[R-G] [BillTottenWeblog] Internet Purchases Shouldn't Be Subsidized

[Bill Totten]

by Mark Weisbrot

The Huffington Post (June 16 2008)


Can our state and local governments afford to subsidize businesses that
conduct their sales only on the internet, rather than through physical
retail stores? And if we could, is there a good reason to do so?

These are the two most obvious questions when addressing the issue of
whether internet businesses, such as the e-commerce pioneer Amazon.com,
should have to collect and pay the same sales taxes as your neighborhood
brick-and-mortar music store (if you have one) has to do. Currently they
do not.

On the affordability question, the answer appears to be no and getting
more no. Fiscal year 2009 begins in a few weeks, and at least 29 states
plus the District of Columbia are facing budget shortfalls. According to
the Center on Budget and Policy Priorities, these states have faced a
combined shortfall of $48 billion, or more than nine percent of their
general fund budgets.

Although many of these states have been taking measures to close their
budget gaps, the current projections are likely to wind up being
over-optimistic. The recession in this country has barely begun, and
most governments are very likely under-estimating their revenue declines
for the coming fiscal year. The housing bubble that accumulated between
1996 and 2006 gave homeowners an extra $8 trillion of paper wealth. But
what a bubble giveth, it taketh away too, and only about half of this
bubble has deflated.

As the rest of the bubble collapses, there will be a lot less property
tax revenue to fund schools, police, and other government services. As
the recession deepens, unemployment rises, and consumers cut back on
spending, state and local government revenue from income tax, sales tax,
and other sources will decline more than anticipated. Unlike the federal
government, most states cannot borrow to cover an operational budget
deficit. This means that they will cut spending, including such items as
health insurance for children and low-income families, child care, and
elementary education. In fact, at least eighteen states are already
making these kinds of cuts, and the recession has barely started.

In the last recession, which lasted only eight months and was mild
compared to what can be expected this time, more than a million people
lost health coverage because of state spending cuts.

So we cannot afford to lose tens of billions of dollars in state and
local tax revenues by exempting internet sales. But even if it were
affordable, there is no good economic reason to do so. Why should our
governments favor far-away internet distribution centers over local
businesses? This is not good for local or regional economic development.
The problem will worsen as internet sales increase each year.

It has been argued that the burden of following the sales tax
regulations for fifty states and thousands of local taxing jurisdictions
is too much for internet businesses. But the availability of software
and service companies has taken the wind out of this argument. Others
complain that sales taxes are in general regressive - that is, such
taxes take proportionately more from lower-income groups. This is true,
but exempting internet sales makes the tax system even more regressive,
since internet buyers as a group have higher-than-average income.

So if your local sporting goods store can collect and pay a sales tax on
the running shoes that it sells, the big internet retailers can do the
same. No need to give e-commerce a four to nine percent advantage to
ship from across the country and use more packaging and delivery
services. They can compete on the same terms as everyone else, and stop
draining badly needed revenue from our state and local governments.
_____

This column was distributed by McClatchy Tribune Information Services on
June 10 2008 and published in the Atlanta Journal-Constitution and other
newspapers.

http://www.huffingtonpost.com/mark-weisbrot/internet-purchases-should_b_107407.html


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