Who's Afraid of an Internet Tax?
Judging from the last two Republican presidential debates, the new big issue
in this campaign is taxation of Internet commerce. Or rather, since none of the
candidates wants to tax Internet commerce right now, the issue is who is
most committed to extending the current congressional moratorium on taxing
Internet commerce, which runs out in 2001. Writing in the Wall Street
Journal on Dec. 6, John Simons and John Harwood identified Internet
taxation as a "21 st century wedge issue" for George W. Bush, who
says he wants to extend the moratorium but won't rule out Internet taxes in the
future. In the zany context of the Republican nomination race, this makes Bush
a tax-and-spend liberal. Here's how Simons and Harwood explained Bush's
political dilemma:
The issue pits traditionally Republican Main Street business proprietors
against the highflying Silicon Valley entrepreneurs who have contributed more
to Mr. Bush's campaign than any other. It also pits the GOP's vocal band of
antitax economic conservatives against many of the Republican governors whom
Mr. Bush is relying upon to support his primary campaign. ... The reason that
Mr. Bush and his gubernatorial backers are loath to support a permanent ban is
they tend to rely heavily on sales taxes to fund their state
governments.
The Republican governors, of course, have it exactly right. It's totally
unfair that Internet businesses can sell their wares without making customers
pay state sales taxes, given that bricks-and-mortar stores are obliged to make
their customers pay state sales taxes. A reasonable alternative to
taxing Internet commerce would be for all 50 states to eliminate sales taxes
altogether and make up the lost revenue with increased or new state income
taxes. But don't hold your breath for Republicans (or even Democrats) to
embrace that redistributionist solution anytime soon. (Indeed, Orrin
Hatch and Alan Keyes are headed in the opposite direction: They propose
eliminating the federal income tax and replacing it with a national sales
tax.)
In pressing for a tax-free Internet until the end of time, Bush's detractors
are ignoring or minimizing whatever costs that would impose on traditional
retailers. Check out this exchange (from the Dec. 6 Arizona debate on CNN) between
John McCain, justly praised for being stirringly responsible on many
other issues in this campaign, and Orrin Hatch:
McCain: Orrin, you and I have worked on ... the Internet tax moratorium
act. As you know, this was stoutly resisted by governors, Republicans governors
as well. Don't you think we ought to make the Internet tax moratorium
permanent?
Chatterbox translates: "Orrin, don't you think governors in general,
especially Republican governors of big states bordering New Mexico,
Oklahoma, Arkansas, and Louisiana, are tax-loving jerks who would make
bad presidents ? I would never say such a thing, of course, but perhaps
you'll do it for me .
Hatch: Yes, I really do. I really think that we ought to do it, because I
think it's far overblown to think that the fact that people buy over the
Internet is going to reduce mainstream USA. I think mainstream USA can compete
very, very well.
I mentioned [in the New Hampshire debate] last week, I asked my wife
about that, I said: Elaine, what would you do if you could order everything
right over the Internet and have it delivered right to your home? She said: I
still want to go to the stores, I want to test things, I want to look at them,
I want to enjoy it. I think she's not alone.
Chatterbox translates: "Even though usually I'm a big Internet
booster, I am going to pretend now that Internet commerce will never amount to
much. And I'm going to flatter bricks-and-mortar retailers by telling them
they're so powerful that they can subject their customers to my new national
sales tax and still trounce the tax-free Internet! Whoopee! It's a good
thing I have no chance of getting elected!"
