Wednesday, June 15, 2011

amazon associates

Amazon kicked me out of their "Associates" program because I am a resident of Connecticut. That state, as have a few others, recently passed legislation subjecting sales through state-based affiliates to the sales tax. Amazon is protesting such bills nationwide by terminating affiliate contracts like the one I absent-mindedly signed up for a week ago. They claim the taxes are unconsitutional, as online traffic is protected by the commerce clause.

I think this is bullcrap.

Internet and catalog sales are already subject to the use tax, the ubiquitous but rarely obeyed companion to all (I think all) state sales taxes. The states are attempting to enforce, where they see legal nexus, i.e. with affiliates, the established use taxes. Given the situation with state budgets, to enforce existing, widely flouted tax laws seems like a reasonable idea.

The moritorium on taxing online sales was established in the 1990s as a way of encouraging an exciting new growth-industry. It seems to have worked. Well, whether or not the moritorium had any role in the explosion of e-commerce, online sales without a doubt have thrived. In fact it's the old-fashioned way of shopping that seems vulnerable today. Blockbuster and Borders are pretty much gone, driven out of business by online rivals, mainly Netflix and Amazon.

It would be a shame if the existence of online shopping continues to diminish oour access to stores. Stores are places to gather. They also offer an effortless way to see what the world offers. Videos are in three dimensions organized by genre, alphabet, and nation of origin. A bookstore table might be heaped with a hundred new novels the staff recommneds. At the moment, Americans are strolling through stores and shopping online. They get the benefit of both. But one business model is profitable and thriving while the other is weak and looking for ideas.

Equalizing the sales taxes we pay in the two ways we shop would be a good place to start. I don't see how that's not fair. Why should someone who buys via internet or catalog pay less taxes than someone patronizing a local store? Given the communal and eductional benefits of stores, you might argue they should pay less taxes than an online merchant, who extracts business from your state's resident without delivering your state a three-dimensional amenity.

But now Amazon, another corporation enjoying the benefit of existing law, has found someone to bully, and twist their arms into helping to preserve their sop. In this case, the victims, of all people, are their affiliates! These are small business people who steer business to internet retailers and earn a small percentage in return. The contrast in the personas of the players involved is almost comical. The thriving internet retailer who is putting bookstores out of business is fighting to withhold pennies from strapped state governments by terminating the tiny business operations of local resellers, the lowest-cost route to entrepreneur status for people with spare time and a desire to work from home.

I say tax Amazon sales and damn their whining!

Thursday, March 10, 2011

Regulate Pill Prices

My friend Sudip came up with a public policy idea so simple and logical, I am surprised I haven't heard it before. It's a powerful idea that could make an enormous difference for the American economy and the federal government deficit.

First, observe the anti-dumping laws in our trade regulations, which prevent non-US manufacturers from selling products at a loss in the states. Dumping is considered a predatory practice, an investment foreign companies make with the goal of hurting their American competitors, while they make their profits elsewhere. The US government protects American manufacturers by regulating multi-national pricing practices.

Now take the pharmaceutical industry. It is well established that the multinational pharmaceuticals earn their profits in the United States. In the developing world, people can't afford to pay anything close to US prices. In the developed world, away from the states, governments negotiate with manufacturers and set prices, generally far below US prices. Here in the states, the market determines how much the drug companies can charge. Certainly, health insurers can negotiate more effectively than individuals can, but they don't get help from regulators. In fact, legislators know how important US profits are to the pharmaceuticals, so they protect this industry from regulators who might want to side with consumers. So life-improving or life-saving pills are available here, and often invented here, but we pay fifty times what our friends in India pay.

While the practice of regulating prices and the relative profitability of selling in different countries is well established, it is employed only to protect US business. American consumers are asked to provide big pharma with almost all its profits, while sales abroad clearly prove that pills could be made and sold profitably for much less.

A profitable pharmaceutical industry is a critical player in American health care and we are fortunate to have them as a part of our compelling economic arsenal. And clearly profits drive them to perform research which can lead to newer better drugs with luck and a lot of money. But health care costs in the US are famously unsustainable. Governments, corporations, and individuals who pick up the tab for our health care cannot make their future budgets balance, because health care inflation has been steadily above inflation in other goods. Why should the American consumer, the sick consumer in particular, be asked to shoulder the whole subsidy, while the rest of the world free rides on the latest science?

Pharmaceuical companies that sell drugs in different countries should not be allowed to vary the price as they see fit. Why not say the US price can't be more than, say, 25% greater than the average price in the next five highest-price countries? That's far from "most favored nation," and would still leave a lot of profitability and incentive to do research. The US consumer would benefit, insurance carriers would benefit. US non-pharma business and government would benefit. Other rich countries might see a price increase for their pills. But the pricing would be much more fair.