Does America Need an Internet Tax?

Does America Need an Internet Tax?
April 2, 2013

David L. Applegate

David Applegate is a Chicago-based trial lawyer and partner at the law firm of Williams Montgomery... (read full bio)

“If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it."

In those three pithy phrases, Ronald Reagan summarized the essence of government as envisioned by tax-and-spend liberals who these days prefer to call themselves “progressives” interested in “revenue enhancement” and “investment.”

It doesn’t have to be that way, of course.  By following the principles of limited government and separation of powers laid out by the Founders in the U. S. Constitution, U.S. citizens and their representatives could empower individual liberty; create opportunity; reward innovation, ambition, and hard work; and preserve freedom.  In short, we could keep the republic that Benjamin Franklin and company bequeathed us and government of the people, by the people, and for the people would not perish from this earth.

But the ratchet of tyranny and oppression that work constantly in the other direction is on display again in Washington, as senior Illinois Senator and No. 2-ranking Democrat in the U. S. Senate, Dick Durbin, last month pushed for a national online sales tax designed to lift another $200 million from the pockets of Illinois residents alone.

Along with Gov. Jerry Brown’s State of California, the State of Illinois is in a race for the bottom as the most financially bankrupt state in the Union, with unfunded pension liabilities approaching $100 billion.  The City of Chicago already has among the highest sales, gasoline, parking, restaurant, and hotel taxes in the country, and both the city and the state of Illinois have nearly exhausted such quick-fix money-raising schemes as gambling boats and selling off long-term streams of revenue like parking meters, toll way bridge fares, and – coming soon – Chicago Transit Authority public transportation fares.

As elsewhere, the problem in Illinois is largely one of legacy costs, resulting primarily from feckless mayors and governors constantly giving in to state and municipal employee unions rather than risk labor unrest.  Rather than rein in costs or reform pensions, however, the State just keeps looking for more ways to pull money out of people’s pockets, with or without federal assistance.   And that’s where an Internet sales tax may come in.

No man's life, liberty or property are safe while the legislature is in session,” wrote Judge Gideon J. Tucker in 1866, and federal lawmakers who lust after more power and control over their fellow citizens continue to prove him right.  Like those who want to raise federal income taxes again insisting that they only want “the wealthy” to pay their “fair share,” Sen. Durbin and others who supported the general idea of a national online sales tax in a 75-23 Senate test vote last month insist that the new tax is solely about leveling the playing field between online merchants and their brick and mortar counterparts.

It’s “just a question of fundamental fairness,” insists Senator Durbin, who actually claims “We’re not talking about imposing a new tax.  Not at all.”  Not, that is, unless you consider a nearly 10% government-imposed financial penalty that did not previously exist a ”tax.”  And even United States Supreme Court Chief Justice Roberts was smart enough to see in his Obamacare opinion that the “individual responsibility” penalty that the “Affordable Care Act” imposes on those who choose to go uninsured is a “tax.”

“More and more,” the Chicago Tribune on Monday, April 1, 2013, quoted National Conference of State Legislatures “point person” Max Behlke as complaining, “people are going into stores, looking at products and then buying them with their iPhone, buying it on their BlackBerry, because it’s cheaper.”

But that’s exactly what consumers should be doing.  Despite the increasing encroachment of the socialist welfare state, many Americans still work hard for their money and try to spend it wisely.  That means buying goods and services at the lowest available price, whether shopping the sales at Macy’s, buying gasoline out of state, buying used clothing at thrift stores, or purchasing comparable goods on the Internet because they’re available at lower prices.  Doing so is an integral part of the market system that is most consistent with individual liberty, freedom of choice, and – ultimately – efficient allocation of the world’s resources.

Local retailers complain that they must charge sales taxes while online retailers do not, but that’s not actually true.  Online retailers with a physical presence in a state are already obliged to charge tax on sales to customers with shipping addresses within that state, as online auction sellers and out-of-state art galleries have been aware for years.  It’s true that a potential buyer may walk into a local shop, find something she likes, and then buy it online at a lower price, but a local retailer can make tax-free sales to out-of-state customers by making online sales as well.  And customers will often pay more to get something in person today rather than to wait for it to arrive later, especially after taking shipping costs into account.

The economic problem isn’t the sales price, which the merchant can always lower to compete with online retailers; the problem is the sales tax that drives a wedge between the price the buyer pays and the price the seller receives, which in Illinois can be at least as high as 9.25%.

But much like the older couple in which one or both partners doesn’t have a hearing problem so much as a listening problem, Illinois and similar states don’t really have revenue problems, they have spending problems.  With all admiration for Grover Norquist’s efforts to keep taxes in check, his approach may ultimately be wrong:  We don’t need to cut taxes as much as we need to stop spending.

Sadly, an Internet sales tax won’t help either.

David L. Applegate

David Applegate is a Chicago-based trial lawyer and partner at the law firm of Williams Montgomery... (read full bio)