New Internet Sales Taxes Will Grow and Expand the Size of Government, Too
By Scott Alexander | The Save Jersey Blog
We stand at a crossroads in America, Save Jerseyans.
Maybe I am the only one who sees it this way, but the Federal Government is poised to grow State Government by seeking to expand taxation of internet sales. The Senate recently passed the Marketplace Fairness Act bill [S-743} by a vote of 69-27 and it is now going to the House. It should be renamed the Government Unfair Act of Expansion. President Obama supports the bill, too.
This is the way I see it: you can pick any U.S. state but let’s take New Jersey as an example. The 2013 proposed budget for New Jersey is $32.1 billion. We have taxes and other revenues equal to that amount to create a balanced budget. If we were to add in $212 million in unrealized internet taxes from 2012 for example, we would grow the budget 6.6%.
In other words, we would grow New Jersey state government by 6.6%.
There are some states that do not presently have a sales tax but those who do will react in one of three ways. First, they may pass along all new internet taxes in the form of a tax decrease by lowering income or sales tax rates or a property tax credit. Other will adopt new taxes going directly to offsetting an equal increase in expenses, i.e. growing government or, option three, some combination of options one and two. If option two or three is selected, then the size of that state’s government has effectively grown.
New Jersey’s Governor Christie, I believe, would prefer option one.
If S-743 is not made law, then nothing will change at the state level, and the same budget and the same services will remain. Cash will instead remain in the pockets of consumers. So the big question is a familiar one in our national political discourse: whether cash is better left in consumer’s pockets or in state budgets?
This is one of those big crossroad opportunities for America. Our federal lawmakers can choose to not increase the size of government by not allowing another tax or, alternatively, allowing states to tax. Once you give states the right to tax this special species of commerce it will never be reversed.
As companies continue to move their business online, which is where our world is going in case you haven’t noticed, responsible politicians could seize this historic moment to shrink the size of government by slowly reducing the amount of sales tax a state takes in each year. This assumes that states will reduce expenses in proportion to the amount of sales taxes they are no longer realizing. What a great opportunity!
I say let’s not screw up this once in a generation crossroad. Let’s seize the opportunity to shrink government as internet sales justifiably cannibalize same company physical location sales. By the way, we are not talking about relatively large percentages. In 2012, U.S. states collectively did not receive $11.4 billion in internet sales taxes, based on $231 billion in online sales. This tax is 1.6% of $675 billion in aggregated state budgets.
Sure, physical locations are going to complain and say it isn’t fair but if their competitors are online then they should be online, too. Their increase in revenues due to online sales should be able to fund their online presence. By the way, a 1992 Supreme Court case ruled that states could only require businesses to collect sales tax if the business had a physical presence in the state, such as a store or warehouse. So if they sell beyond their home state, then no taxes collected.
However, if you want to kill some of the positive momentum in our economy, then allow a tax that will stop consumers from buying goods both offline and online. I am certain there is an abundant number of consumers out there in cyberspace who only buy online because they can’t afford the same goods if they have to pay a sales tax. All a new tax will do is shift $11.4 billion out of consumer’s pockets into expanding State government each and every year.
My solution? If Congress was compelled to pass the Marketplace Fairness Act, then I propose they include a clause that all new internet sales tax realized by the law pass directly to taxpayers in the form of a state tax credit… not used to expand government.
