When online sales tax means less income tax

July 18, 2013
Art Laffer

Art Laffer

Today’s issue of USA Today has an interesting piece by Art Laffer on how changes to the tax code can lead to economic growth. His main suggestion? Close the online sales tax loophole.

He writes:

Because state sales taxes generally have fewer loopholes and lower rates — and therefore have a lesser impact on growth and employment — pro-growth policies should favor sales over income taxes where possible.

The governors of Wisconsin, Iowa, Maine, and Ohio are already planning to put this idea into action.

If the Marketplace Fairness Act passes and these states are allowed to require online retailers to collect sales tax, the governors say, they’ll cut income taxes by an equal amount. So if online sales tax generates, say, $1 million in revenue, the cut in income taxes will equal $1 million in revenue.

There are multiple benefits to this approach, for both small businesses and taxpayers. First, it helps out the mom-and-pop businesses on Main Street, which are having a hard time competing with online retailers who don’t have to collect sales tax. The Marketplace Fairness Act levels the playing field by requiring all retailers to play by the same tax rules.

At the same time, it’s a win for taxpayers, who won’t see any increases in their overall tax bills.

For those who worry that enforcement of online sales tax will lead to more government spending as state and local governments see tax revenue rise, there’s another benefit: Since these states won’t see an overall change in their tax revenue, there’s no opportunity for increased spending.

And Laffer offers solid statistics on how online sales tax will help grow the economy:

Gross state product would increase from 1.2% in Alaska to 4.6% in Washington state over 10 years. States would see jobs created, anywhere from about 2,000 in Vermont to more than 180,000 in California. Gross domestic product would grow by more than $563 billion, creating 1.5 million jobs nationwide.

We think this idea is a win for everyone, especially in more conservative states that want to support local small businesses and avoid more government spending at the same time.

Of course, it’s dependent on the passage of the Marketplace Fairness Act. We hope that Congress—especially the representatives from Wisconsin, Iowa, Maine, and Ohio—is listening.


eBay relaxing opposition to the Marketplace Fairness Act?

March 29, 2012

It all started when Maine’s Governor Paul LePage sent a letter to Maine’s Senators Snow and Collins, urging them to support the Marketplace Fairness Act (S.1832).

Then, we learned (from an article by Jonathan Riskind, Washington Bureau Chief for MaineToday Media) that eBay had written a response letter to Governor LePage. Yesterday, eBay announced/confirmed this letter.

We are happy to note that eBay did not write in opposition to the Marketplace Fairness Act but instead simply confirmed that small business retailers should be adequately protected from new burdens (which is already provided for in the bill).

We have taken a moment to review eBay’s letter carefully and noticed something odd. Mr. Riskind’s article cites the eBay letter:

eBay notes there are a variety of internet sales tax bills pending in Congress and says it supports a “robust” exemption set by the U.S. Small Business Administration, which will “be able to most accurately measure which businesses need protection the most.”

We could not find this quote in eBay’s Letter.

We also wrote a letter to Governor LePage regarding his support of the Marketplace Fairness Act and eBay’s reported objections to it, which we sent yesterday (before eBay released their letter).


Maine Introduces Streamlining Legislation

March 23, 2011

The Maine legislature has introduced a bill, HP 344, LD 451, to study the adoption of the Streamlined Sales and Use Tax Agreement.  Currently, 24 states have adopted SSUTA, and Missouri is considering doing so also.  As always, we will keep you updated on this blog.