Showing posts with label sin taxes. Show all posts
Showing posts with label sin taxes. Show all posts

Sunday, February 5, 2017

Non-Selective Legalization of "Sin"

Below is an interesting discussion from Facebook re: legalizing sex work.

Legalization involves two primary questions: 1) do you want the government to generate taxes from in-demand activities and use those taxes to battle unregulated activities; or 2) do you want the middle class to fund an ever-expanding war against mafias who have no competition outside of themselves, a matter easily resolved by cartels and territory carveouts?

CK: [Posts link to National Human Trafficking Day]

MM: One solution is to legalize solicitation, use police resources to protect sex workers, and tax the activity. Am I the only person who thinks it's counterintuitive to make x illegal when x has always had high demand, then raise taxes to fight x while criminal elements profit from x, requiring taxes to be raised continuously to combat illegal demand? What is more preferable? A continuously expanding police state that's almost always at a disadvantage against more profitable criminal forces, or legalized solicitation as a taxable activity and lower profits and influence for criminal groups (who now have competition)?

CK: What about the girls who didn't have a choice in the matter? It's why it's called human trafficking. [And] Making it legal is going to somehow make the pimps less greedy and take less girls because more women will voluntarily be sex workers because it's legal? I don't think so.

MM: If legalized and taxed, wouldn't such women have more choices and places to get help in the "formal" economy rather than being completely trapped in the informal/underground economy? Remember: by taxing the activity, more funds would be available for social services as well as police. Right now, taxpayers are revolting against government programs that do not directly benefit themselves because they see higher taxes but not better quality of life.

Playing cops and robbers in the modern era by raising taxes on law-abiding residents is backfiring by creating more debt and/or unchecked police expansion. The police simply cannot keep up against better funded, better equipped criminal groups, requiring them to demand higher taxes to expand capabilities; and to partner with federal agencies, losing some independence. By taxing an activity that already occurs due to high demand--and assuming political corruption is kept to a minimum--an independent revenue source would make it easier to fund social programs that help the very people you intend to help, but without the spectre of a continually expanding police state.

The police and federal LE agencies would still combat human trafficking, but they wouldn't be at such a disadvantage in doing so, and they wouldn't be in a position where their interests diverged from local taxpayers.

MM: You wrote, "Making it legal is going to somehow make the pimps less greedy..."?

In a way, yes. When the government competes wth criminals, they can put the criminals out of business. No pimps means better recourse for women who are in this industry. Whom would you rather regulate sex workers? Someone like you, subject to specific legal procedures, or an unregulated pimp who can use violence?

Remember: women who are trapped are still going to be helped, but with greater tax revenue, more middle-class taxpayer support, and less shame, because their activity will be somewhat "normalized" via gov fiat and will be under a more sustainable tax funding system.

You're also missing a key benefit--under legalization, police resources cannot be used against sex workers under any scenario. In fact, the reverse occurs--sex workers would be able to trust police, knowing that no court could possibly fine or jail them.

GL: According to countless studies, the vast majority of women who "volunteered" to be sex workers were sexually abused in the past. Healthy people don't do things like that for money. It's degrading, disgusting, and harmful to everyone who participates in it, whether they are willing to admit it or not.

MM: So what's your plan on eliminating sexual abuse? It's as if you're saying that the vast number of car accidents are caused by drunk drivers, so obviously we need to ban alcohol. It didn't work in Prohibition because the demand was still there. As long as demand for something [nonviolent] exists, we can either cede its business (and profits) to underground forces, or we can try to eliminate or weaken them through direct competition.

GL: Thank you for your question, and especially for writing respectfully about an issue on which we disagree. Here are my thoughts: "Ua Mau ke Ea o ka ʻĀina i ka Pono."

This is the state motto of Hawaii. It can be translated as "The life (or sovereignty) of the land is perpetuated in righteousness." Only by doing what is right can our communities, our nations, and our civilizations be preserved.

Demand for something evil is not a legitimate argument for its legalization. For example, there is a demand for hit men (murder for hire), and has been since time immemorial. While enacting and enforcing laws against this evil may not eliminate it completely, this course of action is infinitely favorable to the alternative of making our government by the people implicit in murder.

I respectfully refuse to concede that the best way to eliminate evil is to compete with it on its own terms. As Dr. King so eloquently stated, "Darkness cannot drive out darkness; only light can do that."

To your question on how to stop sexual abuse, I would highly encourage you to read the fightthenewdrug.org website. The movement is modeled after the anti-smoking movement, which reduced demand for tobacco from roughly 42% of the U.S. population to just 15% today, all by promoting awareness. Fight the New Drug has tons of great examples, success stories, and research-based ideas for combatting the abuse that is the foundation of sex for money.

MM: Thank you for your response. I've amended my comment above to specify that I meant demand for nonviolent products or services.

Once upon a time, Americans believed alcohol was evil. Who gets to decide what is evil? IMHO, the issue is whether the service or product is unduly coercive, which eliminates any violent products or services from the legalization discussion.

Your argument is more nuanced. You are essentially arguing that sexual services are the result of violence and are therefore a product of coercion. Such an argument fails because it is too broad and gives unchecked discretion to gov officials. For example, a paternalistic gov could ban violent video games because they are inspired by violence. Yet, something is not evil merely because it is connected to violence or evil--otherwise, all militaries would be banned.

To truly achieve a viable solution against coercive services and products, we must focus on services that directly compete with them and that seek to remedy the direct violence or evil that creates the services and products you dislike.

Legalization of drugs and sex is one path that creates direct competition and in doing so, weakens the underground entities' ability to use violence (pimps, etc.) to support their businesses. Using the new tax revenue from such legalization would also allow the greater social services you support, and in a much more consistent manner. Over time, if the social services are done properly, and if your premise is correct about the reasons some people participate in sex work or use drugs, then the evil you seek to destroy would be destroyed.

If such an endgame is achieved, however, it won't be done through ever-expanding cops-and-robbers battles between gov and mafias, where cutting the head of the current mafia or cartel boss merely results in another leader entering the void. It will be done through better economic opportunities for all persons and through more sustainable and politically viable ways of funding social services, such as increased tax revenue from legalization.

Bonus: more here on the specifics of legalizing prostitution.

Bonus: I just watched a documentary on human trafficking. The problem is that once taken away from their parents, teenagers or younger women are isolated and under threat of constant violence because the pimps don't leave their side and confiscate their phones. They are too ashamed to call their parents, and do not trust the police.

One solution would be to designate all hospitals as "safe spots" for trafficked persons. If a person shows up and says she's a trafficked person, the hospital staff must immediately assign a guard to her and alert a social worker. The social worker would open a case file, work with the police, and provide shelter until the woman could be reunited with family.  If the person has no family or doesn't want to return to her family, then she would be given access to the same social services as others and/or a woman's shelter. It is surprising that as of now, there are no universally accepted places where trafficked victims may seek safe shelter without threat of prosecution or forced interaction with police.

Bonus: watch Bigger, Stronger, Faster (2008) for an eye-opening view on steroid regulation. 5/5 stars.

Wednesday, June 3, 2009

Core-Mark Annual Shareholder Meeting (2009)

I attended Core-Mark's (CORE) annual shareholder meeting on June 2, 2009. The meeting was held in a small conference room at the Hyatt Regency San Francisco Hotel. The only refreshment offered was Starbucks coffee. I was a little disappointed, because food-related companies sometimes display their own products. I did not get a chance to try Java Street items or other Core-Mark products.

Around eight people sat in the audience. Core-Mark's executive team, except for the CFO, sat in the front. Other than my friend and I, everyone attending the meeting had a business or employment relationship with Core-Mark. The Chairman of the Board handled the formal part of the meeting.

Core-Mark started out as a tobacco storefront in San Francisco. It grew into a major supplier of consumer goods to various retailers and became known as Fleming Companies. In 2003, Fleming Cos filed for Ch 11 bankruptcy/reorganization. In 2004, Core-Mark emerged from the ashes of Fleming Cos. For more information on Core-Mark's history, click on the following link:

http://en.wikipedia.org/wiki/Fleming_Companies,_Inc

Cigarettes and other tobacco products accounted for 74.9% of Core-Mark's net sales in 2008; however, cigarette sales accounted for only 29.2% of Core-Mark's total gross profit in 2008. (See 10K, page 3.) In short, while Core-Mark continues to sell cigarettes, it has revamped itself into a food/consumer kiosk company. Food and non-food (batteries, etc.) products accounted for 71.0% of Core-Mark's gross profit in 2008. (See 10K, page 4.)

Core-Mark supplies convenience stores, such as 7-Eleven, with refrigerated kiosks containing various products. These kiosks contain packaged salads, bakery items, drinks, sandwiches, juices, fruit, and other items. Core-Mark touts its ability to re-stock its kiosks several times a week, which allows customers to select fresh food. In other words, Core-Mark strives not to be like your grandmother's food kiosks, which tended to sell month-old sandwiches, cigarette packs, and stale candy.

I was the only person who asked questions at the meeting. CEO J. Michael Walsh graciously answered all my questions. I asked how the company would deal with declining cigarette sales and higher "sin"/SCHIP taxes. Mr. Walsh answered that cigarette consumption has been declining for a long time, and as a result, Core-Mark had consciously shifted to the new consumer trend, which was selling fresh food products. He said that Core-Mark wanted to become the leader in fresh food products.

Mr. Walsh also said that higher cigarette taxes actually helped Core-Mark's bottom line. He indicated that rising cigarette taxes allowed Core-Mark to get a higher return on its "working capital." This concept is a bit counter-intuitive, but I will explain it as best as I can.

According to the CEO, Core-Mark must buy "stamps" from states before it can purchase cigarette cartons. These state-issued stamps allow Core-Mark to purchase a certain number of cigarette cartons over a certain period of time. Different states levy different taxes per carton. In California, the current carton tax is $8.70; it is higher in New York.

The "stamp" process functions as a VAT, allowing states to ensure they are paid carton taxes up front rather than at the final point of sale. This process helps states keep track of cigarette sales and may reduce the black market for cigarettes. This system is not perfect. Some entrepreneurs buy cartons in states with lower carton taxes and then illegally re-sell them in nearby states that have higher carton taxes.

Higher carton taxes may help Core-Mark, because Core-Mark buys "stamps" at the beginning of the month; however, it does not have to actually pay for the stamps until later--sometimes up to 30 days later. In the meantime, it still receives its allotment of cigarette cartons and the cash from those carton sales/distributions. That regulatory quirk means Core-Mark sometimes gets a "free" money float of up to 30 days, which helps increase its liquidity. In short, the way states issue "stamps" may result in some companies receiving temporarily subsidized cash flow, which minimizes capital costs. (I hope I've explained this correctly--if not, feel free to correct me by adding a comment.)

Mr. Walsh also indicated that Core-Mark was in a position to consolidate deliveries and take market share from less efficient competitors.

I then asked why cigarette companies wouldn't decide to sell directly to customers, thereby eliminating Core-Mark as a middleman. Mr. Walsh replied that doing so would cost cigarette manufacturers "more money." They would have to "build the infrastructure" first and deal with the "administrative burden" of handing 100,000+ billable accounts. In fact, Mr. Walsh said that some cigarette companies, such as Philip Morris (PM), were favoring third parties as distributors to cut costs. Mr. Walsh's explanation makes perfect sense. If Core-Mark has a highly efficient supply/distribution chain, then its advanced inventory management might act as a wide moat. Walmart, for example, is able to cut its costs by having superior inventory management, but its internal tracking system took years to develop.

I then asked about Core-Mark's pension plan, which is underfunded. (See 10K, page 11.) Under ERISA and other laws, different levels of pension underfunding trigger different corporate fiduciary duties. Companies typically indicate pension funding levels by referring to one of three funding categories: "80% and under"; "80% to 60%"; or "60% and under." When a pension plan falls in the "60% and under" category, it may be a sign that pension assets and investments are being poorly managed. Core-Mark's CFO indicated that the pension was at the 60% level.

I then asked about Core-Mark's executive team and board, which appeared to be non-diverse. More specifically, all Board members appeared to be older Caucasian men. I asked what Core-Mark was doing, if anything, to increase its executive team's diversity. Mr. Walsh pointed out that Core-Mark's CFO was obviously not a white male (she is a white female), and the company was open to diversity. He said that Core-Mark was always open to qualified candidates. Mr. Walsh also indicated that the Board was chosen by Core-Mark's unsecured creditors following Core-Mark's Chapter 11 filing. (In other words, the unsecured creditors were responsible for the Board's composition, and they might be the more relevant party to contact on this issue.)

For a company that was in bankruptcy court just five years ago, Core-Mark has done remarkably well. I especially enjoyed CEO J. Michael Walsh's demeanor and responsiveness. Unlike many CEOs, he answered every single question thoroughly. He had no trace of the arrogance so common in upper-level management. It was a pleasure to meet him.

I had only one issue with the meeting. The Chairman interrupted me once when I was in the middle of a question to ask me for my name, how I held my shares, and the number of shares I owned. He asked me these questions after I had already announced my name and shareholder status. I thought it was inappropriate to ask me how many shares I owned. A shareholder is a shareholder, period. Companies should welcome questions from all shareholders, not just major ones. To date, this is the only company I've seen that has requested this kind of information, i.e., the number of shares held. (There was another issue, but it was minor--a shareholder relations representative wanted me to fill out a name-tag and then complained that my handwriting was illegible. Note to all shareholder relations personnel: you get one day a year to make ordinary shareholders feel welcome. Use it wisely.)

I don't have an opinion on Core-Mark's stock. I haven't bought products from their kiosks, and I'm not a smoker, so I don't have sufficient personal knowledge to state an opinion. It does appear, however, that Core-Mark provides a valuable service to many convenience retailers.

Note: the picture above is of Mr. Walsh and myself.

Disclosure: I own an insignificant number of Core-Mark (CORE) shares.

Update on June 5, 2009: The more I think about the sin/stamp tax issue, the more I think I may have reversed the payment schedule. Perhaps CORE has to buy stamps first and then wait a month or more before receiving cartons to distribute. Otherwise, I am still unclear as to why CORE would make more money when the number of smokers decline. Any comments are appreciated.