Sunday, October 23, 2005

Stop The Competition

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 Stop The Competition

by Mark G. Brennan
by Mark G. Brennan

One of the first principles of free market economics is the idea of competition. For those who have any trouble believing this axiom here is a simple experiment. Go to a baseball game at Yankee Stadium on a hot summer day. After getting to your seat and baking in the sun for several hours, cool yourself off by purchasing a beer from one of the roving vendors. Oh wait. I forgot to add that before you leave your house, round up all your cash, credit cards, and checks because you will need them to finance your purchase. After buying your beer, enjoy its cooling effect while you steam at the price you just willingly paid to the monopoly vendor who works at the mercy of the indomitable George Steinbrenner and whose workplace, "The House that Ruth Built," is underwritten by the taxpayers of New York City, New York State and the Federal government (read: you).

Next, get on a plane and fly to Rio de Janeiro. Once you arrive in Rio proceed directly to Maracana Stadium, bake in the sun for several hours while watching a soccer game and then buy that same beer. Don’t even worry about exchanging your American pesos for Brazilian reais, worthless paper is worthless paper and Brazilians are not finicky about accepting your play money or their own. But right before purchasing your beer from the carioca beer vendor, call over another beer vendor and ask him if he can beat his competitor’s price. This will immediately start a price competition in which, even after including your airfare and hotel costs, you will still spend less than for that overpriced beer you grudgingly purchased and angrily drank while Steinbrenner laughed at you from his taxpayer-funded luxury box.

Needless to say, competition works and only those who are ideologically opposed ("Competition oppresses the poor and working people and is the tool of the capitalist overclass…"), illogical ("Competition oppresses the poor and working people and is the tool of the capitalist overclass…"…did I repeat myself?) or inane ("If we have unregulated competition then they there will be more beer vendors than spectators!") will find fault with this basic law. However, even though I like to think I don’t fall into either of the last 2 categories (you are free to disagree), Thursday night the US Senate may have disproved the axiom when it voted 93-1 to ban the IRS from developing software to "help" taxpayers file their returns. It appears that the lobbyists for Intuit, the tax preparation software producer, have saved us all from "competition" that ultimately would have done each American taxpayer grave economic harm.

In this case, competition under the guise of the IRS’ software development department would have made the DMV look like the benchmark of efficiency. Imagine its first action – farming out a no-bid contract to Halliburton for…for…well, I am not sure what purpose Halliburton would serve in this case but let’s just conservatively assume that Halliburton does in fact get a no-bid contract, perhaps to provide the "necessary" security for the IRS’ new R&D facility.

And how much might the IRS spend on R&D? Intuit has spent a little more than $740 million dollars over the last three years. Luckily for us taxpaying sheeple the cost was borne by the Intuit shareholders so if their tax preparation software never sold, they were the ones who would have suffered. Now imagine what the IRS’ budget for R&D might be. Intuit had the incentive and the know-how to produce its software efficiently. By contrast, when I go running my father always tells me, "You run slower than a tax refund." That statement adequately sums up the IRS’ efficiency. So we can probably assume the IRS would spend a multiple of the approximately $250 million per year Intuit invests in R&D.

Invests in R&D? That’s correct; Intuit invests in R&D because the owners of Intuit are looking for a return on their investment. The IRS has no owners so there is no investor monitoring how much it blows on R&D let alone if the product might even sell. Imagine the "IRS Software Development Agency." Just by the sound of its name alone it could be one of the largest tentacles of the Federal Leviathan employing thousands productively engaged in the delicate task of "simplifying" the separation of Americans from their hard-earned wealth. No budget would be too big and no project to complex for this government agency to squander taxpayer wealth in justifying its existence.

Having my world turned upside down by shaking my belief in competition I should probably not be surprised at comments made by two Senators after the vote. Nevada Republican John Ensign said, "The IRS should not be getting into a field where taxpayers are already well served by the private sector." I only wish Senator Ensign had spoken out during the pre-construction analysis of New York City’s multi-billion dollar elevated train recently installed between Jamaica, Queens and JFK Airport. This former, multi-year work project is presently bringing in a whopping $20,000 per month in fares. The yellow cabs and private van services were adequately transporting New Yorkers to JFK without forcing them to make an intermediary stop in Jamaica, a situation I would consider "well served by the private sector" as Senator Ensign said.

Senator George Allen of Virginia opined that the vote was a "great victory for the free market.'' He added, "The IRS should not be impeding competition from private sector innovators,'' and that "In order for private enterprises to flourish and provide jobs, entrepreneurs need to know that the government won't step in to compete against a product that's already in the marketplace.'' Reading those quotes might almost lead one to believe that these two Senators think coherently. However my cynicism leads me to think it more likely the case that they are both on a first name basis with the Intuit lobbyists.

The worst headache I ever had was in May 1988 as I was walking out of the New York State Certified Public Accounting Exam after completing the tax section. The tax preparation question was so convoluted that rumor had it no two test-takers got the same answer, let alone the correct one. Despite passing the exam I have had annual recurrences of those headaches, strangely enough always around mid-April. I have found the only relief is to visit my tax preparer and hand him a box full of tax receipts. Although I pay him a multiple of the retail price of Intuit’s tax preparation software, it is a choice I freely make. If Intuit starts selling its software at Maracana any time soon, I may consider switching but I will give him the opportunity to lower his price.

October 22, 2005

Mark G. Brennan [send him email] writes from New York City.

1 Comments:

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