The US Senate recently passed the so-called “Marketplace Fairness Act,” which mandates that Internet retailers collect sales taxes from their customers and remit these amounts to those states that charge them. The argument is that the current system, in which out-of-state sales taxes are virtually un-collectible in many situations, is unfair to traditional brick and mortar businesses, is hogwash. The real reason is greed. State and local governments have spent themselves deep into debt, and are looking for a way out. They don’t deserve one.
This law now goes to the House, which may or may not pass it, but it’s likely to pass both houses of Congress in some form eventually. You can be certain that the President, be he our current “socialist” or a potential “free market” Republican successor, will have no trouble signing it. That is unfortunate. This is one few cases of “states rights” that the Federal government should oppose.
Sales taxes have gotten completely out of hand, soaring to 10 percent or more in many areas. Local politicians have used deception to gain the acquiescence of the public, promoting this boondoggle project or that, raising the level of theft a penny at a time. Many of these taxes were supposed to be temporary, but keep being renewed when the roads, schools, or parks in question encounter the inevitable cost overruns. Sometimes these taxes fund “development” projects such as professional sports stadiums, which invariably fail to deliver the economic benefits their proponents fraudulently predicted.
Besides being used to fund wasteful projects, sales taxes are also highly regressive. They hit the poor and the elderly on fixed incomes the hardest. In a time of economic downturn, this is a powerful argument for decreasing them. Exempting Internet transactions completely from sales taxes would give states and cities a good reason to reduce or eliminate this onerous form of plunder.
Extending tax collection to all Internet businesses, even tiny ones, will be a heavy burden on commerce that does NOT fall on brick and mortar stores, which only need to collect for their local jurisdiction. I expect that “sales tax collection services” will spring up around the country, and that they will impose a significant cost on small business, over and above the taxes themselves. I also predict that members of Congress, who are largely exempt from the insider trading laws that plague private investors, will be heavily invested in these business, just as former Homeland Security Secretary Michael Chertoff invested in airport X-ray machines after 9-11.
People who know me may be shocked that I suggest that Congress take any sort of action at all, but in this case I part from my usual anti-Federal prejudices. Congress should use its power under the Commerce Clause to completely ban the so-called “use taxes,” which allow states to levy sales taxes on transactions conducted outside their borders. Such a law would have the happy effect of abrogating recent state agreements that require Amazon to collect taxes in jurisdictions where it has no physical presence.
And what of the affected states and municipalities? They will be forced to make deep cuts in spending, as well they should. These cuts should start at the top, slashing salaries of governors, department heads, mayors, city managers, and the administrators of school districts as well as fire and police departments. In many cases “public services” will need to be cut. Sweetheart contracts with public employee unions in states like California can and must be broken. In other cases, cities will declare bankruptcy. This should be viewed as a normal and necessary check on the ability of local governments to over-spend. Once bond-holders start to lose money on these allegedly risk-proof “investments”, they will think twice, and investigate a city’s fiscal responsibility before doing so again.
Incidentally, the idea that states “need” to collect this money is disproven by the fact that North Dakota, a state with full coffers due to is oil boom, continues to collect “use taxes” on Internet transactions. Furthermore, though I oppose taxes in principle, if sales taxes were to drop to 3% or less, they would have little or no effect on physical businesses. Local shopping has its own advantages, which include immediate gratification and saving on shipping costs.
Brick and mortar merchants may see a tax-free Internet marketplace as unfair, but this does not mean they have the right to equalize their misery. They should instead agitate to reduce or eliminate the outrage that is sales taxation.