Taxes & Spending

Democrats Seek to Tax the Internet

They’re baaaaack!  The Democrats, in their persistent view that anything which possibly can be taxed should be, are again proposing federal legislation to impose sales taxes on interstate purchases made over the Internet.

The measure, H.R. 5660 sponsored by Rep. Bill Delahunt (D.-Mass.), has the Orwellian title of the “Main Street Fairness Act.” New-speak continues in the subtitle: “To promote simplification and fairness in the administration and collection of sales and use taxes; and for other purposes.” At least the last four words are accurate.

The “other purposes” in this case are the attempt to collect billions of dollars from consumers to plug states’ budget gaps while kneecapping Internet-based merchants for the benefit of brick-and-mortar stores.

The measure attempts to get around one reason that the Supreme Court, in the case of
Quill Corp. v North Dakota, ruled against a state’s attempt to apply a “use tax” on items purchased by mail-order from an out-of-state vendor. Namely, that “many variations in rates of tax, in allowable exemptions, and in administrative and record-keeping requirements could entangle [a mail-order house] in a virtual welter of complicated obligations" and thereby burden interstate commerce.

The congressional money-grubbers’ response to this has been to create a Streamlined Sales and Use Tax Agreement, urging voluntary cooperation by the states and locales in simplifying relevant tax codes.  Delahunt’s bill says that once ten states, representing 20% of the total population of all states which have a sales tax, join the SSUTA regime, those states can then require out-of-state vendors to “collect and remit sales and use taxes.” His hope is that the Supreme Court, in an inevitable challenge to these taxes, would rule that the new “simplified” tax regime lessens the burden on commerce enough to allow them to stand.

Unfortunately, he may be right. The Justices have said that Congress has the power to change rules regarding taxation of interstate commerce, implying that they will maintain the court’s supine position regarding scrutiny of economic regulation which they’ve held since the infamous “Footnote Four” in the 1939 Carolene Products case. 

Supporters of Delahunt’s measure are who you’d expect them to be. The list of backers includes state retail associations, major brick-and-mortar retailers, national associations of governors, counties, and state legislatures, and even the National Association of Real Estate Investment Trusts—must make sure those retailers can pay their rent.

Opposition to the bill is currently being led by eBay. Other online retailers will likely join the fray against the measure.  The Computer and Communications Industry Association opposes the legislation as destructive to the growth of the Internet economy, particularly to tens of thousands of “mom-and-pop” online businesses.

In a statement on eBay’s web site, the company’s deputy general counsel decried Delahunt’s bill: “Year after year supporters of increased Internet sales taxes recommend legislation that would impose significant new costs on hundreds of thousands of online small businesses and e-commerce entrepreneurs, which is sure to harm the economy and kill small business jobs.”

Republican congressmen oppose the measure. A spokesman for House Minority Leader John Boehner tells HUMAN EVENTS, “The last thing the American people need right now is more tax hikes to pay for Washington Democrats’ out-of-control spending spree.”
Rep. Mike Coffman (R.-Colo.) adds, “I’m hardly surprised that instead of focusing on pro-growth economic policies, Democrats in Washington are looking for more ways to reach into the pockets of taxpayers.” 

There is a lot of money at stake. The REIT group believes “over $10 billion a year annually” could be taken from consumers under the Delahunt plan. Delahunt’s statement suggests it could be twice that much: “From 2009-2012, this amounts to a loss of approximately $55 billion. In some cases, these revenue losses can comprise up to one half of a state’s budget shortfall.”

Democrats fantasize that the problem with budgets is always under-taxation, rather than the real world in which most of us live where “deficits” are caused by too much spending.

Trying to give states a way to avoid cutting back by digging even deeper into our pockets at a time when Americans can least afford it is the worst possible reason to support a tax hike.

Brick-and-mortar retailers argue, with some justification, that their competitiveness is hampered by having to charge sales tax whereas their online-only competitors usually don’t. 

But instead of trying to equally handicap other sellers, retailers should consider pushing back against the persistent upward creep of sales-tax rates around the nation.  According to Vertex, Inc, 2009 gave us a nationwide record-high average combined sales-tax rate of 8.629%. From 2000-2009, there have been 2,631 new sales and use taxes levied, plus an additional 5,242 changes to existing taxes. If sales-tax rates were lower, people would not go to such efforts to avoid paying them by shopping online. Perhaps some Laffer Curve thinking should apply to sales taxes as well as to income taxes.

In the hands of the people who earned it, the billions proposed to be taxed away could be used as consumers see fit, which would have more net economic benefit than throwing it down the rat hole of bloated state budgets and into the corrupt coffers of bloated public-sector unions.

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