Wednesday, April 21, 2010
Chicagoland / Politics / Clout City Pat Quinn's iTax
Posted by Whet Moser on 04.21.10 at 10:48 AM
The governor's proposal to tax digital downloads is already being mocked, and expect more to come. But it does present an interesting dilemma. On one hand, part of the justification for sales taxes is that brick-and-mortar stores benefit from state and local programs—in ways that online retailers don't. On the other, the loss of sales tax revenue to online shopping is nontrivial, and according to a 2000 paper by Austan Goolsbee (now famous as an economic adviser to the president), the lack of sales taxes on online purchases gives online retailers a competitive advantage—a distinct pricing advantage beyond the advantages of mere convenience—which theoretically discourages b&m shopping and depresses sales tax revenue even further.
I'm not so sure that Gov. Quinn's iTax is a dumb idea so much as an immediately unpopular one; then again, after pushing for years, Wisconsin's Jim Doyle got a similar tax passed last year to no great panic that I can recall, though he's not polling well these days.
Either way, Illinois politicians are going to have to do unpopular things to fix the budget deficit, and some of them are going to lose their jobs because of it. It'd be interesting to see if changes to the state's regressive flat income tax, which Progress Illinois has been writing about for awhile, would be a winner, or at least not a giant loser.
Comments (6)
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"On one hand, part of the justification for sales taxes is that brick-and-mortar stores benefit from state and local programs—in ways that online retailers don't."
The only people I have ever heard state that this is a major justification for sales taxes are the online retailers who would be hurt if they had to charge taxes. I'm curious if anyone can come up with any evidence that sales taxes have ever been imposed for the purpose of making retailers compensate for the benefits they receive from government services, such as roads and garbage collection (pretty much all of which every individual receives as well). Perhaps someone has a link to something that will convincingly show that sales taxes were originally implemented for this purpose. Otherwise, I am strongly inclined to think that they were set up to tax individuals for the services that they and their fellow residents receive. It makes zero sense for online retailers to not have to charge sales tax. All this does is create a incentive for people to spend their money at the businesses that provide the least economic benefits to the state. I am a free market conservative who, I suppose, normally should be against more taxes. But this isn't a level playing field. I wouldn't want the state to tax products at a higher rate because they are purchased from retailers who create less beneficial economic impact either. But they certainly shouldn't do the reverse, which is what occurs with the present situation.
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On-line sales, including downloads, should pay sales tax to the state where the buyer resides. This should be true for all non-store sales, including catalogue sales. It's not only giving an unfair advantage to some on-line retailers, but people who don't have or don't want to learn about, internet access, lose-out, too.
"people who don't have or don't want to learn about, internet access, lose-out, too."
Not only them, but everybody who purchases a lower proportion of their products than the average person from internet retailers who don't charge sales tax less is paying more than if there were a logical sales tax system. By definition, that is half the people in the state as well as the country. So you would think that at least half the people would be for a tax on all internet purchased products. But, of course, that is unlikely to be the case. If you were to get a random group of 200 people into a room and ask them how many would be against a proposal to require companies to charge for goods purchased on the internet you can bet that almost all of them would raise their hands. If you then ask them how many of them think they purchase less than the average person on the internet you will, of course, get about 100 hands raised. And if you subsequently ask these people why they would be against something they would benefit from you will get a whole plethora of answers that indicate that they are confused and don't quite understand the fact that lower revenues with one area of revenue generation will inevitalbly cause the government to seek higher taxes in another area to compensate.
And, of course, there is another unnatural and negative effect from not forcing internet retailers to tax purchases from states where they don't have a presence (this is largely seperate from the question of whether to tax downloads, though I would assume that most of the states with taxes on downloads cannot tax Amazon.com). It encourages these companies to have as few operations across the country as possible. And it encourages them to establish the ones they do need in states with low population so that as few people as possible need to be taxed. I don't think it is an accident, for example, that Amazon.com purchases come from distribution centers in Kentucky, Nebraska, or Tennessee. That isn't good for higher population states like Illinois which are likely to be hurt more by the economic downturn.
