“Government’s view of the economy can be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”
—Ronald Reagan
“The problem with socialism is that you eventually run out of other people’s money.”
—Margaret Thatcher
If there is one word in the English language, aside from perhaps equality, that most threatens future prosperity and personal freedom in the United States, it is the word fairness. There was the so-called Fairness Doctrine of the Federal Communications Commission, introduced in 1949, that required radio broadcasters to present both sides of every political issue, a clear violation of the First Amendment; the Fairness Doctrine was repealed during the Reagan administration in 1987. Its effect was not fairness or diversity of opinion, but the repression of any controversial viewpoints on the radio and decades of tepid broadcasting that rarely led to the discussion of anything more daring than recipes and the weather. Since 1987 there has been an explosion of vigorous (and primarily conservative) opinion radio shows, creating a conservative bastion in a largely liberal mass media. Democrats in Congress have since 2007 made efforts from time to time to reinstate the Fairness Doctrine or something similar that will suppress voices they view as not being in the “public interest.”
Fairness has also been the main argument for higher marginal tax rates, an idea that always leads to slower economic growth, less incentive for higher income people to invest in equities, and less wealth accumulation for anyone with an IRA, 401K, or investments in the stock market. Now we are facing the Marketplace Fairness Act, which will enable states and local governments to force Internet businesses to collect sales taxes from their customers across state lines. If not the end of internet commerce, then a much smaller and less interesting market than we’ve been used to.
For more than two decades, the Internet has been one of the few areas of the economy that has grown exponentially each year. Internet commerce in the United States generated $226 billion of revenue last year, up from $87 billion in 2005, larger than the GDP of 75 percent of the nations on this planet. Internet shopping has benefited American business, encouraged entrepreneurship, and provided convenience and lower prices to the American consumer. In an era when the shrinking American middle class is under unprecedented strain, the Internet has been one of the few sources of bargains to make life slightly easier and provide some tax relief from revenue-hungry states, bankrupt cities and counties, and never-enough-money school districts. Unfortunately, unable to leave the free market alone, career politicians with no business experience increasingly have looked to this bastion of free market capitalism as a potential source of revenue to pay for unfunded entitlements and vast state bureaucracies administering ever-growing programs that have developed an eternal life of their own.
Sponsored by a bipartisan group of Democrats and Republicans, including Senate Majority Whip Dick Durbin (D-Ill.) and Senator Lamar Alexander (R-Tenn.), the Marketplace Fairness Act of 2013 is designed to level the playing field between brick-and-mortar businesses and those that sell on the Internet. Its supporters claim that it will benefit those mom-and-pop businesses on main street that are allegedly suffering from unfair competition with Internet sellers not collecting sales tax. I submit that this a subterfuge. What this law will really benefit are the large corporations like Walmart, Best Buy, and Amazon, who have or soon will have a physical presence in almost every state. These corporate giants make large donations to politicians on both sides of aisle and are using their considerable influence to forge an unholy alliance with Senate and House members who believe that the era of big government has only begun and that the Reagan era of tax cuts has ended forever. As for the mom-and-pop businesses on main street, few of them are in competition with Internet sellers, and many of them sell on the Internet as well. Show me a used or family-run book or music store in America, including the Good Will stores, that does not sell on the Internet through eBay or Amazon, and I will show you a book or music store that will not remain long in business. All the Internet does is expand your customer base, and that has been good for every small business.
Senator Durbin assures American Internet businesses that compliance will be easy with the latest available software, but he, an attorney and professional politician all his life, has never run a business. So I wonder how he can be so certain that compliance will be an easy matter. There are more than 9,600 state, city, and county tax districts in this country, and each has its own arcane and ever-changing sales tax code. Most Internet sellers, including myself, are predicting that this will be an administrative nightmare. Complying with 9,600 tax codes in 50 states and in U.S. territories and possessions will cost every Internet business some level of lost profits, wasted man hours, employee benefits, and future growth. The net result is likely to be reduced tax revenue for state and local governments, not the hoped-for windfall they are expecting.
Thousands of online sellers will be forced by law to become tax collectors for states and localities in which they have no physical presence and consequently no vote on the next levy to raise the sales tax. This is taxation, and make no mistake it is a tax increase, without representation and with none of the benefits from those taxes, including infrastructure, civic improvements, and better schools and roads, from which brick-and-mortar business owners benefit. And those states, cities, and counties will now have the authority to audit businesses in faraway states, forcing large and small online sellers to hire lawyers and accountants in states where they never had a physical presence and certainly have no interests. Imagine the chaos and confusion this will generate, being another windfall for lawyers, who are strong supporters of this law and any other that gives them the power to suck more blood from the private sector. Other beneficiaries of the Marketplace Fairness Act will be Mexico and Canada, which will see an influx of online businesses moving north and south to escape the costs of compliance with the 9,600 U.S. sales tax codes.
The Senate bill has an exemption for those businesses with under $500,000 in online revenue, and the House bill has an exemption of under $1 million in online revenue. But don’t be fooled by this dog-and-pony show for small online enterprises. The Marketplace Fairness Act opens the Pandora’s box for states and local governments to tax all out-of-state businesses, even those that claim to be hobbies or online garage sales, that sell to anyone within their tax district. The State of California, as only the most egregious example, is effectively bankrupt with massive unfunded mandates, bloated pensions for state employees, and gargantuan debts to state bond holders that can never be repaid, at least not by any terrestrial government that has ever existed. To keep their overpaid bureaucracy and European-style welfare state functional, will they hesitate to siphon off the revenues of anyone in the country? This law opens the flood gates for taxes on Internet access and usage, taxes on stock market transactions, taxes on music and game downloads, and federal taxes of online purchases — justified, as always, by the commerce clause of the Constitution. Not that the founders ever imagined that the commerce clause would be so abused.
What happens when an online business generates half a million and one dollar or even a million and one dollar? Not that this is a huge amount of sales for a business of more than 10 people and that exemption amount will not be indexed for inflation. Why would any business want to grow if the effect of such growth would mean that all its sales would be subject to taxation by state and local governments across the country? One unintended consequence of this big government legislation is that it will discourage business growth and cost jobs. Is the current administration, I wonder, truly interested in reducing unemployment or simply hoping to make more of us dependent on government handouts and thus more likely to vote for big government candidates.
There is a sinister undercurrent to this kind of intervention in the economy, a culture of antibusiness and high taxes, that resents success by anyone or any enterprise in the private sector. The late Congressman Jack Kemp, whose economic ideas helped lay the foundation for the Reagan Revolution, once wrote that “the more you tax something, the less you get of it” and “the more you subsidize something, the more you get of it.” When you put an onerous tax and administrative burden on Internet commerce, you will get less of it and it will grow more slowly, just like the rest of the U.S. economy. Now the administration has announced that it would like to set limits on how much an individual can save for retirement and put a high tax burden on IRAs and 401Ks of over $3 million. That will discourage savings and investment, and we will have less of it as well. Meanwhile what do we subsidize — food stamps, disability payments, welfare without work requirement, social benefits for illegal immigrants, subprime mortgages, green energy companies doomed to failure, and debt and more debt and more debt? At the end of the day, we will reap more poverty, more class resentment, more disability claims, more profligacy, more illegal migration of unskilled workers from Third World nations, more births out of wedlock, and more societal decay.
It may give the Democrats a generational lock on the White House to create a political civil war between smaller and smaller numbers of the successful and a permanent underclass with no future except that provided by the state, but it will lead to a nasty, brutish, and increasingly less-wealthy and less-free country. Much like Ebay, Amazon has take control from the sellers and turned their venues into quasi do it yourself consignment shops. If we want to become Venezuela or Greece, the road is there to take, and the Marketplace Fairness Act is just one more big step in that direction. The U.S. government often acts as if it is in a state of war with American business and American consumers, and it is one war the government is winning on every front from health care to energy. It is the American people who are losing.
Ray Lyman worked for Paladin Press for more than 20 years, during which he authored Paladin’s popular line of military history calendars. Another function he so ably filled was chief historian. In the days before Google, Ray was our go-to guy on any historical question. Through this column, Ray is simply resuming that role for Paladin.