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WORD COUNT
601
JULY 2, 2008
INTERNET PURCHASES
SHOULD BE TAXED TOO – by Mark Weisbrot
Can our state and
local governments continue to afford to subsidize businesses that
conduct their sales only on the Internet, rather than through
brick-and-mortar retail stores? And if we could, is there a good reason
to do so?
These are the two
most obvious questions when addressing the issue of whether Internet
businesses, such as the e-commerce pioneer Amazon.com, should have to
collect and pay the same sales taxes as your neighborhood retail music
store (if you have one) has to do. Currently they do not.
On the affordability
question, the answer appears to be no and getting more no. In fiscal
year 2009, at least 29 states plus the
District of Columbia
are facing budget shortfalls. According to the Center on Budget and
Policy Priorities, these states face a combined shortfall of $48
billion, or more than 9 percent of their general fund budgets.
Although many of
these states have been taking measures to close their budget gaps, the
current projections are likely to wind up being over-optimistic. The
recession in this country has barely begun, and most governments are
very likely under-estimating their revenue declines for the coming
fiscal year. The housing bubble that accumulated between 1996 and 2006
gave homeowners an extra $8 trillion of paper wealth. But what a bubble
giveth, it taketh away too, and only about half of this bubble has
deflated.
As the rest of the
bubble collapses, there will be a lot less property tax revenue to fund
schools, police, and other government services. As the recession
deepens, unemployment rises, and consumers cut back on spending, state
and local government revenue from income tax, sales tax, and other
sources will decline more than anticipated. Unlike the federal
government, most states cannot borrow to cover an operational budget
deficit. This means that they will cut spending, including such items as
health insurance for children and low-income families, childcare, and
elementary education. In fact, at least 18 states are already making
these kinds of cuts, and the recession has barely started.
In the last
recession, which lasted only eight months and was mild compared to what
can be expected this time, more than a million people lost health
coverage because of state spending cuts.
So we cannot afford
to lose tens of billions of dollars in state and local tax revenues by
exempting Internet sales. But even if it were affordable, there is no
good economic reason to do so. Why should our governments favor far-away
Internet distribution centers over local businesses? This is not good
for local or regional economic development. The problem will worsen as
Internet sales increase each year.
It has been argued
that the burden of following the sales tax regulations for 50 states and
thousands of local taxing jurisdictions is too much for Internet
businesses. But the availability of software and service companies has
taken the wind out of this argument. Others complain that sales taxes
are in general regressive -- that is, such taxes take proportionately
more from lower-income groups. This is true, but exempting Internet
sales makes the tax system even more regressive, since Internet buyers
as a group have higher-than-average incomes.
So if your local
sporting goods store can collect and pay a sales tax on the running
shoes that it sells, the big Internet retailers can do the same. No need
to give e-commerce a 4 percent to 9 percent advantage to ship from
across the country and use more packaging and delivery services. They
can compete on the same terms as everyone else, and stop draining badly
needed revenue from our state and local governments.
--
Mark Weisbrot
is co-director of the
Center for Economic and Policy Research, in Washington, D.C. (www.cepr.net).
A photo of Mark Weisbrot is available
CLICK HERE
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