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September 7 2012

Marketplace Fairness Act—Neither a Marketplace, Nor Fair

Vicki E. Alger

Heartland Government Relations Director John Nothdurft recently took aim at some of the leading myths surrounding internet taxation. Here’s my favorite, but be sure to read the rest here.

Myth 4: States are missing out on a massive amount of revenue.

Fact: This tax would kill jobs and not be the revenue windfall advocates are claiming. 

The total potential uncollected sales tax revenues in 2008 would have been "less than three-tenths of one percent of state and local tax revenues," according to a study by Jeffrey A. Eisenach, an adjunct professor at George Mason University Law School, and Dr. Robert Litan, a senior fellow at The Brookings Institution. …Revenues from Internet taxes are likely to be curbed from economic losses as a result of small businesses and affiliate programs being no longer able to compete. 

According to the Tax Foundation, "Contrary to the claims of supporters, Amazon taxes do not provide easy revenue. In fact, the nation's first few Amazon taxes have not produced any revenue at all, and there is some evidence of lost revenue. For instance, Rhode Island has seen no additional sales tax revenue from its Amazon tax, and because Amazon reacted by discontinuing its affiliate program, Rhode Islanders are earning less income and paying less income tax."

A leading proposal now before Congress is the Marketplace Fairness Act (MFA), which as Linda Richman of Coffee Talk fame might say, is neither marketplace not fair. Discuss.

As Sen. Jim DeMint (R-SC) explained in the Wall Street Journal:

The Marketplace Fairness Act recently introduced in the Senate would require online retailers to collect and pay sales taxes to states where they have no physical presence or democratic recourse. Overstock.com, eBay and the like could have to pay sales taxes to any state from which an Internet user placed an order, even if the company's headquarters, warehouses and sales staff are located entirely in other states.

Such online sales tax proposals are taxation without representation. The proposed federal law tells businesses that there is no escape from the clutches of tax-hungry politicians. That concept is antithetical to our federalist system, which promotes competition among our states for the best economic policies.

Politicians want this bill passed to raise new tax revenue for broken state governments facing budget shortfalls. But legislators in state capitals don't want to make the hard decisions to cut spending or raise taxes on their constituents—they fear the voter backlash. So they'd like their allies in Washington to make it legal for them to tax people who can't vote against them.

The MFA isn’t the first—or likely the last—internet tax plan to come out of Congress. There are several variants, including the Main Street Fairness Act, which is estimated to cost e-shoppers about $167 more each year. But it’s worth remembering what’s really at stake.

“All the talk of loopholes and level playing fields diverts attention from the real issue,” according to the Reason Foundation’s Steven Titch, who explains, “The Marketplace Fairness Act is not about the Internet, e-commerce, the marketplace or fairness—it’s about what the Constitution says about the power of state governments to tax citizens beyond their borders.”

The bill requires that states must simplify their tax codes before they’re allowed to tax beyond their borders, which Titch says is “an unusual quid pro quo, perhaps because Congress has to offer states the prerequisite of a buy-in. That's because any attempt to impose a tax collection structure wholesale on the states would likely face a constitutional challenge on 10th Amendment grounds of state's rights.”

I’m feeling a little verklempt. Discuss amongst yourselves.

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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