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“I can make a firm pledge. Under my plan, no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.”
During a nationally televised Vice-Presidential debate in St. Louis on Oct. 3, 2008, candidate Biden repeated the pledge:
“No one making less than $250,000 under Barack Obama’s plan will see one single penny of their tax raised whether it’s their capital gains tax, their income tax, investment tax, any tax.”
Once elected, in an address to a joint session of Congress on Feb. 24, 2009, President Obama restated the promise yet again:
“If your family earns less than $250,000 a year, you will not see your taxes increased a single dime. I repeat: not one single dime.”
But now before the Senate is the so-called Marketplace Fairness Act, which would authorize each state to force sellers in other states to collect and pay sales taxes on anything they sell over the Internet to anyone in any other state. The seller may operate exclusively in Hawaii, and not own or operate any property, or employ any workers, in any other state. But it would be liable for the sales taxes in every one of the other 49 states for anything it sells over the Internet in any of those states.
The U.S. Supreme Court ruled in Quill Corporation v. North Dakota in 1992 that a state could not impose any sales tax obligations on sellers that did not own or operate any property or employ any workers within the state. Enacting taxes on out of state businesses would violate the Interstate Commerce Clause of the Constitution, which was originally enacted precisely to prevent states from passing protectionist tax and regulatory burdens on out of state businesses. But the states can get around that ruling if the Congress passes authorization for them to impose sales taxes on out of state businesses, under the federal power to regulate interstate commerce.
The problem for Obama, Biden and the Democrats who ran on their platform is that folks in families who earn less than $250,000 a year buy stuff over the Internet too. And Obama, Biden and associated Democrats pledged that these families would not “see any form of tax increase,” nor “one single penny of their tax raised,” (not “any tax”), nor see any of their taxes increased “a single dime.” Voting for and signing a bill authorizing states to impose their sales taxes on internet sales would be the most brazen violation of the Obama/Biden/Democrat no tax increase pledges to the middle class, working people and the poor. And, no, that is not an existing tax that people already owe, because the Supreme Court ruled in Quill that they don’t already owe it.
I immediately knew that these promises were just “calculated deception” to fool gullible voters, as soon as I heard them. The Democrat Party is the party of taxes, as we have seen since 2008. And after they were elected, sure enough, Obama, Biden and Democrat associates happily began raising taxes on the middle class, working people, and the poor in violation of their pledge.
One of the first acts under the new Obama/Biden Administration, and its totally Democrat controlled Congress, was to raise the cigarette tax by 62 cents. Memo to Democrats: people who make less than $250,000 a year buy cigarettes too. They were promised that none of their taxes in any form would be raised a single dime, or even a single penny.
Then the hyperpartisan Obamacare bill imposed 7 new taxes that also applied to people making less than $250,000 a year, including new taxes on health insurance, health savings accounts, medical devices, and itemized health services. Indeed, the Obamacare Individual Mandate requiring all citizens to buy the expensive health insurance Obamacare requires is itself effectively a tax on the middle class, enforced by a tax penalty on the middle class, working people and the poor who do not comply. Obamacare is consequently another brazen violation of the Obama/Biden tax pledge.
Politicians break their promises all the time. But when their promise is so central to their election campaigns, brazenly violating it should be subject to serious consequences. When President George H.W. Bush violated his famous 1988 Republican Convention pledge, “Read my lips, no new taxes,” he was summarily voted out of office with just 38% of the vote, and quite rightly so. Personally, I would favor removing Obama/Biden from office for violating their tax pledge which was central both to their 2008 and 2012 campaigns. If we don’t hold politicians accountable for what they say to get elected, then we will not have a real democracy.
The original Quill decision was wise because state politicians would face no consequences for the tax burdens they place on out of state businesses. Neither the businesses nor their employees would be in any position to hold them democratically accountable. As famed anti-tax activist Grover Norquist told Stuart Varney of the Fox Business Network on April 25, “There are tremendous abuses that would flow from politicians taxing businesses that can’t even vote against them. That’s why the politicians at the state level love this! It’s ‘free money!’ they think. But by opening it up, the voters in their states will get mugged by 49 tax collectors in the other states.”
Internet sales taxes would consequently be a modern form of Taxation without Representation. Remember, the American people once fought a Revolution against that.
We don’t want the 50 states engaging in protectionist mercantilism against each other. The founders saw how unworkable that was under the Articles of Confederation that preceded the Constitution. The free and open national market established by the Constitution has been central to world leading American prosperity ever since.
And once interstate taxation is opened up for sales taxes, the state and local governments will be back to Congress asking for authority to impose income taxes across state lines, where the real money is. New York City has its own city income tax, and it is jealous of the income earned by residents of New Jersey and Connecticut within the city that they take back home. New York state will join the city when it goes to Congress to ask for authority to impose income taxes on residents of the neighboring states.
We see the same in the District of Columbia, which long has lusted for income tax authority over residents of Virginia and Maryland that work within the District. And what about residents of New Hampshire that go to work in Boston, or the residents of any of the 9 no state income tax states that go to work in any of the surrounding states?
Currently, the states are subject to tax competition to keep their taxes competitive. But interstate state taxation would create a competition in taxing non-residents in other states more and more. Taxation without Representation would consequently grow and grow. This is literally un-American.
Moreover, subjecting the Internet to state and local sales taxes would impose the tax burdens of over 9,600 jurisdictions nationwide, with widely varying sales tax regimes. How can any business, especially small businesses, possibly comply with all of those varying requirements, definitions (particularly what is subject to the sales tax and what not in each jurisdiction), and interpretations, not to mention varying rates. Internet sellers all across America, including the smallest kitchen table operations, would also be subject to audits from each of these 9,600 jurisdictions. The days of mom and pop enterprises starting out on the Internet would be over.
The main argument for the Internet sales tax is supposed to be fairness. Not fair we hear for businesses that operate stores, warehouses, and offices within a state to be subject to the state sales tax, while their entirely out of state competitors that sell into the state over the Internet are not. Those out of state competitors would have an unfair competitive advantage.
But those out of state competitors do not use and enjoy the in state government services that in state stores, warehouses, and offices do. The physical in state businesses all benefit from the state and local police, jails, courts, fire departments, roads and highways for their customers to get to and from the stores, and all the other state and local government services that keep their geographic areas and neighborhoods up and running. That is why these physical in state businesses should be paying their taxes and cooperate in collecting them. Out of state businesses not only do not use these services, they cannot even participate in the state and local elections that determine tax burdens, and even the quality of those services. It is the Taxation Without Representation of Internet sales taxes what would be unfair.
Moreover, sales over the Internet are subject to another cost that sales at physical in state stores do not bear. Internet sales are subject to shipping costs that are usually higher than the sales tax that does not have to be paid. So there is really no unfair competitive advantage.
Ultimately, this fairness argument can backfire. While the federal government can authorize state and local sales taxes on interstate sales, it does not have the power to authorize that on international sales. So instead of equalizing sales taxation of physical in state companies with Internet companies, it may redistribute more sales to tax free, foreign, Internet sellers beyond the reach of Congress or the states.
The Internet has flourished as a generally tax free zone. Even the physical in state stores sell on the Internet too, both within the state, and across all 50 states, and even beyond. The booming Internet has consequently been an enormous boon to our entire economy. We should keep it that way.
[First published at Forbes]