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Opinions/Editorial INTERNET TAX SCHEME PITS POLITICIANS AGAINST CONSUMERS & ENTREPRENEURS Released by Sean Duffy on 02/07/2000 of Commonwealth Foundation |
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| In a stunning
example of government schizophrenia, at the same time politicians
are rightfully working overtime to court high-tech, dot-com
businesses, a collection of state and local officials are backing a
tax plan that could deal a body-blow to the digital economy – and
burden consumers with higher taxes. Why? Because they place their desire to have an unfettered flow of taxpayers' dollars to spend ahead of the historic opportunity to prime the economic engine of a brand-new sector of the American economy. Let's explain. The rapid growth of the Internet has brought good economic news. New (often tax-free) shopping options for consumers and businesses have caused electronic commerce to soar, and this growth has created a new sector of high-paying jobs, which, in turn, helped fatten state surpluses around the country. Electronic commerce is a growing part of every state's economy, and Pennsylvania is no exception. Nationally, the 1999 holiday season obliterated sales records. A trade association of online retailers showed that virtual cash registers rang up sales 300 percent above the same period in 1998, with revenues totaling $9 billion. Absent new tax schemes, that robust growth is expected to continue, with the International Data Corp. estimating that the number of electronic commerce sites on the Internet will more than double to 1.2 million by 2003. Here in Pennsylvania, the state Revenue Department estimates that Internet sales to Pennsylvania consumers totaled more than $600 million in 1998, with Internet sales to businesses in the state reaching $3.3 billion that same year. The Department estimates that those figures will grow substantially in the years ahead. One of the reasons that the digital sector of the economy has grown so rapidly is that online, telephone or catalogue purchases made from out-of-state companies are not subject to sales taxes. To respond to that competition, more and more conventional "bricks and mortar" stores are setting up shop online, and expanding their universe of customers far beyond geographic limitations. Most people view such exciting economic facts – with so many new opportunities for consumers and entrepreneurs – as good news. Everyone, that is, except those whose bloodstream runs green with taxpayers' hard-earned dollars. That's why groups of tax spenders – including the taxpayer-funded National Governors' Association – have concocted a national sales tax scheme targeted at Internet sales – a move that could slash e-commerce by one-quarter and significantly increase the tax burden on American consumers. Although most governors are sitting on piles of surplus taxpayer cash, they essentially say that if they don't tax the Internet, they will have to rattle tin cups on street corners just to keep the lights on in government buildings. This revenue lust trumps economic common sense. A recent study by a University of Chicago scholar pointed out that slapping e-commerce with a national sales tax scheme would cut sales by 24 percent or more. This would clearly cost high-wage jobs and jeopardize the robust income and job growth in the emerging digital sector of the economy. Indeed, as recently pointed out by Americans for Tax Reform, the average high-tech job pays more than $60,000 per year – and every high-tech employee pays taxes. Despite well-deserved national praise for harnessing technology to improve state government services, Gov. Tom Ridge has chosen to sit on the sidelines of this Internet-tax fight, allowing other Republican governors to take the lead on behalf of taxpayers. But taxpayers can fight back. By signing on to the E-Freedom Coalition, of which The Commonwealth Foundation is a founding member, consumers can support a common sense, pro-growth, low tax proposal. This platform, available online through a link at www.commonwealthfoundation.org, calls for a permanent ban on sales and use taxes that specifically apply to online commerce, and clear rules to ensure that only those companies with a physical presence in a state can be compelled to collect sales taxes for that state. Taxpayers should not be fooled by free-spending politicians who claim that they're merely turning on a vacuum cleaner to capture funds that would otherwise escape the state treasury. The reality is that they may suck the life out of their own states' economies – and the few remaining dollars in taxpayers' wallets. Taxpayers must act now to ensure that the Internet and Pennsylvania's high-tech economy can continue to expand without the stifling effect of new taxes. * * * *
(Sean Duffy is
President of The Commonwealth Foundation, a non-partisan public
policy think tank based in Pennsylvania. For further information or
for additional comments, please call 717-671-1901 or visit
www.commonwealthfoundation.org ) | |
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