Republican tax-reform dogma is under fire.

On what has become known as “Cyber Monday,” the U.S. Supreme Court let stand a lower court ruling that would enable states to collect sales tax on on-line purchases. Amazon and Overstock.com–who filed a lawsuit against the proposed tax–are understandably unhappy, as are other on-line retailers, who have enjoyed and profited enormously from their no-sales-tax advantage over brick-and-mortar stores for years. By the way, Kansas and 23 other states already  collect online sales tax through the Streamlined Sales and Use Tax Agreement, so the argument that it can’t be done is moot.

I, for one, am not shedding any tears over this ruling. But I am wondering how Republican anti-tax zealots are going to find a logical frame for this issue.

Sure, like everyone else, I’m always seeking a bargain. The six, or seven, or eight percent that one saves by not paying sales tax on internet purchases makes a difference, especially when every penny counts, as it does for many people. But I also subscribe to Supreme Court Justice Oliver Wendell Holmes’ oft-quoted philosophy: “Taxes are the dues we pay for a civilized society.” I’m sure I don’t need to explain that notion. Those of us who still believe in doing things—and making small personal sacrifices–for the common good, understand that taxes are necessary, and that government exists to do the big things that individuals can’t do alone—and that, it’s worth noting, corporations don’t want to do—unless they see a profit angle.

The problem for “no-new taxes” Republicans, as I see it, is that an internet sales tax is more than just double-edged, it’s multi-edged.[ I’m not even considering the extreme, “no-taxes-ever” Republicans—they are beyond hope.]

The knee-jerk reaction is to fight the on-line sales tax, because—well, it’s a tax, and, if you’ve signed the Grover Norquist pledge, or even if you’re just a regular Fox-News watching person who has absorbed the anti-tax propaganda, that’s something to be blindly hated.

However, if you’re a state legislator who gives a hoot about the people in your state [and that’s stretching it for a lot of Republicans out there], getting more revenue for your state via a long-overdue sales tax is something you’d want, right?

This logic, however, flies in the face of the reality of the 26 states that rejected Medicaid expansion under the Affordable Care Act—even though they were leaving hundreds of millions of federal dollars on the table that could actually have helped people in their states. And they turned away money because…why? Oh yes, because spitefully sinking a federal program promoted by President Obama was more important than helping the people they were elected to represent. Apparently, in that world, meanness and contempt trump logic. So, my attempt to work through the “logic” of supporting or opposing an on-line sales tax is probably futile.

Anyway,, with regard to those dreaded “new taxes,” there’s a good argument that says the internet tax is not a “new” tax, but rather a legitimate sales tax that has gone uncollected. According to the New York Times, “some $13 billion in sales taxes…go uncollected each year on internet purchase…In addition, 23 states lose some $300 million a year because they do not tax downloads of music, movies, games, books and other items that are sold and delivered digitally.” That’s a lot of green to leave on the table, even for the most callous and dogmatic Republican.

Another problem for “no-new-taxes” Republicans stems from their own track record on tax “reform.” In Missouri—as in other states—the idea of rescinding income taxes keeps rearing its ugly, government-killing head. And what would replace the income tax in this scenario—promulgated here in Missouri by a multi-millionaire? The alternative being proposed would be an increase in state sales taxes.

And there you have it: Influential Republicans—at least in my state—are on the record as favoring a sales-tax solution to state revenues, yet, as anti-new-tax true believers, they may find themselves philosophically opposed to the proposed internet sales tax.

There’s also the looming dilemma of loyalties—or should we say, indebtedness. It stands to reason that corporate donors with on-line revenue streams are going to oppose an internet sales tax. But it also seems logical that small retail businesses are going to love the idea of getting on an equal sales-tax footing with their on-line rivals. Small-business owners generally have fewer dollars with which to buy a state legislator—so their influence is diminished—but Republicans also claim to be the champions of small business. How do they walk that tightrope?

And, if this seems like an issue that Congressional Republicans could punt on, because it’s a state thing, think again. Collecting internet sales taxes state by state is a logistical problem–not to mention that leaving national solutions to states has a rather poor track record [see: civil rights, voting rights, Medicaid, etc.] So there is, in fact, federal solution in the works. In February, the Marketplace Fairness Act was introduced into the U.S. Senate.

Its provisions would grant states the authority to compel online and catalog retailers (“remote sellers”), no matter where they are located, to collect sales tax at the time of a transaction – exactly like local retailers are already required to do. However, there is a caveat: States are only granted this authority after they have simplified their sales tax laws.

But still–local, state or federal–I can’t wait to see the contortions into which Republican are going to twist themselves in an effort to make philosophical, economic and political sense of this issue.

The post Internet sales tax: A dilemma of logic for Republicans appeared first on Occasional Planet.

The U.S. Senate recently passed an online sales tax bill. At this point it is not certain whether it will become law, because there are many Republicans in the House who oppose such a tax. The taxes would go to the states even though the bill would apply to interstate transactions. This presents a bit of a conundrum because on the one hand the federal government oversees interstate commerce but on the other hand there is no such tax as a federal sales tax. It is not surprising that Congress would consider a bill to provide more revenue for the states because (a) all members of Congress have a set of obligations to their home states and (b) Republicans are dead-set against supporting any measure that increases federal revenues. However, this might be time for Congress to exercise a technique that it rarely uses, thinking outside the box. There are compelling reasons why making it a federal sales tax would be a preferable policy to sending the money to state capitals. This is not the first time that a federal consumption or value-added tax has been suggested.  Fred T. Goldberg, former commission of the IRS (appointed by George H.W. Bush) has proposed this in the past. But first a little more on the bill:

The Hill reported on May 6, 2013,

The 69-27 vote is a major victory for retail groups and state governments, who for years have fought to close what they see as a loophole that allows as much as $23 billion in annual taxes from online sales to go uncollected.

The measure split Republicans senators, as 22 Republicans voted no in addition to five Democrats. Nineteen Republicans supported the measure.

The bill, which is backed by online powerhouse Amazon, empowers states to collect taxes on purchases made online by consumers in their states from out-of-state retailers. Under current law, states can only collect from companies that are physically located within their borders.

It’s interesting that Amazon supports the bill, perhaps it is because the mechanics of collecting the tax will be much easier for larger on-line businesses with sales in all 50 states. The collection process will be much more of a headache for smaller businesses which would have to accommodate the needs of all forty-five states that have sales taxes (states without a sales tax are Alaska, Delaware, Montana, New Hampshire, and Oregon).

The estimated $23 billion that the states would receive from this bill is a considerable sum. Some states would receive more than a billion dollars alone. However, a key question remains: would the states do a better job of managing new revenue than the federal government would?

The states do not set the bar very high for the federal government to surpass. Consider what has happened over the past twenty years. States have looked at a multitude of ways to raise revenue without instituting new taxes. Primarily what they have done is accumulate a pile of broken promises.

Every state has either a lottery or casino gambling. In many states, a promise was made to voters that if they approved the establishment of these enterprises they would have more money to fund their schools and they could do it without raising taxes. It is remarkable how many state governments have had to sheepishly go back to voters to ask for tax increases because the “funny money” didn’t meet their expectations. If the state didn’t have to do it, then the local school district did.

States are in competition with one another to have the lowest taxes because they compete against one another for businesses and residents. They often play havoc with money that is passed along to them from the federal government such as Medicaid funding.

If the estimated $23 billion per year from an internet sales tax went to the federal government, it could completely fund NASA. It would provide enough money to fund both the E.P.A. and the Department of the Interior (all national parks).

In recent years the federal government has proven to be a much better steward of our money than the states. It’s certainly not foolproof, but it is generally reliable. There appears to be little or no public debate about the option of instituting an online sales tax with revenue going to the federal government. It would do us all well to at least raise this idea up the flagpole and give it due consideration.

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