emissions “credits,” mandated by the state of California’s electric vehicle requirements. The competition, like Honda, doesn’t have a mass market plug-in to meet the mandate and therefore must buy the credits from Tesla, the only company that does. The bill for last quarter was $68 million. Absent this shakedown of potential car buyers, Tesla would have lost $57 million, or $11,400 per car. As the company sold 5,000 cars in the quarter, though, $13,600 per car was paid by other manufacturers, who are going to pass at least some of that cost on to buyers of their products. Folks in the new car market are likely paying a bit more than simply the direct tax subsidy.

Slate’s Scott Woolley details another way in which Tesla has cost taxpayers money. In 2009, Tesla received a $465 million Department of Energy loan that allowed it to weather a financial maelstrom. Unlike Solyndra (and Abound Solar and Fisker Automotive and The Vehicle Production Group LLC), Tesla managed to repay the loan in 2013. According to Michaels, it did so by reporting its first ever quarterly profit (earned from the sale of the emissions credits), which sent its stock soaring and enabled it to borrow $150 million from Goldman Sachs, and then issuing a billion in new stock and long-term debt.

But Tesla paid the U.S. taxpayers back at a rate far below what venture capitalists would have earned on the same loan. As an example, Tesla’s CEO Elon Musk also made a loan to Tesla. Musk got a 10% interest rate and options to convert the debt to stock, which he did, resulting in a 3,500% rate of return on his investment.

In contrast, the U.S. taxpayer received a 2.6% rate of return.

In other words, in our crony capitalist system, taxpayers take the loss on bad loans like the one to Solyndra, but do not enjoy commensurate reward on good loans like the one to Tesla.

But there is still more. Tesla cannot keep earning emissions credits, which allow it to earn a profit despite selling its cars at a loss, unless it can keep selling those cars. Josh Harkinson, writing for Mother Jones, writes that:

Its first-quarter profit, a modest $11 million, hinged on the $68 million it earned selling clean-air credits under a California program that requires automakers to either produce a given number of zero-emission vehicles or satisfy the mandate in some other way. For the second quarter, Tesla announced a $26 million profit (based on one method of accounting), but again the profit hinged on $51 million in ZEV credits; by year’s end, these credit sales could net Tesla a whopping $250 million.

Tesla’s ability to continue selling the cars that earn the credits is in question. The market for $80,000 cars has a limited number of buyers. Tesla must expand its customer base with a more affordable product.

One way to achieve that would be to cut the vehicle’s range. But subsidies, credits and fuel savings notwithstanding, consumers have little taste for lower ranges—even at a much lower price. Another way for Tesla to lower the cost of its vehicles is to cut the cost of its batteries without sacrificing the range. As Harkinson observes:

That, however, may again depend on massive subsidies—in this case funding to battery researchers and manufacturers by the governments of Japan and China. Over the past five years, Japan’s New Energy and Industrial Technology Development Organization, a public-private partnership founded in 1980, has pumped roughly $400 million into developing advanced battery technologies. Tesla’s Panasonic cells also might be pricier if not for subsidies the company received to expand its battery plants in Kasai and Osaka.

When Republican Gov. Rick Snyder signed the bill reaffirming Michigan’s protectionist legislation for traditional automobile franchise dealers, auto blog Jalopnik reported GM’s position as follows:

“Competition is always healthy,” GM spokeswoman Heather Rosenker tells Jalopnik. “But it needs to be on a level playing field.”

In the context of the substantial aid Tesla receives from federal, state and foreign governments, it is easier to have some sympathy for the plight of traditional manufacturers—and their dealers.

Ultimately, that sympathy shines a spotlight on the problems created when government starts “tinkering” in the market. Inevitably, that initial, well-intentioned tinkering necessitates ever more intrusive secondary tinkering aimed at remediating the unintended side effects of its initial foray into the market.

Consider health care. Inflation in the cost of U.S. health care began to outpace the general rate of inflation when the government began subsidizing health care costs. Nobel laureate economist Milton Friedman has estimated that real per capita health spending is twice what it would be in the absence of third party payments, and that Medicare and Medicaid are responsible for 43% of that increase. The remaining portion can be blamed in large part on the third party payments from mandated employer health care coverage, further separating patients from the cost of their care and eliminating the market forces that would otherwise keep costs down. Add to the foregoing the government-enforced monopolies on health care education, leading to 22% fewer medical schools in the United States now than one hundred years ago, despite a 300% increase in population, and attendant provider shortage. All that well-intentioned tinkering created a whole host of ugly, unintended side effects, necessitating more tinkering. The federal government responded with the Affordable Care Act and its accompanying thousands of pages of new regulations.

Everywhere the pattern repeats. The cost of higher education outpaces general inflation precisely because the government wants to help people pay for it. The unintended side effect is increasing numbers of graduates with useless degrees and few job prospects, necessitating further tinkering in the form of loan relief, jobs programs and minimum wage hikes. The Federal Reserve suppresses interest rates to artificial lows in the well-intended effort to speed recovery from the bust of the dot-com bubble. The unintended (in this case, it may actually have been intended, at least by Paul Krugman) side effect is a new bubble in housing. When that bubble bursts, the government must step in to bail people and banks out of their bad investments, create new bureaucracies and new regulations making it harder for people to qualify for loans (in contrast to previous tinkering designed to make it easier).

Lather, rinse, repeat.

I am not a radical free-marketer because I dislike poor people or have a special love for corporations. I am a radical free marketer because I know no amount of tinkering ever produces results as beneficial as what the market produces, naturally and efficiently, all on its own.

Sarah Baker is a libertarian, attorney and writer. She lives in Montana with her daughter and a house full of pets.

Oregon’s GMO Labeling Measure Is Cronyism For Big Organic

 

 

freeandequal

Recently, I was sent a post that Free and Equal, a pro-Liberty organization that many Student libertarians take part working with,  stating that Labeling is important, and the “Evil corporations” are pouring money into preventing GMO-Labeling. They felt the need to explain themselves by saying that, it’s okay to donate money, but where it comes from is the problem. That Big Organic is just trying to help people, and GMO’s areevil. So the GMO Shill King decided to take time to tear this apart and explain the issue with libertarians supporting woo-filled amendments, which are tied to special interests.
While, it is public knowledge that No on measure 92 has raised almost double the money the Yes side has, and yes Monsanto, Dupont, and Syngenta have been some of the key donors to the No side, and Big Organic has funneled majority of the Funds into the the Yes side. Saying one side is evil and doesn’t want you to know, is not the correct argument, so let’s examine the text of Measure 92.
The first three really can be covered together, since they are exceptionally misleading. Polls have not consistently showed anything they very between 40-70%, not very accurate and consistent if you ask me, and are these people actually informed on the measure themselves, or the Science behind Genetic Modification?  Two, well what evidence do they have of health reasons, economic does not exist since GE’d foods are exceptionally cheaper than there “Certified Organic” counter-part, and what culture in the world says they need Food labeling — If you ask me that is exceptionally hyperbolic? Number Three is even more so misleading, when you bring Codex Alimentarius into this, an organization that holds no bearing in court but hopes to set international trade standards to help efficient trading in the globalized world, it is important to realize that even the “Book of Food” has said GMO’s have no evidence to claim they pose any health concerns, and that is why it should be left up to the countries. Every major NGO or Institute of science in a given country has spoken fiercely against these countries that require arbitrary labeling or an outright ban on Genetic Engineering, these bans have been political to support popular opinion rather than based on fact.

 

So, numbers 4-7 are screaming blatant lies. The FDA actually requires some of the strictest testing in the world on genetically altered foods, they also require several outside sources that are independent or in academia to peer review not only the studies the government does, but as well as the ones the corporations use say their product is safe. Saying there have not been studies done is an outright lie, unless these 1700+ Studies simply do not count. These studies have been in an international catalog for a long while now. So why do we keep hearing that they have not been tested, and we are the “guinea pigs”? When people include “mixing plant and animal” genes in a measure on a ballot, the only reference point that have was the Flavr Savr Tomato in 1996, this tomato had an anti-freezing gene added to it from a fish, it was labeled as such openly by the company, and it failed taste tests by consumers, after approved for sale, but left an allergen warning for those allergic to fish on it, and was pulled from shelves in early 1997. Other than that one instance no one has added anything that cannot naturally occur in nature to our food supply.
Number 6 on this measure actually has no evidence to support it whatsoever, not a single government scientist that has undergone any peer review of his studies to support this claim, has ever been able to show even a theory to support this claim. This is because it simply is not the case and people touting this as reasoning; do not understand how genetic engineering works. Number 7 is another that is simply not true, hundreds of tests are done independently anytime a new product wants to come to market, it is not illegal to independently test a given product, actually it has been encouraged.
Number 9, This is not about Kosher and Halal meats and food products; this is really just another random claim that actually does not exist. These are part of a completely separate issue and tying them to a genetic engineering bill is quite silly. It is not like someone is going to eat a piece of corn that was slathered in pork fat without them knowing. Genetic engineering does not work like that.

 

10 and 11 are like half-truth “findings”. They take things largely out of context, and use them to support a biased end. As a pro-market libertarian, using government to create barriers of entry is a wholly dishonest thing in itself. When using untrue statements to make that end possible and scare tactics to make the public panic to gain support is a bothersome thing indeed. Codex Alimentarius standards, which were adopted to the WTO, are the labeling requirements for international trade.  How it works is actually quite simple. If a country requires more than COO labeling, such as GM and Pesticide labeling, they send a sample off for independent study to determine if the Label the company is using is accurate. Then not only is the label the company used sent, but the independent verification as well. So when you hear it is a “voluntary” thing, it really is, you can voluntarily label and trade with nations that require labeling or not, it is not forced. The reason Big Organic and Big Biotech did not oppose these new additions is simple, Big Organic knows that very few countries require labeling on natural pesticides, mutagenically altered foods, or hybridization techniques, so in other words are safe from labeling other than COO. While the rest of the companies who use RNA interfered or Transgenicially altered foods can: A. avoid trade, B. Label them and independently prove they meet the countries said Threshold, or C. trade with countries without arbitrary labeling requirements.  The economic value of these products are unchanged on an international scale, so these findings are inherently false.

 

Numbers 16 and 17, The environmental harm findings of this measure are another exceptionally misleading piece as well.  It talks about soy being genetically engineered and then immediately following throws this crazy number at you “527 million pounds of additional herbicide” applied to the nations farmland, but it does not distinguish between organic farming and conventional, furthering the misinformation that only genetically engineered or conventionally grown foods use Herbicide. Herbicide resistance crops also result in low-tillage or no tillage, which has been noted to be actually more sustainable, and helps farmers from turning to the more environmentally dangerous herbicides. What Herbicide resistance actually does is it causes the plant to degrade the herbicide used and render it harmless. These two types are RoundupReady(Glyphosphate) and LibertyLink(Glufosinate), The transgenic alterations to these crops allows for farmers to choose when they need to spray, and gives the ability to control weeds through the whole season, and they have virtually no herbicide present in the take, which is an amazing feat of science.  Another misrepresentation of the problem is in regards to drinking water,  several studies have shown that what Glyphosphate and Glufosinate have replaced have actually helped resolve the issues of drinking water, since the lethal concentration of both is so incredibly high, compared to pyrethrins/rotenone(Used in Organic Farming) and Atrazine(what was used before Herbicide resistance crops), what little that doesn’t get absorbed into the soil and degraded into something harmless, what is present in the drinking water is virtually non-existent after undergoing water treatment. The argument could have been made that use near waterways, and damage possible to aquatic life from the run off could have been made, but restrictions are in place on levels that can be used near waterways on conventional farming, but not on organic.

It is hard to disagree with environmental issues, but by saying it is only half of the equation is the problem, and the other half is okay, is being intellectually dishonest.  When I see organizations that support freedom, transparency, and equality under the law, and only address half the spectrum to gain supporters, and disenfranchise the rest of a movement that has fought long and hard for real science and real transparency in government, only to be co-opted and used to support their brand of cronyism it is disheartening to say the least.

 

Section 3 is where the Cronyism begins, instead of the hyperbole and scare tactics used in the findings; this is why so much money has been poured into Measure 92. If you read this part of the measure you see that Big Organic exempts themselves from the regulations they want to place. We see this happen all the time, in politics yet here it is okay, but not in other areas? So how are they exempting themselves, well they do it subtly,  “Raw Food” was an issue in 2011, when Big Organic fought to science to sell almonds with cyanide in them, lethal doses of cyanide mind you.  The argument was when you were selling “Raw Almonds” pre-2011 you were actually selling almonds that have undergone RNA interference, this process actually suppressed the almonds production of cyanide, which made it safe for you to eat after a process of blanching or steaming the almond, to remove any extra bacteria(generally salmonella). When Big Organic won, they agreed to use PPO(propylene oxide) to coat and fumigate, which neutralize the cyanide. Since PPO is something that can be considered “Organic” since essentially ALL things are organic — remember back too high school chemistry. This allowed them to sell raw almonds, coated with poison, to consumers, and since this is organic it is not subject to any of the safety regulations for labeling or health concerns, or really anything.

I proposed this too my friends and followers on Facebook “Which would you prefer a Raw Organic Almond, which underwent Fumigation and is coated with an Herbicide known as PPO, to neutralize the Cyanide in Raw Almonds or a Genetically Modified Almond, which underwent RNA Interference to suppress the Cyanide, and does not need to undergo fumigation, but is steamed or blanched.” The answer was pretty straightforward “Organic obviously, because they care about people, and not profit, GMO’s are bad” with the few responses of my fellow science lovers “is this a serious question, The GMO obviously.” This showed me that a lot of misinformation is out there, people who do not understand how science works, they learn from sources like Food Babe, who have absolutely no credibility in the science community and are paid to spread scare tactics. Measure 92 is literally a proponent of the same thing.

Where the real concern is though, is 4.b.
(b) Methods of fusing cells beyond the taxonomic family that overcame natural physiological, reproductive, or recombination barriers, and that are not techniques used in traditional breeding and selection such as conjugation, transduction, and hybridization.

For purposes of this definition: “In vitro nucleic acid techniques” include, but are not limited to, recombinant DNA or RNA techniques that use vector systems; techniques involving the direct introduction into the organisms of hereditary materials prepared outside the organisms such as biolistics, microinjection, macro-injection, chemoporation, electroporation, microencapsulation, and liposome fusion.

This is Big Organic’s lovely exemption. This is the whole motive behind this ballot measure. It only targets half of the GMO’s and not the ones that are considered Organic. This is targeting Biotech companies, like the IRS targetednconservative and liberty groups, and it unacceptable.  While even Pure-Organic(no pesticides natural or synthetic, or CMS alterations) activists are against Big Organic on the issue.  When you read for the purpose of this definition, it misses literally ¾ of the geneticially modified foods.  When you have it so precisely defined, and leave out CMS altered seeds, which fall under “hybridization” Since they are cisgenically altered, and are considered cell cusion. The difference between Cisgenic and Transgenic is simple; Cisgenic means of the same species, Transgenic covers different biological families. Internationally hybridization is considered Genetic Engineering, and must follow the same guidelines for labeling. So why intentially leave it out on Measure 92, the motive is clear, it gives Big Organic an unfair advantage in the market, and allows for them to continue to spread lies about pesticides and GMO’s, when they themselves genetically modify in labs, just like the companies they are wanting to force to Label.
The definition is purposefully missing Mutagenisis(Process of using Radiation to force mutations in cell structure) which has zero guidelines or regulation in the United States, and no safety procedures before going to market, Cisgenics,  cell fusion hybridization, and several others. Which have no regulations, or testing before going to market, which this Measure blames on Biotech such as Monsanto, Syngenta, Dupont, and Dow Chemical, when in reality, the proponents of Measure 92 are the ones who are the culprits of these problems.
I have heard the argument of the “Right to Know” side, which there is a valid argument for. I absolutely think people should be able to know what is in their food. This measure does not do that, what it does is Unfair and Bias targeting of certain industries while exempting others from safety and health regulations. It continues the bias that “Evil Corporations” are poisoning you, but these billion corporations “are looking out for the people”. If we were to label, it would have to include all sides, and include pesticide toxicity and thresholds. While I would prefer private companies do this, If that is not an option then we must limit the cronyism attached to it, by not strictly attaching it to Biotechnology, but Big Ag as a whole.  Simply because the misinformation leading to ill-informed voting on a measure that does not protect them, or change anything, but aims to add more costs to the opposition, while leaving loopholes for the proponents is bad for the market, bad for America, and bad for consumers. The reason Big Organic exempts themselves from GMO labeling everytime legislation is proposed, is because well, if you read “Certified Organic” and “This product has undergone the process of Mutagenisis where it was put in radioactive enviroments to force mutations.” You would question what you were buying.

What measure 92 is doing is furthering the hyperbole, and destroying the market. There are plenty of reasons to not like Monsanto, or any other Big Ag group, this is not one of them, the motivation behind them funding “No on Measure 92” is them fighting an unfair market regulation, and hyperbole, any business would fight lies and giving another company and unfair advantage. If we want to attack the “Evil Corporations” let’s go to congress and fight agriculture subsidies,  and crony politics used to get them, on both sides of this measure.

When “Free and Equal” says “Big Money is not just an amount, but who is behind it.” When challenged about Big Organic pouring money into this measure as well.  The response is appalling, it essentially says “Big money is fine as long as it is the Cronies I support, not the ones you support” then add “For their own pocket and not the people” is very intellectually dishonest if you read the actual ballot measure. At least Free and Equal disclosed that they are sponsored by a proponent of Measure 92, but still if they support real freedom and equality under the law, they would still be actively against measure 92, since it goes against everything an organization that pushes government transparency and equality under the Law. I have been in this movement for over a decade, and am scared when I see it coopted by people who think “Big money is bad, crony capitalism is bad, but unless it looks like it is for people then it is good”  Which is essentially what Free and Equal said here.
They are exactly right though, it is important to examine the motive behind Big Money, because Measure 92, the money behind it, is very much against the consumer, against the market, and against half the industry. This measure is something conservatives, libertarians, and progressives can come together on the one thing we all agree on, crony capitalism is what is wrong with this Country, and we need to fight to end that. This measure shows exactly the problem with fear-mongering and scare tactics can do, and how easy it is to push something like this onto people with clear motives to target a certain group and create new barriers of entry and extra cost to the consumer.

If you believe in labeling or not, you should vote NO on Measure 92, because it isn’t a labeling bill, it is a targeted bill, and exempts Big Organic, if you want labeling lets work together and create a real labeling bill that is fair to the whole market—That’s only if you think it is a right to know what is in your food.

What’s that got to do with the price of whiskey in West Virginia

Sometimes it can be hard for people to grasp how government distortion of the free market actually impacts them, and why it’s such a corrosive and destructive force.

The whole issue is so big, and so pervasive, that people can’t relate to it, or focus on it, or see how it hurts them personally… at least until it does something like say, get them thrown in jail, or shuts down their business, or costs them their job; at which point the local news stories and the facebook posts and the buzzfeed and upworthy click bait flood out with sympathy for the individual story… but the larger issue is never addressed.

In this short post, consisting of nothing but some bare facts, Gizmodo illustrates the direct personal impact of the nanny state, rent seeking, regulatory capture, state sponsored monopolies, and regressive tax policies… all in one piece about whiskey:

GIZMODO: How Much a Bottle of Whiskey Costs in Every State

Alcoholic beverage sales in the United States are a nearly perfect example of government induced market distortion.

In many states (18 as of this writing), all liquor sales and pricing are exclusively controlled by the state. Some states (and many cities and towns) explicitly set the minimum price for which a bottle or a drink can be sold. In ALL states, there is relatively restrictive licensing to sell liquor (often extremely restrictive, and almost always politically controlled).

Additionally, most states require liquor retailers purchase their liquor either from the state directly, or from a strictly limited number of state licensed distributors.

This can extend to ridiculous extremes, such as Florida, where a recent reinterpretation of the law requires brew pubs to sell their product to a state licensed distributor, who then sell it back to them (both required to sell at a minimum price, and both paying taxes on the “sales” between each other, and THEN retail taxes on top) just so they can serve their own customers.

The states offer many rationales for these restrictive regulatory regimes, including reducing drinking, limited access to minors, reducing fraud and tax cheating…

…All of which have not only been ineffective, they have in fact generally had an impact opposite of their stated intent.

The REAL purpose behind this restrictive control, is of course the real purpose of most restrictive licensing and pricing schemes…

Power, Control, and Money

Retail, restaurant, and bar liquor licenses, in restrictive licensing areas; can sell for huge amounts of money, or can be subject to years of delays (or both); generally at the whim of politicians and bureaucrats .

These business owners, are mostly willing to play along with this scheme, because it limits their competition, and it increase the value of their business (which they can later sell for a very high price).

In fact, in some areas, local liquor license holders are allowed input (or even a veto) on whether a new business can obtain a liquor license, or whether (or to whom) a liquor license can be transferred.

Even if a license holder is opposed to restrictive licensing, they may have had to pay hundreds of thousands of dollars… even millions in some cities… to obtain their license (or to purchase a business that already had one, which is often the only way to get a license); so often they actively work against reform, because they don’t want to see the value of their investment plummet.

Liquor distribution can be even more lucrative, particularly with state granted near monopolies, and often state regulated minimum pricing; guaranteeing distributors little or no competition and huge profits.Some states go so far as to only license a handful of distributors for the entire state, or even license them exclusively within certain counties, municipalities or regions; giving them effective monopolies on all liquor sales in their areas.

Of course, as with anything of great value, the politicians and bureaucrats who control licensing, can get great benefit from granting them, allowing them to be transferred,  reducing the costs associated with obtaining them; or more destructively, for NOT granting a license to a potential competitor.

A few minutes talking with anyone in the hospitality trade, or anyone with an interest in government corruption, and you’ll hear endless stories of shakedowns, bribes, organized crime influence, naked influence peddling…

Liquor licensing is possibly the single most corrupt area of government in this country… and that’s really saying something.

And then there’s the taxes… oh the taxes…

Even if we ignore the inherently corrupt and corrupting issue of restrictive licensing,  the states (and for that matter federal government), derive considerable revenues from liquor sales.

In some states, there is both an excise tax on all alcohol sales, PLUS a “spirit tax” (charged per gallon of “spirituous liquor”), AND a separate (and much higher) sales tax on alcohol or spirits (beer, wine, and “spirituous liquors” are often taxed very differently).

In Washington state (the highest alcohol tax state, which has only recently decided to allow, in a very limited and restricted way, sales of liquor through some private retailers), the combined excise and spirit tax is $35.22 a gallon, PLUS a 20.5% sales tax on liquor (the national average is $5.33 per gallon, and most states do have a separate sales tax for spirits)

… But wait, there’s more… 

Washington, like many other states, also charges all liquor retailers and distributors an additional fee; which in their case, is 17% of gross revenues from alcohol sales.

Obviously, businesses are going to pass that fee onto consumers; so, in effect, Washington is adding a 37.5% sales tax, on top of the spirit tax, to every sale.

For a 750ml bottle of whiskey costing $18, that ends up being $6.98 in excise tax (hidden from the consumer), plus $6.75 in sales tax; a total of  $11.02 for the whiskey, and $13.73 in tax.

This map, from  http://www.Taxfoundation.org , shows the spirit taxes around the country (not including additional sales taxes on spirits):

State Spirit Tax Rates

 

All of this of course, is on top of the federal taxes on liquor manufacture, distribution, and sales; which for “spirituous liquors” (generally defined as alcohol for human consumption, packaged and sold above “50 proof” or 25% ethanol by volume) are $13.50 per proof gallon (a “proof gallon” is the amount of ethanol in one gallon of 100 proof liquor. If you are distilling and blending 80 proof liquor, the tax will be 80% of that rate per gallon. For an 80 proof 750ml bottle of whiskey, the federal spirit excise is $2.14).

These federal taxes are first paid directly by the producer to the ATF. Then more taxes are paid from the distributors, and finally, by the retailers.

So actually, that example above? It’s not really a total of  $11.02 for the whiskey, and $13.73 in tax… It’s really a total of…

…Well, if we tried to do a real total cost accounting for what the total tax burden, including all liquor taxes, sales taxes, and regulatory compliance costs… It’s probably more like $3 for the whiskey, $6 in federal taxes and other compliance and regulatory costs, and $16 in state taxes, and compliance and regulatory costs.

And then there’s the actual state monopolies…

Some states don’t bother taxing liquor separately, or they tax it at “normal” rates as they would any other product; they just hold a legal monopoly on all liquor sales.

The revenues available to the states through liquor sales are so great in fact, that in a rare example of a state government doing something that makes economic sense, and is even almost libertarian (as libertarian as any state controlled enterprise could be anyway); the state of New Hampshire (which has no income or sales tax) explicitly operates their state controlled liquor stores as a (relatively) efficient business, with good pricing and marketing designed to attract buyers from other states; helping them to keep tax burdens in the state otherwise among the lowest in the nation.

If you’ve ever driven into or out of New Hampshire on I-93 or I-95, those giant Costco sized buildings on both sides of the highway at the first rest stop after the tolls  (of course they’re after the tolls… have to capture that revenue), are state liquor stores; specifically designed and located to capture sales and revenue from Massachusetts, Connecticut, Rhode Island, Vermont, Maine, and New York residents, many of whom drive to New Hampshire specifically to buy liquor and avoid the high prices and taxes in their own states (appx. 50% of all liquor sales in NH are to out of state residents, about 50% of which come from the four state liquor stores on 93 and 95).

Just how much difference does this make to the price of whiskey? 

Like I said above, it’s all so big, so pervasive, it can be hard to get a handle on. Some of the costs you can see directly, like sales taxes. Some of them are partially hidden, like excise taxes. Some of them are completely hidden, like the costs of reduced competition, and the costs of regulatory compliance (in economics these are called hidden externalities).

How about we simplify, and just show you the money?

One product, compared across all 50 states, and just see how the regulatory and tax environments in each state effect the price…

Gizmodo chose the most common and popular American whiskey, in the most popular sized bottle: A 750ml bottle of Jack Daniels (which by the way sells for about $8 from the distiller to the distributors, which includes the $2.14 in tax paid by the distiller to the ATF).

What do you think the price difference might be?

On one 750ml bottle of Americas best selling whiskey, what do you think the price difference might be from state to state? (this is comparing the lowest advertised or verifiable price within a state, not cherrypicking a high price)

Oh and by the way, this includes the excise tax, but DOES NOT include sales tax (making the differences even higher).

$1… $2… $5… $10?

How about $20…

Well, actually, $19.

In New Mexico, you can get a bottle of Jack for $15.99. In Alaska, that same bottle costs $35…

Ok… well.. that’s Alaska… transportation costs and all that, right?

Jack Daniels is famously distilled in Lynchburg Tennessee, which by the way, is in a dry county, where all alcohol sales are banned (as is the case in appx 220 counties in 32 states, with another 250 or so counties having near bans or extremely tight restrictions). How much does a bottle of Jack cost in Tennessee?

$25…

Yes, Jack Daniels costs $10 more IN THE STATE THE STUFF IS ACTUALLY MADE, than it does 1300 miles away in New Mexico.

Even worse, is West Virginia, which almost shares a border with Tennessee (less than 30 miles of the extreme western edge of Virginia separate them… My wifes family is from there, it’s a very pretty drive, I highly recommend it), where a bottle of jack costs… wait for it… $32.99.

It’s not just the taxes… it’s all of the other effects of the regulatory burden…

The great part of this comparison is that it accounts for more than just the tax rates. It shows you the complete total cost impact of market distortions and differential burdens across the states; not just for alcohol, but for retail business in general.
Tennessee has one of the lowest spirit taxes in the country, at only $4.46 per gallon, but a bottle of Jack costs $32.99. Washington has the highest taxes in the country, at $35.22 per gallon, but a bottle of Jack costs $18.99 (again, both before sales tax).

Show me the numbers

From the Gizmodo piece:

Here’s the complete list, arranged by price:

  1. New Mexico: $15.99 (Quarter’s Discount Liquors, Albuquerque)
  2. Arizona: $16.99 (Total Wine and More, Phoenix)
  3. Florida: $17.99 (Wine and More, Daytona Beach)
  4. Texas: $17.99 (Wine and More, Dallas)
  5. California: $17.99 (BevMo, Culver City)
  6. Washington: $17.99 (BevMo, Bellingham)
  7. Oklahoma: $18.53 (Bryan’s Liquor Warehouse, Oklahoma City)
  8. Nevada: $19.99 (Lee’s Discount Liquor, Las Vegas)
  9. Louisiana: $19.99 (Prytania Liquor Store, New Orleans)
  10. Wisconsin: $19.99 (WI Discount Liquor, Milwaukee)
  11. Kansas: $19.99 (Lukas Liquor, Overland Park)
  12. Missouri: $19.99 (Lukas Liquor, Kansas City)
  13. Minnesota: $19.99 (Zipp’s Liquor, Minneapolis)
  14. Illinois: $19.99 (Binny’s, Chicago)
  15. Maine: $19.99 (Lou’s Beverage Barn, Augusta)
  16. Wyoming: $20.99 (Dell Range Liquor Store, Cheyenne)
  17. Delaware: $21.99 (Tri-State Liquors, Claymont)
  18. Georgia: $21.99 (Midtown Liquor, Atlanta)
  19. South Carolina: $22.90 (Burris Liquor Store, Charleston)
  20. Colorado: $22.99 (Colorado Liquor Mart, Denver)
  21. Pennsylvania: $22.99 (Wine and Spirits Store, Philadelphia)
  22. Mississippi: $23.32 (Stanley’s Liquor and Wine, Jackson)
  23. Idaho: $23.95 (State Run Liquor Store, 17th and State, Boise)
  24. South Dakota: $23.94 (Capital City Wine & Spirits, Pierre)
  25. Indiana: $23.99 (Nick’s Liquor Store, Hammond)
  26. Maryland: $23.99 (Eastport Liquors, Annapolis)
  27. Nebraska: $23.99 (The Still, Lincoln)
  28. Alabama: $23.99 (ABC Liquors, statewide)
  29. Vermont: $24.00 (Beverage Warehouse, Winooski)
  30. Ohio: $24.25 (Campus State Liquor Store, Columbus)
  31. Arkansas: $24.52 (Lake Liquors, Maumelle)
  32. Virginia: $24.90 (ABC Store, Richmond)
  33. Oregon: $24.95 (Northside Liquor Store, Eugene)
  34. Tennessee: $24.99 (Frugal MacDoogal Liquor Warehouse, Nashville)
  35. Connecticut: $24.99 (BevMax, Stamford)
  36. New Jersey: $24.99 (Super Buy Rite, Jersey City)
  37. North Dakota: $24.99 (Empire Liquors, Fargo)
  38. Utah: $25.49 (State Liquor Store, Salt Lake City)
  39. New Hampshire: $25.99 (Liquor and Wine Outlet, New London)
  40. Kentucky: $25.99 (Old Town Wine and Spirits, Louisville)
  41. Montana: $26.75 (Bottle and Shots West Liquor Store Billings)
  42. North Carolina: $26.95 (ABC Store, Raleigh)
  43. Rhode Island: $28.00 (City Liquors, Providence)
  44. Michigan: $28.62 (Calumet Market and Spirits, Detroit)
  45. New York: $28.99 (Warehouse Wine and Spirits, New York)
  46. Iowa: $28.99 (Liquor House, Iowa City)
  47. Massachusetts: Charles Street Liquors: $28.99
  48. Hawaii: $29.99 (The Liquor Collection, Honolulu)
  49. West Virginia: $32.99 (Liquor Co, Charleston)
  50. Alaska: $35.00 (Percy’s Liquor Store, Juneau)

Disclaimer: This is not a scientific survey, but I tried to call basic, non-fancy liquor stores for the price check. It’s not clear how much of the discrepancy from state to state is caused by cost of living, tax rates, regulations, or just good ole fashioned price gouging.

You can see, the majority of states are clustered around $20-25, only 7 states cheaper than that, and 12 states more expensive, even though the spirit taxes in those states vary widely. Again, this just shows you the overall burden… the effects of what is seen, and what is unseen… in a highly regulated market.

I am a cynically romantic optimistic pessimist. I am neither liberal, nor conservative. I am a (somewhat disgruntled) muscular minarchist… something like a constructive anarchist.

Basically what that means, is that I believe, all things being equal, responsible adults should be able to do whatever the hell they want to do, so long as nobody’s getting hurt, who isn’t paying extra

How Do You Measure The ‘American Dream?’

The question of class mobility has come to define the “American Dream” in political discourse. And, although this post will take a bit of a contrarian position, it is absolutely inarguable that there is a problem with economic immobility today that is having a very depressing impact on the way we communicate to solve problems and on our freedoms in general. But this is not how you go about making that point.

There are many accepted indicators of whether a person has “done everything right” but the most important such indicators have traditionally included college advancement (graduation and especially graduate degrees), marriage, and home ownership.

The original graphic is a classic example of a complex topic simplified into uselessness. When I look at the graph, I see that, in fact, college grads who started poor move up to the middle classes and stay there at much higher rates than rich kids who drop out of high school (yay!)…but somehow the Post comes away with the misleading headline: Poor kids who do everything right don’t do better than rich kids who do everything wrong.

Really? This only looks at the shear proportions who “graduate college” vs. “drop out of high school” – that can hardly be seen as “doing everything right” vs. “getting everything wrong”. What did the college grads major in? There is ample research supporting the conclusion that most college majors these days are bad long term investments. What did the rich kids who didn’t finish HS go on to do? Were they drop-outs because they had alternative plans? Did they pick up a trade?

And more to the point – how many of those poor kids had good parenting examples at home upon which to build the foundations of healthy marriages?

Slate takes on many of my same talking points here. They mention other confounding factors, and note the misleading nature of the Post’s article title. Props to them!

But they make the unfortunate logical leap that there is something inherently wrong with a system where not all poor college grads do well later in life, or that the forces leading to their remaining in poverty are things we can fix.

An excerpt:

The real issue, as O’Brien points out, is that rich kids enjoy lots of advantages that keep them from falling to the very bottom of income distribution, and sometimes those advantages keep them at the very top. They might be able to go to work for family businesses, for instance, or family friends. Researchers like Brookings’ Richard Reeves call that collection of advantages “the glass floor.” Educated poor kids are in the exact opposite position. Many attend second- or third-rate (and possibly for-profit) colleges that churn out less-than-useful degrees. And instead of a floor propping them up, their families and friends can act like an anchor pulling them down. A classic example: a college-educated woman who goes home and marries a boyfriend who never made it past high school and has trouble holding down a job.

Emphasis mine. Notice the not-so-subtle insinuation that colleges that operate for profit are bad for the poor, and that the less-useful degrees are not to be found in the halls of elite, expensive colleges, only those second rate low-end state schools or the aforementioned dirty capitalist institutions. Of course, even top end colleges (including the ivy leagues) are now offering degrees in a wide array of financially useless liberal arts curricula. Also notice the suggestion that the problem isn’t with the failure of people raised in poverty to establish and keep stable families, but that those families are holding them back. They’re getting it exactly backwards. Every credible study on the persistence of poverty finds that single parents and people who suffer divorce are the most likely to get stuck in poverty.

So let’s summarize the position of Slate’s team (and likely that of the Washington Post):

1) Economic mobility continues to be problematic at best for the poorest Americans, even with hard work.
2) Graduating from college is a mark of hard work.
3) Hard work should be rewarded with a high rate of success.
4) If we could separate the poor from the things that hold them back (especially their struggling families and their alternative education sources), they would thrive.

If the writers at Slate would like to address the problem of hard-working, driven poor people being less able to move up the economic ladder than (perhaps) would be ideal, I suggest that they stop grinding political axes and start looking at the hard data. The data all indicates that the leading indicator for economic immobility is single parenthood, and that children of single parents are more likely to also be single parents themselves later in life. Get to the root of the problem and you find that this is not something that government can forcefully correct – and frankly, I’d be terrified if they tried.

Michigan Reaffirms Protectionist Legislation for State Auto Dealers

As Tom Knighton covered earlier this week, the Michigan state legislature let its crony capitalist flag fly when it passed a bill affirming Michigan’s protectionist legislation for traditional franchise auto dealers. Yesterday, Republican Michigan Gov. Rick Snyder signed the bill into law.

Under existing law, an auto manufacturer could not a sell new vehicle directly to retail customers other than through “its franchised dealers.” The new legislation signed by Gov. Snyder deletes the word “its.” It thus allows manufacturers to sell through other manufacturers’ dealers, so long as they do sell through someone’s franchised dealer. This legislation is intended to protect Michigan dealers from competition via direct-to-consumer models like that employed by Tesla Motors.

I love capitalism. But I hate crony capitalism.

Tesla wants to bypass traditional auto dealers, who operate via franchises licensed by manufacturers, and instead sell directly to consumers. This would benefit consumers—and manufacturers like Tesla—by eliminating the dealer middlemen.

Michigan does not want its consumers to enjoy those savings.

In this ignominious regard, it joins New Jersey, Maryland, Texas and Arizona. In addition to those, Georgia’s dealers are currently, in the words of Reason’s Brian Doherty, trying “to use the violent force of the state to stop Tesla Motors from innovating and competing against them.”

Auto blog Jalopnik reports that:

The dealer’s case—and GM’s—is that dealers provide a valuable service to consumers and by continuing to employ the traditional dealership model, they’re protecting car owners.

If it were a valuable service, it would not require protectionist legislation. It requires protectionist legislation precisely because it would have trouble competing in a market where consumers were given a choice. Jalopnik further reported GM’s position as follows:

“Competition is always healthy,” GM spokeswoman Heather Rosenker tells Jalopnik. “But it needs to be on a level playing field.”

In other words, GM thinks a level playing field is what is created when one of the world’s largest automobile manufacturers uses the strong arm of government to force other manufacturers to follow its chosen sales model, instead of allowing each to experiment with its own methods and models.

As more than 70 law professors and economists complained when Republican New Jersey Gov. Chris Christie signed similar protectionist legislation:

There is no justification on any rational economic or public policy grounds for such a restraint of commerce. Rather, the upshot of the regulation is to reduce compe- tition in New Jersey’s automobile market for the benefit of its auto dealers and to the detriment of its consumers. It is protectionism for auto dealers, pure and simple.

*     *     *

[W]e have not heard a single argument for a direct distribution ban that makes any sense. To the contrary, these arguments simply bolster our belief that the regulations in question are motivated by economic protectionism that favors dealers at the expense of consumers and innovative technologies.

If our Republican elected officials actually practiced capitalism—instead of its crony capitalist impersonator—they might fare better at the polls. Without a doubt, consumers would be better off.

Sarah Baker is a libertarian, attorney and writer. She lives in Montana with her daughter and a house full of pets.
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