More than three years after America’s financial system hit a crisis point, the state of our economy remains in turmoil. As our nation’s leaders grapple with immediate challenges through dueling jobs plans and the Joint Select Committee on Deficit Reduction tries to come to agreement on a trillion and a half in reductions, we must also consider long-term measures to strengthen our economic security. As it stands now, the number one threat to the future of American competitiveness isn’t other countries. It’s our tax law.
The United States Tax Code is difficult to understand and even harder to navigate, for families and businesses alike. Title 26 has been patchworked, reformed, and tinkered with for decades, giving us an antiquated mess of laws rife with inequities. Our corporate tax rate is among the highest in the world. We refuse to shift to a Territorial Tax System that would stop punishing our companies for bringing earned overseas income back to the U.S. for reinvestment. Tax rates for small businesses remain high and inconsistent.
A robust free-market system requires a level playing field, where the government doesn’t get to pick the winners and losers. We should require the same of our system of taxation. We need a simpler, fairer, flatter tax code that removes loopholes, subsidies, and credits, one that lowers rates across the board and expands the percentage of Americans paying their fair share of taxes.
When it comes to sales tax, it is time to address the area where prejudice is most egregious — our policy towards Internet sales. At issue is the federal government exempting some Internet transactions from sales taxes while requiring the remittance of sales taxes for identical sales made at brick and mortar locations. It is an outdated set of policies in today’s super information age, when families every day make decisions to purchase goods and services online or in person. Moreover, it’s unfair, punitive to some small businesses and corporations and a boon for others.
This is why the American Conservative Union applauds Rep. Steve Womack for his sponsorship of the Marketplace Equity Act of 2011, one of the first sincere attempts to modernize our tax policy for the 21st century.
As conservatives we know that governmental power can be used to destroy entrepreneurship, innovation and the free market. There is no more glaring example of misguided government power then when taxes or regulations affect two similar businesses completely differently.
Over time, the company that has to comply with a tax or a regulation will lose market share to its competitor who is carved out from this government interference. In these cases the winner is not the company who outcompetes, but the one who gets special privileges from the government.
At its inception, the Internet was everyone’s darling, the latest example of American innovation and ingenuity. Internet sales represented a miniscule portion of the total retail market, and the novelty led to tax loopholes and unintended consequences. Now, according to Forrester Research, Internet sales account for nearly 10 percent of all sales of products and services in America, with an annual growth rate of about 9 percent.
If we do not confront this issue, state and local governments dependent on sales taxes will need to look for other sources of revenues as Internet sales continue to expand. Policy which allows for both online and brick and mortar retailers to be susceptible to the same taxes will — and should — allow for commensurate reductions in sales tax rates. For instance, if Internet sales tax revenues will add 10 percent in revenue to a governing body’s coffers, then, at a minimum, a corresponding overall reduction in rates should apply.
The current system is also inconsistent with states’ rights, and the Congress ought to carefully consider enacting revenue neutral tax reform policies consistent with the Tenth Amendment.
The free-market system can only operate effectively on a level playing field of free and fair competition. Whether it’s the Department of Energy’s disastrous Solyndra project, or levying sales taxes, or a multitude of other policy decisions that impact the private sector, the government picking winners and losers is a perversion of the free market system. Lawmakers on Capitol Hill — especially conservatives — ought to at least acknowledge this when deliberating important reforms to the tax code. As we consider wholesale reform, exempting Internet sales can no longer be justified.
The Marketplace Equity Act of 2011 begins this conversation. It’s not a perfect bill, but it’s a critical beginning to this dialogue and should spark bipartisan support for revenue neutral reforms. Rest assured, we will not be party to or stand for Trojan Horse legislation that claims to strive for equity in the law merely to serve as a cloak for secret tax increases.
We have a great opportunity to drastically lower rates, especially corporate rates, and eliminate esoteric tax preferences to stave off the next massive financial crisis. A flatter, fairer, simpler tax code is the key to ensuring American competitiveness for generations to come. Our leaders in Congress are obligated to thoughtfully consider measures to achieve this.
— Al Cardenas is chairman of the American Conservative Union.
What a (insert derogatory word to indicate my reaction)...
How is it a violation of 'state rights' that a state not be allowed to tax the sales of a company whose only tie to that state is using the mail to deliver packages to customers? The current rule is pretty straightforward and simple: if you operate in a state, you're subject to getting screwed by that state. If you don't operate in a state, they can't touch you. That sure seems to me to be consistent with conservative doctrine. Isn't it the liberals who want to expand the reach of government to wherever and whomever they think needs to be 'reached'?
And since when do conservatives argue for raising taxes (in this case, by starting to tax people not currently taxed) because state and local governments need the revenue? I thought our reaction was to push for governments to live within their means, not to concoct silly reasons why taxes should be raised.
While my biggest gripes are with his position on taxing Internet sales, a number of his other arguments fail as well.
Yes, corporations have a ton of cash sitting overseas. But that doesn't mean that those companies aren't investing in the US. In fact, I challenge him to name a single company who wants to invest in the US but isn't doing so because all their cash is stuck overseas and they can't get credit here at home. Companies aren't investing at home, not because of the tax code, but because they don't see the demand for whatever it is that they would produce with their investment. If they forecast demand, they'd invest... and they'd have no problem getting the cash to do so.
And it's a great line of rhetoric to claim that our tax law is hurting the country, but again, there's not a lot of substance to back up that claim. Yes, the tax code is complicated, but I dare him to cite a business whose operations have been negatively impacted because they spend money on CPAs. Most individuals don't spend a lot of time on their taxes, and for most people, the software makes doing taxes easier and easier. And for those who spend time on their taxes, it is because they feel the benefits of doing so (lower taxes) are worth the time and provide a better return on time than doing something else (aside: I have the same problem with claims that the AMT requires everybody to do their taxes twice. In fact, you enter the data once and the program does the calculations. No extra time required. But why let the facts stand in the way of a good talking point?)
And finally, he engages in time honored over the top hyperbole. Modifying the tax code will prevent the next financial crisis? What a crock! The last crisis didn't occur because we have a complicated tax code. It happened because the real estate bubble popped... and the deductability of mortgage interest played, at best, a small part in the rise in real estate values. Is the author proposing to eliminate deductions for home interest?
Reply to this commentLinkReport AbuseIt sure is nice of NRO to allow ACU to post press releases on the Corner.
Reply to this commentLinkReport AbuseThey let a *lot* of different folks post on The Corner. Welcome to the marketplace of ideas.
Reply to this commentLinkReport AbuseIt seems to me that regulating tax collection across state lines would be a good use of the Commerce Clause (people may disagree with me on this) but the devil is in the details. You say The Marketplace Equity Act of 2011 is a good start, but you don't say what the bill actually proposes to do. This process has to be simple in order to improve things, and it is unusual for politicians (especially at the national level) to come up with anything simple. .
Reply to this commentLinkReport Abuse"you don't say what the bill actually proposes to do"
Exactly. Don't give me a bunch of vague good ideas, give me actual text and explanations.
And, the Commerce clause was intended to do exactly this sort of regulation: here's what you can and can't tax, states, when it crosses state lines. The details are actually pretty simple if you take the right approach: interstate purchases are taxed at the point of sale, and the point of sale for internet/mail-order companies is the location of the actual good.
If the states are still stupid enough to have "usage" taxes and try to enforce them, then they are welcome to deal with the ensuing black market and citizen revolt.
Reply to this commentLinkReport AbuseThe federal government does not have anything to do with sales tax. Sales tax laws and regulations are made by individual states.
Will Herman Cain take this hands-off approach if president?
Reply to this commentLinkReport AbuseWhile the Commerce Clause is widely abused, the application of sales taxes to interstate trade appears to me precisely the sort of issue that the Clause was meant for.
Reply to this commentLinkReport AbuseYou're forgetting duties, excises, and imposts which are forms of sales taxes. Sales taxes provide a more stable base than income and the taxing of income merely taxes productivity. Haven't you ever heard what you tax you get less of? If we tax productivity, aka the income tax we get less productivity. Sales taxes were the way the country raised revenue prior to the publishing of Karl Marx's "Communist Manifesto," the second plank of which is an income tax, and the enactment of an income tax in the U.S. It allowed EVERYONE the greatest amount of freedom to earn and keep the wealth the could create.
Better tax system is the FairTax. Check it out at www.FairTax.org
Reply to this commentLinkReport AbuseImagine my surprise that there is no discussion of how this new Internet tax regime would work. The entire basis for Internet merchants opposing sales tax is that the cost to basically implement 50 states worth of tax code is onerous. You see, as it stands, if an online merchant is based in California, for instance, they implement the CA sales tax, including all the attendant forms, etc. But if suddenly all internet sales were subject to sales tax, every time that merchant sold something to a customer in CT, they have to collect the tax for CT, document that on CT tax forms, and forwrd both to teh state of CT. Multiply that times 50.
Ridiculous. It should not ever happen.
Reply to this commentLinkReport AbuseWhile the administrative hassle would be somewhat troublesome (and less so with technology), I don't think that's the prime reason to oppose taxing out of state sales.
To me, it's pretty simple: if you live or operate a business in a jurisdiction, you're subject to whatever tax and regulatory scheme that jurisdiction cooks up. And if you have no presence in, for example, New Jersey, then New Jersey doesn't get to pass laws affecting your life and/or business.
The same applies to state regulation of liquor sales into the state by out of state retailers. Merely delivering a package into a state shouldn't subject the sender to regulation by that state, and especially so when the primary reason for the state regulation is to protect in-state businesses.
I guess Cardenas doesn't see the inconsistency of railing against the state picking winners and losers, and at the same time arguing that we should pass law that picks winners and losers.
Just wondering out loud.... I wonder if I could guess the balance between contributions to the ACU from those who would benefit from this regulation and contributions from those who would lose out...
Reply to this commentLinkReport Abuse"To me, it's pretty simple: if you live or operate a business in a jurisdiction, you're subject to whatever tax and regulatory scheme that jurisdiction cooks up. And if you have no presence in, for example, New Jersey, then New Jersey doesn't get to pass laws affecting your life and/or business."
Which is why sales tax should be applied at the point-of-sale, just like in a b&m store.
I disagree on the regulation issue when shipping items. Are you saying I should be able to order cherry bombs (disregard the postal regulations for sake of argument, here) from somewhere, despite the fact they are illegal to posses in my state? Simply because they were shipped from elsewhere they should be exempt from local laws?
And, I'm not sure where you're getting that Mr Cardenas is advocating something that will pick winners and losers?
Reply to this commentLinkReport AbuseMaybe we should ask Cheri ;-)
Reply to this commentLinkReport AbuseFirst, it wouldn't be any more onerous than what interstate b&m companies must deal with. Don't forget to include local taxes in there, as well.
However, it doesn't have to be that onerous - simply tax at the point-of-sale, which happens to be the location of the good when purchased. If it's at the warehouse in NJ, then you pay NJ sales tax, just like the guy down the street with the b&m store in NJ (who pays the NJ tax regardless of the state from which his customer hails when he walks into the store).
Reply to this commentLinkReport AbuseMr. Cardenas posits that the Tax Code is a threat to competitiveness. He then champions a law that is essentially irrelevant to the issue of income taxation.
There are two main impediments to improving competitiveness. Tax law is one and regulation is the second. With regulations, it is usually the cost and time burden of compliance that impacts business. Tax laws have cost implications both in the rate of taxation and the costs of compliance. GE may have paid no income tax in 2010, but I'd hate to have to fund their tax compliance costs. It's been said that compliance is often more burdensome then the tax.
So, precisely how does a new tax collection regime, one involving 50 separate and distinct parameters, serve to improve competitiveness? Yes, the lack of a federal basis of sales tax collection across state lines creates somewhat of a disadvantage for local businesses. So rather than impose this monstrosity, perhaps these businesses would be better served if they spent their lobbying budget on implementing ideas that would differentiate them from the mail order houses?
Reply to this commentLinkReport AbuseGive EVERYONE, including our companies, more control over their own economic lives than the 536 ppl in Washington and their lobbyists. Give our companies a more competitive position globably by freeing our people and companies of the income tax and enacting the FairTax. Under the FairTax, our companies tax burdens/cost would be removed while foreign companies who wish to sell their products in the U.S. must be taxed for doing so.
Reply to this commentLinkReport AbuseWAKE UP AMERICA! Enact the FairTax and give us all financial freedom!
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Reply to this commentLinkReport AbuseComplicated Tax law? Is the author aware of the Sales Tax Code in his own State? It seems every local community has it's own local tax. Worse is that each community cannot be defined by zip code. While fine for a B&M w one store, one location, and one tax rate, you expect an online retailer 3000 miles away to know local law?
Reply to this commentLinkReport AbuseWhat of Sales Tax holidays? When issued, they only are allowed for certain classes of goods, such as computers and back to school supplies. There are as many exemptions/exclusions/inclusions as there are lawmakers.
Do online collect Sales Tax on shipping? That also varies state to state.
What about Cotton Candy? Is is Food, Entertainment, or Sugar? Depending on where you live, you could be taxed for one, none, or all three. Again, that's fine for a store w one location and one tax rate, but why should I know or care located 10 States away?
Here in South Carolina, if you are over 85, you get a 1% discount on Sales Tax. A notice must be displayed behind the cash register. I can just see how a seller in CA would comply with that one.
I have read the Bill proposed. While it does help online by only collecting the State's base rate, demands the State supply software, as well as allow exemptions for small sellers, it does nothing to reduce compliance costs. Sellers would still need to file 45 tax returns. A B&M only files one. Sorry, I don't call that fair.
Sounds like none of you realize the tax is already due per the state you live in (minus the 5 without a state sales tax). The truth is that if you aren't reporting the purchase at the end of the year, then you have actually committed tax evasion at your state level.
What would you rather: states create larger tax enforcement agencies or have the power to legislate collection and remittance policies if they so choose (and can get through state legislatures)?
When states need the money (and they do need it), they get the money. At least this way there will be less government fairer competition for the small businesses that support local infrastructure through additional property and income taxes.
Reply to this commentLinkReport AbuseI love the way the Article Title calls attention to the Tax code as a major contributor to our Economic Challenges, although I do NOT think it is the Primary cause. I also strongly agree with MUCH of the arguments made in the first 3 Paragraphs, tho' again, I can see that the author CLEARLY has a VERY FLAWED understanding of the words "Fair", "Conservative", "Flat", "punishing" "free-market" " and "Fair Share"; not to mention that he thinks that the government is ENTITLED to our money, as if it belongs to them; and he seems ignorant to the history of revenue for our government. First Let me say that it is a Constitutional and Biblical concept as another commentor had mentioned, that a nation should ONLY tax FOREIGNORS! NOT its own people, and until 1913? our national government had NO income tax or internal business tax or revenue. Second while it is certainly true that taxes should be fair to all AMERICAN people and businesses, they should also be FREE. How can we have a FREE MARKET that is not FREE?!? How can we encourage business by TAXING it?!? THAT is a punishment that discourages it. SO the authors SOLUTION is to add a TAX internet business?!? WRONG ANSWER. The solution should involve CUTTING back taxes to make them fair. I am rather disappointed to discover that organizations like National Review and the American Conservative Union, that APPARENTLY have been historically conservative, are now suggesting things that our FOUNDERS warned us AGAINST. No wonder we call the majority of Republicans in government "RINO"s. They are reading RINO articles. Straighten up and re-educate yourselves with the founders. Try "Original Intent" and "The 5,000 Year Leap" for starters. Meanwhile, I will be getting my news and conservatism from more consistently conservative organizations MORE, and National Review LESS, since I cannot trust you to do better than this.
Reply to this commentLinkReport AbuseI love the way the Article Title calls attention to the Tax code as a major contributor to our Economic Challenges, although I do NOT think it is the Primary cause. I also strongly agree with MUCH of the arguments made in the first 3 Paragraphs, tho' again, I can see that the author CLEARLY has a VERY FLAWED understanding of the words "Fair", "Conservative", "Flat", "punishing" "free-market" " and "Fair Share"; not to mention that he thinks that the government is ENTITLED to our money, as if it belongs to them; and he seems ignorant to the history of revenue for our government. First Let me say that it is a Constitutional and Biblical concept as another commentor had mentioned, that a nation should ONLY tax FOREIGNORS! NOT its own people, and until 1913? our national government had NO income tax or internal business tax or revenue. Second while it is certainly true that taxes should be fair to all AMERICAN people and businesses, they should also be FREE. How can we have a FREE MARKET that is not FREE?!? How can we encourage business by TAXING it?!? THAT is a punishment that discourages it. SO the authors SOLUTION is to add a TAX internet business?!? WRONG ANSWER. The solution should involve CUTTING back taxes to make them fair. I am rather disappointed to discover that organizations like National Review and the American Conservative Union, that APPARENTLY have been historically conservative, are now suggesting things that our FOUNDERS warned us AGAINST. No wonder we call the majority of Republicans in government "RINO"s. They are reading RINO articles. Straighten up and re-educate yourselves with the founders. Try "Original Intent" and "The 5,000 Year Leap" for starters. Meanwhile, I will be getting my news and conservatism from more consistently conservative organizations MORE, and National Review LESS, since I cannot trust you to do better than this.
Reply to this commentLinkReport Abuse