Sen. Dick Durbin (D-Ill.) could propose sweeping legislation as soon as Monday to tax all online purchases, in a move aimed at closing states' budget shortfalls.Want to know why online sales have grown so much? Because most of them are not taxed. Want to know what will happen if taxes are applied? The rate of growth will stop, and quite possibly reverse because the advantage of using online sellers will vanish. Yes, the convenience factor will still be there, but there will be much less motivation to make larger purchases through online sources.
Such a tax would plow more than $1 billion in tax revenues into New York's state coffers for the 2012 budget, according to some estimates. William Fox, a University of Tennessee economics professor, said that based on his own estimates, New York lost about $865.5 million in tax revenues in 2010 -- almost enough to close that year's $1 billion budget deficit -- based on its four percent tax rate.
However, he acknowledged that a research report he helped author last year did not appropriately factor in the blistering pace of online sales growth over the past several years. Fox estimates that the annual growth rate for online sales was actually about 14 percent from 2006 to present, rather than the study's 9.9 percent.
Some reports indicate that online sales hit a whopping $165 billion in 2010 -- an annual growth rate closer to 15 percent, which would put New York's tax receipts at close to $1 billion.
Durbin's bill, dubbed the Main Street Fairness Act, is being portrayed as an end to the tax holiday that online shoppers on major internet vendors have enjoyed for years.
This law is not about getting more sales tax revenue for states, it's about punishing the big online retailers. Durbin knows that they will have to spend millions to reprogram their networks to properly handle the patchwork of tax laws all across the country. Sales taxes are not consistent across entire states, counties, or in some cases even zip codes. They'll have to program huge tax tables to accommodate every address in the country, and then will be constantly updating those tables as tax rates change. It will be a bureaucratic nightmare, which is just what Durbin wants.
He may have some trouble getting this through the Senate. Both Senators from Washington are Democrats and that's the home of Amazon, the largest online retailer. They won't be anxious to see their local business harmed by this legislation. I'm sure other Senators will likely be equally protective of online retailers in their states.
As in the case of all Democrat tax proposals, this bill if enacted into law will not generate anywhere near the tax revenue they think it will and will in fact stifle economic activity. Hopefully the Republicans in the House will be able to kill it if the Senate doesn't.
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3 comments:
The biggest mistake we made in this country was to start paying politicians; think it was in the 19th century. It used to be a volunteer job, while they had real jobs back home.
I love that Main Street Fairness equates with taxing online purchasing. How about "Fairness" being reducing or eliminating "Main Street" taxes instead? Of course, Democrats never make choices which involve reducing government control and taxation. That would be equally fair, and as more businesses thrive tax revenue would be recouped in other ways (income and property taxes, etc.).
Best wishes,
Laura
What Laura said.
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