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.


OH Gov. Kasich vetoes state online sales tax in favor of federal legislation

July 3, 2013
boehner-kasich1

Ohio Governor John Kasich (L) with Speaker of the House John Boehner

On Sunday, Ohio Governor John Kasich vetoed a line item in the state budget that would have required online sellers to collect sales tax from Ohio residents. His reasoning? He believes Congress needs to act on the issue first.

Governor Kasich isn’t the first lawmaker to voice that opinion—most state legislators seem to agree that the best scenario for everyone is that Congress, not states, revise the rules of online sales tax. But since Congress has yet to act, many states have begun instituting their own online sales tax laws like the one Governor Kasich vetoed.

State laws on the issue are, by necessity, more complex than a federal law would be, which can create problems for online businesses, particularly marketing affiliates.

Although we certainly sympathize with states that want to be able to enforce their own sales tax laws, we agree with Governor Kasich that Congress is the right place for online sales tax to be addressed. Here’s hoping the House of Representatives follows the lead of the Senate and takes it up soon.


Study says online sales tax collection = more jobs for Speaker Boehner’s Ohio

October 20, 2011

An article in Internet Retailer says that a new University of Cincinnati study found that “retail stores in Ohio would hire 11,000 new employees if a new system requiring sales tax collection by out-of-state online and catalog retailers went into effect.”

We’re not surprised—local stores provide three jobs for every one provided by an online retailer—but we’re glad to see solid figures on just how many jobs would be created if online retailers collected sales tax.

The article includes this quote from Jeff Rexhausen, associate director of research at the University of Cincinnati Economics Center:

“These are very, very significant findings . . . . Given the difficult economic circumstances affecting Ohio’s retail businesses and its state and local governments, finding a way to bring fairness to the online sales tax process would be a huge economic boon to the state.” (emphasis added)

We hope Speaker Boehner (R-OH) and the rest of Ohio’s delegation in Congress are listening. When Congress can create tens of thousands of new jobs and help ensure states have enough revenue for schools, firefighters, and police, all without creating a new tax or raising taxes—why wouldn’t they?