On the July 16 Coffee & Markets podcast, Francis Cianfrocca and I discussed the dreams of more tax revenue to fuel bigger government in the form of the Amazon tax. The latest, from the Wall Street Journal:
“The newfound support among Republicans is a dramatic change from just a few months ago. In February, at the Republican Governors Association meeting in Washington, one agenda item was online sales taxes. The reaction was decidedly cool, with Louisiana Gov. Bobby Jindal worried that the effort sounded like a new tax, according to two attendees…”
“Seizing on the recent political shift, Sen. Lamar Alexander, a Tennessee Republican, and co-sponsors from both parties are attempting to speed up action on a bill they wrote to give states authority to compel online companies to collect sales taxes… “Mr. Alexander fine-tuned the arguments for a federal solution to his fellow Republican lawmakers. “Conservatives don’t want to pick winners and losers” in business, said the former Tennessee governor… “The handwriting is on the wall that states will collect sales taxes on online purchases,” Mr. Alexander said. “This is going to happen—if not this year, then definitely by next year.”
And while most online retailers oppose it, Amazon is willing to cut a deal to get the same day delivery opportunity which is their Holy Grail (plus, they get to charge affiliates for calculating the tax).
“Republicans’ general opposition to new taxes, particularly broad-based ones, led GOP governors to avoid considering the sales tax, even as its potential value to state coffers grew. In most cases, the no-new-taxes sentiment trumped pleas from in-state retailers that they would have to lay off employees or close their doors if their online competitors kept undercutting their pricing… “But the current economic environment made states start looking harder at this for new revenue that costs them nothing,” said Sandy Kennedy, president of the Retail Industry Leaders Association… “What we saw here was a rapidly growing bipartisan coalition of business groups, labor, Republicans and Democrats coming together because money and jobs were more important than political gamesmanship,” said New Jersey Assemblyman Troy Singleton, a Democrat and union official who strategized over beer with an official from the state Chamber of Commerce on supporting the Amazon package.”
Republican governors who claim they need these sales tax revenues to keep other taxes from going up are describing something that, in practice, has never happened. As I noted last week, the revenue has gone straight back into state coffers… when there’s been revenue at all. The vast numbers NCSL quotes in the WSJ have never materialized for states which attempted to collect, because in practice it’s just a shift: local retailers lose out on income, lowering their income tax burden and mitigating the increased sales tax revenue.
But that’s not what this push is about – instead, it’s about future Democratic administrations which will have, in effect, the ability to create a vast new revenue stream to continue the grow of the size of government.
Most Republicans think of this as a one for one inequity – you buy a bag of widgets from Amazon instead of from Home Depot. But by opening this door, Republicans will allow the creation of a vast new tax on digital product lines and downloadable content. This legislation will inevitably make an iTunes Tax like the one Democratic Governors Association head Martin O’Malley has proposed a reality.
This represents nothing less than Republicans accepting their role as tax collectors for the pension/entitlement state, unwilling to take political penalties from cutting government employment or Medicaid, and willing instead to cave to create a higher tax burden on their citizens. If they were really interested in shrinking government, they’d be closing avenues to taxation, not opening up new ones.