If It Moves, Tax It
<http://lfb.org/today/author/jeffreytucker/>Jeffrey Tucker
April 29, 2013
A contributing factor in the rise of Internet
commerce, a feature that gave it a kick-start,
was that you didn’t have to pay sales tax on what
you purchased out of state. Ah, the glory days of
the 2000s, when you could order anything and, for
once in your life, not get hammered by the
government. It was not a free market, but freer
than most anything else you could find.
This is a major factor in why, despite every
prediction that it could never work, Internet
commerce rose from the ashes of the dot-com crash
to become a huge and growing profit center today.
Alas, those days seem to be coming to an end. And
why? Because the U.S. Congress is highly
sympathetic to the plight of its state-based
cousins, who are starved for money. As a proposed
fix, Congress is suggesting a new innovation.
Congress wants to give the OK to states that want to take your money.
Here is one argument you will not hear in the
debate over taxing Internet sales: This will be
good for the business climate. Instead, the
debating points concern how much revenue it will
raise for states, how onerous the burden will be
for small business, whether it is “fair” to
brick-and-mortar shops to pay and for online sellers not to pay, and so on.
The real issue whether this is good for
business and prosperity is not even on the table.
Will taxing all Internet purchases harm business,
harm job creation, harm the profitability of
those who have seized on digital venues as a
viable commercial space? Of course it will. There
can be no doubt. The question then becomes: Why
is the political class interested in unleashing
state legislatures to collect sales tax when it
is so obviously harmful to prosperity?
Maybe the answer is obvious, but it still needs
to be said. Despite the stump rhetoric, the
political class is not interested in fostering a
vibrant commercial life to help you and me get by
in this world. Instead, it is interested in
extracting as much revenue as possible from the
existing commercial environment. The government
elites want their cut, regardless of the consequences.
You can learn something about the way the world
works just by watching the way this legislation
is coming down the pike. Here we are, still in a
deeply struggling economic environment. Young
people have a hard time getting jobs. Growth
rates are anemic. Families are still smarting
from the surprise payroll tax increase earlier this year.
Online commerce with low startup costs and a
potentially unlimited market actually
represents a ray of hope. This is especially true
for young and tech-savvy people.
So what do the politicians do? They plot another
hammer blow. Even by old-fashioned Keynesian
standards, this is the worst possible time to
enable vast tax increases across all states that
hit millions of people. But economic rationality
is not high on the list of values held by Capitol Hill.
What does this say about whole libraries full of
books that instruct the political class on how to
foster the well-being of society? What does this
say about the hundreds of well-worked-out
theories of how the government can manage the
economy in the best possible way? What does this
say about the oceans of policy reports that
presume that the political class has the best interests of the public in mind?
If it is true that political actors only want to
get the government’s beak wet and otherwise don’t
care a flying fig about the consequences for you
and me, many theorists are going to have to go
back to the drawing board. The bulk of writing on
political economy over the last hundred years might as well be pulped.
There is also an interesting dynamic taking place
in terms of those pushing for the change to allow
states in which there is no physical presence of
the relevant Internet retailer to tax purchase.
The world’s largest and most successful Internet
retailer, Amazon.com, is backing the change, and
paying politicians left and right to go along.
Why? Here, we need to understand something about
way regulations are used as a competitive tool in
the world of enterprise. The larger the business,
the more it is in a position to absorb new
regulatory costs. The regulations will invariably
hurt the little guy more than the big guy.
Therefore, even though the big guy is paying
more, the regulations end up working as a kind of
subsidy to keep competition at bay.
Not to put too fine a point on it, but Big
Business and Big Government work together. Does
that sound like a wacky conspiracy theory? It
shouldn’t. The reality goes back at least 100
years. Big Business was a huge supporter of the
Progressive Era regulations of food and safety,
the New Deal’s interventions on prices and labor,
the Great Society medical expansions,
protectionism during the 1980s, and almost every
other major intervention in free enterprise in the annals of history.
Sometimes the biggest enemies of capitalism are
not socialists, but the capitalists themselves.
They don’t like capitalism because they don’t
like competition, because it threatens their
business and their profits. A real free market
has winners coming and going. But a heavily
regulated markets entrenches elites who are
working with the political establishment.
You might think that this would cause left liberals pause, but apparently not.
Here is what the blog at National Public Radio
said about an Internet sales tax:
“Collecting state and local sales tax all around
the country would require a fair bit of effort on
the part of online retailers, because sales tax
rules vary from state to state. That’s not a huge
deal for a giant company like Amazon, but it
would be more of a burden for smaller online
retailers. From Amazon’s point of view, that’s a
good thing it makes life harder for Amazon’s smaller competitors.
“That’s why big businesses, despite what they may
say, often like regulations. They make life
harder for small, would-be competitors.”
The Amazon sales tax case is complicated by the
fact that it is already mostly paying these taxes
because many states started interpreting the law
to mean that if there is a warehouse in the
state, it is subject to tax. Amazon has
warehouses all over the world so that it can
offer same-day delivery. That allows it to go
after physical stores with even greater intensity.
The average eBay mom and pop is not going to be
in a position to file tax statements to every
state where it shipped goods. Amazon will be
there to not only comply, but have the
competitive edge on everyone. The battle between
Amazon and eBay has been so intense that the
Internet Association has refused to take a position.
This is how business becomes cartelized. There is
still competition, but it is not on a level
playing field. You have to be heavily capitalized
just to get your foot in the door. Then people
look at the configuration of the remaining
industries and scream, “Hey, business is too big
and too powerful!” But they don’t discover the
reason. It is too far back in time. And the cause
and effect is too opaque to the casual observer.
It’s not hard to imagine the consequences. There
will be fewer startups because the accounting
costs of filing with states every month will be
too daunting. Consumers will start looking at
overseas merchants to buy their goods as they
are already doing for cigarettes, prescription
drugs, and electronics. Digital currencies will help facilitate this move.
Meanwhile, the domestic market using government
currency will be dominated by just a few players.
Everyone these days is sitting around regretting
the way the recession just goes on and on,
seemingly without end. If you are looking for the
answer, look to Capitol Hill. Every time free
enterprise tries to come up for air, the Congress
and the regulators are there to put it underwater again.
http://lfb.org/today/if-it-moves-tax-it/
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