Tuesday, February 17, 2009

Recession Special Series: Three Jeers for Bureaucracy (Part 3 of 6)

NEW YORK, New York -- Bureaucracy sucks. So on a day when President Obama signed one of the most expensive single pieces of legislation ever into being, here's three low-cost ways to beat back the maddening bureaucracy horde:

1. Simplify taxes. This sounds obvious. But the man who ultimately oversees the IRS, Treasury Secretary Timothy Geithner, claims he didn't pay tens of thousands of dollars in income taxes in the 1990s because he didn't understand the system. Ditto for other high-profile Obama administration nominees including Tom Daschle and would-be performance tsar Nancy Killefer. Whether or not they were honestly tripped up by the tax system, I can say that I have great difficulty figuring out how to do my taxes, even with TurboTax. I always feel it's a bit of a crapshoot whether I pay correctly. And with an estimated $300 billion not collected in taxes each year, there's no denying that the system is inefficient. 

To maximize tax revenues and minimize confusion, Washington should streamline the way we pay income taxes. That means simplifying the forms by putting them online and allowing taxpayers to electronically connect banking statements to their tax forms, and making it clear exactly what percentage of one's income they should be paying. Other potential solutions merit closer review, including analyses of what marginal rates (without raising taxes) would optimize tax collection revenues. If the government could actually raise more money by charging some people less, it of course should.

2. Simplify bureaucracy for businesses. One of the great strengths of the US economy is its simplicity and fairness for businesses. While starting a business in countries like Russia, Brazil, Italy or India is a mess, it's supposed to be very easy in the US. Relatively speaking, that may be true. But a story about a friend starting a business in New York City destroyed any notions that starting a business in any place in the country is a necessarily easy process. 

When trying to legally incorporate her business last year, my friend had to send -- by post -- a letter to a state office in Albany to request permission to register her company. Once she received -- by post -- permission to do so, she had to send -- by post -- the proposed name of her business. Albany rooted around its files only to tell her weeks later -- by post -- that the name was taken, and that she could kindly inform them -- by post -- of her second choice. The same procedure of rooting around the files and replying by post was repeated. 

For an unimaginative restaurateur named John, you can see how an entrepreneur could waste months or years on shockingly trivial questions: "John's Restaurant." "Taken." "Chez John." "Taken." "John's Pizza." "Taken." "Papa John's Pizza." "Totally taken." "John's Italian Food." "Taken." There's 5 months, and you don't even know what the place will be called.

There is no reason why businesses can't be started online, or why the incorporation process can't be reduced to a single-digit number of simple steps. Granted, business incorporation is a local issue, but if one state (like New York) can lag behind so much, the federal government would do well to set some basic standards. Let states handle the actual admin work, but force them all to adopt extremely simple 10-step (or 9- or 8- or 11-step) procedures so that a business can be incorporated in a week. To any Republicans listening, that as much as tax cuts would be a great boon to the country's would-be entrepreneurs. Cost to the federal gov't: maybe $10 million in training and advertising to make states and citizens aware of the new rules.

3. Privatize infrastructure and other assets that government does not need to manage. We at the Walter Duranty Report have joined the chorus of voices calling for 21st-century infrastructure for America as a way of creating efficiencies in travel and transport, improving the economy and making quality of life better for all of us. But the American Society of Civil Engineers, in a report cited recently by President Obama, says it will take $2.2 trillion to repair the US's crumbling infrastructure. Add to that new infrastructure, including light rail in cities and suburbs, high-speed trains, a new electrical grid for alternative energy along with the turbines and solar panels to power it, new airports and air-control systems, and you have a hefty price tag. 

The US government is facing fiscal catastrophe and will be hard-pressed to afford the necessary investments in infrastructure to keep our economy competitive and us people happy. But by enlisting public-private partnerships to build new infrastructure and hand over existing assets to private managers, government can monetize its assets, making lots of money. Additionally, the timing is right for private-equity funds as well, once they can get some credit. While low-yield infrastructure deals weren't too sexy during the boom years, anything that does, as they do, provide a stable, steady yield will be pretty attractive in the next few years.

The sale of rights to manage (and collect tolls from) Chicago's Skyway toll road netted Illinois $1.8 billion in 2005. Pennsylvania would have benefited to the tune of $12.8 billion last year by leasing its Turnpike to a Spanish toll-road operator. When the state's legislature failed to approve the deal, the offer expired -- and the state now faces a $2 billion+ budget gap and the Turnpike and other roads are in disrepair. Not surprisingly, people are peeved that the state decided to hang on to an asset it doesn't need to manage and is now in the red. The US today is behind most of Europe and Asia in privatizing infrastructure. But to keep government costs down and grow new revenues, privatization should accelerate in the years ahead. Cost to the federal gov't: The government will need to spend billions on infrastructure regardless. Privatization can monetize existing assets and keep costs down on new infrastructure needs going ahead. 

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