From the constantly observant Mark Perry:

New Mexico and its neighbors have begun to enjoy the shale oil boom.

EIA attributed the production increase to the application of horizontal drilling and hydraulic fracturing technology to low-permeability rocks to the growth in U.S. oil production. Enhanced oil recovery techniques such as carbon dioxide injection also are boosting production from conventional reservoirs.

So, what is it, peak oil or peak idiocy? Take your pick.

Under the guise of “public awareness” the Center for Civic Policy has been calling legislators to complain about their support of the recent “tax package:”

A New Mexico nonprofit has launched a “public awareness” campaign highlighting the votes of state lawmakers on a massive tax package approved on the final day of this year’s 60-day legislative session.

They’re correct to criticize the haste and secrecy with which the “tax package” (the main feature of which was to reduce the corporate income tax rate from 7.6% to 5.9%) was put together at the end of the session. But did anyone happen to see if they made similar criticism of the way the (Un)Affordable Care Act was put together with the similar haste and secrecy? It would be nice if political process was open, careful and informative. But, unfortunately politicians, having incentives like the rest of us, act like politicians. It’s time we all recognized that as a fact of life.

Let’s clear up some of the Center’s economic confusion by briefly summarizing some basics of taxation related to NM’s corporate income tax:

Corporations may be legal entities responsible for the corporate income tax. But corporations don’t actually pay the tax, only people pay taxes. The actual tax is borne by the owners of the corporation and its customers.

Corporations are a source of prosperity in that they make up a potential supply side of voluntary exchanges between them and their customers. Those exchanges, voluntarily entered into, would not take place unless both parties to each exchange benefited. Onerous tax policies like NM’s corporate income tax reduce voluntary exchanges and prosperity.

New Mexico has the worst (or close to it) corporate income tax regime in the country. While the rate may now be a bit lower, its formula for determining the amount of income subject to the tax puts New Mexico corporations at a huge disadvantage compared to other states.

Since the corporate income tax is so awful, it’s quite possible that the reduction in its rate will actually increase revenue. That would certainly be the case with even lower rates and a more reasonable definition of income subject to the tax.

Further exacerbating the bleak tax picture for corporations is NM’s gross receipts tax. Since they pay gross receipts tax on many services that are inputs to production, they are at a disadvantage relative to other states where services are not taxed.

New Mexico needs further tax reductions by making the corporate income tax and gross receipts tax less onerous. But if the Center is really concerned about tax revenue (I’m not — government has already overreached), then they should be concerned about actually having someone to tax.

The following comment from one Hazel Meade appeared at Marginal Revolution today re problems with the (Un)Affordable Care Act:

The banning of catastrophic-only plans infuriates me the most. Those are the only plans that are actually financially sensible for a healthy individual to purchase. Everything else on the market is a perverse by-product of the employer-based insurance system.

Worst case scenario with a catastrophic-only plan is you end up with $10,000 in debt. That’s a debt load many times smaller than what the Federal government thinks students should take out to get a college degree. We’ll let you borrow $100,000 to get a sociology degree but, we think that $10,000 is an unconscionable amount to pay for medical expenses? So unconscionable that we have to FORCE YOU to buy a plan with more extensive coverage?

Of course, we all know the real reason for this. it’s meant to force healthy young people to subsidize healthcare for older sicker people. Just force them to pay more for insurance than they ought to, and force them to buy more extensive coverage than is rational.

I’m a nice guy and I’m getting up in years (at least that’s what my wife tells me). Yes, Hazel’s birth control pills and treatment of tennis elbow may cost a bit more as part of her “insurance” premiums; but she should feel rewarded rather than infuriated! She’s helping fund my health care.

Aren’t you sure that the wise folks who passed and are implementing the (Un)Affordable Care Act understand the trade offs involved? They understand that younger folks like Hazel need a little nudge (okay, a shove) to provide for us nice old folks. And they truly understand that now we will get all the health care we need.

Oh, and a good many of us nice old folks forget to say this, thank you, Hazel.

I spoke to the Farmington-based Tri-City Tribune recently on the issue of LNG exports. That article can be found here.

The Wall Street Journal had this extremely favorable editorial this week on LNG exports but criticized the Obama Administration for “regulatory indecision” that is threatening to cost US producers of natural gas in the battle to supply the fuel to customers around the globe.

Also, columnist James K. Glassman has a column explaining how, while President Obama may have had a tough hand when he entered office, he has (or could have been) the beneficiary of some significant, positive developments in the energy sector that would have the US economy humming into recovery rather than sputtering along.

Lastly, yet another study on fracking (this one from Arkansas) has found no groundwater contamination resulting from the drilling technique.

Apropos of Paul’s January series on needed regulatory reforms (examples here and here), John Stossel’s blog has a nice summary of how counterproductive regulations emerge in political process.

Even when regulators mean well – when they worry about safety or whether customers get basic services – regulations are based on the old, familiar ways of doing things, simply because regulators don’t know anything else. That’s great for old, familiar firms – but bad for the innovative startup that wants to try something different. And bad for consumers who might have benefitted.

The late Mancur Olson explained how privilege-seeking interest groups successfully obtain government favors. His path breaking book may be found online here.

Assuming that government exists to maximize prosperity within its jurisdiction, the problem is how to change the incentives of legislators, bureaucrats and regulators so that they are more resistant to privilege seeking. That is a steep hill to climb. Their human capital is invested in the status quo.

Go here to read my explanation of how government overreach reduces prosperity along New Mexico’s border.

One Dan Metzger and I have had a bit of an ongoing debate on the pages of the Albuquerque Journal business section recently (another installment from Metzger appeared today). My initial response is available here.

I don’t really think that Metzger brought up any new points in today’s letter and that the discussion has largely played itself out, I figure that an online response is worthwhile. Obviously, Metzger and I view the economy very differently.

His approach is very Keynesian. Government needs to spend more money in order to stimulate the economy. Nothing is said about the relative efficiency of government spending as opposed to private sector spending, nor are the inefficiencies inherent in the millions of government regulations foisted upon the economy that serve to create “wedges” between willing buyers and willing sellers in an otherwise free market.

Metzger mysteriously blames “private sector” for the economic crisis (omitting Fannie Mae/Freddie Mac, the Federal Reserve, and regulatory incompetence) and concludes by stating that the US will “always make its interest payments” because it can print the money.

Because hyperinflation is exactly what we need:

The US Senate, with the support of New Mexico’s Martin Heinrich and Tom Udall, recently passed legislation called the “Marketplace Fairness Act.” The idea behind the legislation is to set up a new taxation regime that would allow states to collect sales taxes on ALL online sales.

Currently, due to the US Supreme Court’s Quill decision of the early 1990s, online merchants must collect all sales taxes due if they have a physical presence in a particular state, but “mom and pop” merchants are not forced to act as tax collectors for the 9,600+ taxing jurisdictions throughout the United States. According to tables available online from New Mexico’s Tax and Revenue Department, there are 24 taxing districts in Bernalillo County alone and easily more than 100 statewide.

The complexity point is key because it is not that consumers do not owe taxes on online purchases, rather, the Court decided that the burden of forcing a small business to collect taxes at so many different rates with products defined differently, and with documentation required on a variety of schedules and in different formats, was unreasonable.

The Marketplace Fairness Act would require the creation of a complicated and expensive system for tracking where consumers live, what they buy and how much it costs. After all, as Overstock.com CEO Patrick Byrne notes, “In one jurisdiction, cotton candy is food; in another it’s entertainment or candy.”

Thankfully, Gov. Martinez has taken a firm stance against a convoluted system of Internet taxation, but the same cannot be said for many governors and legislators of both parties who, hungry for more revenue, are supporting a policy change that would undermine the small businesses that have sprung up to do business online, thus cushioning the blow of the current slow-growth US economy.

One Albuquerque-based business owner that I have spoken to has stated that he would no longer sell his product online under an Internet taxation regime as set up under the Marketplace Fairness Act. The issue is not an unwillingness to have his consumers “pay their fair share,” but the compliance costs that involve submitting documentation, often on a monthly basis even if his company has no sales in that particular jurisdiction.

He is by no means the only small business owner with an online presence to face negative repercussions from Congressional overreach on Internet sales. It is one big reason why Ebay, Etsy, and their small, but numerous sellers oppose the Marketplace Fairness Act while the online behemoth Amazon has become one of the primary advocates for the Act.

Of course, many governments are hungry for the revenues that Internet taxes would bring in. Many of them argue that these taxes will force online retailers to “pay their fair share” for all of the services they use. The reality is that Internet merchants don’t burden local infrastructure like traditional retailers and “big box” stores. These companies, not the online retailers, are using the roads, sewers and schools.

Rather than burdening small businesses with additional compliance costs, states should consider shifting to an “origin-based” sourcing rule for sales taxes.

A destination-based sourcing rule requires businesses to collect sales tax defined by the physical location of the buyer, whereas an origin-based sourcing rule would require sales tax collection defined by the physical location of the seller. After all, if the seller is burdened with collecting taxes on behalf of the government, the revenues generated should at least be used in part for the benefit of that seller.

Better still; unlike the Marketplace Fairness Act which relies on collusion among the states and thus requires the blessing of Congress, the origination-based approach encourages federalism and competition among the states to be as attractive as possible for potential Internet vendors.

Taxing Internet sales is a complicated issue. The trick is to balance genuine fairness and reasonable regulations while respecting federalism and encouraging interstate competition. We can do better on each of these fronts without the Marketplace Fairness Act.

Paul Gessing is the President of New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility

I ran across this column from the Investors Business Daily which outlines some of the positive economic data coming from Texas and juxtaposing that data against the struggles of the national economy.

It’s a good article so far as it goes, but it doesn’t explain what makes Texas so darn attractive to entrepreneurs and businesses.

For starters, it has no personal income tax (New Mexico’s rate is 4.9% which is down from 8.2% a few years back thanks in part to Bill Richardson);

Texas is a Right to Work state meaning that workers cannot be compelled to join a union as a condition of employment (New Mexico has no such law);

Texas has a corporate income tax rate of zero while New Mexico’s will be 5.9% even after the recent corporate income tax cuts are phased in five years from now;

The aforementioned issues are all under the control of Texas’ elected officials, but Texas is also blessed to have less of its land mass owned by the federal government which allows the state to utilize and benefit from a far greater percentage of its land:

HT: Roger Mickelson

It has been a busy week, so I am just getting around to responding to an article by Winthrop Quigley that appeared in the Albuquerque Journal earlier in the week. The headline was “Health Exchanges Faces Challenges.” Well, of course, I thought, the “exchange” concept is unproven, the software needed is extremely complex, and requires input from disparate parties from several different parties. View the exchange flow chart that appeared at the Washington Post’s blog site from Xerox below:

But no. Rather than outlining the very real difficulties with setting up these exchanges (and why that presents problems for the law itself), Quigley simply attacks the views on ObamaCare expressed by Dr. Deane Waldman and HSD Secretary Sidonie Squier, both of whom are on the exchange board (implying that they are the aforementioned “obstacles”). Sure, it is a challenging position to be in to assist in the implementation of a law that you have serious misgivings about (and Quigley could also have done a piece exploring those realities), but apparently he’d prefer to disparage those who have expressed concerns about the law.

For the record, RGF has serious concerns about exchanges (which indeed have received support of organizations like the Heritage Foundation). I wish Waldman and Squirer the best as they work to implement this law (I could not do what they are doing).