Politicians and bureaucrats love taxes. If you build it, they will tax it. They'll do the same if you buy it, sell it, drive it, eat it, drink it or smoke it. The National Tax Foundation captured the governmental tax spirit perfectly last week in a spoof video called the "Nanny Tax Rap."
The government's penchant for taxing anything and everything explains why hundreds of thousands of Americans rallied at "tea parties" on Tax Day last month to protest taxes and spending. It also explains the opposition to new taxes on Internet sales.
But fans of free markets and tax reform shouldn't impulsively dismiss the Internet tax movement. Instead, they should consider embracing it as an opportunity to deter money-grubbing state and local officials from raiding the wallets of their constituents every time they get in a tight spot.
Back in 1989, the first Bush administration imposed a no-net-loss policy for wetlands. In 21st-century America, it's time for a no-net-gains policy for taxes, and the latest push to start taxing Internet sales provides a big opening to pursue that goal.
It's true that states and localities want to tax e-commerce, and plenty of lawmakers in Congress want to give them that right, for one reason -- to extract more money from taxpayers.
If endorsed by Congress, the Streamlined Sales Tax Project would require online merchants to collect sales taxes from buyers across state borders, a practice currently forbidden by a 1992 Supreme Court case. The end result would be billions of dollars in revenue for the states that are parties to the agreement.
It's a tax grab straight up.
If you want proof, listen to state Delegate John Doyle in West Virginia: "There's $18 billion a year in sales taxes that are not being collected. That's $18 billion of stimulus that Congress can enact without spending a single penny." Or to Neal Olsten of the National Council of State Legislatures, a leading advocate for Internet taxes: "States are still looking for fiscal relief, and this is something Congress can do that's not going to cost a penny out of the federal budget."
It's clear that state and local proponents of Internet taxes just want more money so they don't have to cut spending in a troubled economy.
That ulterior motive aside, there are legitimate reasons to consider Internet taxes.
For starters, existing sales-tax systems, for instance, weren't designed for electronic, cross-border sales, and exempting online retailers from collecting those taxes has given them an advantage. That made sense in the early days of the Internet. Sellers needed room to grow their businesses without the burden of collecting taxes for thousands of jurisdictions, all with different rules.
But those early days are gone. According to Census Bureau survey data, the online dollar share of U.S. manufacturing shipments increased from 18.1 percent in 1999 to 31.2 percent in 2006. Firms like Amazon.com and eBay are household names now and generate billions of dollars in sales each year.
Maybe the time isn't here yet, but at some point in a free (and fair) market, tax codes need to stop favoring retailers based on where they operate.
The other key point is that most states already require consumers to pay taxes on Internet purchases. The law doesn't require out-of-state retailers to collect them; instead, consumers are supposed to pay "use taxes" to their own states.
The problem is that most people don't pay use taxes because they've never heard of them, don't understand when they are owed or don't know how to calculate them. Only politicians, bureaucrats, accountants and tax attorneys would miss them if they suddenly disappeared.
Which brings us back to the idea of a no-net-gains tax policy, a concept captured in the "Taxed Enough Already" slogan of the tea-party movement. If state and local officials want to force online retailers to collect sales taxes, first they need to agree to hold taxpayers harmless.
That can happen in two ways: 1) Get rid of the useless use tax, for both online and offline sales (remember, it's all about a level playing field); and 2) cap the total amount of sales taxes any jurisdiction can collect at the current level.
Take California as an example. It currently has the highest sales-tax rate, a whopping 8.25 percent [PDF file] that can go as high as 10.25 percent in certain municipalities with additional taxes.
If the state and its localities stand to gain, say, $1 billion a year in revenue by forcing retailers to collect Internet sales taxes, make them reduce their tax rates by a corresponding amount to offset those revenue gains. Call it the cut-as-you-go approach to taxing, or CUTGO.
States also should have to maintain lower revenues for several years in exchange for Congress giving them new interstate taxing powers that they undoubtedly would abuse later.
Tax-and-spenders are unlikely to ever agree to tie their hands that way, but it's the only choice they should get. No net gain in state and local taxes, or no Net taxes -- take it or leave it.
K. Daniel Glover's Bio
K. Daniel Glover has worked as an editor, writer and new media specialist in the Washington area since 1991, spending most of that time at National Journal and Congressional Quarterly. Glover is currently a project manager at Accuracy In Media and last year served as the executive producer of the conservative video-sharing site Eyeblast.tv. He blogs at The Enlightened Redneck .
Posted
05-13-2009 12:05 AM
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