HeinzJournalFall2016

THE Heinz JOURNAL

Volume 13 | Issue 2 | November 2016

ARTICLES

Thinking About How to Properly Tax Inter-net and Cloud Based Businesses

Tepid Optimism in Sino-American Rela-tions: Pragmatism and Policy Rationales

When Democracy Hurts: America’s Ill-Fat-ed Policy in the War on TerrorErik Goepner

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Tyler Gund

Emma Northcott

Kimberly Schwicke

Niles Guo

Rodolfo ScannoneWeb Manager

Allison BottJoseph BablerJoe CarussoJoseph MarrenJocelyn MeehanClayton OethRobin ParkLeah ScottRekha Vaitla

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Properly Tax Internet and Cloud Based Businesses

Thinking About How to Properly Tax Internet and Cloud Based Businesses1

“There is nothing more revolting if the grounds upon which it was laid down have vanished long since, and the rule simply persists from blind imitation of the past.”

Oliver Wendell Holmes, Jr.2

Introduction

This paper provides an analysis of how new technology-based business models, such as Uber and Airbnb, are disrupting the ability of state and local governments to collect taxes from once

to the loss of tax revenue allowed for by the development of new mobile applications and other web-based businesses that escape traditional taxation. To conclude the discussion, this paper details best practices for jurisdictions seeking guidance on how to respond to this recent evolution

Political analysts have recognized the immediacy of the problems posed by cloud-based business as evidenced by a Governing.com article which named ridesharing a top ten legislative issue for 2016. According to the article, “[as] cities have seen a surge of app-based driving services, in-cluding Uber, Lyft and Sidecar.... many mayors have issued cease-and-desist orders to the new companies, but a handful of tech-friendly localities have revised local regulations to welcome them.”3 Although, thus far, states have left regulation up to the discretion of city leaders, this trend

1 The term “Cloud” refers to hosted data storage and processing capabilities made possible via the internet. Thus, all cloud issues are internet issues, but not all internet issues are cloud issues. Therefore, understanding the inter-

taxation. As Ernst and Young, LLP has recently articulated in a white paper: “Software sold through smartphone app stores actually consists of just the display and user interface components of sophisticated applications that mostly

-derless commercial transactions conducted over a virtual network (e.g., the internet) in which goods or services are

as a service (PaaS). These, in turn, are being joined by hybrid and specialized services, such as business process-,

with the enterprise market for public SaaS and IaaS alone estimated to be growing from $18.3 billion worldwide in 2012 to $31.9 billion in 2017.” See http://www.ey.com/ Publication/vwLUAssets/EY_- _Cloud_taxation_issues_and _impacts/$FILE/EY-Cloud-taxation-issues-and-impacts.pdf, p.7.2 O.W. Holmes, Jr. “The Path of the Law,” Harv. L. Rev. 10, (1897): 457, 469.3 “2015’s Top 10 Legislative Issues to Watch,” Governing.com, Accessed April 12, 2016, http://www.governing.com/topics/politics/gov-issues-to-watch-2015.html

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may not persist. Just last year, Colorado joined California as the second state that “[established] statewide rules for ridesharing companies,” not

do so by statute.4 Legislative activity up to this point in time indicates that states will take a va-riety of approaches to regulation.5 Some states, like Illinois and Michigan, will consider pre-empting local oversight by converting rideshar-ing into an entirely state-regulated enterprise.6 Other states may look to the District of Colum-bia (D.C.) model which “permits ridesharing but also deregulates taxi meter fares when passen-gers order rides online -- a concession meant to make the taxi industry more competitive.”7

Before proceeding too far with the conversa-tion on local cloud taxation, it is necessary to examine how federal and state laws and their

governments to address their loss of tax reve-nue. This paper builds on that discussion to de-tail the relevant policies and procedures of how regulation operates in a particular jurisdiction. In doing so, this paper addresses the following three subjects: state and local taxation law, in-ternet laws, and the applicable federal regula-tions. All three of these subjects have played a role in the evolution of cloud taxation and in-

these cloud-based businesses. Questions re-garding tax jurisdiction in cyberspace and the authority to tax online transactions are forcing a reexamination of interstate commerce and must be answered as they arise.

As readers may now sense, there is nothing simple about this subject. The beauty of these cloud-based businesses is in their apparent simplicity which ironically clashes with the de-ceptively complex nature of the legal matter.

4 Ibid. 5 Ibid. 6 Ibid. 7 Ibid.

There is irony in that contradiction because the beauty of these cloud-based businesses is their apparent simplicity. Consumers utilize these services because they are intuitive, easy to use,

New Paradigms of Public Policy Evolving Out of the Digital Economy

A variety of approaches have emerged in re-sponse to the growth of the digital economy. Some local governments have bought into par-ticipating in this new economy. For instance, cit-ies like Los Angeles have made it their primary

tax incentives to cloud-based businesses that relocate to their jurisdiction. Alternatively, some governments resist changes due to a desire to protect the old brick and mortar manufacturing and service-based economy as illustrated by the

-er localities, like the City of Detroit, have resist-ed change despite being under severe pressure to raise public revenues after years of economic downturn.

Local governments’ response to fast-paced technological developments is reactionary and therefore slow regardless of a given jurisdic-tion’s political stance. Cities which pride them-selves as being on the cutting edge of technol-ogy, such as New York, San Francisco, and San

-ences in their ability to respond to technological change. It does not matter if a particular locality embraces the evolution of the digital econo-my since most localities will still encounter dis-ruptions as they struggle to integrate the new businesses with the old taxation schema. Even

is in their best interest to understand the new dynamics so that they can get a fair chance to tax these endeavors. The City of Flint, MI, might be an example of this type of jurisdiction.



Crossing the Chasm of Public Policy Adop-tion to address the Cloud Tax Issue

seminal book entitled Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers. The text is a marketing strategy guidebook of sorts for high-technology startups. Dr. Moore emphasizes the need for early stage companies to focus on niche cus-tomers in order to outlast the depletion of the company’s investment capital. Such a notion is relevant here because Dr. Moore’s bell curve il-lustration of product adoption is, in many ways, applicable to governments and other similar consumers.

The distribution curve informs those launching new products how most markets will likely re-spond. Approximately 5% of all potential cus-tomers are the innovators of new technology. This group of market participants is represent-ed by the green segment of the curve. These individuals seemed more enthusiastic about new technology and are willing to take risks to adopt new products, or in this case, policies. New technology would never be scalable with-out the early adopters as customers and advo-cates. Early adopters are the people that wait for days outside the Apple store in anticipation of the newest product release. As it relates to

policy innovation, early-adopting cities include New York, San Francisco, and San Jose. The next market segment is the early adopters who com-

-ket share. These individuals do not want to be

risk tolerance. Nonetheless, early adopters are compelled to participate once they see others successfully innovate. Cities like Los Angeles,

course, people may disagree as to what market demographics particular cities fall under.

Widespread product endorsement by ear-ly adopters is followed by the entrance of the early majority into the marketplace. The early majority includes people that like new things, but whose risk aversion must be quelled by a well-established precedent of success evi-denced by case studies and publicity from rec-ognized leaders. This segment of the market constitutes approximately thirty percent of the total market. The early majority is followed by the late majority which is comprised of individ-uals who would rather completely avoid change if not for a sense of obligation to that often does not develop until several years after the new technology has become integrated into soci-ety. The late majority makes up approximately

-graphic includes people that refuse to change until it is an absolute necessity do to so.

This paper postulates that local governments will parallel Dr. Moore’s categorization, but with weight redistributed towards early actors. This

assumptions. Dr. Moore’s model is predicated on government spending money to get a new technology, whereas this paper addresses ways for government to increase tax revenue. Gov-ernments will likely be much more compelled to respond to innovation than localities will be to purchase new technology given budgetary con-

Figure 1

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not override the applicability of Dr. Moore’s bell curve as it relates to the risk tolerance of local

-ting up new tax systems. For example, changes to the tax code will likely attract lawsuits from disgruntled taxpayers and opportunistic attor-neys. A negative court ruling may all but guar-antee the loss of a policymaker’s career. Even absent the threat of litigation, the administra-tive costs incurred in establishing new tax re-

The chasm between early adopters and the ear-ly majority is precisely where a product fails. If a product does not demonstrate enough value to win over the early majority, the company will

-cy without sustained investor support. As the chasm relates to local tax policy, there are in-novative cities, counties, and states that will as-sume the risks to establish new tax regimes in order to capture the revenues enabled by new technologies.. Some of these innovators will be inspired by brilliant foresight, and others are motivated by desperation. Regardless of par-ticular motivations, new technology for cloud-based tax policies will follow the same pattern encapsulated by Dr. Moore’s bell curve. Draw-ing on that analogy, this paper predicts how lo-cal governments will evolve. Dr. Moore’s work provides an insightful frame for discussing local responses to the emergence of a digital economy. This frame is especially of interest because product innovation has creat-ed the very need for policy innovation. Jurisdic-tions receptive to policy innovation will develop new paradigms as they endeavor to be more creative. Some of these risk tolerant jurisdictions will not survive litigation or other resistance. These failed tax policies will fall prey to the chasm be-tween early adaptors and the early majority as

the former is unable to persuade the latter to follow suit. There is only a chance that the late majority joins the trend, if the early majority

that a respective innovation is established as a true success and proven method.

Proposition 13 serves as an example of policy innovation that failed to cross the chasm. Prop-osition 13’s failure to set the standard for other governments demonstrates this fact. Although Proposition 13 may forever remain law in Cali-fornia, only few states have and will ever adopt the basic policy. Massachusetts and Oregon, for example, passed similar, but not nearly as rad-ical property tax regimes. In sum, one can say that Proposition 13 has failed in the public mar-ket place of public policy ideas.

A History of Internet Taxation

The history of internet and cloud taxation8 actu-ally began long before the rise of the internet, or even computers for that matter. In 1944, the Supreme Court of the United States of America (SCOTUS) determined under which circumstanc-es a state could collect taxes on goods delivered in their state, but sold by businesses located in another state. In the seminal case

,9 a Tennessee based business took orders for goods from an Arkansas company via phone and mail. The Tennessee business collected payments and delivered the goods to common carriers10 within the State of Tennes-see. Arkansas felt entitled to collect a sales tax on these transactions because the goods were delivered by common carrier for use by the purchasing company located in Arkansas. The Court ruled that for the purpose of sales tax, the sale took place where the goods were paid

8 See FN1. 9 McLeod v. J.E. Dilworth Co., 322 U.S. 327 (1944). 10 -

common-carrier/



place in Tennessee because the money was re-ceived in-state and the goods were delivered in-state to common carriers. Arkansas’ imposition

-ly a tax on interstate commerce in violation of the Constitution. Under the commerce clause, of the amendment, interstate commerce is ex-pressly the domain of the federal government.

Nevertheless, the Court seemingly reversed their position when presented with a similar fact pattern in

11 In McGoldrick, a New York City sales tax on transactions by a Pennsylvania corporation was upheld by the Supreme Court. The Pennsyl-

that not only sold items, but also made deliver-ies within the state of New York. This is the key distinction between McLeod and the present case McGolrick; in the latter case, the company

the state imposing a tax.

In 1967, the Supreme Court revisited the issue related to tax jurisdiction in the case

12 In this case, a Missouri based corporation was licensed to conduct business only in their home state and Delaware. The only potential contact the busi-ness had with the aggrieved state, Illinois, came in the form of catalogues that it mailed twice a year. Orders from these magazines were re-ceived via mail in Missouri. The Court’s decision hinged on the determination of whether or not

from the state of Illinois which could justify the tax burden. The Court determined that trans-actions conducted purely via the postal service did not merit the imposition of a sales tax on the out-of-state company.

11 McGoldrick v. Berwind-White Coal Mining Co., 309 U.S. 33 (1940). 12 National Bellas Hess, Inc. v. Dep’t of Revenue , 386 U.S. 753 (1967).

All three cases focused on the degree to which the corporation made contact with the state wishing to impose a tax. This “nexus of con-tacts” consideration seems simple enough and is still at play in developing internet and cloud taxation policies. However, as a recent Ernst and Young white paper put it:

“Business users or consumers can encoun-ter potential new tax obligations and re-porting burdens that vary from market to market. And if tension has been building between taxpayer and tax authority, the underlying reason is simply that the cloud is borderless and tax jurisdictions are not. But nothing is quite that simple in these early evolutionary days of cloud taxation. There are no familiar, cookie-cutter busi-ness models that tax authorities can readily understand. The existing tax law governing technology transactions are often per-ceived as outdated and inconsistent. The technology and business arrangements are such that even identifying the taxable loca-tion of either cloud service providers (CSPs) or their customers can be challenging.”13

In 1992, the Supreme Court visited the issue of state sales taxes for a fourth time in

14 In Quill, the Court focused on the nexus of contacts between the taxing state and the out-of-state business. The Court’s in-quiry focused on the reasonableness for such an entity to expect to be burdened with a tax

from contact with the outside state or protec-tion from its laws. In doing this, the Court ap-plied Nat’l Bellas Hess to North Dakota’s juris-dictional reach under their long arm statutes,

13 Channing Flynn, “Cloud Taxation Issues and Impacts,” EY, January 2015, http://www.ey.com/Publication/vwLU-Assets/EY-cloud-taxation-issues-and-impacts/$FILE/EY-cloud-taxation-issues-and-impacts.pdf. 14 Quill Corp. v. North Dakota, 504 U.S. 298 (1992).

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and in light of due process rights. These due -

cedure jurisprudence including International Shoe Co. v. Washington15 and Burger King Corp. v. Rudzewicz.16

The Quill Court asked if the defendant had

to expect to defend a lawsuit there. However, the Court did not require physical presence to establish jurisdiction. Instead, so long as the

court focused on both due process and Com-merce Clause considerations in crafting a three-part test. The test consists of the following three questions: Does the party direct its sales to the residents of a state? Are contacts of the party

-

corporation receives from the state?

The amount of in-state economic activity is a more important factor than physical presence therein or lack thereof. Although North Dakota

due process, it failed to satisfy the substantial nexus requirement of the Commerce Clause.

holding that jurisdiction should not be imposed on an entity whose only contact with a state was by mail.

The Quill Court added that Congress should ul-timately decide to what degree states should be allowed to burden interstate commerce with taxation. At that time, Congress had already considered legislation to overrule National Bellas Hess’ presence requirement more than once, but proposals consistently failed to gar-ner adequate support.

15 International Shoe Co. v. Washington, 326 U.S. 310 (1945). 16 Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985).

To reiterate, under Quill, physical presence is not required by due process for jurisdiction, but it is required by the Commerce Clause or else a substantial nexus is not established. While this ruling upheld National Bellas Hess for the sake of stare decisis, its purpose was to send a mes-sage to Congress that it was the legislature’s responsibility to decide to what degree states should be able to tax parties only conducting business in-state by mail under their authority granted by the Commerce Clause.

The notion, articulated by the Quill Court, that Congress should regulate how state and local governments can tax out-of-state vendors and buyers is a great idea, but it is one that has yet

-tion, it is important to note how much discre-tion is still left to federal and state Courts to regulate this area. For example, the Illinois Su-preme Court ruled in 2013 that the state’s Main Street Fairness Act, which imposed upon out of state retailers the duty to collect sales tax on annual sales of more than $10,000, violated the federal Internet Tax Freedom Act. The Inter-net Tax Freedom Act prohibits some, but not all, types of taxes on electronic commerce.17 At the time of the case, thirteen states had similar taxes yet to be challenged.18 -

own legislature.19

in the state, who receive a percentage of any sales generated by customers that click to enact a sale through online merchants (i.e. Amazon)

the collection of a sales tax.20 However, its own Supreme Court did not agree.

17 Sal Robinson, “Illinois Supreme Court rules against ‘Amazon tax,” Melville House, October 23, 2013, http://www.mhpbooks.com/illinois-supreme-court-rules-against-amazon-tax/. 18 Ibid. 19 Ibid. 20 Ibid.



The value of this Main Street Fairness Act exam-ple is that it begs the question: “should tax juris-diction be left to such a seemingly random pro-

essentially the same facts before them?” When

with interstate commerce such that Congress is compelled to mandate uniform state rules like the Court suggests in Quill?

Drawing Parallels between Civil Procedure and both Personal and Sales Tax Jurisdic-tions

As has already been mentioned, supra, there are many parallels between the jurisprudence of federal sales tax case law and federal civil procedure law regarding personal jurisdiction.

for a physical presence per National Bellas Hess for the sake of due process parallels reasoning articulated in

supra.21 In International Shoe Co., the Court held that a person or entity may be sub-ject to the jurisdiction of a state court, if the de-fendant has minimum contacts with that state, outlines the limits on states’ long arm statutes imposed by due process as well as delineated requirements for valid service of process. In other words, the court detailed factors includ-ing the who, what, when, and where necessary to establish personal jurisdiction.

In Burger King, the district court held that Florida had jurisdiction over a dispute between Burger King and a franchisee because of a state statute extending jurisdiction to anyone in breach of a contract within the state. The Court of Appeals reversed, ruling that, although the defendants

violation of due process.

21 International Shoe Co., 326 U.S. 310 (1945).

Burger King appealed to the Supreme Court who reversed the Court of Appeals. The Court ruled that defendants purposefully availed themselves of the protection of Florida law, and therefore were subject to its’ courts’ jurisdic-tion. Due process was not found to be violated because the defendants should have reason-ably anticipated being summoned into court in Florida for breach of contract as a result of their longstanding relationship with Burger King there.

The Burger King Court’s fairness test evolved

.22 -mining whether the assertion of personal juris-diction over a defendant violates due process is as follows: (1) What is the burden on the defen-dant?, (2) What are the interests of the forum state in the litigation?, (3) What is the interest of

(4) Does the allowance of jurisdiction serve in-

of jurisdiction serve interstate policy interests?

The Court in Asahi ruled that the burden on the defendant was severe based on both the geo-graphic distance and legal dissimilarities be-

-ifornia resident, which diminished California’s

nor interstate policy interests would have been furthered by granting jurisdiction to California over the defendant Asahi. The importance of these parallels with federal civil procedure juris-prudence is that the Asahi test may prove useful in the area of sales tax legislation in justifying or

Also, this discussion shows that there is some consistency to the Supreme Court’s reasoning.

-ent issues with parallel logic. Accordingly, policy formulation will not occur in a vacuum. Instead,

22 Asahi v. Superior Court, 480 U.S. 102 (1987).

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a long history of related rationales for similar

This history is critical when thinking about how states23 should or should not be able to impose taxes upon cloud based ventures.

The laws of civil procedure and personal juris-diction, in the context of cyber law, have devel-oped through cases concerning a state’s jurisdic-tion over an online business. This paper focuses on domestic tax issues related to new cloud based business models which is complicated enough it its own right. However, the matter is

-ternational cloud-based companies. European headquartered cloud-based businesses merit a standalone paper with Brussels Regulation, the Rome I Convention, and other laws serving as the basis for discussion. These issues would arise because many new cloud-based compa-nies that conduct business with the U.S. are popping up in Europe. At present, there is no multilateral convention to resolve Internet and e-commerce derived disputes over matters of

As mentioned, supra, every state in the U.S. has long arm statutes which attempt to impose jurisdiction over non-residents of the state if they have either engaged in tortuous behav-ior or conducted business within that state. Some states, like California, leave its statutes open-ended, simply expressing that it has as much jurisdiction over people outside of Cal-ifornia as federally or its Constitution and the U.S. Constitution will allow. California Civil Code

23 See Hunter v. Pittsburgh, 207 U.S. 161 (1907): “Munic-ipal corporations are political subdivisions of the state, created as convenient agencies for exercising such of the governmental powers of the state as may be en-trusted to them....The number, nature, and duration of the powers conferred upon these corporations and the territory over which they shall be exercised rests in the absolute discretion of the state.” 207 U.S. 161, 178.

of Procedure Section 410.10 reads, “A court of this state may exercise jurisdiction on any ba-sis not inconsistent with the Constitution of this state or of the United States.”24 By contrast, Massachusetts’ long arm statute is much more narrow, reading in part, “a court may exercise personal jurisdiction over a person, who acts di-rectly or by an agent, as to a cause of action in law or equity arising from the person’s (a) trans-acting any business in this commonwealth, (b) contracting to supply services or things in this commonwealth (c) causing tortious injury by an act or omission in this commonwealth…”25

extending jurisdiction over a person or entity

under the 14th Amendment of the Constitution. This due process analysis was covered, supra, regarding International Shoe and the minimum contacts requirement valid jurisdiction over an out-of-state party. Still yet to be addressed is the matter of general jurisdiction. General juris-diction is found when a party’s contacts with a state are so extensive that they are considered “systematic and continuous” as per the 1984 Su-preme Court holding in

26 If a party falls within a state’s general jurisdiction, then that state has jurisdiction over that party, regardless of wheth-

-tinuous” activities requirement. Usually, a court will look to see if a party has established related items in the state, including incorporation, bank

27 In 2003, the 9th Circuit found that L.L. Bean, a Maine catalog retailer, fell under California’s general

24 Cal. R. Civ. P. 410.10.25 Mass. Gen Laws. ch. 223A, § 3, see: http://www.lrcvaw.org/laws/malongarm.pdf. 26 Helicoperos Nacionales de Columbia. S.A. v. Hall, 466 U.S. 408 (1984).. 27

-eral-jurisdiction/.



jurisdiction because of the Court interpreted the company’s website to be a virtual California because of its extensive marketing campaign in California and L.L. Bean’s relationships with California vendors.28 The Supreme Court has addressed this issue yet.

The most famous cyber law case is Zippo Man

.29 Here, the United States District Court for the Western District of Pennsylvania found personal juris-diction over a California defendant providing services within the State of Pennsylvania, via its

-tion through typical process, the court based its decision on a sliding scale test which related to website function and design. The court created a sliding scale between passive websites and in-teractive websites. According to the court, pas-sive websites only posted information on one side. Meanwhile, interactive websites allowed customers to conduct business online or oth-

-fectively establishing a “gray zone” in between the two. This case provides a useful analogy for cloud taxation despite the antiquated website design activity. In other words, one could antic-ipate the court’s use of parallel reasoning when addressing the issue of cloud taxation. For ex-ample, Airbnb and Uber could be located at one extreme of the continuum because these busi-nesses have a physical interaction within states through their contractors and service provid-ers. At the other extreme, might be mobile app games that users download onto cell phone like Words Withwith Friends and Candy Crush. Moreover, here is where technological advanc-es would work in favor of the tax collector in a paradoxical way. For instance, it would be eas-ier to track where the mobile apps were down-loaded because, unlike Airbnb, all smartphones

28 Gator.com Corp. v. L.L. Bean, Inc., 341 F. 3d 1072 (9th Cir. 2003). 29 Zippo Manufacturing Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119 (W.D. Pa. 1997).

have GPS capabilities. Without that feature, it is

are located in. Nevertheless, one can still get a fairly good idea of the rental’s jurisdiction based on its street address, which can then be digital-ly and automatically entered into a geospatial matrix that informs Airbnb which jurisdiction’s tax rate should apply. Thus, technology would make taxing these cloud business relatively easy in theory. However, the questions of the quan-tity and quality of contracts within the forum’s jurisdiction will still be preeminent in line with the tombs of jurisprudence that framed the ap-proach of the subject of jurisdiction. Therefore, it is worthy to understand the way Zippo has

found or rejected jurisdiction based on Zippo’s scale regarding business conducted in or over cyberspace.

In the 1996 case King, a New York Federal District court ruled that a passive website, which only posted limited in-formation like newspaper and magazine adver-tisements, did not justify establishing jurisdic-tion over an out-of-state company.30 A year later in , the 9th Circuit ruled that a family-owned and operated com-

to jurisdiction in Arizona.31 The court concluded that although Cybersell’s mostly passive web-site made sales contact information accessible from Arizona, the company did not make spe-

nor did it have any other type of contacts with the state. Thus, the court made it clear that the party must have done something more than just have a website which is accessible from the

30 Bensusan Restaurant Corp., v. King 937 F.Supp. 295 (S.D. N.Y. 1996).31 Cybersell Inc. v. Cybersell Inc., 130 F.3d 414 (9th Cir. 1997).

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it was seeking to target residents of the state. Notwithstanding that this decision contradicts the case, , . from just the previous year.32 In Inset Systems, Inc., a federal district court in Connecticut ruled that a website accessible within the state, which advertised for a Massachusetts-based business with a toll free phone number, had availed it-self of the states’ jurisdiction. However, when this ruling was announced, it was seen as too expansive because it opened up the potential for most websites to have jurisdiction in all states in which their contact information was accessible via a website. Though the court did not make the distinction, it seems fairly obvious that a business in Massachusetts could expect to draw customers from its neighboring state of Connecticut, and thus could reasonably expect to be sought for jurisdiction in that state. The court would have probably ruled against juris-

if the company and website involved were simi-lar and from a distant state like California.

All of these cases analyze proper jurisdiction based upon an Internet business model of one variation or another. There are many more such cases on this subject, but these cases es-tablished the basic frameworks from which all other cases draw upon in their analysis. In rea-soning by analogy, one can see how these cas-es could assist sales tax policy makers during their decisions about what types of Internet and cloud-based businesses should fall into their sales tax jurisdiction. The one factor that was not directly addressed in any of these cas-es regards the volume of business that an out-of-state party can conduct within another state. In a long-arm sales tax context, the purpose-ful availment might be based on the business’ gross revenues o residents within the state. Hy-pothetically, an out-of-state purchase of a single $10 widget from a small family does not trigger

32 Cybersell Inc. v. Cybersell Inc., 130 F.3d 414 (9th Cir. 1997).

the long-arm sales tax law. However, if the small business operates via eBay, then the portion of sales in that state is subject to taxation (keep-ing in mind, there are many potential inequities caused by this scheme which could have a cool-

business through a channel like eBay, supra). A factor not considered in any of these cases was the distinction between providing services as opposed to products via the internet. , espe-cially in the form of software in regards to the latter. This consideration was probably absent because of changes in technology and the sig-

the rulings.

Currently, cloud-based companies utilize a SaaS (software as a service) business model. Before this model, consumers would typically obtain software by going to a store in most states and

Upon that transaction, the consumer would be charged with a sales tax. By comparison, today that same software can be bought online and downloaded, most likely without a sales tax col-

for sale that users pay a fee to download via the company’s website. This website is home to the most up-to-date product in the cloud. This information is accessible to users anywhere in the world with an internet connection, except perhaps in countries like China, which have ma-jor restrictions on internet access. From a tax perspective, SaaS should be viewed as a good, even though it is referred to as a service in the context of cloud-based businesses. Therefore, tax authorities should focus on these goods, which are more likely than not even on their ra-dar, but which are very easy to track and trace in the era of big data.

The Commerce Clause and the Dormant Commerce Clause

A brief explanation of the Commerce Clause



and the Dormant Commerce Clause is very im-portant to understanding the history and con-text of state tax jurisdiction. Article 1, Section 8, Clause 3 of the U.S. Constitution, also known as the Commerce Clause, allows Congress the power “to regulate commerce with foreign na-tions, and among the several states, and with the Indian tribes.”33

The Commerce Clause grants Congress the au-thority to regulate interstate commerce and re-stricts states’ power to regulate matters which

state authority to regulate interstate commerce is known as the Dormant Commerce Clause. This prohibition is implied, not explicit. There is much debate about the meaning of the word “commerce” because the Constitution does not

-ited to trade or exchange, while others advo-

of the other factors operating, this interpreta-tion is dispositive of your stance on the balance between state and federal authority. How one

one sees the dividing line between federal and state police power, even though there are other factors in the balance.

The Commerce Clause (“Clause”) has been used to uphold federal laws in areas that do not seemingly pertain to interstate “commerce”. For instance, in

, the Court took an extremely broad view of the Commerce Clauses’ implied meaning to encompass federal authority to regulate the states’ interests.34 In 1995, the Rehnquist Court limited on the Commerce Clause’s overreaching power in , stating that the federal Gun Free School Zones Act of 1990 had

-

33 U.S. Const. art. I, § 8, cl. 3.34 NLRB v. Jones & Laughlin Steel Corp., 301 U.S. 1 (1937).

cal schools.35 Instead the Court argued that true purpose of the Clause was to regulate the chan-nels of commerce, the instrumentalities of com-

-terstate commerce. The Court continued to cut back federal power in , by stating that the Violence Against Women Act

36 Up to this time, many thought that the Warren Court’s use of the Clause to help the cause of civil rights was acceptable, but this ruling made it clear that the scope of that use would be curtailed moving forward. In addition, this ruling established the precedent that Congress could no longer invoke the Clause in the preamble to a law to secure its legitimacy.37 Two other cases regarding the Commerce Clause are relevant to this discussion. In

, the Court stated that any attempt by a state to regulate conduct wholly outside of itself violates the Clause, regardless if the commerce sought to be regulated had

38 In this case, Connecticut required out-of-state beer merchants to show that their sales prices to wholesalers within the state were the same as those charged to surrounding New England states. The Court said this law was a violation of the Clause “on its face” for two reasons. First, because it applied to only those engaged in in-terstate commerce and, second, it was an at-tempt at an illegal protectionism. One should see how this case might be argued by analogy when it comes to Internet commerce and cloud taxation issues, especially with those aimed as some form of protectionism.

In the remaining case , Mich-

35 Lopez v. United States. 36 Morrison v. United States, 529 U.S. 598 (2000).37 For a more detailed narration and in depth analy-sis see https://www.law.cornell.edu/wex/commerce_clause. 38 Healy v. Beer Institute Inc., 491 U.S. 324, 336 (1989).

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igan and New York both had laws that allowed for wineries within each respective state to sell online to those within those states, but forbid out-of-state wineries to do the same.39 Both states laws were ruled to violate the Dormant Commerce Clause by favoring in-state wineries.

online commerce albeit not the taxation of on-line commerce. Yet, it is a relevant case to keep in mind when thinking about the cloud taxation issue.

The Internet Tax Freedom Act

In 1998, Congress passed the Internet Tax Free-dom Act to encourage further growth of the Internet and commerce via the Internet.40 This law has evolved over time and changed some-what since its inception, but it can be best sum-

(“CBO”) report. Besides posing “a three-year moratorium on new federal, state, and local ac-cess levies,” this law allowed existing taxes on

addition, it permitted governments to impose new taxes on such sales as long as they applied equally to sales made by other means, but it prohibited discriminatory taxes on Internet sales. The law did not give states and local gov-ernments the authority to require that remote sellers collect sales taxes.”41

This law prohibited federal, state and local tax-ation of Internet access, certain types of online commerce and other related potential taxes, such as bandwidth and email taxes.42 This act also established an Advisory Commission on

39 Granholm v. Heald, 544 U.S. 460 (2005).40 Sal Robinson, “Illinois Supreme Court Rules against ‘Amazon Tax’”, Melville House Books, Accessed April 4, 2015. 41Taxing Internet and Mail-Order Sales, Washington, DC, 2003. 42 Ibid.

Electronic Commerce to make recommenda-tions about Internet taxation, including wheth-er to require retailers to collect sales taxes on Internet purchases.43 The Commission was re-quired to prepare a report: (1) examining how states and other countries tax the Internet; and

ecommerce.44 Although the law had a cooling

not prohibit taxation of online sales, as these may be taxed similar to mail order sales.45 It was extended several times by Congress, and became the Permanent Internet Freedom Act in 2014.46 From the perspective of this paper, the real lasting impact of this action by Congress is the policy analysis that came out of the Advi-sory Commission’s report, supra. This analysis was part of the initial action in 1998, but it did not make recommendations as per the pro-tocol of the CBO guidelines.47 A similar follow up report worthy of note was published by the COB in 2003 entitled

,48 and the Congres-sional Research Service (“CRS”) built upon these reports in a report of 2013 entitled

.49

CBO 2003 Report

The 2003 CBO report did an ideal job of devel-oping a framework to analyze the issue of the states’ desire to tax online transactions. The re-

-

43 Ibid. 44 Ibid. 45 Wilson, Daniel. 2016. “House Votes To Permanent-ly Block Internet Access Taxes - Law360.” Accessed April 4, 2015. http://www.law360.com/articles/665319/house-votes-to-permanently-block-internet-access-tax-es. 46 Ibid. 47Taxing Internet and Mail-Order Sales, Washington, DC, 2003.48 Ibid. 49 Steven Maguire, State Taxation of Internet Transac-tions, Congressional Research Service, 2013.



tion of the report was an overview of the caus-es and conditions leading up to the need to address the remote sales issue. This overview

that the internet’s unforeseen consequences were having on states budgets, inter alia, and an explanation of the debate over how to best collect on the billions of revenues that were be-ing transacted tax free. These revenues would have otherwise been collected, but for the rise

-mote remote sellers in agreeing to collect these sales taxes in their states, either by an act of Congress or voluntarily, as per a MOU between states.

The following table, per the Report, shows the amount that each state depended on sales

-ly each state was regarding the complexity of overlaying a system which could equitably ad-dress such a synthesis50:

50 Ibid. pp. 4-5.

Based upon on the above table, the CBO noted that the potential loss of revenue from remote purchases had generated the proposed idea that vendors should be required to collect use taxes for the states. The CBO referenced Quill in this analysis and interpreted it as: “only the Congress can give states the authority to re-quire remote sellers to collect use taxes.”51 In addition, the CBO noted that the federal gov-ernment’s only stake in the Internet sales tax debate was as a regulator of interstate com-merce, and that the issue had no federal bud-

-ical issues from a policy analysis perspective, which addressed whether Congress should iron out the wrinkles. Two policy arguments in favor

commodities taxation causes tax-motivated decisions about consumption and production, and also when compliance costs increase and are imposed on remote sellers to collect and remit use taxes from multiple jurisdictions; and (2) a uniform system requiring remote sellers to collect taxes imposed by Congress would distribute the burden of sales taxes more eq-uitably, and it would allow for more equitable treatment of people in comparable circum-stances. Three policy arguments in favor of not

51 Ibid. pp. 7.

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including Congress in the matter included the idea that it will increase the size of government and eliminate a tax advantage that is helping the Internet grow to its economically desirable. The CBO then outlined issues which it considers the crux of the matter from a policy analysis as to whether Congress should iron out the wrin-

-es tax-motivated decisions about consumption and production, and also increases the compli-ance costs that would be imposed on remote size.52 It would also “impose a tax burden on remote sellers who, unlike local sellers, receive

53 Finally, it

and local governments, which is guaranteed by the Constitution, if standardization of tax bas-es and rates is required to reduce compliance costs.”54 The result of this analysis and delibera-tion was the evolution of a compromise, which did not require Congress to act in the form of the Streamline Sales and Use Tax Agreement.55

The Streamline Sales and Use Tax Agreement

The Streamlined Sales and Use Tax evolved out of a series of events in response to the Internet Tax Freedom Act and a fear that Congress might attempt to permanently prohibit states from collecting sales tax on online commerce.56 The Streamlined Sales Tax Project (SSTP) was creat-ed by the National Governor’s Association and the National Conference of State Legislatures in 1999 to address the sales tax collection issues resulting from internet commerce.57 Leaders

52 Ibid. 53 Ibid. 54 Ibid. 55 “Streamlined Sales Tax,” Streamlined Sales Tax Gov-erning Board Inc, Accessed March 29, 2015, http://www.streamlinedsalestax.org/index.php?page=faqs. 56 Steven Maguire, State Taxation of Internet Transac-tions, Congressional Research Service, 2013. 57 Ibid.

from both Associations were members of the Advisory Commission on Electronic Commerce during the time when the Internet Tax Freedom Act was being formulated in 1998.58 The result was that many states’ governors agreed to work

sales tax system. The SSTP was dissolved once the Streamlined Sales and Use Tax Agreement

59 Today, 44 states and the District of Columbia are mem-bers of this regime, but only 24 of these states have passed legislation to adopt the regime as part of their state’s law.60 The Streamline Sales Tax Governing Board claims:

“The Agreement minimizes costs and ad-ministrative burdens on retailers that col-lect sales tax, particularly retailers operating in multiple states. It encourages “remote sellers” selling over the Internet and by mail order to collect tax on sales to customers living in the Streamlined states. It levels the

stores and remote sellers operate under the same rules. This Agreement ensures that all retailers can conduct their business in a fair, competitive environment.”61

However, as already mentioned, only 24 of the 44 states have passed the conforming legisla-tion. Those states which have passed the leg-islation have a total population of 92,781,860, representing 33% of the country’s population.62

58 Ibid. 59 Ibid. 60 “Streamlined Sales Tax,” Streamlined Sales Tax Gov-erning Board Inc, Accessed March 29, 2015, http://www.streamlinedsalestax.org/index.php?page=gen_3. 61 “Streamlined Sales Tax,” Streamlined Sales Tax Gov-erning Board Inc, Accessed March 29, 2015, http://www.streamlinedsalestax.org/index.php?page=gen_1. 62 Ibid. The following states that have passed legisla-tion to conform to the Streamlined Sale and Use Tax Agreement: Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Vermont,



See map, infra.63

As the map illustrates, the full member states are not big economic powerhouse states and the Sunbelt states are merely advisory mem-bers. Although the Agreement stands as a log-

the Agreement demonstrates the mass uncer-tainty surrounding it. Part of this uncertainty rests in the fact that this Agreement fails to di-rectly address the cloud taxation issue. Thus, there rests a need for policy solutions to better clarify the details of the Agreement, thereby en-couraging more states to adopt the regime.

Aside from a lack of clarity, many other con-troversies exist with the Agreement. First and foremost, compliance with the Agreement is voluntary on the part of the sellers. Remote sell-ers who do not comply with the Agreement pos-sess a competitive advantage over those who are compliant.64 Retailers with physical stores

Washington, West Virginia, Wisconsin and Wyoming. 63 Ibid. 64 Washington State Department of Revenue, “Stream-lined Sales and Use Tax Agreement”, Department of Rev-enue Washington State, Accessed April 4, 2015, http://dor.wa.gov/Content/FindTaxesAndRates/RetailSalesTax/DestinationBased/DepartmentStreamLineFAQ.aspx.

are at an obvious disadvantage as well. It re-

In 2008, the City of Chicago sued eBay and its subsidiary, StubHub, for not charging custom-ers with city amusement taxes on tickets sold via the websites.65 While eBay did not have any

-erty in the city.66 -plaints against each company requesting eBay and StubHub to disclose all records of sales in Illinois.67 EBay responded by releasing a public statement that taxing small internet business-es would prove to be cost prohibitive for these companies and detrimental to their sustainabil-ity.68 This same year Amazon and Overstock.com separately sued the State of New York seeking to overturn a law requiring retailers to pay taxes if they acquire New York state cli-ents as a result of advertisements through web links.69 Both companies argued that the law was in violation of the Commerce Clause. Both cas-es were dismissed in 2009, and a New York ap-peals court upheld the dismissals in 2010.70 In 2013, New York’s Court of Appeals also upheld the rulings stating that the companies “estab-lished an in-state sales force” via their agree-

-sions for posting links on their websites.71 Why should states join the Streamline regime fully if they can keep their systems in place and tax as they wish? States like New York may lose more

65 Jane Mcentegart, “City of Chicago sues Ebay over Taxes on Event Tickets”, TomsGuide, Accessed April 5, 2015, http://www.tomsguide.com/us/eBay-taxes-chi-cago,news-1423.html. 66 Ibid. 67 Ibid. 68 Ibid. 69 Chris Dolmetsch, “Amazon, Overstock Lose Challenge to N.Y. Web Sales Tax,” Bloomberg, March 28, 2013, http://www.bloomberg.com/news/articles/2013-03-28/amazon-overstock-lo,se-challenge-to-n-y-web-sales-tax. http://www.bloomberg.com/news/articles/2013-03-28/amazon-overstock-lose-challenge-to-n-y-web-sales-tax. 70 Ibid. 71 Ibid.

Figure 2.

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revenue by adjusting their practices and do not want to bank on a voluntary system which they cannot enforce.

The states that have made the Streamline Tax part of their legislature have not entered the late majority segment of the market yet (if states are marketplaces for ideas about tax policy), which according to the Chasm thesis is essential for a venture to thrive. Also, though they have almost full saturation in the early majority segment of states, the states which have adopted the re-gime are more conservative.

Winkles Upon Winkles Upon Winkles, the FTC, and Local Zoning Laws

of the Internet and internet-based businesses. Though these agency regulations may be unre-lated to taxation issues, they play a role in shap-ing the path toward possible solutions to the remote tax issue. One example is the FTC’s Con-sumer Sentinel program, which has a mission to uncover, inter alia, internet fraud schemes.72 One of the largest problems discovered con-cerning online fraud is the sale of counterfeit products via sites like eBay, where the buyer is told and believes they are purchasing, for sake of illustration, a Coach handbag, which has a high retail price, but which they believe they are getting for a bargain from someone who just needs to generate some fast income. Now imagine the wrinkle a sales tax brings into this if the buyer not only gets cheated out of the good they thought they were purchasing, but pays

which is a fraud. This would add insult to injury if for example eBay collected the sales tax from the buyer, making it easy for the sellers, here fraudulent, not to have to collect the tax. Now,

72 Federal Trade Commission, “Consumer Sentinel Network,” Federal Trade Commission, Accessed April 6, 2015. https://www.ftc.gov/enforcement/consumer-senti-nel-network.

you, the buyer, have a fake overpriced hand bag and cannot get your money back from the fraudulent seller. However, you may be able to collect a refund on the sales tax paid on this

the State Tax Commission via eBay. This is all hypothetical, but one can imagine there is no

collecting taxes on these types of transactions would have to set up a special department for these types of problems. Consequently, the buyer will be left with a bunch of hoops to jump through before they can get the relatively small sum which the sales tax on such a transaction might engender, meaning most would likely not pursue trying to recapture this loss. Again, this is just an exercise of the imagination of what all

upon both consumers, states, and sellers or re-sellers as a result of a poorly planned sales tax regime.

In another example, imagine that the State of California enters into an agreement with Airbnb to have it collect the use tax from those using the service within the state which hotels col-lect. In exchange, the state would establish a law prohibiting the local governments from re-stricting their residents’ use of their properties for short term rentals within their jurisdictions. This idea may seem farfetched, but this would mean billions of revenues long term, otherwise lost to the state potentially, in exchange for tak-ing away the local right to control land use as short term rentals. One can see how a tax law brokered by the state with a large internet or cloud based business, like Airbnb, could poten-

-foreseen or not properly planned for due to the large sums of money at stake in lost revenues. No Cloud dwells in the Clouds

To reiterate, the term “cloud” means that the lo-cal pc, server, or smartphone is accessing via the



internet to a hosted server on which the data and software dwell. There are private clouds which are hosted on a private, on premise lo-cation owned or leased by the company which owns the cloud; there are also public or shared clouds with redundancy hosted by providers, such as Microsoft and Amazon, inter alia. Thus, no cloud is truly in the clouds. All clouds dwell on a physical geography, which may trigger gener-al jurisdiction issues. These cloud data centers are often called farms. The location of a farm will almost certainly subject the owner of that farm to general jurisdiction within that state

a data center trigger regarding availment of the

cloud computing is about borderless global net-works because the same data and software can be located with redundancy in several coun-tries, for example, the U.S., the E.U., and India. Therefore, the location of a public cloud cannot be pinpointed -- most small, medium-sized, and even large companies use public cloud services

and do not know where the physical location of their vendor’s hosting infrastructure is located. Moreover, the space upon it is leased rather than owned (the business of providing cloud bandwidth is a SaaS in itself), which makes the question of which state is responsible for taxing public clouds unanswerable based on the phys-ical location of the cloud, or at least less of a fac-tor. There is always the small chance that a SaaS states that it uses Microsoft or Amazon, and the state tax collector happens to know that that

state, but this is an outlier and stretching the boundary of minimum contacts. PriceWater-houseCoopers (PWC) published a white paper in 2012 entitled How Does One Tax the Cloud? which asks a series of rhetorical question along this line of reasoning worthy of consideration:

“If a state taxes at the point of use, what if services are free at the point of use? If tax is

based on the location of the servers or the

providers simply move to the lowest-tax jurisdiction? How does a provider or pur-chaser avoid being taxed in two locations

sourcing rules for sales and use tax purpos-es?”73

Though most states have not even begun to ad-dress the tax issues arising out of the clouds, some do have their heads in the clouds when it comes to thinking about how to tax SaaS. In

taxed SaaS providers for purposes of sales and use tax, as well as business and occupancy tax.74 In this same year, Missouri ruled that SaaS host-ed outside the state was not subject to sales tax based on its understanding of minimum contacts,75 but New York determined that SaaS hosted out of state are taxable if accessed from a location within the state. New York stated that SaaS is “tangible personal property, the use of which occurs when accessed in New York, and that access constitutes a taxable transfer of pos-session of the software, because the customers gain constructive possession of the software, and gain the use of the software,” but hosting services are exempt in New York if those ser-vices can be purchased as software licenses.76 This already complicated process thus becomes progressively more convoluted. In Massachu-setts, where SaaS is taxed, a local SaaS compa-ny that provided employment application col-lection and selection services was deemed tax exempt because the “customer was purchasing the information, not the use of the software.”77 It should also be noted that, according to PWC, many states do not tax services, and cloud com-puting/SaaS is often considered a service -- not

73 Jennifer Jensen, “How Does One Tax the Cloud,” Price-waterhouseCoopers, January 2012, pp 5.74 Ibid. 75 Ibid. 76 Ibid. 77 Ibid.

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a good -- in the form of a software. Though, as the example of New York, supra, illustrates, this can go either way.78 Again, PWC asks some good questions for tax policy makers to consider:

“A major challenge in the taxation of cloud

-able or nontaxable service? Is it a data processing or information service? Is it the sale or lease of tangible personal property?

addressed cloud services from a SaaS point of view, very few states have addressed tax

-point, and very few states have updated their statutes and regulations to address this emerging use of technology.”79

IaaS stands for infrastructure as a service, and PaaS stands for platform as a service, both are

-scribed in a simple manner previously, supra, as the SaaS of SaaS, but this is not technically

simplistic explanation for those who are not tech-savvy.

While a company might not wish to have a pri-vate cloud due to it triggering jurisdiction within the state where it is physically located, tax ben-

companies to locate their clouds or data farms within their borders. However, this is a matter to negotiate with the state and local jurisdiction prior to committing to a location. According to PWC, some states see private cloud services as ripe for tax purposes, but in other states, ser-vice transactions are not.80 However, the lease of tangible personal property is generally sub-ject to tax, and the State of Vermont has sug-gested that computer memory is tangible per-

78 Ibid. 79 Ibid. 80 Ibid., pp. 6.

sonal property even though it has yet to tax it as such. Thus, states may start taxing the hosting or maintenance of a website on a server as a sale, or lease, of tangible personal property.81 Furthermore:

“Of potentially greater consequence are the possible nexus implications of leas-ing tangible personal property in a state. Leased property in a state may create nex-us for both income tax and sales and use tax in the state where the assets are locat-ed. Using a private cloud could create an

and use tax collection responsibility for the company. The sales and use tax collection responsibility would apply to all the compa-ny‘s transactions in the state, not just those dealing with acquiring private cloud com-puting services.”

Some states have taken steps which threaten to tax the nexus consequences of a private cloud within their borders.82 The State of Texas had a regulation that made any retailer which owned or used tangible personal property within the state, including a computer server or software, subject to sales and use taxes.83 However, in 2011, Texas reversed this position; this exam-ple illustrates that states are becoming aware of these issues.84 The state of Washington has voiced to many software headquartered com-panies within the state that “ownership of or rights in computer software, including mas-ter copies of software, digital goods, or digital codes, stored on servers located in the state” will not be used as factor in determining whether a party has substantial nexus.85 Of course, this

headquartered in the state, but for their clients,

81 Ibid. 82 Ibid. 83 Ibid. 84 Ibid. 85 Ibid.



since any physically-located headquartered companies are already subject to the jurisdic-tion.

States want to attract data farms. Giving tax breaks is often the key to a state attracting big companies to locate a data center in its juris-diction. The states which are “the frontrunners in a race to attract server farms and data cen-ters through tax incentives include Alabama, Kentucky, New York, North Carolina, Oklahoma, Tennessee, and Virginia.”86 In 2007, the state of Washington decided that data farms would no longer get a tax break.87 Microsoft and Yahoo stopped construction of their centers in Wash-ington, and Microsoft moved its center to Tex-as.88 As a result Washington temporarily rein-stated the tax exemption, but the repeal of the tax incentive has seriously harmed the ability of the state to continue to keep and attract new centers. The neighboring state of Oregon, on the other hand, has attracted a Facebook data center via generous tax incentives.89

Back to the Beginning: Uber and Airbnb

In January of 2015, the State of Virginia reported that it had received $1.7 million in taxes from online travel companies, such as Hotel.com, but none from Airbnb which had around 2,500 listings in the state at the time.90 Similarly, Uber

as a result of GPS-enabled smartphones and SaaS business models “continue to undercut the licensed, regulated and revenue producing” traditional industries.91 State and local govern-ments are faced not only with the declines in

86 Ibid., 8. 87 Ibid. 88 Ibid. 89 Ibid. 90 Frank Shafroth, “Unforeseen Fiscal Challenges of Uber-Like Services,”Governing, March 2015. 91 Conor Friedersdorf, “In an Era of Uber and Lyft, One City’s Taxi Regulations Make No Sense,” The Atlantic, March 23, 2015.

traditional tax revenues but issues of equity, economic viability, and the creation of new reg-ulations to protect consumers, while facing the death or decline of historic industries. This new economy has been called by many names -- dig-ital, share, on demand, and the disruptive econ-omy -- and it is all these things. The Internet, SaaS-based businesses leveraging cloud tech-nology, and smartphones have transformed economic patterns worldwide and will continue to change and evolve. How can state and local governments keep up with the changes and address them satisfactorily? What role should the federal government play in this? There is an ever expanding web of interwoven systems of law, policy, and technology which serve as the contextual backdrop of the narrow issue of how can a city properly tax Airbnb, Uber, or other SaaS based businesses.

Conclusion

In January of 2015, House Speaker John Boeh-ner made a statement that Congress would re-visit the Internet sales tax issue within the year. Congress has been studying this issue for years. Several bills addressing the issue have been pro-posed but have failed to gain enough support to pass. In 2013, the Congressional Research Ser-vice published a report entitled State Taxation of Internet Services, supra, which narrates the following summary of one of the bills proposed to address the issue in its basic outlines, later referencing other bills with similar features, both of which are based upon the Streamline Sales and Use Tax Agreement, supra:

“Under S. 1452, Congress would have grant-ed authority to states to compel out-of-state vendors to collect sales taxes, on the condition that 10 states comprising at least 20% of the total population of all states imposing a sales tax have implemented the SSUTA.The legislation also included

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additional requirements for administering the new sales tax system after the SSUTA adoption threshold has been achieved. The requirements included, but were not lim-ited to a centralized, one-stop multi-state

products and product-based exemptions; single tax rate per taxing jurisdiction with a single additional rate for food and drugs; single, state-level administration of sales and use taxes; uniform rules for sourcing (i.e., the tax rate imposed is based on the origin or destination of the product); uni-

-formation service providers; uniform rules

and reasonable compensation for sellers collecting and remitting taxes. The SSUTA generally includes these provisions, though

legislation would have been necessary for enactment.”92

The reason this has not passed in my opinion is that the states do not want to give up more power to the federal government and Congress

92 Steven Maguire, “State Taxation of Internet Transac-tions,” 2013. Accessed March 23, 2015. https://www.fas.org/sgp/crs/misc/R41853.pdf, p. 14.

knows this. Some states have taken preliminary measures with the SSUTA and got mediocre results because it is voluntary and unenforce-able, for the most part. Ultimately, this should be a federal solution, but such a solution could

-isting ordinances by local jurisdictions. The an-swer seems to be a federal law which outlines as above who, what, where, and why internet/

-cally giving implementation power to the states and local governments as to all other issues af-fected by such economic activity so that local governance trumps. In other words, the federal law would only preempt state and local laws as to sales and use taxation, but not give a license for disruption upon local customs with the force

toward a multinational reciprocal sales and use treaty with the E.U. and other such initiatives to-ward modern tax policy.


Tepid Optimism in Sino-American Relations

Tepid Optimism in Sino-American Relations: Pragma-tism and Policy Rationales

Abstract:

This article reviews several United States policy alternatives in Sino-American relations. I consider the nature of the security competition between China and the United States and review major scholarly debates about the meaning of China’s ascendancy in international relations. I ask how

-mines stability in East Asia and harms prospects for peace in the bilateral relationship. My argu-ment suggests that the most reasonable approach to Sino-American relations is a policy strategy I term “tepid optimism.”

Introduction

Since the end of the Cold War, most realist international relations scholars have written that a -

tions.1 Some analysts have attributed the end of America’s “unipolar moment” to the impressive rise of China’s economy, pace of trade liberalization, and growing caches of hard and soft pow-er.2 Predictions that emphasize pessimism in bilateral U.S.-China relations argue generally that “peace-producing mechanisms” and “stability-reinforcing factors” are impotent in the face of secu-rity competition brought on by growing Chinese power.3 Suggesting that tension will spiral, these accounts not only misunderstand regional relations, but also ignore mounting empirical evidence

1 For accounts that are generally pessimistic about the security problems that arise from a strong China, see, for ex-ample, the following articles: Richard K. Betts, “Wealth, Power, and Instability: East Asia and the United States after the Cold War,” International Security, 18.3 (Winter 1993/94) 34–77; Aaron L. Friedberg, “Ripe for Rivalry: Prospects for Peace in a Multipolar Asia,” International Security, 18.3 (Winter 1993/94): 5-33; Charles A. Kupchan, “After Pax Americana: Benign Power, Regional Integration, and the Sources of Stable Multipolarity,” International Security, 23.3 (Fall 1998): 40–79; John J. Mearsheimer, The Tragedy of Great Power Politics (NY, NY: W.W. Norton, 2001). 2 See, for example, two illustrative articles clarifying his standpoint that a rising China has provoked counterbalanc-ing and increasing multipolarization in the region and in Sino-American bilateral relations: Christopher Layne, “Chi-

Christopher Layne, “The Waning of U.S. Hegemony: Myth or Reality? A Review Essay,” International Security, 34.1 (Summer 2009) 142–172. 32005) 41.

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of a pattern showing that a more powerful Chi-na has not yet led to concerted counterbalanc-ing by regional neighbors.4

Security tensions in the Sino-American bilat-

by peace-promoting mechanisms like the ex-pansion of economic trade ties and the credi-ble commitments that the People’s Republic of China (PRC) has pledged through membership in international institutions. Although a sudden crisis in cross-straits relations between China and Taiwan could conceivably shatter the tenu-ous cooperation in the Sino-American relation-ship, this possibility should not be the singular determinant of policy prescriptions; moreover,

relationship after 2008 with the Republic of Chi-na’s (ROC’s) election of President Ma Ying-jeou should diminish the overall concern.

Broadly, however, it is conceivable that Wash-ington and Beijing could be brought to blows if either government dramatically shifted toward a nationalistic foreign policy or embraced dis-engagement strategies. These concerns about a shift to a more nationalistic stance by either the United States or China are real, but relative con-tinuity in Sino-American relations since the end of the Cold War suggests that tepid optimism ought to characterize any attempt by Washing-ton to develop regional policy. Tepid optimism practices balanced pragmatism by engaging China in order to prevent the type of security competition that will unfold if full-scale contain-ment becomes the preferred policy choice of political elites in Washington. While a possible confrontation between China and the United States is possible, tepid optimism can incentiv-

-lomatic stability in the Sino-American bilateral relationship.

4 David Kang, “Getting Asia Wrong: The Need for New Analytical Frameworks,” International Security, 27.4 (Spring 2003): 57–85.

Positive Engagement Prevents Zero-Sum Outcomes

This paper embraces the thesis forwarded by Thomas J. Christensen suggesting that when policy decisions are made, the best approach to understanding the Sino-American bilateral relationship demands a synthetic view of posi-tive- and zero-sum analytic views on the rise of China.5 Christensen has put it this way: “Even if straightforward and full-spectrum contain-ment were attempted by the United States, it would be counterproductive, not only because it would raise China’s ire, but because it would reduce Washington’s relative power in the re-gion.”6 Thus, positive engagement for Chris-tensen is the answer because it will actually guard against zero-sum worries; this idea is what I invoke when I suggest that tepid opti-mism is the best approach to American foreign policy development for the region. The last two decades have shown that trade and mutual in-terests in stability in East Asia have consistently undercut the presence of competition-inducing factors between the United States and China. In his comprehensive consideration of various prospects for future U.S-China relations, Aar-on L. Friedberg tentatively commits himself to the view that tensions will continue unabated,

will produce managed peace. He argues that an

5 Thomas J. Christensen, “Fostering Stability or Creating a Monster? The Rise of China and U.S. Policy toward East Asia,” International Security, 31.1 (Summer 2006): 81–126; Thomas J. Christensen, “Posing Problems without Catching Up: China’s Rise and Challenges for U.S. Securi-ty Policy,” International Security, 25.4 (Spring 2001) 5–40. While some scholars have portrayed Christensen as a general pessimist, his approach to policy development seems to be illustrative of comprising insights from across the theoretical perspectives. In Fostering Sta-bility (2006), he has revised his early statements about how East Asian security should be structured and has evinced a decidedly “moderate” perspective that “mixes elements of positive-sum and zero-sum thinking” (83). 6 Ibid, pp. 125.



“underlying compatibility…[of] strategic inter-ests” will mitigate the full onslaught of the se-curity dilemma brought on by the rise of China.7 The guarded stances embodied in the views of Friedberg and Christensen capture a pragmat-ic vision. Comparatively speaking, this sort of balanced pragmatism in the development of American policy toward China is far better than adhering to the false belief that our choices are strictly either hubristic optimism on one hand or stubborn pessimism on the other.

Why Pessimism Cannot Endure in the Si-no-American Relationship

It seems misguided to embrace a strict stance of pessimism toward the rise of China as framed

-athan Kirshner has masterfully demonstrated how John J. Mearsheimer’s logic “self-defeats” on its own terms. Kirshner explains how Mear-

-quences of “being a hegemon and bidding for hegemony.”8 If we follow Kirshner’s dismember-ment of Mearsheimer’s view, China’s survival as a state is indeed “not in jeopardy if it does not aggressively bid to dominate all of Asia,” and the U.S. does not need to pursue policies that will “strangle the Confucian baby in its cradle.”9 Endorsing classical realism as having more “an-alytical purchase” than its neostructuralist cous-ins, Kirshner suggests that the core tenets of this approach can helpfully elucidate approach-es to China. Classical realists, Kirshner argues,

shapes the actual world; second, how the sta-tus quo ought not to be privileged, but instead

matter” in a decisive sense because it permits

7 Friedberg, “Future of U.S.-China Relations”, 42–45. 8Classical Realism and the Rise of China,” European Jour-nal of International Relations, XX.X (17 August 2010): 9, 12, 1 – 23. 9 Ibid.

learning from history.10 China, he thinks, is not constrained by the structural conditions that neorealism foretells, but is instead rational enough to know that an aggressive bid for he-gemony would not advance its core interests. In short, Kirshner shows how structural vari-eties of realism have certain defects; with the

-sheimer’s view, theory has erroneously led to exaggerated policy prescriptions about secur-ing East Asia and providing for a peaceful rise of China. While Kirshner sees the potential for China to destabilize security and peace in the region and for Sino-American rivalry to contin-ue, he does not think a security crisis is inevi-table. For example, he has explained how the hegemony of the U.S. dollar in the internation-al monetary landscape could become upset by competition with China if unsound policy recommendations further undermine Bretton Woods II agreements. With dollar-denominated reserve currency holdings at roughly $1.5 trillion

policies could make the stability of the dollar more “shaky,” especially in light of the post-

question the dollar’s long-term value.11 Thus, we can see how these insights might suggest that the United States should take a pragmatic position on reforming policy in a way that will allow for its hegemonic leadership to continue. For instance, the reserve status of the dollar can be stabilized if the Federal Reserve quickly in-

that create liquid markets.12

Beckley’s Argument: American Declinist

10 Ibid, pp. 2-9. 11 Ibid, pp. 7; see also Michael Beckley, “China’s Cen-tury? Why America’s Edge Will Endure,” International Security, 36.3 (Winter 2011/12) 47. 12 Barry J. Eichengreen. Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System. New York: Oxford University Press, 2011.

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in its promotion of policy recommendations for the U.S.-China bilateral relationship, it is simi-larly reckless to believe in the invulnerability

trade interdependence and institutional en-gagement may have subdued the direct chal-lenge of Chinese revisionist aspirations, but this has not put to full rest their ability to frustrate American security interests. In his article

, Mi-chael Beckley has recently argued that declin-ist accounts of American power are misguided because they do not follow a dynamic analysis that compares the United States and China

technological, and military factors since the end of the Cold War. He writes: “The widespread misperception that China is catching up to the United States stems from a number of analyt-

to draw conclusions…that compare China only to its former self.”13 Beckley thinks that a “false belief” in American decline has been produced by misguided understandings of how globaliza-tion redistributes power capabilities, resourc-es, and human capital. Relying upon neoliberal insights from Robert Keohane and Joseph Nye, Beckley’s argument depends upon the view that globalization has not recalibrated matri-ces of power between China and the United States, but instead, processes of global produc-tion have tended to favor American economic superiority and the persistence of hegemony. The spread of technology in the new era of glo-balization, he contends, has only widened the

the United States power-resource advantages in wealth, innovation, and military capabilities.

the sort of predictions that Indian economist

13 Michael Beckley, “China’s Century? Why America’s Edge Will Endure,” , 36.3 (Winter 2011/12) 43–44, 41–78.

Avrind Subramanian has made in his Foreign

China’s Dominance is a Sure Thing,” where he denounces American economic conceit, stating

evidence that:

“…the gap between China and the United States in 2030 will be similar to that be-tween the United States and its rivals in the mid-1970s, the heyday of U.S. hegemony, and greater than that between the United Kingdom and its rivals during the halcy-on days of the British Empire, in 1870. In short, China’s future economic dominance is more imminent and will be both great-er and more varied than is currently sup-posed.”14

While Beckley seeks to dismiss declinist views not only for their seeming inaccuracy in the face of two decades of enduring American hegemo-ny, his purpose is most critically aimed at the “jingoistic and protectionist policies”15 that such declinist arguments endorse. His attack centers upon meshing hegemonic stability theory with power transition theory in a way that produc-es aggressive retreats from current American foreign policy rationales that favor positive en-gagement. He cautions explicitly against the United States adopting neomercantilist trade policies or withdrawing from its commitments in East Asia and Europe.16 A reduction in U.S. diplomatic cooperation and economic engage-ment, in his estimation, will be costly and only exacerbate security tensions.

Social Ideational Factors Matter to a Sound Bilateral Policy

14 Arvind Subramanian, “The Inevitable Superpower: Why China’s Dominance is a Sure Thing” 90.5 (September/October 2011) 69 -70.15 Ibid, pp. 77, 41-78. 16 Ibid, pp. 78.



Beckley’s account explains especially well why a sound strategic vision ought to embrace the no-tion that continuation of American leadership will be pivotal for structuring future Sino-Amer-

account for social ideational factors and over-looks elements that could end systemic unipo-larity. China has consistently sought to “delegit-imate” and “deconcentrate” American power in a way that could bring about a transition from unipolarity to multipolarity.17 These combined strategies make American primacy less durable than it may seem on Beckley’s account, but it does not mean that multipolarization will nec-essarily induce full-scale war. Following the argument of Randall L. Schweller and Xiaoyu Pu, Chinese strategies have clearly sought to

pathways that have been geared toward “modi-

to it.”18 Just because China cannot currently compete with the United States on econom-ic and military grounds, does not mean that it cannot problematize the realization of U.S. se-

China’s rise will transform regional political ar-rangements in the upcoming decades through a politics of contestation and resistance. If the PRC’s revisionist impulses grow and are not

-rangements, China could grow increasingly more capable at hampering and obstructing American power vis-à-vis the post-1945 regime that was constructed in global governance insti-tutions like the United Nations, the IMF, and the World Bank.

Can Liberal Institutionalism Work?

17 Randall L. Schweller and Xiaoyu Pu, “After Unipolar-ity: China’s Visions of International Order in an Era of U.S. Decline,” , 36.1 (Summer 2011): 41–71. 18 Ibid, pp. 53, 41-71.

Liberal institutionalism and decisive advan-tages in hard power for the United States may

extent China’s grand foreign policy strategy continues to call for greater autonomy within

the international community. Without a coop-erative China, the United States will have a dif-

Asian region and beyond, including: (1) halting the Iranian and North Korean nuclear weapons programs;19

PRC-ROC hostilities and resolving disputes sur-rounding China’s assertion of autonomy in the South China Seas;20 (3) bringing about the end of humanitarian crises in Africa;21 and, (4) slow-

-national terrorism.22 China’s search to purchase energy resources and fuel its extraordinary growth have frustrated American security inter-ests, but Washington has also been blocked on a number of key matters as a result of China’s motivation to correct certain historical embar-rassments like reoccurring U.S. weapons sales to Taiwan.

As Chinese power grows, the real complexity in American foreign policy will center on how to gain her help in solving crucial security matters. As Deborah Welch Larson and Alexei Sevchen-ko have contended, China is a vital intermedi-ary in security questions. Since China can either

19 Michael Singh, “The Sino-Iranian Tango: Why the Nuclear Deal is Good for China” (July 21,

com/articles/china/2015-07-21/sino-iranian-tango 20 Sheldon W. Simon, “The US Rebalance and Southeast Asia: A Work in Progress,” 55. 3 (May/June 2015), 572 – 595. 21 Luke Patey and Zhang Chun, “Improving the Sino-Af-

(December 7, 2015). Available online at: https://www.-

ing-sino-african-relationship 22 From “Executive Summary,”

(National Intelligence Council, No-vember 2008), pp. viii-xii.

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obstruct or facilitate the resolution of security problems that the United States has sought to resolve, global stability can be achieved if the United States accommodates China’s interests in social mobility. Based on case studies of Chi-na and Russia since the end of the Cold War, Welch Larson and Sevchenko use social identity theory to explain how China can be induced to cooperate on security issues and global gover-nance matters if the United States recognizes the PRC’s rising status.23 Chinese strength will mean that American foreign policy will have to navigate the channels of distinctive interests that Beijing seeks. Thus, a view that only em-phasizes American primacy does not fully ap-preciate how Washington’s power will not be best served by unilateralism.

Concluding Thoughts – Toward Analytical Eclecticism in Sino-American Security

If growing power means that China will expand her interests – as she has over the past two de-cades – then Robert Gilpin’s counsel will come to bear on the ability of the United States to re-solve security interests in the way that it would like. However, as Friedberg has advocated,

23 Deborah Welch Larson and Alexei Shevchenko, “Sta-tus Seekers: Chinese and Russian Responses to U.S. Pri-macy,” , 34.4 (Spring 2010) 63–95.

classical realism is not enough; any thorough-going attempt at developing American policy demands analytical eclecticism. This is a sound prerogative for approaching the bilateral rela-tionship. olicy rationales ought to be guided by a posture of tepid optimism. Washington must continue to positively engage China in order to prevent the security dilemma foretold by neo-realism. China is capable of contesting Amer-ican security interests and has enough power to obstruct progress in stopping the advance of nuclear programs in North Korea and Iran, in securing borders and stopping weapons traf-

-an crises like those faced in Burma and Sudan. It could also take a “nuclear option” and decide to dump its large dollar-denominated reserve currencies if it was pushed into a naval chal-lenge in the South China Sea. Although unlikely, plausible reasons exist that suggest that Chris-tensen’s advocacy for positive engagement to foreclose zero-sum worries is the best panacea for realizing American interests in the region.


When Democracy Hurts

When Democracy Hurts: America’s Ill-Fated Policy in the War on Terror

Abstract:

The U.S government aggressively promoted democracy in Afghanistan, Iraq, and the broader re-gion as a key policy within its war on terror strategy. This paper traces how democracy promotion came to be selected as one of the critical war on terror policies and then evaluates that decision

the time. An empirical analysis of the data suggests the policy choice has not helped achieve U.S. objectives in the war on terror and may have inadvertently contributed to the extended civil

counter-terrorism and counter-insurgency policies, such as the evolving American response to the Islamic State.

Introduction

On September 20, 2001, President George Bush declared America’s war on terror had begun. Af-ter the Bush administration assessed early success in Afghanistan, spreading democracy became one of their key policies supporting America’s war on terror strategy. Over time, the President came to view democracy promotion as a potentially transformational change agent not only for

-tions have emerged regarding the feasibility and sustainability of democracy in those countries. This paper begins by tracing the decision-making process that resulted in attempts to democra-tize Afghanistan, Iraq, and the broader region as part of the war on terror. The next two sections

available at that time. The fourth section analyzes the democratization policy choice based on the --

were unlikely to take hold in either Afghanistan or Iraq. Moreover, the implementation of demo-cratic processes and institutions in Afghanistan and Iraq may have unwittingly contributed to the

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Tracing the Decision to Democratize

Afghanistan

The decision to institute democratic forms of government as a policy response to the attacks of 9/11 came quickly, perhaps haphazardly, and was initially limited to Afghanistan. Once U.S. policymakers assessed Afghanistan as an ini-tial success, however, they began to conceive of democratization as a policy option that could transform the broader Muslim world and re-duce the underlying causes of terrorism.1

As America prepared to destroy and defeat al-Qaeda, removing the Taliban was not a fore-

possibility that the Taliban might cooperate suf-

in power.2 Two weeks after the attacks of 9/11, the CIA initiated covert operations in coordina-

expression of regime change appears to have occurred after that at an October 3 meeting of the principals. At that meeting, Secretary of State Powell stressed the need for political lead-

by the removal of the Taliban, leadership that represented all of the Afghan people.3 U.S. mil-itary operations at this time focused on a light American ground presence, utilizing Northern Alliance ground troops augmented by limited CIA and special operations forces, all of which would be supported by American airpower.

Policymakers were not initially concerned with the issue of Afghan governance. The days im-mediately following the terror attacks of 9/11

1 Council on Global Terrorism, , ed. Lee Ham-

ilton and Justine A. Rosenthal (Washington, D.C: Council on Global Terrorism : Brooking Institution Press, 2006), 83. 2 Bob Woodward, (New York: Simon & Schuster, 2003), 130. 3 Ibid, pp. 191-2.

were confusing and chaotic for all Americans.

on defending the homeland, then on attacking al-Qaeda.4 -wards Afghanistan that was not threat-related came in the form of humanitarian aid, with mili-tary-style Meals Ready to Eat (MREs) airdropped for Afghans. What a future government in Af-ghanistan might look like received scant atten-tion.

The lack of attention paid to Afghan governance resulted in part from the speed and success of military operations. Within the initial week of

pressuring the U.S. government to slow the ad-vance so that an interim government could be put in place before the Northern Alliance took Kabul.5 Despite those attempts, the Northern Alliance did enter Kabul and establish a qua-si-government before a broad-based, interna-tionally recognized interim government could be appointed.

On November 10, President Bush spoke before the U.N. General Assembly, where he articulat-

post-Taliban government that would represent all Afghans.6 Several days later during a meeting between presidents Bush and Putin, both lead-ers stressed the importance of a “broad-based

the process.7 Weeks later, President Bush deliv-

4 National Commission on Terrorist Attacks upon the United States, Thomas H. Kean, and Lee Hamilton,

(Gov-

5 Peter Baker, Molly Moore and Kamram Khan, “Rebels Delay Move Against Kabul; Devising Plan for New Gov-ernment in Afghanistan Becomes Priority,”

, October 11, 2001, sec. A SECTION. 6 George Bush (United Nations General Assembly, New York, November 10, 2001), http://georgewbush-white-house.archives.gov/news/releases/2001/11/20011110-3.html. 7 “National Security Advisor Briefs Press,”



ered a speech aboard the USS Enterprise during which he commented on Afghan governance, “Most of all, that country needs a just and stable government. America is working with all con-cerned parties to help form such a government. After years of oppression, the Afghan people -- including women -- deserve a government that protects the rights and dignity of all its people.” He concluded: “America is pleased by the Af-ghan progress.”8

Less than three months after the terror attacks of 9/11, the U.N.-brokered talks concluded in Bonn, Germany. The talks emphasized the cen-tral role of Afghans, with plans for the U.N. and international community to take a supporting position.9 Afghans would govern themselves, assisted by a light international footprint to help bolster their capacity.10

read, in part, “Acknowledging the right of the people of Afghanistan to freely determine their own political future in accordance with the prin-ciples of Islam, democracy, [and] pluralism…” Hamid Karzai took the oath as interim President of Afghanistan on December 22, 2001.

Iraq

Five years before the U.S. invaded, Congress and President Clinton had enacted a law authoriz-ing $97 million for opposition forces who might remove Saddam from power and promote democracy in Iraq.11 President Bush, though, needed little legislative encouragement. By this

, November 15, 2001, http://georgewbush-white-house.archives.gov/news/releases/2001/11/20011115-9.html. 8 “President: We’re Fighting to Win - And Win We Will,” , December 7, 2001, http://georgewbush-whitehouse.archives.gov/news/releas-es/2001/12/20011207. html. 9 Simon Chesterman, “Walking Softly in Afghanistan: The Future of UN State-Building,” 44, no. 3 (Septem-ber 2002): 39. 10 Ibid., 38. 11 Bob Woodward,

(New York: Simon & Schus-ter, 2004), 10.

point in the war on terror, buoyed by perceived success in Afghanistan, the president frequent-ly articulated his conviction that America had a responsibility to free people. To those who cri-tiqued his position as potentially paternalistic, he responded that freed citizens would not see it that way; they would see it as liberation.12

In January 2003, the President met with sever-al Iraqi dissidents. They articulated a favorable picture of what a post-Saddam Iraq could look like. Each spoke optimistically of democracy’s future in Iraq, noting the technological skills of the citizenry and dismissing assessments that highlighted the Sunni-Shia rift. The President engaged them in an aggressive give and take. For most of his questions they had compelling answers, but when asked about the possibility of the U.S. being seen as imposing its will, they had no response.13

Concurrently, Vice President Cheney became concerned the State Department was failing to embrace the President’s vision for democ-racy in Iraq and the potential transformation democracy could drive in the Middle East. He believed that Secretary Powell and others at State viewed democracy in Iraq and the region as unattainable.14 Already somewhat marginal-ized before 9/11, this event appears to have fur-ther isolated Secretary Powell and diminished

Bush administration.15

Two weeks before the invasion, Doug Feith, the Under Secretary of Defense, briefed the Presi-dent and the National Security Council on U.S. objectives with respect to Iraq. These objectives included moving Iraq towards democracy, with Iraq to then serve as a model for the region to follow. Most of the objectives focused on po-

12 Ibid., 88. 13 Ibid., 258-60. 14 Ibid., 284. 15 Woodward, 13-14.

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litical and societal issues, rather than military ones. 16As the weighting of the objectives sug-gested, the promotion of democracy was used

17 U.S.-led coalition airstrikes began on March 20, 2003.

In October 2003, during a meeting with the Japanese prime minister, President Bush again

war on terror and World War II. He noted that, just as America and Japan enjoyed a positive relationship after the war, at some point in the future the Iraqi and American presidents would share a similar relationship.18 Eight months af-ter the invasion of Iraq, President Bush present-ed a “new policy, a forward strategy of freedom in the Middle East.”19 The President’s lofty am-bitions for the Middle East and the parallels he drew to World War II suggest he felt a respon-sibility to liberate the “oppressed” and that he viewed the war on terror as a potentially trans-formative period for the world.

In June 2004, the United States transferred pow-

Iraqi elections were held in January 2005.20

After the Elections

-racy in the Middle East, publically promoting de-mocracy as a cornerstone of his war on terror

16 Woodward, , 328. 17 Jeremy Sharp, “U.S. Democracy Promotion Policy in the Middle East: The Islamist Dilemma” (Washington, D.C.: Congressional Research Service, 2006), 1. 18 Woodward, , 419. 19 Mark N. Katz,

(Baltimore: Johns Hopkins Uni-versity Press, 2012), 23–4. 20 Dominic Johnson and Dominic Tierney,

, First Edition edition (Cambridge, Mass: Harvard Universi-ty Press, 2006), 245.

strategy.21 During his second inaugural address, he implied that the wars in Iraq and Afghanistan were partly about freedom and, by extension, democracy. He used the words “freedom,” “lib-erty,” “democracy,” or some variant thereof 46 times.22 In his State of the Union addresses pri-

Bush used democratizing language an average of 23 times per speech. In the addresses that came after the elections, the average was 36 instances—a 57 percent increase.23 Further, he viewed his democratization policies a success. For example, his 2006 National Security Strate-gy celebrated the “extraordinary progress in the expansion of freedom, democracy, and human dignity” that had occurred since 2002 and noted America’s commitment to continue building on that progress.

However, the 2006 elections that brought Hamas to power in the Palestinian Territories

administration’s push for broader democrati-zation. The Hamas victory, along with Islamist inroads made in elections by the Muslim Broth-erhood in Egypt and Hezbollah in Lebanon, brought a chorus of criticism against the Pres-ident.24 Researchers and political commenta-tors suggest his administration responded by de-emphasizing democracy promotion.25 How-

21 Raphael Perl, “Combating Terrorism: The Challenge of -

ton, D.C.: Congressional Research Service, November 23, 2005), 4. 22 Helene Cooper, “Talking Softly About Democracy Promotion,” , January 30, 2009, sec. U.S. / Politics, http://www.nytimes.com/2009/01/30/us/politics/ 30web-cooper.html. 23 Data derived from State of the Union texts, 2002-2008, available at washingtonpost.com. 24 Steven R. Weisman, “Bush Defends His Goal of Spreading Democracy to the Mideast,”

, January 27, 2006, sec. Washington, http://www.nytimes.com/2006/01/ 27/politics/27diplo.html. 25 Katz, Leaving without Losing, 23–4; Glenn Kessler, “U.S. Policy Seen as Big Loser in Palestinian Vote,”

, January 28, 2006, sec. World, http://www. washingtonpost.com/wp-dyn/content/arti-



ever, a review of the President’s subsequent State of the Union addresses calls that assess-ment into question. While 2005 does appear to have been the apex for pro-democracy rheto-ric, the 2008 address—two years after Hamas’ victory—placed second. A word count indicates that President Bush’s use of pro-democracy language actually increased by 14 percent in the addresses delivered after the January 2006 Hamas victory, as compared to those delivered before.26

Analyzing Democratization as a Policy Choice in the War on Terror

The pre-9/11 scholarly research

The scholarly research provides insight into two key questions regarding the U.S. policy choice to promote democracy as part of the war on terror strategy. First, the research helps an-swer the question: should democracy have been expected to succeed in Afghanistan and Iraq? More broadly, the scholarly research can help answer a second question: are democratic forms of government less likely to experience terror attacks as compared to other polities? This second question is relevant as the Bush administration believed democracy would help alleviate the underlying causes of terrorism.

The majority of the research available prior to regime change in Afghanistan and Iraq suggest-ed that successfully establishing a functioning democracy would be unlikely in either country. Eminent democratic theorist Seymour Martin Lipset argued that an enduring democracy re-quires a visible connection between government

can observe. Progress in either the political or economic arenas are needed, he said, to build perceived legitimacy and help cement democ-

cle/2006/01/27/AR2006012701562.html. 26 Data derived from State of the Union texts, 2002-2008, available at washingtonpost.com.

racy.27 That was unlikely in Afghanistan and Iraq, with neither population having any expe-rience in building a framework of legitimacy out of political or economic performance. Regard-ing democracy in Muslim-majority states, a size-able corpus of research cautioned that many of the cultural and institutional foundations that enable democracy could not be found within the Islamic tradition.28 Lipset noted that culture

he assessed the likelihood of successful democ-racies taking root in Muslim-majority countries as “doubtful.”29 A minority of scholars assessed these obstacles as surmountable.30

With respect to Afghanistan, Harvard economist Robert Barro observed that democracy was un-likely to take hold because of low education lev-els, the marginalization of women, and a pop-ulation divided by a patchwork of ethnicities.31 Fareed Zakaria stressed the potential problems associated with ethnic fractionalization and de-mocracy, noting the chance of war could actu-ally increase if democracy were introduced in a country that did not yet have a liberal culture or institutions.32 Similarly, Amitai Etzioni, a for-mer advisor to President Carter, highlighted the

from “the Stone Age to even a relatively modern one.” He pointed to the myriad failed experienc-es of the World Bank and U.S. foreign-aid pro-grams, concluding that democracy would fail in Afghanistan.33 These observations highlight the

27 Seymour Martin Lipset, “The Social Requisites of De-mocracy Revisited: 1993 Presidential Address,”

59, no. 1 (February 1, 1994): 6, 17. 28 Alfred C. Stepan, “Religion, Democracy, and the ‘Twin Tolerations,’” 11, no. 4 (2000): 47. 29 Seymour Martin Lipset, “The Centrality of Political Culture,” 1, no. 4 (1990): 82–3. 30 John L. Esposito and John Obert Voll,

(Oxford University Press, 1996). 31 Robert Barro, “Don’t Bank on Democracy in Afghani-stan,” , January 21, 2002, 18. 32 Fareed Zakaria, “The Rise of Illiberal Democracy,”

, December 1997, 35. 33 Amitai Etzioni, “USA Can’t Impose Democracy on

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discrepancy between the aspirations of Presi-dent Bush (and his national security team) and the numerous obstacles that the pre-9/11 re-

The pre-war intelligence

The Bush administration planned the Iraq War over an extended period of time and authori-

intelligence that was then available to planners. Conversely, for the war in Afghanistan, essen-tially no intelligence regarding governance is-sues is available since the war came shortly af-ter 9/11 and neither the White House nor the military had any plans for Afghanistan prior to those attacks, beyond tactical plans to kill or capture bin Laden.34 Much of the available in-telligence regarding Afghanistan comes from the 9/11 Commission Report, but it does not in-clude information that would be useful for an-alyzing the decision to democratize. Therefore, no analysis of the policy choice to promote de-mocracy in Afghanistan is provided here.

The policy choice to promote democracy in Iraq

of the pre-war intelligence. In August 2002, a CIA report noted that Iraqi culture has been “in-hospitable to democracy.” The report went on to say that, absent comprehensive and endur-ing U.S. and western support, the likelihood of achieving even “partial democratic successes” was “poor.”35 Later that year, the CIA issued a slightly more optimistic assessment, which said most Shia would conclude that a “secular and democratic Iraq served their interests.”36 At the same time, however, a Defense Intelligence Afghans,” , October 10, 2001. 34 National Commission on Terrorist Attacks upon the United States, Thomas H. Kean, and Lee Hamilton,

, 135–7, 208, 332. 35 United States Senate Select Committee on Intelli-gence, “Report on Prewar Intelligence Assessments About Postwar Iraq” (Washington, D.C., May 25, 2007), 103. 36 Ibid., 100.

Agency report asserted that Shia preferences could not be accurately assessed because of the fear and repression they were living under.37 Several months later, the CIA released another assessment indicating the potential for demo-cratic stability would be “limited” over the next two years, but a US-led coalition “could” prepare

38 The National Intelligence Council (NIC) pub-lished two Intelligence Community Assessments in January 2003, which the Senate Select Com-mittee on Intelligence subsequently described as the “best available ‘baseline’” of prewar as-sessments on Iraq.39 Those reports described democratic concepts as “alien to most Arab Middle Eastern political cultures.”40 The NIC also noted, “Iraqi political culture does not foster lib-eralism or democracy.” As a result, the potential for democracy in Iraq was assessed as a “long,

41 In a particularly prescient set of comments, the NIC concluded that “political transformation is the task…least susceptible to outside intervention and management.”42

The post-9/11 scholarly research

Since the two wars began, the research has burgeoned, enabling a more critical examina-tion of the Bush administration’s policy choice to aggressively promote democracy as part of its overall war on terror strategy. Scholars have advanced a number of compelling arguments about the Bush administration’s policymaking process and why democracy has proved so problematic in both countries. As to the former,

37 Ibid., 93-4. 38 Ibid., 97. 39 Ibid., 4. 40 National Intelligence Council, “Regional Consequenc-es of Regime Change in Iraq,” January 2003, 30. 41 National Intelligence Council, “Principal Challenges in Post-Saddam Iraq,” January 2003, 5, http://www.foia.cia.gov/document/0005674817. 42 Ibid., 9.



employ a systematic decision-making process with respect to Iraq, preferring substantive dis-cussions with only a small cadre of his closest advisors.43 Such an approach could inadver-tently promote groupthink and be suscepti-ble to ignoring contradictory intelligence and research. Regarding attempts to democratize both countries, researchers point to a long list of challenges: the historic lack of Muslim-ma-jority states adopting democratic norms, ethnic and / or religious fractionalization, lack of liberal institutions or culture, poor rule of law, and the animus felt towards the U.S., the chief democ-racy promoter, by many in the Muslim world.44

Two additional arguments help further explain why democracy proved so problematic in Af-

the Bush administration promoted democracy and the second looks at was being democ-ratized. While the idea of America promoting democracy abroad is not new, how it has been promoted has changed over time. Jonathan Monten outlines the two predominate ways in which America has historically sought to export democracy.45 -til the 20th century, relied on the use of America’s example, akin to the shining city on a hill. Amer-

forms of governance primarily took place within America’s borders; other nations could see the example and be enticed to emulate it. Monten refers to the second method as “vindicationism.”

43the Iraq War,” in

(College Station, TX: Texas A&M University Press, 2008), 217–8. 44 Zakaria, “The Rise of Illiberal Democracy”; Bernard Lewis, “The Roots of Muslim Rage,” 266, no. 3 (1990): 47–60; Samuel P. Huntington, “The Lonely Superpower,” 78, no. 2 (March 1, 1999): 35–49. 45 Jonathan Monten, “The Roots of the Bush Doctrine: Power, Nationalism, and Democracy Promotion in U.S. Strategy,” 29, no. 4 (April 1, 2005): 112–115.

It includes setting a positive example, but adds active, external measures to promote democ-racy. President Bush, Monten aserts, embraced a version of vindicationism-plus by going even further and adding a coercive element. Mont-en argues the U.S.’s hegemonic status not only made coercion possible, but in some respects almost unavoidable.46 Had U.S. power not been such an overmatch for any would-be competi-tor, the Bush administration would likely have been less bold. This boldness was accompanied by a conviction that the use of U.S. power was morally correct—policymakers believed their use of power was virtuous. As a result, they did not consider that their actions might be viewed as coercive, unwelcome, or self-seeking.47

Moreover, the Bush administration believed democratic success would beget democratic success, such that bandwagoning would result as opposed to other nations trying to balance against U.S. power.48 Assumed bandwagoning also contributed to the expectation that U.S. mil-

to democracy for countries beyond Iraq and Af-ghanistan. As the President claimed, a “free Iraq can be an example of reform and progress to all the Middle East.”49

The second argument looks at who was to be democratized. It does not appear, for example, that U.S. policymakers gave any consideration to the mental health challenges facing the Af-

-fects of decades of severe trauma visited upon both populations before the U.S. invaded were

refugee populations published in the Journal of the American Medical Association suggests that PTSD rates among the Iraqi and Afghan popu-lations may have been as high as 50 percent at

46 Ibid., 116. 47 Ibid., 146. 48 Ibid., 148-9. 49 Ibid., 150.

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50 In addition to extremely high rates of PTSD, the data also suggests that the Afghan and Iraqi populations already had quite high rates of major depres-sion, too. The meta-analysis indicates that over 40 percent of the 47 million Iraqis and Afghans who were exposed to high amounts of terror and multiple, potentially traumatic events (e.g., being tortured, exposed to war, being forcibly displaced from their homes) likely met the cri-terion for Major Depressive Disorder.51 Those criteria—exposure to multiple traumatic events and high terror rates—were present in Afghani-stan for 20 of the 21 years preceding the U.S. in-vasion, while Iraq met those conditions for the immediately preceding 17 years.

An array of destabilizing behaviors and cogni-tive impediments that are inimical to democ-racy formation accompany these high rates of

50 Steel Z et al., “Association of Torture and Other Potentially Traumatic Events with Mental Health Out-

and Displacement: A Systematic Review and Meta-Anal-ysis,” JAMA 302, no. 5 (August 5, 2009): 543. The chart is reprinted from Erik Goepner, “An Enduring Argument Against Counterinsurgency,” , Sep-tember 27, 2012, http://smallwarsjournal.com/jrnl/art/an-enduring-argument-against-counterinsurgency. 51 See Gibney, Cornett, Wood, & Haschke, (2012)

. From the Political Terror Scale Web site: http://www.politicalterrorscale.org/.

mental disorders. The destabilizing behaviors include an increase in substance abuse, self-harm, and the harming of others.52 As trauma levels increase, these pockets of instability can proliferate and cause societal-wide problems. The destabilizing behaviors and cognitive im-pediments result in decreased initiative, trust levels, reasoning skills, and ability to concen-trate.53 Finally, people who have been heavily traumatized, similar to the Afghans and Iraq-is, are more likely to yield to learned helpless-ness.54 This psychological phenomenon man-

52 Rangaswamy Srinivasa Murthy et al., “The World Health Report 2001 - Mental Health: New Understand-ing, New Hope,” , accessed January 6, 2015, http://www.who.int/ whr/2001/en/; American Psychiatric Asso-ciation,

, DSM Library (American Psychiatric Association, 2013), http://dsm.psychiatryonline.org.mutex.gmu.edu/doi/book/10.1176/appi.books.9780890425596; Deborah

Mental Health Conditions: Impacts on Income, Taxes, Government Support Payments due to Lost Labour Force Participation,” 11, no. 1 (2011): 72; Stephen A. Stansfeld, Rebecca Fuhrer, and Jenny Head, “Impact of Common Mental Disorders on Sickness Absence in an Occupational Cohort Study,”

68, no. 6 (June 1, 2011): 408–13; E. Fuller Torrey, “Violent Behavior by Individuals With Serious Mental Illness,” 45, no.

and Severe Mental Disorder in Clinical and Community -

morbidity, and Lack of Treatment,” 60, no. 1 (1997): 1–22; Terrance J. Wade and David J. Pevalin, “Mar-ital Transitions and Mental Health,”

45, no. 2 (June 1, 2004): 155–70.53 American Psychiatric Association,

; Chris R. Brewin et al., “Memory for Emotionally Neutral Information in Posttraumatic Stress Disorder: A Meta-Analytic Investi-gation,” 116, no. 3 (2007):

Integrated Review of Human Literature,” 214, no. 1 (March 2011): 55–70.

54 Steven Maier, “Exposure to the Stressor Environment Prevents the Temporal Dissipation of Behavioral Depres-sion/Learned Helplessness,” 49, no. 9 (May 1, 2001): 763; Neta Bargai, Gershon Ben-Shakhar, and Arieh Shalev, “Posttraumatic Stress Disorder and



ifests over time as individuals increasingly perceive no connection between their own ef-

gives way to hopelessness. As a result, they no

to their circumstances.55 The behavioral and cognitive changes that frequently accompany severe trauma would appear to inhibit the suc-cessful implementation of democratic forms of governance.

-tion in the War on Terror

This section begins by analyzing several mea-surements related to the overall war on terror. Although this paper has focused on just one component of the war on terror strategy—the promotion of democracy—macro indicators provide a useful starting point. The analysis will

governance and democracy.

achieved the desired objectives. Whether mea-sured by the number of global terror attacks, attacks on U.S. soil, fatalities caused by terror-

aligned with Islamist-inspired terror groups, the

on terror have achieved disappointing results. In the 12 years prior to 9/11, terrorists world-wide committed an average of slightly more than 3,200 attacks annually. In 2001, that num-ber dropped to under 1,900. Since the U.S. ini-tiated its war on terror, the average number of attacks has reached nearly 4,300 per year.56

Depression in Battered Women: The Mediating Role of Learned Helplessness,” 22, no. 5 (June 6, 2007): 268, 272, 274. 55 Lyn Abramson, Martin Seligman, and John Teasdale, “Learned Helplessness in Humans: Critique and Re-formulation,” 87, no. 1 (1978): 50. 56 Data from the Global Terrorism Database, available at http://www.start.umd.edu/gtd/.

Islamist-inspired terror attacks in America from 1988 to 2000. That compares to four attacks from 2002 to 2014.57 While the number of suc-cessful attacks dropped by one, another 63 Is-lamist-inspired terror attacks against the home-land were thwarted over that same period,

little to address the underlying causes of terror-ism focused against America.58

The number of fatalities caused by terrorist have also climbed since 2001. Just under 6,500 people were killed worldwide per year in terror attacks during the 12 years prior to 9/11. That number has risen 46 percent to an average of just under 9,500 fatalities per year for the 12 years since. The before and after numbers for U.S. citizens killed by acts of terrorism are similarly disconcerting: on average, 45 were killed per year before 9/11 and 64 for each year since.59

-

ror examines the number of Islamist-inspired

as foreign terrorist organizations (FTOs) and the size of those groups. Since 2000, the overall number of FTOs has increased by 86 percent, from 29 to 54. The subset comprised of Isla-mist-inspired FTOs, though, has mushroomed from 13 to 37 groups, an increase of 185 per-

57 National Consortium for the Study of Terrorism and Responses to Terrorism (START). (2013). Global Ter-rorism Database [globalterrorismdb_0814dist-1.xlsx]. Retrieved from http://www.start.umd.edu/gtd.58 David Inserra and James Phillips, “67 Islamist Terror-ist Plots Since 9/11: Spike in Plots Inspired by Terrorist Groups, Unrest in Middle East,” tion, April 22, 2015, http://www.heritage.org/research/reports/2015/04/67-islamist-terrorist-plots-since-911-spike-in-plots-inspired-by-terrorist-groups-unrest-in-middle-east. 59 Data from the National Consortium for the Study of Terrorism and Responses to Terrorism (START). (2013). Global Terrorism Database [globalterrorismd-b_0814dist-1.xlsx]. Retrieved from http://www.start.umd.edu/gtd.

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cent.60

those Islamist-inspired FTOs has risen from an estimated 32,200 in 2000 to more than 110,000 by 2013.61

These macro measurements suggest the U.S. has not achieved its objectives in the war on

been associated with a deterioration in key ar-eas. U.S. objectives to protect Americans, de-stroy al-Qaeda, and destroy other terror groups with global reach appear further from reach to-day than when the war on terror began. While this does not mean that policies to implement democracy are the cause, it is notable that ef-forts to democratize Afghanistan, Iraq, and the broader region have not resulted in any mea-surable progress towards achieving the critical U.S. objectives.

Unlike the broad measures of performance which have worsened since 2001, governance and democracy measures are not as clear-cut. Freedom House’s political rights and civil liber-ties indicators show a marginal improvement since 2001 for the 47 Muslim-majority coun-tries. The average political rights and civil liber-ties scores for all Muslim-majority states were essentially identical in the years prior to, and including, 2001. Since that time, scores have

60-

al Terrorism),” March 23, 2006, http://www.state.gov/j/

Reports on Terrorism 2013,” , April 30, 2014, http:// www.state.gov/j/ct/rls/crt/2013/index.htm; Martha Crenshaw, “Mapping Militant Orga-nizations,” , accessed March 27, 2015, http://web.stanford.edu/ group/mappingmilitants/cgi-bin/groups. 61 Martha Crenshaw, “Mapping Militant Organizations,”

, accessed March 27, 2015, http://web.stanford.edu/group/mappingmilitants/cgi-bin/groups. See also Department of State Country Reports and Pat-terns of Global Terrorism at http://www. state.gov/j/ct/rls/crt/.

improved by nearly 6 percent from 5.26 to 4.96 (NOTE: declining scores indicate improvement. Freedom House scores range from 1 “most free” to 7 “least free”).62 Moreover, the modest improvement occurred while the global aver-age for civil and political rights worsened.63

As for Afghanistan and Iraq, they had the lowest possible Freedom House scores for the years prior to 9/11 (i.e., 7). Scores for both countries have improved since, though neither has yet been listed among the 125 countries meeting

The Polity IV Project from the Center for Sys--

surement. It assess Afghanistan as unchanged since 2001. Throughout those 13 years, the Pol-ity IV Project has assessed the country as “mod-erately fragmented,” meaning 10 to 25 percent of Afghanistan is ruled by authorities uncon-nected to the central government.64 However, the assessment of Iraq has changed rather dra-matically. In the decade prior to the U.S. inva-sion, Iraq was assessed as extremely autocratic. Beginning in 2003 and continuing for the next six years, the assessment changed to “seriously fragmented,” with between 25 and 50 percent of the country being ruled by authorities that were not connected to the central government. Then, beginning in 2010, Iraq was listed as “slightly democratic” and that assessment has remained through 2014, the last year record-ed.65 The presence of the Islamic State in wide

62 Data from https://freedomhouse.org/report-types/freedom-world#.VTwGJBd422k.63 Arch Puddington, “Discarding Democracy: A Return to the Iron Fist,” , 2015, https://freedom-house.org/report/freedom-world-2015/discarding-de-

64 Monty Marshall, Ted Gurr, and Keith Jaggers, “Politi-cal Regime Characteristics and Transitions, 1800-2013: Dataset Users’ Manual” (Vienna, VA: Center for Systemic Peace, 2014), 13. 65 Monty Marshall, Ted Gurr, and Keith Jaggers. 2015.

, 1800-2014. [p4v2014-2.xls]. Retrieved from http://



swaths of the country does not yet appear to

Conclusion

Exploring potential causality

The U.S. government’s policy choices to try and democratize Afghanistan, Iraq, and the broad-er region have not resulted in the achievement of U.S. objectives. Moreover, the policies to democratize may have contributed to the ex-tended civil wars in both Afghanistan and Iraq. The potential causal link between the policies to promote democracy and the enduring civil

-creased motivation on the part of the popula-tion to rebel.

Policies designed to introduce democracy may

in both countries. By removing the autocratic regimes and introducing representative forms of government, previously repressed ethnic, religious and other fractionalized groups were now encouraged to express their grievanc-es and aspirations. Moreover, they were en-couraged to expect a responsive government, one that would actively work on their behalf. However, without pre-existing liberal cultural norms and institutions, there was neither the framework nor the inclination to mediate those grievances. The opportunity to bring grievances into the public sphere absent the mechanisms to peacefully deal with them may have inten-

and then went unmet, leading to an increase in grievances. Potentially, these increased griev-

Additionally, the negative and destabilizing ef-fects of the trauma experienced by both popu-

the Taliban and Saddam Hussein, the popula-tions’ grievances were likely intense, but they www.systemicpeace.org/inscrdata.html.

were suppressed by the barrel of a gun. In a democracy, the government is expected to address the citizenry’s grievances through leg-islation, the delivery of basic services, constit-uency work, and so on. A heavily traumatized population, however, is unlikely to produce the

result, grievances may have escalated in both countries, thereby increasing the motivation to rebel. The motivation to rebel, which includes grievances, is positively related to both the like-lihood of a civil war occurring and the length of the war.66

Policy recommendations

1. Assess the foreign population before imple-

involve them.

Had the U.S. assessed the Afghan and Iraqi

decades of trauma could have been estimated and used to modify U.S. policies, as well as ex-pectations. The medical literature on trauma, the mental disorders that often result, and their negative manifestations is comprehensive and easily available to policy-makers.

2. Avoid imposing democratic forms of govern-ment on foreign populations.

The scholarly research and intelligences avail-able before the U.S. invasions contained nu-

-ratizing. The warnings pointed to the lack of successful democracies in Muslim-majority countries. Additionally, neither Afghanistan nor Iraq had the pre-existing liberal cultural norms or institutions associated with successful de-

66“Beyond Greed and Grievance: Feasibility and Civil War,”

61, no. 1 (January 1, 2009): 1–27;

the Duration of Civil War,” 41, no. 3 (May 1, 2004): 253–73.

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mocracy formation. Finally, it was quite unlikely that the U.S. would be viewed as a credible pro-moter of democracy.67

-ests.

In the war on terror, the number one interest was to protect Americans and the second was to destroy al-Qaeda. Bringing representative forms of government to Afghans and Iraqis was a noble desire on America’s part, but it was not a U.S. interest. Instead, policies that focused on democratizing both countries may have inter-fered with the success of other U.S. policies by exacerbating grievances among the Afghan and Iraqi populations.

Concluding thoughts

67 See, for instance, Bernard Lewis, “The Roots of Mus-lim Rage,” , September 1990.

The decision to include democracy promotion as a key policy of the war on terror did not hap-pen immediately, but gained momentum in re-sponse to the perceived early successes in Af-ghanistan. Policymakers apparently missed or ignored research and intelligence that warned of substantial challenges to successfully democ-ratizing Afghanistan and Iraq. Research since that time has corroborated the earlier research. The empirical analysis indicates that attempts to democratize did not help achieve the desired outcomes in the war on terror, though minor gains in democratic measures were observed. In the future, policymakers may want to avoid imposing democracy on foreign populations until they have both assessed the host popula-tion’s capacity and determined that a U.S. inter-est is at stake.

. Research. Practice

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