Adam Thierer's Blog, page 119

UK Riots & the Internet: What Would Hayek Do?

Republished from the Daily Caller

U.K. Prime Minister David Cameron has declared "everything necessary will be done to restore order" in Britain's riot-racked cities. With respect to the right honorable gentleman, what distinguishes free from unfree societies is not order, but ordered liberty. As the great Tory philosopher Edmund Burke taught, reconciling liberty and order is the fine art of democratic statecraft. Tweaking that balance as technology evolves requires the most careful and judicious deliberation. Only where cooler heads prevail can ordered liberty thrive.

Cameron's government has hesitated to escalate physical force with rubber bullets and water cannons, lest they lend moral sanction to the brutal tactics used by China and in the Middle East to suppress dissent. Yet however noble his intentions, Cameron could do more to undermine ordered liberty with "bloodless" measures targeting social media services like Twitter and Facebook, and improperly using photo identification.

Cameron, who championed Internet-driven revolutions in Egypt and Tunisia, told Parliament that the "free flow of information can be used for good, but it can also be used for ill." His vague response: "We are working with the police, the intelligence services and industry whether it will be right to stop people communicating via these websites and services."

So far, the only clear call for shutting down social media outright came from a Labour MP, not Cameron's Tories. David Lammy, who represents the London neighborhood where rioting began, has demanded the suspension of BlackBerry Messenger (BBM) service for "helping rioters outfox Police." Such a response befits Beijing, not Britain, the birthplace of ordered liberty.

Free societies can and should silence those who incite acts of violence — but not by shutting down speech platforms for all users. Even America's speech-protective First Amendment allows punishment of speech that is "directed to inciting or producing imminent lawless action and is likely to incite or produce such action." That standard protects legitimate expression without preventing prosecution of those individuals stoking and organizing riots. The same standard should determine when government may properly force social media systems to take down seditious posts, photos and videos.

Cameron rightly wants to ban lawless rabble-rousers from social media. For those convicted of online incitement, such a sentence would fit the crime, and could be enforced just like any other condition of probation. Indeed, making this penalty clear now could prove a powerful deterrent — especially among social media-obsessed youth, who might consider a ban of even a few years to be "social death."

Of course, police most want to squelch incitement quickly. But the "prior restraint" of individual voices is perhaps the most dangerous tool any government could have; it demands close judicial scrutiny based on the presumption of innocence. Temporarily suspending users without meeting the "imminent incitement" standard would be the digital equivalent of detaining prisoners without trial — a violation of the sacred Anglo-American right to habeas corpus. Instead, Britain and other democracies must give law enforcement the resources to prosecute incitement quickly and ensure the courts can apply meaningful scrutiny in emergencies.

The harder question is surveillance. Congress artfully balanced privacy (liberty) with the needs of law enforcement (order) back in 1986 with the Electronic Communications Privacy Act. While technologically outdated in some respects, the law's core principles remain sound: Law enforcement can monitor non-private postings, but must establish probable cause to intercept private communications and, eventually, notify the suspect. That standard doesn't change in emergencies, but government has 48 hours to "show cause" to a court. ECPA rightly forbids digital dragnets — say, demanding private messages by all teens in certain riot-rocked London neighborhoods.

Offline, Cameron would allow British police to order the removal of facemasks not merely in a specific geographical location or for a limited time. While this troubles privacy advocates, it seems justified, since police must still establish reasonable suspicion of criminal activity. The U.S. Supreme Court has allowed police to require those stopped upon probable suspicion to identify themselves — essentially the same as unmasking someone. A vital philosophical question unites this debate with that over social media: Should citizens of free societies expect privacy in their appearances in public?

The answer, again, lies in balancing liberty with order. Cameron wants police to use facial recognition technology to identify rioters so they can be apprehended and prosecuted. Such technology allows services like Facebook to predict, with increasing accuracy, that the same person appears in multiple photos — so a user need only "tag" his or friend once. Police could use even more accurate tools to identify suspects who appear in multiple photos or videos of rioting.

Such automatic association simply enhances traditional sleuthing and should be unobjectionable on its own, or when police ask the public "Have you seen this person?" Legitimate concerns arise when police associate a composite appearance with a database of photos tied to known identities — be that a driver's license system or Facebook. Here again, the "probable cause" standard should be the bulwark of liberty — without crippling law enforcement.

Courts can address concerns about inaccurate photo identification through the normal evidentiary process. Private citizens who attempt to "crowdsource" identification of rioters, as some Britons attempted, can play a helpful role as a digital "neighborhood watch" — so long as they do not turn to vigilantism, leaving punishment to the courts. This will maintain the presumption of innocence in the age of ubiquitous photography and photo identification.

Such radical transparency is, however, a two-way street. Cameron can claim the moral high ground by affirming that police will not interfere with Britons who passively record police activity or share such photos and videos online. In free societies, it is we, the people, armed with cell phone cameras, who "watch the watchmen." Sunlight, truly, is the best disinfectant.

Finally, Cameron should remember the wisdom of F.A. Hayek, to whose book The Constitution of Liberty Margaret Thatcher once dramatically pointed, saying, "This is what we believe." Hayek warned that crisis-driven decisions about the balance between liberty and order will ultimately take us down "the road to serfdom."

UK Riots: What Would Hayek Do?

Republished from the Daily Caller

U.K. Prime Minister David Cameron has declared "everything necessary will be done to restore order" in Britain's riot-racked cities. With respect to the right honorable gentleman, what distinguishes free from unfree societies is not order, but ordered liberty. As the great Tory philosopher Edmund Burke taught, reconciling liberty and order is the fine art of democratic statecraft. Tweaking that balance as technology evolves requires the most careful and judicious deliberation. Only where cooler heads prevail can ordered liberty thrive.

Cameron's government has hesitated to escalate physical force with rubber bullets and water cannons, lest they lend moral sanction to the brutal tactics used by China and in the Middle East to suppress dissent. Yet however noble his intentions, Cameron could do more to undermine ordered liberty with "bloodless" measures targeting social media services like Twitter and Facebook, and improperly using photo identification.

Cameron, who championed Internet-driven revolutions in Egypt and Tunisia, told Parliament that the "free flow of information can be used for good, but it can also be used for ill." His vague response: "We are working with the police, the intelligence services and industry whether it will be right to stop people communicating via these websites and services."

So far, the only clear call for shutting down social media outright came from a Labour MP, not Cameron's Tories. David Lammy, who represents the London neighborhood where rioting began, has demanded the suspension of BlackBerry Messenger (BBM) service for "helping rioters outfox Police." Such a response befits Beijing, not Britain, the birthplace of ordered liberty.

Free societies can and should silence those who incite acts of violence — but not by shutting down speech platforms for all users. Even America's speech-protective First Amendment allows punishment of speech that is "directed to inciting or producing imminent lawless action and is likely to incite or produce such action." That standard protects legitimate expression without preventing prosecution of those individuals stoking and organizing riots. The same standard should determine when government may properly force social media systems to take down seditious posts, photos and videos.

Cameron rightly wants to ban lawless rabble-rousers from social media. For those convicted of online incitement, such a sentence would fit the crime, and could be enforced just like any other condition of probation. Indeed, making this penalty clear now could prove a powerful deterrent — especially among social media-obsessed youth, who might consider a ban of even a few years to be "social death."

Of course, police most want to squelch incitement quickly. But the "prior restraint" of individual voices is perhaps the most dangerous tool any government could have; it demands close judicial scrutiny based on the presumption of innocence. Temporarily suspending users without meeting the "imminent incitement" standard would be the digital equivalent of detaining prisoners without trial — a violation of the sacred Anglo-American right to habeas corpus. Instead, Britain and other democracies must give law enforcement the resources to prosecute incitement quickly and ensure the courts can apply meaningful scrutiny in emergencies.

The harder question is surveillance. Congress artfully balanced privacy (liberty) with the needs of law enforcement (order) back in 1986 with the Electronic Communications Privacy Act. While technologically outdated in some respects, the law's core principles remain sound: Law enforcement can monitor non-private postings, but must establish probable cause to intercept private communications and, eventually, notify the suspect. That standard doesn't change in emergencies, but government has 48 hours to "show cause" to a court. ECPA rightly forbids digital dragnets — say, demanding private messages by all teens in certain riot-rocked London neighborhoods.

Offline, Cameron would allow British police to order the removal of facemasks not merely in a specific geographical location or for a limited time. While this troubles privacy advocates, it seems justified, since police must still establish reasonable suspicion of criminal activity. The U.S. Supreme Court has allowed police to require those stopped upon probable suspicion to identify themselves — essentially the same as unmasking someone. A vital philosophical question unites this debate with that over social media: Should citizens of free societies expect privacy in their appearances in public?

The answer, again, lies in balancing liberty with order. Cameron wants police to use facial recognition technology to identify rioters so they can be apprehended and prosecuted. Such technology allows services like Facebook to predict, with increasing accuracy, that the same person appears in multiple photos — so a user need only "tag" his or friend once. Police could use even more accurate tools to identify suspects who appear in multiple photos or videos of rioting.

Such automatic association simply enhances traditional sleuthing and should be unobjectionable on its own, or when police ask the public "Have you seen this person?" Legitimate concerns arise when police associate a composite appearance with a database of photos tied to known identities — be that a driver's license system or Facebook. Here again, the "probable cause" standard should be the bulwark of liberty — without crippling law enforcement.

Courts can address concerns about inaccurate photo identification through the normal evidentiary process. Private citizens who attempt to "crowdsource" identification of rioters, as some Britons attempted, can play a helpful role as a digital "neighborhood watch" — so long as they do not turn to vigilantism, leaving punishment to the courts. This will maintain the presumption of innocence in the age of ubiquitous photography and photo identification.

Such radical transparency is, however, a two-way street. Cameron can claim the moral high ground by affirming that police will not interfere with Britons who passively record police activity or share such photos and videos online. In free societies, it is we, the people, armed with cell phone cameras, who "watch the watchmen." Sunlight, truly, is the best disinfectant.

Finally, Cameron should remember the wisdom of F.A. Hayek, to whose book The Constitution of Liberty Margaret Thatcher once dramatically pointed, saying, "This is what we believe." Hayek warned that crisis-driven decisions about the balance between liberty and order will ultimately take us down "the road to serfdom."

On the Hyphenation & Capitalization of Various Internet Terms

I'm no grammar Nazi. In fact, I'm closer to being a grammar anarchist. I've been fighting teachers and editors for years about split infinitives (they rock!), contractions (fine in small doses), and run-on sentence (OK, they are probably right about that one, but I just can't control myself).  Nonetheless, it makes sense to have some basic ground rules for grammar and good writing. Sometimes, however, those rules just can't be found.

I raise this issue because I'm finishing up my next book and I find myself struggling with the proper hyphenation and capitalization of various Internet terms. After much consultation with the Mercatus Center's grammar czar Jennifer Zambone, I think I have finally grown comfortable with two rules I have long ignored (or just been horribly schizophrenic about using consistently) in my past writing. They are:

Any word following "techno-" or "cyber-" should be joined to it and not hyphenated. Following the advice from our old friends Strunk & White, "The steady evolution of the language seems to favor union: two words eventually become one, usually after a period of hyphenation." (Strunk & White, p. 41) Thus, it's now "technopanic," not "techno-panic." Others: "cybersecurity" and "cyberwar" not "cyber-security" or "cyber-war." [Note: We've already joined the term "cyberlaw," and "cyberspace" was never hyphenated, at least not by most writers.]  It would make more sense to keep these words separate if "techno" and "cyber" were stand-alone words, but they are not. That's why "moral panic" makes sense and would never be joined whereas "technopanic" is joined. Likewise, "online safety" remains two words but it should be "cybersafety" if you insist on using the "cyber" prefix.
Do not capitalize anything related to "eras" or "ages" (except, of course, when the word "Internet" is in the term.) Following the general rule set forth in The Chicago Manual of Style, "a descriptive designation of a [historical] period is usually lowercased, except for proper names."  While "prehistoric periods are capitalized.. similar terms for modern periods are often lowercased." [Chicago Manual of Style 8.71 - 8.73]  Therefore, it's "digital age," not "Digital Age." Likewise, it should be "industrial era" and "information era," sans caps. And it's most definitely "digital economy," not "Digital Economy."  Things get more complicated when you bring "Internet" into a phrase since it has traditionally been capitalized for reasons that remain unclear. Thus, "Internet era" is correct but there is no need to capitalize "era."

Do these rules sound right? If others are familiar with efforts to formalize these rules, let me know, but I haven't seen anything that was helpful (as it pertains to these specific Internet phrases, that is.)

Right Now, the Law's on Amazon's Side

States are ratcheting up legislation in order to capture sales taxes from on-line retailers, even as companies like Amazon.com aggressively push back.

A closely-watched bill in the Texas legislature that defines Amazon's distribution center in Ft. Worth as a physical nexus, thereby obligating the on-line retailing giant to collect taxes on sales to residents of the Lone Star State, passed on a second go-through of this year's session, overcoming an initial veto by Gov. Rick Perry.

The next move is up to Amazon. Its distribution center is essentially a warehouse that fulfills online orders and employs 200. Amazon previously said it would close the center if the bill passed, but has yet to make good on the threat. However, it is dangerous to dismiss it as a bluff. When South Carolina passed a similar bill, the company closed a distribution center there; only to return once the legislation was reversed.

The collection of taxes from on-line sales has become touchy among even the free-market-minded. Brick-and-mortar store owners have become increasingly vocal as to what they see as a purposeful scheme of "tax avoidance" that puts them at an unfair disadvantage against on-line retailers. Research, such as an April paper from the University of Tennessee's Center for Business and E-Commerce Research, stoke the flames by calling the current sales tax rules a tax subsidy for online merchants.

The heart of the Texas dispute is whether a distribution center counts as a nexus. The case law is Quill Corp. v. North Dakota and National Bellas Hess v. Illinois Department of Revenue, which, as broadly understood, stipulate that a business must have a nexus, that is, brick-and-mortar store, in the state in order to be liable for tax collection. If there is a viable court test to either or both of these decisions, the contention that a distribution center constitutes a nexus may have the most potential.

Yet it's not slam dunk. Quill, for example, says that in order to qualify as a nexus, the physical presence must be "significantly associated with business in the state." The task of tax collection must also not present "an undue burden." These are critical, because they tie back to the Commerce Clause of the U.S. Constitution that places limits the power of states to interfere with interstate commerce. While much of the argument for Amazon taxes relies on fairness, (hence, The Main Street Fairness Act), fairness was never an issue in Quill or National Bellas Hess. The rulings are about applying constitutional limits on the ability of governments, in the pursuit of tax revenues, to disrupt business operations.

Amazon argues that its fulfillment center is not significantly associated with business in the state. The Texas fulfillment center ships to neighboring states.  It also is not a consumer-facing storefront. It does not accept walk-in returns, nor will it replace or repair a defective product.

As for "undue burden," it will do well to remember that collection of sales tax is a burden to start with. The states authorized collection at the point of sale out of realization there was no other way to capture that revenue (even now few consumers comply with use tax reporting requirements). In the spirit of enumerated powers, the Quill decision placed limits on states' ability to deputize the private sector into tax collection. Quill protects businesses in one state from being preyed upon by others. Texas retailers may complain about Amazon, but their online sales to other states are not taxed.

Considering there are now more than 9000 sales tax jurisdictions in the U.S., compliance would still arguably be a burden, even in these days of the smartphone app.

Amazon also disputes claims from other trade groups, such as the International Council of Shopping Centers, that the lack of sales tax drive online sales. At the American Legislative Exchange Council's annual meeting last week, Amazon officials NetChoice,  the e-commerce trade group, pointed to data from New York State, where, for purposes of documenting the effect, Amazon collects sales taxes. Purchases from Empire State residents have not declined, the company said, maintaining that Amazon's advantage derives from lower prices and perks like free shipping.

That may be true to a great extent, yet it is somewhat disingenuous to suggest that sales tax avoidance isn't part of the equation. As combined state, county and city sales taxes in some jurisdictions, like Chicago, Illinois, reach nearly 10 percent, consumer arbitrage becomes a factor. Here, a $500 item purchased on-line saves almost $50, no small sum.

But whose fault is that? Despite the reality that consumers can reach a global market with the click of a mouse, states, counties and cities chose to raid residents' wallets again and again in their quest for revenues to offset bloated budgets. Even William Fox, a co-author of the University of Tennessee report mentioned above, argued at ALEC that on-line sales tax legislation should be accompanied by across-the-board cuts in sales tax rates. Yet it's hard to imagine a legislature willing to make that trade-off.

Perhaps instead of railing against Amazon's alleged "unfair" tax advantage, retailers should protest rising sales taxes in general. For now, like it or not, the law of the land is on Amazon's side–and for sound constitutional reasons.

David Brin on transparency and accountability

On the podcast this week, David Brin, a physicist and Hugo and Nebula award-winning science fiction writer, wrote the prescient 1997 nonfiction book, The Transparent Society, which won the Freedom of Speech Award of the American Library Association. He's written a new essay revisiting the themes of that book and discusses how the ideas presented in The Transparent Society relate to his new essay and to the world today. The government continues to increase its ability to look in on citizens, creating an Orwellian-like society that people may find alarming. According to Brin, reciprocal accountability, which is the ability for people to look back at the government and hold it accountable, is key to minimizing undesirable effects and behaviors. Brin goes on to discuss the benefits of a more pragmatic approach to transparency as opposed to immediate and radical transparency like WikiLeaks.

Related Links


davidbrin.com
"Brin, Transaction Costs and Do Not Track", Jerry Brito
The Transparent Society

To keep the conversation around this episode in one place, we'd like to ask you to comment at the webpage for this episode on Surprisingly Free. Also, why not subscribe to the podcast on iTunes?

Prophecies of Doom & the Politics of Fear in Cybersecurity Debates

Mark Thompson has a new essay up over at Time on "Cyber War Worrywarts" in which he argues that in debates about cybersecurity, "the ratio of scaremongers to calm logic [is] currently about a 2-to-1 edge in favor of the Jules Verne crowd."  He's right.  In fact, I used my latest Forbes essay to document some of the panicky rhetoric and examples of "threat inflation" we currently see at work in debates over cybersecurity policy. "Threat inflation" refers to the artificial escalation of dangers or harms to society or the economy and doom-and-gloom rhetoric is certainly on the rise in this arena.

I begin my essay by noting how "It has become virtually impossible to read an article about cybersecurity policy, or sit through any congressional hearing on the issue, without hearing prophecies of doom about an impending "Digital Pearl Harbor," a "cyber Katrina," or even a "cyber 9/11."" Meanwhile, Gen. Michael Hayden, who led the National Security Administration and Central Intelligence Agency under president George W. Bush, recently argued that a "digital Blackwater" may be needed to combat the threat of cyberterrorism.

These rhetorical claims are troubling to me for several reasons. I build on the concerns raised originally in an important Mercatus Center paper by my colleagues Jerry Brito and Tate Watkins, which warns of the dangers of threat inflation in policy debates and the corresponding rise of the "cybersecurity industrial complex." In my Forbes essay, I note that:

Panics and threat inflation can create distrust in many institutions, especially the press, and result in a "boy who cried wolf" problem. When panic becomes the norm, it becomes more difficult for the public to take seriously those who propagate such tall tales. "When a threat is inflated," argue Brito and Watkins, "the marketplace of ideas on which a democracy relies to make sound judgments—in particular, the media and popular debate—can become overwhelmed by fallacious information."

Moreover:

Apocalyptic rhetoric and prophecies of doom are also inappropriate—even offensive—when comparisons are made to horrific events that are not analogous to cybersecurity attacks. Thousands lost their lives or were injured in the attacks on Pearl Harbor in 1941 and the World Trade Center during 9/11, and Hurricane Katrina also resulted in thousands of deaths and injuries in 2005. To compare cybersecurity attacks to those incidents is to insult the memories of those who lost their lives.

Finally, the technopanic mentality is also troubling because it can lead to calls for comprehensive regulation of the Internet or forms of information control. We are starting to hear calls by a variety of policymakers and cyberwar pundits for more "oversight" and "control." In a National Journal essay last month, Michael Hirsh noted that "the cyberwar threat is being hyped because of a fear of unknown dangers [but] the biggest threat of all may come from our own overreaction."  Hirsh documents how "a new multibillion-dollar military-industrial complex is emerging," and billions are already being spent. In my Forbes piece, I note how in his recent book, Cyber War: The Next Threat to National Security and What to Do About It, cyberwar prophet of doom Richard A. Clarke, a former cybersecurity advisor in the Clinton and Bush Administrations, calls for government to impose a fairly sweeping set of new rules on Internet Service Providers to better secure their networks against potential attacks.  Clarke wants ISPs to engage in a great deal more network monitoring for digital dangers (using deep-packet inspection techniques) under threat of legal sanction if things go wrong. He admits there are corresponding costs and privacy concerns, but largely dismisses them in the name of a safer and more secure cyberspace. [See my review of his book here.]

My primary fear is that this panic is all prelude to a big push for a "precautionary principle" approach for cybersecurity. That is, progress in the digital technology arena will increasingly be subjected to preemptive prohibitions and ongoing "oversight" out of fear of any and all "worst case" risk scenarios that policymakers and cyberwar pundits can conjure up.

As I note in concluding my essay, the better approach to cybersecurity going forward is education and resiliency:

People and institutions can prepare for potential security problems in a rational fashion if given more information and tools to better secure their digital systems and understand how to cope when problems arise. Panic, by contrast, is never the right answer.

Yet, fear remains a remarkably powerful force in public policy debate and I am willing to bet that these threat inflation tactics will only increase in coming months and years. As I've noted here many times before, fear sells.

Related TLF Reading (all from Jerry Brito)

Langevin: Panetta is cyberdoom certified
Can cyber-kamikazes cyberbombard our cyberdefenses?
Overclassification stifles the cybersecurity conversation

More Cost Data and Better Debt Insight

Data-transparent government is still a ways off, but some small steps forward are underway. To wit, my project WashingtonWatch.com, which is adding new data going to the costs of bills in Congress.

As detailed in an announcement that went up this morning, many more bills on the site will have cost estimates associated with them, the product of research being done at the National Taxpayers Union Foundation. Some bills spend pennies or less per U.S. family. Some spend $5,000 per family and more. Wouldn't you like to know which are which?

The site has also begun displaying national debt information on a per-family, per-person, and per-couple basis. (Your debt—just for being an American—is about $45,000 dollars.)

I'll have much more to say on government transparency in the coming months. In the meantime, you might do your part to avoid the next calamitous debt ceiling debate by following the day-to-day, month-to-month, and year-to-year in Congress using things like the WashingtonWatch.com weekly email newsletter.

Kembrew McLeod on copyright and hip-hop sampling

Kembrew McLeod, independent filmmaker and Associate Professor of Communication Studies at the University of Iowa, discusses his new documentary with Benjamin Franzen called Copyright Criminals. Digital music sampling is used throughout several genres of music but it is probably most prominent in hip-hop music. Hip-hop artists like Run-DMC began using snippets of other artists' songs to create sounds of their own. This process, according to McLeod, helped facilitate creativity, but it also brought a flurry of lawsuits within the music industry. Now, as McLeod demonstrates in his documentary, artists are hesitant to use samples of music in their songs because they fear potential legal consequences, and as a result, a lot of musical creations that use sampling may never reach our ears.

Related Links

Copyright Criminals , hulu.com
kembrew.com
"Lessig's call for a 'simple blanket license' in Remix", Adam Thierer

To keep the conversation around this episode in one place, we'd like to ask you to comment at the webpage for this episode on Surprisingly Free. Also, why not subscribe to the podcast on iTunes?

Internet Taxes, "Main Street Fairness" & the Origin-Based Alternative

The debate over the imposition of sales tax collection obligations on interstate vendors is heating up again at the federal level with the introduction of S. 1452, "The Main Street Fairness Act." [pdf]  The measure would give congressional blessing to a multistate compact that would let states impose sales taxes on interstate commerce, something usually blocked by the Commerce Clause of the U.S. Constitution.  Senator Dick Durbin (D-IL) introduced the bill in the Senate along with Tim Johnson (D-SD) and Jack Reed (D-RI).  The measure is being sponsored in the House of Representatives by John Conyers (D-MI) and Peter Welch (D-VT). At this time, there are no Republican co-sponsors even though Sen. Mike Enzi was rumored to be a considered co-sponsoring the measure before introduction.

Without any Republicans on board the effort, the measure may not advance very far in Congress. Nonetheless, to the extent the measure gets any traction, it is worth itemizing a few of the problems with this approach. My Mercatus Center colleague Veronique de Rugy and I have done some work on this issue together in the past and we are planning a short new paper on the topic. It will build on this lengthy Cato Institute paper we authored together in 2003, "The Internet Tax Solution: Tax Competition, Not Tax Collusion." The key principle we set forth was this: "Congress must.. take an affirmative stand against efforts by state and local governments to create a collusive multistate tax compact to tax interstate sales." "It would be wrong," we argued, "for members of Congress to abdicate their responsibility to safeguard the national marketplace by giving the states carte blanche to tax interstate commercial activities through a tax compact. The guiding ethic of this debate must remain tax competition, not tax collusion."

Proponents of simply extending current sales tax collection obligations to interstate sales will claim that the so-called "Streamlined Sales and Use Tax Agreement" (SSTUA) they want Congress to bless has solved the compliance cost and complexity problem associated with taxing "remote" interstate sales. Yet, as I pointed out in my recent Forbes essay, "The Internet Taxman Cometh," this 200-page "simplification" effort remains a Swiss cheese tax system, however, riddled with loopholes and complexities that could burden vendors, especially mom-and-pop operators. America's estimated 7,400 local jurisdictions still have many different definitions and exemptions that complicate the sales tax code. For example, is a cookie a "candy," (which is taxed in most jurisdictions) or a "baked good," (which is typically tax-exempt)? Thus, forcing online vendors to collect local taxes would create significant burdens on interstate commerce.

This is not to say there aren't some legitimate tax "fairness" arguments in play here. It really is unfair that "Main Street" vendors are burdened with significant tax collection responsibilities while others are not. But "fairness" cuts many ways. It's also unfair and unconstitutional to require out-of-state vendors to collect sales taxes on behalf of a jurisdiction where they have no physical presence. After all, at least in theory, those who are taxed should expect to receive some benefit for it. Interstate vendors receive no benefit but bear all the cost.

To the extent we want to "level the playing field," therefore, one approach is to cut or eliminate sales taxes on in-state vendors. Of course, that's a tough pill for many states and localities to swallow. If they got their profligate spending habits under control, however, that might be easier.

Another alternative would be the creation of a national Internet sales tax that would avoid the complexity problem by imposing a single rate and set of definitions on all vendors. But that just opens the door to a new federal tax base, which would grow to be burdensome in other ways at a time when American consumers and companies are already over-taxed. I doubt the idea would get much traction in Congress, anyway.

Perhaps the best alternative would be to switch the sourcing methodology for state sales tax collection obligations from destination-based to "origin-based."  Stated differently, the rule would be "you can tax your own exports, not the imports from other states." Here's how Veronique and I summarized an origin-based solution in our old Cato paper:

under an origin-based sourcing rule—also referred to as a "seller state," "vendor-state," or "source-based" rule by some scholars—all interstate sales through all channels (traditional stores or cyber-retailers) would be taxed at the point of sale (meaning the company's "principal place of business") instead of at the point of destination, if the state or locality chooses to impose a tax. All goods within a given state or locality would be taxed at the locally applicable rate no matter how they were purchased and no matter where they were consumed.  This option would take care of most of the problems posed by the destination-based methodology that is favored by most state and local policymakers today.

Specifically, an origin-based sourcing rule would have the following advantages:

Minimize the burden on sellers by requiring sellers to know and abide by the tax rates and regulations within their principal place of business instead of the rates and definitions of thousands of different taxing jurisdiction.

Ensure tax parity between Main Street vendors and interstate sellers.

Do away with the need for a multistate collection arrangement such as the SSTUA by eliminating any need to trace interstate transactions to the final point of consumption.
Remove nexus uncertainties and constitutional concerns, because only companies within a state or local government's borders would be taxed.

Largely remove any need for continued reliance on the use tax because all transactions would henceforth be sourced to the origin of sale and collected immediately by the vendor at that point.

Respect buyers' privacy rights by eliminating the need to collect any special or unique information about a buyer, and  by not using third-party tax collectors to gather information about buyers.
Respect federalism principles and enhance jurisdictional tax competition  by permitting each state to determine its  own tax policies and encouraging healthy state-by-state tax rivalry.
Preserve local jurisdictional tax authority where a harmonization proposal like the SSTUA plans would create a de facto national sales tax system and run roughshod over local governments.
Because it is more politically / constitutionally feasible it may maximize the amount of tax collected for states by making compliance easier and incorporating activities that are currently untaxed.

Please see the old Cato paper for more details and answers to potential objections, but I hope it's clear why an "origin-based" solution offers a sensible way to break the current logjam and achieve tax "fairness" in the process.

Some states officials will object to the vigorous tax competition spawned by an origin-based sourcing rule. But that's a feature, not a bug! Tax competition is good for consumers and the continued vitality of American federalism. A multistate tax compact, by contrast, would encourage tax collusion and let states too easily raise rates on interstate sales.

Moreover, I think it bears repeating that state officials have been at this for 15 years and still not found a way to truly simplify their sales taxes and get around constitutional limitations on the taxation of interstate activity. An origin-based system, therefore, may offer them the only way for them to finally tax the Internet and interstate sales.  I'd prefer they scale back their taxing ways, of course, but to the extent they insist on pushing out the boundaries of their tax authority, an origin-based solution — not the "Main Street Tax Fairness Act" — is the only sensible, constitutional way for them to do so.

 

Google+ Stumbles Over Identity

I started to see hints of it last week, but I now believe . It looks as though they've taken common sense—everyone has one name—and woven it into their terms of service. You can't use a non-traditional name on Google+. But naming and identity are more complex than that.

In my book, Identity Crisis, I wrote that an identity is a collection of information other people and institutions have about a person. Others use identity information they have to distinguish you from other people (or to group you) in their minds or records. This makes identity a gating mechanism: you can allow people into a part of your life by making them privy to the relevant set of identifiers, or keep them out by denying them that information.

Commonly, people use varied identities to exclude others, for social or professional reasons, such as when they open a social network account in a false name to keep their parents or their students from accessing parts of social life that are not meant for them to see. Sometimes identity is varied for political reasons, such as when an account opens in a pseudonym for the purpose of avoiding reprisal. This is an area where Facebook's "real names" policy has stepped in it. The further one lives from conventional life in a given society, or the more contrarily to power, the more important it is to control identity.

Identity Woman—who tells her story at the first link above—uses her non-traditional identity in a non-traditional, but completely reasonable, way. It's just the name that identifies her better to the community she plans to reach on Google+. But Google+ thinks that the name she is supposed to use is the same one her parents gave her, is the same one on her tax return, is the same one on her college degree, is the same one on her driver's license.

Google+ has smartly replicated the real-world concept of social circles in its "circles" function. But they haven't replicated real-world practice in terms of naming and identity. Why? Among other reasons, because doing so would allow users to decide which "circle" Google itself is in. Google doesn't want that. Like Facebook wants to be your super-friend, Google wants to be your super-circle.

Google+ is seeing like a state, vastly simplifying the use of identity on its platform to serve its purposes. That will be a continuing discomfort and an impediment to its fullest success. But the fullest success of social networking will probably not be on an owned platform anyway.