May 10, 2013
By Theodore R. Bromund, Ph.D.
If the Senate has its way, online sales taxes are coming to a computer near you. The so-called Marketplace Fairness Act sailed through the Senate on Monday by a 69-27 margin. If approved in the House, the act won't just cost you money. It will also put the United States on the road to adopting a European-style national sales tax.
When politicians say something's about fairness, they mean it's about money. In this case, it's Albany that wants to put its hands in your wallet. Across the country, states dominated by the left -- from New York to California -- have made pension promises they can't afford to keep.
They want to find something new to tax, so they've come up with a clever idea: Get the money from companies that sell from out of state. The Marketplace Fairness Act will allow cities and states to make online sellers around the nation collect sales taxes from local purchasers.
The act's defenders say it's not a new tax: It's about collecting existing taxes. But the question isn't whether the tax is new. The question is whether it's right. Today, if you buy a nice suit in Oregon, you won't pay sales tax, even if you bring it back to Long Island. If the act becomes law, when you buy that suit from your sofa, you'll pay at least 8 percent more. You're being taxed for not traveling.
The act is particularly bad for people who live where sales taxes are high, or where there's a lot of online shopping. The more urbanized parts of the country, like the metropolitan area, will pay the most. Yet this isn't a tax on the rich, because unlike income taxes, sales taxes are regressive.
No wonder so many politicians like the plan. It allows them to parade as defenders of fairness in front of retailers, many of whom blame the largely tax-free Internet for the rise of online shopping. And it gives them new revenues to pay government employees, which should be helpful at the next election.
While the marginal kind of bipartisanship that got the act through the Senate is praised, it often works badly in practice. For years, politicians of all parties propped up Fannie Mae to encourage home ownership, which helped give us the housing bubble.
One of the things we learned from that bubble is that government often helps big business get big. The act, too, favors big business. Large retailers may be able to handle collecting sales taxes for the thousands of tax jurisdictions across the United States. But few smaller retailers will be able to do the job.
The reach of the Internet should be great for local sellers. But when every state and city in the nation has the right to audit a local seller, a lot of them will decide that being online isn't worth the hassle. Those sales will go to big retailers, at the mall or online.
That's why the big chains backed the act. They figure that either the new taxes will drive people back into their stores, or that they'll take online business away from the little guys.
The chain stores are trying to game the political system. But in the end, the trick will be on us: As the chains increasingly shift to online sales, they'll find they don't like having to collect all those taxes. They'll start lobbying Congress to solve the problem.
The simplest way to do that would be for the United States to have a single-rate national sales tax, like European nations do. That's become the Holy Grail of taxation for American liberals, because it would raise taxes on consumers all across the nation. And everyone's a consumer.
In taxation as in life, one thing leads to the next. The Internet sales tax will make you pay more locally, and it paves the way for new taxes that will give the federal government even more power. That's not good for the marketplace, and it has absolutely nothing to do with fairness.
-Ted R. Bromund is a senior research fellow in The Heritage Foundation's Thatcher Center for Freedom.
First appeared in Newsday.
Theodore R. Bromund, Ph.D.
Senior Research Fellow in Anglo-American Relations
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