The $12 Billion — No, Make That $24 Billion — Tax Increase

April 29, 2013

  • Congress reaches for your wallet and activates the law of unintended consequences: The 5 muses what kind of legislative fix will follow the “unstoppable” Internet sales tax
  • The “top threat” to Bitcoin… and how it might only add to the alternative currency’s appeal
  • “Inflation targeting” that misses the target: Amoss with the one thing you need to know about the Bank of Japan’s latest follies
  • A socialist surrenders U.S. citizenship… the coin that never officially existed… real-world tales of pricey premiums on gold and silver… and more!

  “I have some concern about the legislation,” says House Judiciary Committee Chairman Bob Goodlatte.

Not that it’s stopping him from supporting an Internet sales tax. Not when it could raise $24 billion for state and local governments. (Where do they get these figures? It was only half that when we covered the issue in depth in late 2011.)

After 13 years of going nowhere, the idea suddenly has traction in Washington. Last Thursday, the Senate voted 63-30 to send the measure to a final vote one week from today, “and that tally is likely to be even more strongly in favor,” reports this morning’s New York Times. “House action, once seemingly unthinkable, may be unstoppable.”

Goodlatte’s “concern” notwithstanding, “We also recognize the fairness issue — certain items being taxed in certain circumstances, other items being not — is a problem for brick-and-mortar businesses, so we’re going to try and solve that.”

Ah yes, fairness. The bill’s even called the Marketplace Fairness Act. Who could be against that?

  Certainly not Amazon. “Sometimes the biggest enemies of capitalism are not socialists, but the capitalists themselves,” quips Jeffrey Tucker in Laissez Faire Today.

As we first noticed 16 months ago, Amazon is fully on board with the idea. With it, Amazon can throttle smaller online competitors who don’t have the means to sort out which of 9,600 tax rates apply to an individual customer. That is, unless those competitors buy proprietary software from Amazon to do the calculations. For which Amazon will take a 2.9% surcharge of each transaction, thank you very much.

A peculiar notion of “fairness,” this. What’s fair about a business in Virginia collecting sales tax on behalf of the state government in California? The business does not “benefit” from any of the “services” furnished by that government.

Indeed, you might say the Marketplace Fairness Act gives “brick and mortar” businesses a leg up on their online competition — especially if they’re located in a low- or no-sales-tax jurisdiction in a tourist spot, or near a state line. No doubt people in the northern suburbs of Boston do a fair amount of shopping in no-sales-tax New Hampshire.

To remedy this inequity, perhaps Washington will pass another law sometime in the next three-five years — forcing brick-and-mortar retailers to collect sales tax based not on where the business is located, but where the customer lives. In the name of fairness, of course.

The checkout clerk would have to examine your driver’s license. Which means even your cash transactions would henceforth have a paper trail.

Bitcoin, call your office…

100  “What attracts me to Bitcoin,” says stockbroker Dennis Daiber, “is the possibility to be in control of my own money, and to transfer that money without anybody’s say-so across the world in split-minutes, or seconds, with zero fees.”

Mr. Daiber appears to be part of a groundswell of Bitcoin support in the Kreuzberg section of Berlin. “We’re working,” bar owner Joerg Platzer tells the U.K. Guardian, “on establishing, as I believe, the world’s first Bitcoin-based local economy, using Bitcoin as an alternative local currency with global reach.”

Closer to home, New York’s Alvic Property Management is now accepting apartment rents and condo fees in Bitcoin. “When landlords provide more options, they open themselves up to larger pools of potential tenants, which ultimately increases property values,” says Alvic’s client-relations chief Michael Lacsa.

  “Stored in anonymous ‘electronic wallets,'” explains EverBank’s Chris Gaffney, “each Bitcoin unit contains a code that records its entire transaction history and identifies its owner at any single moment. This prevents owners from spending the same coin a second time.

“They are ‘mined’ based on a pre-defined mathematical algorithm. In other words, if you own a powerful computer that can crack some really hard math problems, you could ‘mine’ Bitcoin. Also, the more units of Bitcoin that are produced, the harder the randomized mathematical puzzles become. This limits the creation of new units of the currency. Similar to real physical mining, it takes capital, labor and time to ‘mine’ new Bitcoin units. And the production is subject to decreasing returns, which also resembles physical mines.”

This month, demand for Bitcoin overwhelmed the exchanges where it trades. The result on a chart looked like this…

“Obviously,” says Chris, “this kind of volatility is a big problem for Bitcoin.”

Regulation is another.

  “In recent weeks,” says the Financial Times, “several Bitcoin businesses have had their bank accounts shut down, suggesting traditional banks are getting worried about enabling the currency.”

As we explained in our virtual pages at the start of April, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) is offering regulatory “guidance” for digital currency.

“That agency,” writes digital currency expert Jon Matonis at American Banker, “has emerged as the top threat, at least in in the United States, to the decentralized Bitcoin network — more so than the widely reported price volatility and hacker attacks.” At least three U.S. Bitcoin exchanges have shut down since FinCEN issued its directives.

Meanwhile, TD Bank and Royal Bank of Canada have frozen the bank accounts of two Canadian Bitcoin exchanges. “They just don’t like Bitcoins,” says James Grant of Canadian Bitcoins.

Which might actually make Bitcoin even more appealing in some corners: “Its popularity,” suggests Chris Gaffney, “is yet another sign that people are losing faith in fiat currencies.”

Whether it’s worth your own time and money is something you’ll have to decide for yourself. But to help you make the most informed decision you can, the Laissez Faire Club has just released The Bitcoin Bible: The Safest and Easiest Ways to Buy, Sell, Store and Speculate.

Among the things you’ll learn…

  • The one thing you MUST do if you decide to fund a Bitcoin account…
  • The absolute safest ways to buy and store your Bitcoins…
  • How to make sure you’re not being scammed, hacked or tricked when opening your account…

This free report — compiled with the help of two renowned experts — is available now. Learn how to get your copy right here.

  Stocks are on the rise this morning. The major indexes are all up half a percent or better. At 1,590, the S&P is in striking distance of its all-time high on April 11.

In addition to a flurry of earnings reports, this week will bring both the ISM Manufacturing Survey and the Labor Department’s April unemployment report.

The Federal Reserve also holds its once-every-six-weeks meeting; its “policy statement” comes Wednesday afternoon. We’ll be spared a Ben Bernanke news conference this time.

  Whoops, the Bank of Japan just pushed back the arrival of its hoped-for 2% inflation from next year till 2015.

“Keynesian logic, hard-wired into central bankers’ brains, says the BOJ must print even faster to meet its inflation goal,” says our Dan Amoss. “Faster printing will not stimulate the private sector; it merely stokes government borrowing and inflation and intensifies the easy money addiction. In this environment, real interest rates will remain negative.

“Negative real interest rates are fertilizer for gold prices. The question gold bears must answer: What will drive real interest rates higher? Government bond yields are setting record lows: According to BofA Merrill Lynch’s Global Broad Market Sovereign Plus Index, average government bond yields worldwide are 1.3%.

“With low sovereign yields, the usual suspects will call for even more stimulus spending and printing. This sets the global economy on a trail that Japan blazed about a decade ago: central banks force interest rates below the natural rate where borrowers and lenders in the private sector would agree to transact; so why on Earth are pundits still predicting an imminent surge in private-sector lending and borrowing?

“A new private-sector credit cycle simply won’t arrive — not at today’s artificially low rates. You’d think a committee full of economics Ph.D.s would remember that price ceilings cause shortages. Imposing ceilings on interest rates will spur government borrowing. Banks will deposit even more reserves at central banks, and savers will keep piling into government bonds. As this plays out, the hopes that money printing will spark a sustainable global economic recovery will fade.”

  Gold is holding onto last week’s gains for the moment. The bid is currently $1,467. Silver’s up more than a percent, to $24.33.

  It’s come to this: Even avowed socialists are giving up their U.S. citizenship.

Corine Mauch was born in Iowa. “My relationship with the U.S. is limited to my very early youth,” she explains.

Indeed, she’s now the mayor of Zurich. Yes, the one in Switzerland. And she’s a leading member of the country’s Socialist Party.

At age 52, Mauch is surrendering her U.S. passport and retaining her Swiss one. “Neither the double taxation or any new directives on the taxation of U.S. citizens outside the U.S. have affected this decision,” she says in an email to Bloomberg.

“But I won’t miss the U.S. tax bureaucracy either.”

  A coin that officially does not exist has fetched $3.2 million at auction.

The 1913 Liberty Head nickel does not show up in the U.S. Mint’s records. 1912 was the last year of production, followed by the Buffalo nickel in 1913.

Only five are known to exist and their origins remain murky; a renegade Mint employee is the most common explanation. The one auctioned last Thursday in the Chicago suburbs is described by Wikipedia as “the most elusive” of the bunch.

According to The Associated Press, it was “discovered in a car wreck that killed its owner, declared a fake, forgotten in a closet for decades and then declared the real deal.”

The owner’s heirs — perhaps tired of all the drama — finally decided to unload it. “The winning bidders,” the AP reports, “were two men from Lexington, Ky., and Panama City, Fla., who bought the coin in partnership.”

Where they’ll keep it, no one’s saying…

  “He needn’t wonder,” writes one of our regulars in reply to the fellow who wrote in on Friday musing about “what they will do next. Maybe force us to buy U.S. Treasury bonds?”

“All he has to do is Google ‘Teresa Ghilarducci’ (oh, and just look at that pleasant smile in all her pictures. Ain’t it sweet!) to find out exactly what the plans are for us poor, unwashed masses by the self-proclaimed ‘elite.’ You know… the same ‘elite’ that caused this mess to begin with.”

The 5: We’ve been all over it for 4½ years. And in Apogee Advisory we identify the two warning signs that will tell you Congress is getting serious about it.

  “I hope,” a reader writes hopefully, “you are going to follow up on the paper gold versus physical metal. It looks like this is a big story emerging.”

The 5: We will. In fact, today we take an informal survey of the landscape courtesy of Greg Guenthner’s Rude Awakening readers. “In Florida,” writes one of his correspondents, “premiums on junk silver and silver rounds have gotten pretty ridiculous, especially compared with gold counterparts which are still 3-4% over spot.”

“While bullion is still available from my normal suppliers,” writes another, “the premium over spot has jumped from 4% to about 25% on silver bars. Coins have gone up even further if you can get them. Junk silver seems to be nonexistent at any price.”

“I went to see my local coin dealer yesterday,” says a third. “He had nothing to sell but numismatic coins. No bullion coins, no rounds, no bars, no junk silver.”

Very interesting. We want to hear more.

Best regards,

Dave Gonigam
The 5 Min. Forecast

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