Republicans for Bigger Government

On today’s Coffee & Markets podcast, Francis Cianfrocca and I discussed the dreams of more tax revenue to fuel bigger government in the form of the Amazon tax. The latest, from the Wall Street Journal:

“The newfound support among Republicans is a dramatic change from just a few months ago. In February, at the Republican Governors Association meeting in Washington, one agenda item was online sales taxes. The reaction was decidedly cool, with Louisiana Gov. Bobby Jindal worried that the effort sounded like a new tax, according to two attendees…”

“Seizing on the recent political shift, Sen. Lamar Alexander, a Tennessee Republican, and co-sponsors from both parties are attempting to speed up action on a bill they wrote to give states authority to compel online companies to collect sales taxes… “Mr. Alexander fine-tuned the arguments for a federal solution to his fellow Republican lawmakers. “Conservatives don’t want to pick winners and losers” in business, said the former Tennessee governor…  “The handwriting is on the wall that states will collect sales taxes on online purchases,” Mr. Alexander said. “This is going to happen—if not this year, then definitely by next year.”

And while most online retailers oppose it, Amazon is willing to cut a deal to get the same day delivery opportunity which is their Holy Grail (plus, they get to charge affiliates for calculating the tax).

“Republicans’ general opposition to new taxes, particularly broad-based ones, led GOP governors to avoid considering the sales tax, even as its potential value to state coffers grew. In most cases, the no-new-taxes sentiment trumped pleas from in-state retailers that they would have to lay off employees or close their doors if their online competitors kept undercutting their pricing… “But the current economic environment made states start looking harder at this for new revenue that costs them nothing,” said Sandy Kennedy, president of the Retail Industry Leaders Association… “What we saw here was a rapidly growing bipartisan coalition of business groups, labor, Republicans and Democrats coming together because money and jobs were more important than political gamesmanship,” said New Jersey Assemblyman Troy Singleton, a Democrat and union official who strategized over beer with an official from the state Chamber of Commerce on supporting the Amazon package.”

Republican governors who claim they need these sales tax revenues to keep other taxes from going up are describing something that, in practice, has never happened. As I noted last week, the revenue has gone straight back into state coffers… when there’s been revenue at all.  The vast numbers NCSL quotes in the WSJ have never materialized for states which attempted to collect, because in practice it’s just a shift: local retailers lose out on income, lowering their income tax burden and mitigating the increased sales tax revenue.

But that’s not what this push is about – instead, it’s about future Democratic administrations which will have, in effect, the ability to create a vast new revenue stream to continue the grow of the size of government.

Most Republicans think of this as a one for one inequity – you buy a bag of widgets from Amazon instead of from Home Depot. But by opening this door, Republicans will allow the creation of a vast new tax on digital product lines and downloadable content. This legislation will inevitably make an iTunes Tax like the one Democratic Governors Association head Martin O’Malley has proposed a reality.

This represents nothing less than Republicans accepting their role as tax collectors for the pension/entitlement state, unwilling to take political penalties from cutting government employment or Medicaid, and willing instead to cave to create a higher tax burden on their citizens. If they were really interested in shrinking government, they’d be closing avenues to taxation, not opening up new ones.

  1. Mel Foil

    I certainly don’t like the monitoring infrastructure that will grow out of this, but as a tax, it’s at least targeted at consumption and not income. And, targeted at consumption with people’s disposable income for the most part. You’re probably not going to buy your groceries across state lines.

    BUT, any bill that establishes this tax better have bigger budget cuts (than new revenue,) or, it won’t be the solution to anything. It will just add to the problem.

  2. David Carroll

    Amazon will go along with this, because it effectively regulates the little guy out of business,.  mom and Pop shops cannot possibly comply with the 5000 different jurisdictions that levy sales taxes.  Amazon has the resources and will increase its market domination, thanks to the government.

    Crony capitalism in action. 

  3. Hang On

    I don’t understand the contradiction. You’re saying on the one hand that there is no vast increase in revenues as claimed [The vast numbers NCSL quotes in the WSJ have never materialized for states which attempted to collect, because in practice it's just a shift: local retailers lose out on income, lowering their income tax burden and mitigating the increased sales tax revenue. ], yet you’re also saying this is a ploy to have a vastly increased revenue stream [But that’s not what this push is about – instead, it’s about future Democratic administrations which will have, in effect, the ability to create a vast new revenue stream to continue the grow of the size of government.]. Huh?

  4. LowcountryJoe

    This disgusts me.  Much like the disgust I feel when someone on the right, thinking that they’re doing the correct thing, justifies tax cuts by saying that it increases economic activity which, in turn, increases tax revenue.  They would do the cause a huge favor by just staying silent after the word ‘activity’.

  5. Edmund Alexander

    At some point, we’re going to have to look at the federal debt and recognize that “starve the beast” is a complete failure.  At least such a tax would be consumption based, wouldn’t entail burden-shifting based on income, and would make average citizens have to recognize the prices entailed by the largesse they vote to support.

     You will not see a real reduction in the size of government so long as “tax the rich more” remains a politically viable answer to the challenge (and N.B., I do not mean to suggest it’s an economically or fiscally viable answer; it’s a matter of leaving quarter available to blame).

    Shifting control to the states is a good thing in general, and any coordinating efforts by the federal government would at least be a proper application of the commerce clause.

  6. Chris Johnson

    Hang On, it’s about Republicans acquiescing to the camel’s nose under the tent, (an internet tax that is targeted narrowly), that then blossoms into a predictable monstrosity, once the Big Government types hop on that camel.

  7. cdor

    So I own a small business that sells products. When I sell one of those products I must charge my customer approximately 8% sales tax. My business is within a few miles of a state line. I deliver merchandise across that line and must charge those customers sales tax as well. That state is a point of receipt sales tax state. That means I must track the specific municipality to which I delivered and send in the tax receipts based on whether that municipality charges .075, .081, .085, etc. sales tax. I must deal with way more than 50 sales tax authorities. My customers currently can go onto the internet and buy the same products with zero sales tax. Someone mentioned crony capitalsim. I say when the fed government makes it illegal for states to demand internet companies collect sales taxes, that is crony capitalism. Let each state set its rules and collect the taxes based on those rules for businesses engaged in mercantilism with their residents. That would at least level the playing field. The next time an increase in sales tax comes up for a vote maybe people will turn it down.

  8. ConservativeWanderer

    Bottom line, this is the GOP borrowing the lefty’s line of “if the other guy pays more tax, that’s better for you.” All they’re doing is substituting “internet store customers” for “rich people.”

    It’s nothing but classic class warfare, and it makes me sick to see RINOs — yes, I said RINOs, and people here should be familiar enough with me to know I don’t toss that term around willy-nilly — adopting a favorite tactic of the left.

  9. Ben Domenech
    C
    Hang On: I don’t understand the contradiction. You’re saying on the one hand that there is no vast increase in revenues as claimed [The vast numbers NCSL quotes in the WSJ have never materialized for states which attempted to collect, because in practice it's just a shift: local retailers lose out on income, lowering their income tax burden and mitigating the increased sales tax revenue. ], yet you’re also saying this is a ploy to have a vastly increased revenue stream [But that’s not what this push is about – instead, it’s about future Democratic administrations which will have, in effect, the ability to create a vast new revenue stream to continue the grow of the size of government.]. Huh? · 44 minutes ago

    Because no state that has passed an Amazon tax thus far has done the next step – the iTunes Tax. At that point, the revenue flows.

  10. Mendel

    I find the hand-wringing over introducing a new type of tax and the “camel’s nose” metaphors somewhat ludicrous.

    The problem is spending.  Any dollar the government gives out now will have to be paid at some point.  And starve the beast is nothing more than an empty wish – neither party has hesitated to spend money they don’t have during the last ten years.  It doesn’t matter if we tax income, bricks-and-mortar purchases, or online purchases – a bill is coming due, and the citizens will have to pay it.  By this point, which avenue does not matter.

    And to the “camel’s nose” argument – the camel is already in the tent.  We already have so many types of taxes, and are so willing to vary their rates willy-nilly, that politicans will find ways of sticking it to their desired group with or without online sales taxes.

    Taxes are irrelevant and a dangerous diversion.  Who cares if we have an online tax?  If we don’t stop the bloodletting, we’re dead either way.

  11. Hang On
    Ben Domenech

    Hang On: Huh? · 44 minutes ago

    Because no state that has passed an Amazon tax thus far has done the next step – the iTunes Tax. At that point, the revenue flows. · 0 minutes ago

    OK. Understand.

    So what is the volume of business of iTunes relative to everything else? My guess it’s pretty small and it’s not going to be the kind of revenue stream you’re/the DGA is talking about.

    The other question is: What’s so special about iTunes that it should not be taxed the way other goods and services are?

    I very much favor broadening the base, lowering the rates, and more important than anything else controlling the spending. GOP govs have done a good job for the most part in the latter.

  12. Mendel

    Also, when consumers use tax arbitrage to make purchasing decisions, the economy becomes less efficient, not more.

    As a general platform, why not allow state sales taxes on online purchases, but only coupled to a decrease in each state’s general sales tax to make the entire entreprise revenue neutral?

  13. BrentB67

    Is the premise of the article/post that republicans actually believe in less government and taxation? If so, let’s dispense with that foolishness. Republicans may believe in less government and taxation than democrats, but that doesn’t exactly set a very high bar to cross. Republicans support growing the government slower than democrats, but at the end of any republican administration or republican majority Congress there is more federal government than there was at the beginning of those terms.

    Don’t worry about the iTunes tax, it is already here. If Apple has a retail store in your state you are most likely paying sales tax on your iTunes purchases.

  14. Gödel
    Ben Domenech: This represents nothing less than Republicans accepting their role as tax collectors for the pension/entitlement state, unwilling to take political penalties from cutting government employment or Medicaid…

    That’s an interesting choice of phraseology. What, exactly, would the “political penalties from cutting government employment or Medicaid” be? Presumably, “being voted out of office.” But the clear implication is that voters would be, in fact, voting for larger government.

    This begs a question: what if we economic conservatives are wrong? What if a clear majority of the electorate doesn’t want limited government, wants higher taxes and whatever benefits they believe accrue from them, and wants the U.S. to more closely resemble, say, Sweden (as opposed to the more realistic target of, say, Cuba)?

    When we’re at this stage—with Obama’s cribbing of Elizabeth Warren’s sickening “no man is an island” ripoff, federal loan guarantees to failed solar companies, Government Motors, economic stagnation, 12%+ official unemployment, etc.—and Obama and Romney are neck and neck, it calls some pretty fundamental conservative beliefs into question, if you ask me.

  15. Dan Hanson

    The internet has been spectacularly successful at creating new start-ups and innovative products and services.  One of the reasons for this is that the government has kept its paws off it to a large extent. 

    An internet sales tax will mean tax registration for every web site that makes money.  Bloggers will have to charge and report sales taxes for membership fees,  basement web sites will have to register and collect sales taxes, etc.    This is the thin wedge that will allow the government to justify ever-more scrutiny of the online economy.  

    Eventually, we’ll wind up turning the internet into yet another over-regulated environment micro-managed by the government.  Once your web site is in the government’s cross-hairs, expect to be audited for compliance with the Americans with Disabilities Act.  Be prepared to show that your database of users adheres to the government’s security audit protocols.  Better not have any kids writing web pages for you – that’s child labor. 

    Frankly, I’m amazed that the internet has remained as laissez-faire as it has, but this was bound to end sometime.  Let’s not have it end on the Republican’s watch.

  16. BrentB67
    Paul Snively

    … Presumably, “being voted out of office.” But the clear implication is that voters would be, in fact, voting for larger government.

    This begs a question: what if we economic conservatives are wrong? What if a clear majority of the electorate doesn’twantlimited government,wantshigher taxes and whatever benefits they believe accrue from them, andwantsthe U.S. to more closely resemble, say, Sweden (as opposed to the more realistic target of, say, Cuba)?

    When we’re at this stage—with Obama’s cribbing of Elizabeth Warren’s sickening “no man is an island” ripoff, federal loan guarantees to failed solar companies, Government Motors, economic stagnation, 12%+ officialunemployment, etc.—and Obama and Romney are neck and neck, it calls some pretty fundamental conservative beliefs into question, if you ask me. · 1 minute ago

    Outstanding analysis. I don’t think fundamental conservative belief in a Constitutionally limited government are called into question, but you are correct to question the premise of the outcome.

    ~Half of eligible voters do not participate in elections and to date we have not presented a credible presidential candidate that supports limited gov’t, so it is hard to know.

  17. Paul A. Rahe
    C

    The heart of the matter is that no one in office — Republican or Democrat — is willing to say to public-sector employees: “Folks, tax revenues are down. We are going to have to lay some of you off.” The answer is always a tax increase.

    Michigan is a good example. The Republicans control the governorship and both houses; the population has dropped by more than 10% since 2000; the number of civil servants has increased in the last decade dramatically. The last Democratic governor raised taxes. Her answer to unemployment was to raise taxes and hire in the public sector. So what do the Republicans do after 2010. They raise taxes!

  18. HVTs
    BrentB67

    Paul Snively

    What if a clear majority of the electorate doesn’t want limited government, wants higher taxes and whatever benefits they believe accrue from them, and wants the U.S. to more closely resemble, say, Sweden (as opposed to the more realistic target of, say, Cuba)?

    ~Half of eligible voters do not participate in elections and to date we have not presented a credible presidential candidate that supports limited gov’t, so it is hard to know.

    If a clear majority wanted to be like Sweden, Obama would be walking away in the polls right now.  It seems that somewhere near half the electorate is scared stiff by Obama’s vision of Stockholm on the Potomac. 

    Roughly half of eligible voters do not vote and roughly half of income earners do not pay federal income taxes.  Start taxing the latter and you’ll diminish the former very quickly.

    Please draw me the word picture that goes from Obama has more tax revenue to Obama spends less money and decreases deficits and debt. Or, if you prefer, not Obama … any politician from the Incumbency Party, either the Republican or Democrat wing. We’ve never starved the beast. Not yet.

  19. HVTs
    Paul A. Rahe: The heart of the matter is that no one in office — Republican or Democrat — is willing to say to public-sector employees: “Folks, tax revenues are down. We are going to have to lay some of you off.” The answer is always a tax increase.

    Michigan is a good example. The Republicans control the governorship and both houses; the population has dropped by more than 10% since 2000; the number of civil servants has increased in the last decade dramatically. The last Democratic governor raised taxes. Her answer to unemployment was to raise taxes and hire in the public sector. So what do the Republicans do after 2010. They raise taxes!

    Professor, your trenchant analysis is depressing me! But I’m holding on to the hope that Wisconsin is at least a deviation from your undoubtedly sound thesis.  Go ahead … withdraw my will to live if you must!

  20. ConservativeWanderer
    HVTs

    cdor

    HVTs

    You’ve not addressed the well-made point (by Conservative Wanderer) that traditional retail space draws on local govt services and thus ‘should’ collect taxes from local customers to cover  those costs. A web site in Timbuktu does not impact local govt-provided services. This internet tax  is just protectionism by another name.  It protects traditional retailers from competition–from a better, more efficient way of providing goods & services.

    I always thought conservatives were for limited government, not against all government. Some taxes are necessary.

    Red herring alert.  There are no anarchists here. No one is saying all govt should be eliminated or that some taxes aren’t necessary.  · 2 hours ago

    Amen.

    It shocks me — truly — that so many conservatives are picking up the concepts of the left… “tax fairness” chief among them.