Plunder, in the Name of Revenue

"Change is never easy, but it is the only way we can put New York back on the road toward fiscal and economic recovery."
-- Gov. David Paterson

Four months ago, I donned my best suit and snazziest heels to attend "Eyes on the Future," a local economic summit held in a college gymnasium that smelled vaguely of feet.

It was here that hundreds of Rochester, NY business execs and entrepreneurs gathered to whine into their Tim Horton's about the dreadful state of the Upstate economy. No jobs. Vanishing credit. Young college grads fleeing the state in record numbers. It was a real sobfest. The panelists on stage prattled on and on about non-issues like "attracting Millennial workers" and "how to better brand Rochester," all the while studiously avoiding the real elephant in the room: [i]The economy sucks because we made it so. The only way to make it better is to tighten our belts.[/i] To be fair, this is not a message that we New Yorkers are used to hearing.

Which is why I was so impressed with Governor David Paterson, who dropped by that day to give a surprise, impromptu speech. The same Governor Paterson who just declared war on the geeks.

In his brisk, toneless presentation, in which he barely paused for breath or punctuation, Gov. Paterson doled out some pretty rough justice, calling for immediate, drastic and specific cuts to government spending. He talked of change and tough times, and the need to face problems head-on, decisively. He even dropped the R-bomb — "recession" —months before most government employees could curl their lower lips to make the “R.” (One businesswoman on stage physically cringed when he said it.) It was just like watching John Wayne. If John Wayne were a lawyer from Brooklyn.

I was startled. Somehow — it could only have been by mistake — we New Yorkers had acquired a frank, no-nonsense politician in our highest office. Someone who might actually understand what it takes to revitalize a dying economy.

It’s important to understand just how Mr.-Wayne-Goes-To-Albany Paterson seems. Because otherwise, it won’t make any sense that I’m so pissed about his new budget proposal.

On Tuesday, the governor unveiled his ideas on how to close the state's $15.4 billion budget gap. It's been called a "doomsday proposal," one that Paterson himself said contains "extreme measures."

By "extreme measures," I assume he means "anti-intellectual, nickel-and-dime sabotage."

Gov. Paterson's budget is a love letter to King George III. He suggests raising taxes on wine, beer and cigars; removing caps on the already punishing gas tax; and adding new taxes on everything from movie tickets to baseball games to massages. He even boldly proposed a 21st century version of the Sugar Tax: an 18% tax on sodas and sugary juices, which he claims will cut down on childhood obesity.

Putting aside my moral indignation of having the State help me decide what to eat, what bothers me most are Paterson's new proposals on online transactions. For starters, Paterson wants to impose sales tax on all digitally downloaded products, including "prewritten software, digital audio, audio-visual and text files, digital photographs, games and other electronically-delivered entertainment services."

In other words, almost all the media I consume.

In addition, he wants to require out-of-state companies who do business in New York to form a "nexus" here, through which they'll collect state sales tax. This, he claims, will prevent a company from "avoiding charging sales and use tax on Internet purchases by creating independent but affiliated out-of-state entities to make those sales."

Meaning, I can only buy from State-approved Gamestops.

Setting aside the question of enforcement — I'd make a scary lawyer, and an even scarier cop — the new provisions raise several red flags.

Charging sales tax on downloadable content may seem like a great idea on paper, but I worry the move may encourage even more piracy over time. A 4% tax on your iTunes purchase may not seem like much, but we've become so psychologically attached to the $.99 price point that exceeding that by any amount — even just by four cents — will seem an outrage, or worse, a personal dig at a generation that chooses to purchase its media digitally, rather than physically. Nevermind that physical brick-and-mortars have been charging sales tax for decades. The very novelty of the tax will encourage piracy, at least in the short term, perhaps as a sort of protest. (I know I'd feel much less guilty bilking the government instead of a game developer.)

Normally, I wouldn't worry about the handful of people so cheap that they can't abide paying an extra four cents for a song, or an extra $2.40 on a next-gen game. But remember the main justification behind those vicious copy protection schemes wrecking up our hardware? [i]"We must do something about piracy.” [/i]What if there's a sudden, measurable influx of new pirates on the scene? Oh the fertile grounds of next-gen rootkits!

I'm also worried about that second proposal mandating "nexuses." Essentially, that means forcing companies — even independent, one-person operations — to create a new business entity, just to do business in New York.

Obviously the Wal-Marts and Microsofts and probably even Valve will comply and continue to offer goods to New Yorkers. But what about the smaller guys? Will the increased red tape (and presumably additional expense) diminish the incentive to do business in New York altogether? Does this mean that consumers will conceivably be unable to purchase games from Stardock, or some small indie developer living off paypal donations, simply because those vendors don't want more hassle?

Let me be clear: If Paterson takes away my Stardock, I'll be heading up the million-Kat march on Albany myself. Me and my 999,999 Facebook friends.

The crippling irony here is that one of the major complaints Gov. Paterson addressed in his speech — the flight of young college grads, and thus the loss of an entire generation of economic growth — is the very thing this budget proposal will accelerate.

Our brain-drain isn’t really news. New York has struggled with keeping the smart kids here for a long time. Students flock to the state to get educated, but few ever stay. It's a particularly bad problem here in Rochester, where the slowly sinking Kodak and Xerox offer even less incentive than ever for young people to stick around.

So what does Paterson suggest? Tax the very goods that appeal most to the younger, tech-savvy little engines of commerce he’s trying to court. Higher alcohol and cigarette taxes. An obesity tax for soda. New taxes on sporting events and movie tickets. And, of course, taxes on online content. He’s a one man wrecking-crew headed straight for Saturday night.

It's not that young people will leave New York simply because there's a 4% tax on their World of Warcraft subscriptions. Rather, it's the cumulative effect. They'll have to pay so much more for every little aspect of their daily lives — why should young people stick around when it seems the governor is singling their generation out for special treatment? (I noticed there were no proposed taxes on hearing aids or Metamucil.)

Look, I'm not naïve. I know that, realistically, our tax structure must be updated for the 21st century. As commerce spreads from the brick-and-mortar store to the virtual marketplace, so too should the ways society funds its communities evolve.

But is this really the best idea we can come up with?

This isn't the John Wayne I saw four months ago, swaggering across a stage and rustling whiny businessmen into line with tough talk about budget cuts. Looking back, I'm not sure who that guy was.

I mean, sure: The economy is tough. But it's even tougher when you're stupid.

Comments

I can not even imagine how you would go about enforcing an online tax like that. What if I live in New York cross the border with my laptop and download some software? What if i moved that software from my laptop to my Desktop? Does the tax only apply to software that comes in through the "nexus"? This is truely a strange move. I expect that this would cause a lot of companies to move to Canada or Mexico if it were implemented nationwide.

NathanialG wrote:

I can not even imagine how you would go about enforcing an online tax like that.

It's very simple, they'll just put little toll gates on the internet tubes.

Kind of makes me glad to live in KY where I'm not sure they could figure out that there is money on the internet to be taxed in the first place.

Zelos wrote:
NathanialG wrote:

I can not even imagine how you would go about enforcing an online tax like that.

It's very simple, they'll just put little toll gates on the internet tubes.

You laugh, but here in Canada, we already get taxed for DLC. When I purchase Wii Points or MS Points, I have to pay tax on it. You can't make an account in another country without a billing address in said country, so it's tough to avoid it. I'm not saying suck it up. I'd much rather see it go away here than come into play there.

So if I buy a game on steam in my office in Manhattan, do I pay tax, even though my billing address is in New Jersey? I'm also curious as to the application in relation to MS points. Do I get taxed at the time of purchase, or does that 400 point piece of DLC now cost 416?

Fine points, all.

It continues to baffle me how politicians, in the face of pretty much all of recorded history, can think it's possible to tax a constituency into prosperity. It's not quite as severe as killing the golden goose to get the eggs, it's more like hiring a team of toddlers to chase after the goose squealing while a slow, fat dude wearing swim fins tries to catch it.

Same here in Europe. VAT, baby... and it ain't Vault Assisted Tech. More like Value Added Tax.

You're in for a rough ride!

Don't forget about the additional tax on clothing under $110.

Maybe tv and computer licensing will be next.

oMonarca wrote:

Same here in Europe. VAT, baby... and it ain't Vault Assisted Tech. More like Value Added Tax.

You're in for a rough ride!

That was my first thought as well, but implementation of VAT for buying software online seems hit and miss from stores outside the EU, the rate they charge seems to be some random number between 15-21%. Plus, the EU is a market of 300+ million people, not one state in the US.

There are so many reasons not to live in upstate New York, where I moved from 14 years ago, that I can't seriously think that a few more taxes on recreation and luxuries are going to drive away someone who would otherwise be living there. My own take on the situation is that upstate has high taxes and business-unfriendly labor laws because it gets lumped in with New York City. People will always want to live in NYC, and businesses will always want to locate there, no matter how high its taxes are or how much of its workforce is unionized. Apply the same tax rates to upstate, however, and you get the economic dead zone that it's been for my entire life. People live in upstate because they have family there or because they like how pretty it is, $100 more a year in taxes isn't going to change their analysis.

iTunes and Guitar Hero syndrome - "look at all these potential revenue sources that are current en-vogue ... lots of potential income, whilst affecting a minimum of people who typically participate when it comes to election time" *sigh*

Alien13z wrote:

$100 more a year in taxes isn't going to change their analysis.

Try more like $3,875.

The state (and city even more so) of New York has always suffered from a severe sense of hubris. (One I inherited, being born a stone's throw from NYC.) "We get our way, because we're New York."

Sort of like the United States of the United States.

NathanialG wrote:

I can not even imagine how you would go about enforcing an online tax like that.

As a Washington State resident, I pay sales tax on purchases from Steam. I think they just look at your billing zip code and then charge accordingly. It sort of sucks, but oh well.

Anyway, my point is that in a lot of cases the mechanism is already in place to skim off that extra 4%. Someone just has to push a button to make it so.

Like most states, Washington is facing a similar budget crisis. Our governor just rolled out her new budget yesterday, which includes a massive cut to state funding for higher education. That jeopardizes a good chunk of my family's income, since my wife and I both teach music part time at the local college. I wish I had a 4% tax on downloaded products about which to be outraged instead.

KaterinLHC wrote:
Alien13z wrote:

$100 more a year in taxes isn't going to change their analysis.

Try more like $3,875.

State Republican legislators are a great source of unbiased information.

Higher taxes is inevitable.. and honestly we should all be so lucky that it will be enough to get us out of this.. because if not this country is headed for even worse times.

Podunk wrote:

I wish I had a 4% tax on downloaded products about which to be outraged instead. :(

I didn't mention the 14% raise on state school tuitions. What I listed off is really only the tip of the iceberg.

As one of those young college grads who migrated away from Rochester when I found there were no employment opportunities in upstate NY for any interesting fields, I can confirm that taxes on online trades will hurt the economy (even if it could be enforced). As for the other taxes...

Tobacco & alcohol taxes make sense: they are luxuries with recognizable external problems associated with over-consumption (ie. they tend to affect people other than the main consumer).

Soda: It is (to most people) a luxury good. But why tax soda instead of cookies, cakes, pies, coffee, doughnuts, or whole milk? The inconsistency about what is being taxed makes it a problem because it appears that government is trying to step into the role of "parent" by deciding what is good vs. what is bad for people, and imposing its will upon constituents. Besides, this tax doesn't address the root of any of the problems facing NY or the country.

Entertainment taxes: again, these types of taxes tend to hurt the people who most need help and don't really solve any core issues.

alingis wrote:

As one of those young college grads who migrated away from Rochester when I found there were no employment opportunities in upstate NY for any interesting fields, I can confirm that taxes on online trades will hurt the economy (even if it could be enforced). As for the other taxes...

Tobacco & alcohol taxes make sense: they are luxuries with recognizable external problems associated with over-consumption (ie. they tend to affect people other than the main consumer).

Soda: It is (to most people) a luxury good. But why tax soda instead of cookies, cakes, pies, coffee, doughnuts, or whole milk? The inconsistency about what is being taxed makes it a problem because it appears that government is trying to step into the role of "parent" by deciding what is good vs. what is bad for people, and imposing its will upon constituents. Besides, this tax doesn't address the root of any of the problems facing NY or the country.

Entertainment taxes: again, these types of taxes tend to hurt the people who most need help and don't really solve any core issues.

But what I'm asking is, if you had been able to find a job in Rochester, and you had one somewhere else as well, would these new taxes from Paterson ever be the variable which drove your ultimate decision about where to live? My point was that the job environment in upstate New York has always been horrible, and a few more consumption taxes aren't going to significantly change the degree of horrible.

Alien13z wrote:

There are so many reasons not to live in upstate New York, where I moved from 14 years ago, that I can't seriously think that a few more taxes on recreation and luxuries are going to drive away someone who would otherwise be living there. My own take on the situation is that upstate has high taxes and business-unfriendly labor laws because it gets lumped in with New York City. People will always want to live in NYC, and businesses will always want to locate there, no matter how high its taxes are or how much of its workforce is unionized. Apply the same tax rates to upstate, however, and you get the economic dead zone that it's been for my entire life. People live in upstate because they have family there or because they like how pretty it is, $100 more a year in taxes isn't going to change their analysis.

You ain't kidding about business unfriendly tax laws. I have a friend who used to own a small craft business. He made things like carved wooden trays and shelves. Nothing huge. He had to fold up shop because the state of New York taxed his inventory as if it were income.

So if he made four trays and sold three of them for forty dollars each, he would have been charged taxes as if he'd sold all four.

That was years ago, however, so I don't know if it's still like that.

Alien13z wrote:

But what I'm asking is, if you had been able to find a job in Rochester, and you had one somewhere else as well, would these new taxes from Paterson ever be the variable which drove your ultimate decision about where to live? My point was that the job environment in upstate New York has always been horrible, and a few more consumption taxes aren't going to significantly change the degree of horrible.

Agreed.

In terms of what factored into my decision to leave Rochester, Tax considerations were close to the bottom of the list (below A Great Job in Game Dev, Weather, Weather, Weather, Weather, Weather, Parental Proximity, Weather, Weather, Weather, etc.).

The fact that there were no good opportunities in the area is the fundamental problem that has to be addressed and is definately not one that can be solved (or even improved) by imposing these kinds of taxes.

If New York wants online dealers to establish a real world nexus, maybe New York should create an online Nexus in various communities. Maybe Gov. Tax-the-air should have his government agencies set up Second Life accounts and sell crappy avatar clothing or something to earn a few Lindies to cash in. If you've got people that can make a living in that app, a few dozen government-sponsored players could create a revenue stream to lower some of the burden of those bastardly proposals.

And yes I know that this is a silly proposal, but no sillier than building a bigass virtual wall around the state of New York.

caustic77 wrote:

If New York wants online dealers to establish a real world nexus, maybe New York should create an online Nexus in various communities. Maybe Gov. Tax-the-air should have his government agencies set up Second Life accounts and sell crappy avatar clothing or something to earn a few Lindies to cash in. If you've got people that can make a living in that app, a few dozen government-sponsored players could create a revenue stream to lower some of the burden of those bastardly proposals.

And yes I know that this is a silly proposal, but no sillier than building a bigass virtual wall around the state of New York.

I agree that it's hard to tax nexus, but I would guess that with every state facing similar budget deficits, a whole bunch of them are going to adopt similar rules. Then there'll be a big gathering of state taxing authorities and they'll figure out some way that, working together, they can actually make this happen. It's too much money for money-hungry state governments to leave untouched.

doubtingthomas396 wrote:

It continues to baffle me how politicians, in the face of pretty much all of recorded history, can think it's possible to tax a constituency into prosperity. It's not quite as severe as killing the golden goose to get the eggs, it's more like hiring a team of toddlers to chase after the goose squealing while a slow, fat dude wearing swim fins tries to catch it.

The issue isn't prosperity. The issue is that a budget shortfall exists because the services constituents expect or want exceeds the tax revenue coming in. Your two choices are cut services or increase revenues. He's simply going with the increase revenues option.

Higher taxes is inevitable.. and honestly we should all be so lucky that it will be enough to get us out of this.. because if not this country is headed for even worse times.

I am with GameGuru on this. Taxation often is an issue embroiled in NIMBYism. Most of us do not want our government to collapse, but few of us want to have our particular Item of Interest taxed more in order to prevent it. Tax those other guys, just not us.

I think it's important to understand that our economy is in really, really bad trouble right now, and as people get even more stingy with their money, it's going to take government spending to keep our economy from collapsing. And this means taxes. Maybe not now, but soon.

I do agree that I am not completely sold on Paterson's package either, but game piracy is the least of my worries now, and I am directly impacted by it.

TheGameguru wrote:

Higher taxes is inevitable.. and honestly we should all be so lucky that it will be enough to get us out of this.. because if not this country is headed for even worse times.

Not buying that. If the government is inept with the current income, why give it more?

Wait, I thought raising taxes during an economical crisis was bad? I specifically remember the television telling me this for months.

Oh... Did they finally figure out that they're broke? Damn. Taxes for everyone!

boogle wrote:

If the government is inept with the current income, why give it more?

I am really hesitant to wade into a political debate on a gaming forum, but let me point out that raising taxes is probably required to maintain income. If existing taxes are based on property values, income, and sales tax, then falling housing prices and lower incomes (and lower discretionary spending) means the government's income goes down without raised taxes.

This is a very general response because I don't think any of us want to wade into statistics and economic theory, which can get very dense. It also doesn't address your implied underlying philosophy that government, in general, should reduce taxes and services; that's a complex argument I'm not ready to have online.

He even boldly proposed a 21st century version of the Sugar Tax: an 18% tax on sodas and sugary juices, which he claims will cut down on childhood obesity.

Putting aside my moral indignation of having the State help me decide what to eat

Lara, I think the state already does in a way, with farm subsidies that make certain crops (like corn) much cheaper to grow; hence the artificially low price of corn, and the widespread use of (high fructose) corn syrup as a sweetener. Since the federal government doesn't seem to be in a hurry to end these subsidies, how would you feel about a tax on products that use corn as a sweetener?

(I am just making this up on the fly here, as Paterson might have been to some extent; I think he threw out an outrageous proposal so that when they "compromise" on something reasonable and enforceable, it looks great by comparison. Classic negotiating technique.)

boogle wrote:
TheGameguru wrote:

Higher taxes is inevitable.. and honestly we should all be so lucky that it will be enough to get us out of this.. because if not this country is headed for even worse times.

Not buying that. If the government is inept with the current income, why give it more?

It pains me to type the following. I agree with boogle.

Taxing the hell out of people is not the answer. Cut the fat in the government and make it more efficient, before you raise taxes on this type of stuff. After you have a lean working government with out the bull sh*t spending if you still are broke then raises taxes but never let that be the first step.

OG_slinger wrote:
doubtingthomas396 wrote:

It continues to baffle me how politicians, in the face of pretty much all of recorded history, can think it's possible to tax a constituency into prosperity. It's not quite as severe as killing the golden goose to get the eggs, it's more like hiring a team of toddlers to chase after the goose squealing while a slow, fat dude wearing swim fins tries to catch it.

The issue isn't prosperity. The issue is that a budget shortfall exists because the services constituents expect or want exceeds the tax revenue coming in. Your two choices are cut services or increase revenues. He's simply going with the increase revenues option.

Ding!

You can also increase debt to get over a hump. Boy is that popular. But then it never seems to get paid down. Then you start to look like California. I wouldn't endorse having the financial statements of California.