News reports indicate that Texas is negotiating a deal with Amazon.com that would defer for 4.5 years the collection of sales tax on Texas residents’ Amazon purchases, in return for Amazon’s promise to invest $300 million and create 5,000 new jobs in the state over the next three years.
While the Texas Public Policy Foundation was critical of recent legislation that would have taxed Amazon’s sales to Texas residents (see here, here, and here), we do not think that deferring the tax for 4.5 years is a good idea. We believe the best deal for Texas — and for Texans — is to not impose the tax at all.
There are two schools of thought when it comes to economic development. One — let’s call it the old-school approach — is focused on subsidizing businesses using taxpayers’ money. This approach relies fundamentally on grants, loans, tax abatements, economic development sales tax funds, and the like to lure business into coming to or staying in a particular location.
The other approach — let’s call it the free-market school — seeks to bring and keep businesses in a state by providing the best economic climate for people to live, work, and do business. It keeps taxes low, keeps regulations at a minimum, and generally tries to keep government out of people’s lives unless it belongs there. You might also call this the Texas model.
Lately, Texas has been the hands-down winner in the economic-development contest. Since June 2009, when the recession ended, Texas has added 265,300 net jobs, accounting for 45 percent of net U.S. job creation. Over the last ten years, the numbers are even better: Texas created more than 1 million jobs during this period, more than all other states combined; California, New York, Florida, and Illinois combined saw 930,000 jobs lost.
While it is true Texas has established some programs along the lines of the old-school approach, to compete with states spending taxpayer cash, the Lone Star State has largely built its success on the free-market model. Consider this: According to the Commonwealth Foundation, Texas ranks 37th in the nation in per capita spending on economic development. But Texas ranks 50th among the states in state tax burden, compared with California at 9, New York at 11, Florida at 36, and Illinois at 25.
Low-tax states have remarkable advantages over high-tax states in employment growth, income growth, and gross domestic product growth. Low-tax states also have a strong advantage in net domestic in-migration as a percent of population — people come to Texas because there are jobs here that they can’t find in their home states. This helps explain why Texas and New York have almost identical unemployment rates: Folks who couldn’t find jobs in New York have moved to Texas to work. Texas is keeping the entire nation employed.
A state that keeps its taxes low and overregulation at bay is one that fosters economic development. On the other hand, a state that plows its cash into economic-development programs and government spending is one whose businesses and citizens will soon be leaving for greener pastures.
Texas shouldn’t cut a deal with Amazon. It shouldn’t collect the tax at all. More jobs and investment will come to Texas without the tax than through the deal. And Texans won’t be burdened with increased taxes in four and a half years. After all, a tax increase is a tax increase, no matter how it is put off.
— Bill Peacock is vice president of research and planning and director of the Center for Economic Freedom at the Texas Public Policy Foundation.
"Texas shouldn’t cut a deal with Amazon. It shouldn’t collect the tax at all. More jobs and investment will come to Texas without the tax than through the deal." Amen to that. However, we have some RINO's and tax happy Democrats in this state that can't see that. They only want to get more tax dollars now, so they can buy votes from the dependent class.
Reply to this commentLinkReport Abuse"News reports indicate that Texas is negotiating a deal with Amazon.com that would defer for 4.5 years the collection of sales tax on Texas residents’ Amazon purchases, in return for Amazon’s promise to invest $300 million and create 5,000 new jobs in the state over the next three years."
When that 4.5 years is up, I am sure Amazon will threaten to cut and run and some other state will offer another lucrative package.
Reply to this commentLinkReport Abuse37th in spending on economic development.
Over the last two years 45% of all new jobs in Texas.
Those two facts alone should be enough to torpedo anyone who claims that without govt spending on economic development, there will be no economic development.
Reply to this commentLinkReport AbuseBill, are you suggesting that Amazon get a unique and permanent tax abatement that other companies in Texas don't get, or that Texas shouldn't collect *any* sales tax, or that Texas shouldn't collect any tax on internet sales originating in Texas? I am unclear as to what you mean by "We believe the best deal for Texas — and for Texans — is to not impose the tax at all."
Reply to this commentLinkReport AbuseIf Amazon puts thousands of jobs in Texas they will have a presence in Texas and would normally be subject to collecting sales tax in Texas in the same way they have to collect sales tax on deliveries in their home state. So this deal waives that reality to entice them to put those jobs in Texas. Sounds like a fair deal for everyone.
Reply to this commentLinkReport AbuseI take it that Texas has not agreed to suspend the sales tax with respect to purchases from Texas brick and mortar companies in the state? If so, how is the Amazon deal justifiable from a tax policy perspective, i.e., why shouldn't the local businesses get the same benefit? Does a company like Amazon have to agree to build plant/infrastructure/employees to get such a deal, and what are the thresholds for qualification? What is the nature of Amazon's commitment? Just a promise, or something the state can enforce?
I'd also like to see data that separates jobs based on the "old school model" versus the "free-market model," as this is a critical point regarding the validity of the author's assertions. I doubt the author will ever provide such data, as it could be inconvenient with respect to his free-market argument.
Reply to this commentLinkReport AbuseI think you're focusing on the obvious too much, and not on the underlying factors in the deal.
Reply to this commentLinkReport AbuseIn 4.5 years, does anyone really believe that some sort of national policy/deal on sales tax of internet purchases will not be enacted? With the previous suits, Amazon's policy has been to uproot any footprint in the offending state. Do you really think they can do that for more than the next 4.5 years? And don't imagine that 4.5 years is in any way an arbitrary timeline. It is easy to imagine that Amazon has a huge team of talented legal and political analysts who have modeled the likely state and federal tax/legal outcomes over the next few years.
So look at it this way. Texas, a huge market for Amazon, has agreed to stop hassling them until the broader tax picture gets worked out nationwide. In return, Amazon will continue to invest in a large business friendly market. That is a true win-win and I applaud both Texas and Amazon for having the sense to come to a mutually beneficial arrangement.
This is why Amazon is a business leader, and this is why Texas attracts so many businesses.
I think there's quite a lot of hand-waving going on here. There's zero way to predict what will happen nationally with regards to tax policy in the next 5 years, which will contain not one, but *two* presidential election cycles. Congress could have 100 (just to pull a number out of my butt) completely different people.
By my lights, the 4.5 number is simply a dollars vs dollars negotiation: how much revenue is Texas willing to forego to get Amazon, and how long of an abatement does Amazon need to get the profit they want?
I'm still waiting to get a clarification from Mr. Peacock before I really take a position, because his intent behind "not imposing the tax" drastically swings the meaning of his entire argument.
Reply to this commentLinkReport AbuseI think you misunderstand corporate and governmental practices to say that there is "zero way" to predict what will happen in internet sales tax law. Sure, there are a lot of variables, and no one can say with 100% accuracy what will occur, but companies, think tanks, policy advisors, etc do this type of prediction all the time. They model technology growth, competitive activities, policy changes and which outcomes will help or hurt. They then make decisions based on those probabilities...this is common practice. Do you really doubt that Amazon has a large and quite smart team of people who are doing just this?
Reply to this commentLinkReport AbuseI don't doubt they have people paying attention, but there simply isn't a way to predict with anything even resembling 100% accuracy. The best they can do is approximate risk. My implicit point was that you are way too confident in your intonation that something is going to happen in this area in the next 5 years that will make whatever Texas does moot after that, and then draw the conclusion that this must be a good deal, which is just silly. That's also not to mention that this line of argumentation doesn't even touch the ethical or philosophical problems of giving special advantages to one company over others, which I view as more important and the reason why I think Mr. Peacock needs to clarify his position.
Reply to this commentLinkReport AbuseTo be direct: I think it's far from a foregone conclusion that internet sales taxes will be dealt with at the federal level. In fact, I think it's very unlikely to be handled at that level as a standalone issue. The only scenario I imagine in which it could be addressed in some way in that time frame is the one in which Republicans are able to force a significant restructuring of the tax code as a whole
Reply to this commentLinkReport AbuseWe just went through this in South Carolina. The previous (Applachian Trail) governor had promised Amazon the same tax treatment you are discussing. Haley was willing to honor the deal if it reached her desk but not happy with it and didn't fight for it. The General Assembly failed to enact the deal -- and Amazon pulled out.
After several weeks of frantic politicing by Midlands reps, the GA relented and passed the deal.
So the takeaway for TX:
1) You need an Amazon distribution center in Texas more than Amazon needs one (they are already shipping you stuff, right?)
2) If you don't come through and Amazon takes its ball and goes home, you don't have the jobs and Amazon continues to not collect sales tax on Texas purchases (the status quo). So it's lose/lose. This is the KEY POINT that the anti side never seems to get: AMAZON IS NOT NOW COLLECTING THE TAX for orders sent to TX.
Reply to this commentLinkReport AbuseE-tailers only charge sales taxes on orders shipped to the state where their distribution center (DC) resides. For most e-tailers this isn't a problem--a chunk of your orders are taxed, but the rest are tax-free because they are bound for other states.
What Amazon is doing is quite sinister--it wants to build distribution centers in different states and then get an exemption from the sales tax they are legally required to pay. This allows them a considerable advantage over brick and mortar stores--the item prices are lower because there is no physical store, free Super Saver shipping takes only a couple days instead of a week, and the customer pays no sales tax. It's a win for everyone at Amazon, and it helps price businesses like Wal-Mart, Best Buy, and Costco out of the market.
The question for the libertarians who defend this move are:
1. Would you complain if the Obama administration gave business tax exemptions to companies that sold primarily online (and were thus "green")?
2. Can you really favor a tax plan that says "everyone who is not Amazon has to pay sales tax"? Remeber that Governor Haley is a Tea Party star who campaigned on the idea that no business gets an exemption, but agreed to sign the law since the legislature could easily override her veto.
3. One commenter responded that Amazon is not already collecting the tax for orders shipped to Texas, but if Amazon already has a DC in Texas then it is already paying the tax (or it already has an exemption). In fact, the South Carolina law would give Amazon an exemption from paying state sales tax on the condition that they build a DC in the state, to provide jobs, offset the loss of tax revenue, and to make up for businesses that go belly up when competing with Amazon.
The final take-away: are we serious about not liking crony capitalism as long as its to shove hybrid cars down our throats? It's OK for Amazon to lobby for special exemptions from the tax code because even hardcore libertarians want cheaper books? And if lower taxes period is a good thing, why go after the Obama Administration and its tax credits for the auto industry?
Reply to this commentLinkReport AbuseI'm a Texan, I like not paying sales tax on Amazon purchases, and I like the Texas deal fine.
Texas is betting that in 4.5 years, the US economy will have improved, so that Texas will have enough revenue from other taxes that it won't need to tax Amazon. If Texas is right, great! I can keep on buying stuff tax-free. If Texas is wrong, it can go ahead and impose the tax, but at least it will have Amazon's investment.
In effect, I think Texas is betting that states more addicted to taxes and regulation will keep shipping jobs to Texas. That's the kind of bet I like.
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