Not much to write about this, but I love how our politicians -- looking to enrich their own bureaucratic fiefdoms -- can call the lack of a tax a "loss".
DENVER - 9News has learned that 43 states have joined together in a coalition to collect sales tax on all Internet purchases.You already pay sales tax when you go online to buy from an established business like Eddie Bauer or Wal-Mart. But a lot of small Internet businesses and individual transactions float under the radar. ...
The states say they've been losing as much as $16 billion annually to the Internet. They say that new software will make collecting the money almost automatic and that they can have a system in place by Oct. 1.
Now, obviously states don't "lose" money by not taxing it -- by that logic, the federal government "loses" 50% of my income by letting me keep it. Our state and federal governments have a spending problem, not a revenue problem.
Careful, Michael! If we insist on the proper use of words according to their actual meanings, we might be forced to "sacrifice" the "returns" from our "Social Security" "contributions" -- !
"Our state and federal governments have a spending problem, not a revenue problem."
The real problem this state compact is addressing is neither a spending problem nor a revenue problem. It's a tax administration problem.
It's tempting to think of tax law in political terms; I did it, too, until my first tax class in law school. But my tax prof patiently explained that tax law says very little about how much tax is collected overall. It is instead concerned with who pays how much. A bad tax system warps taxpayer behavior, and makes the economy less efficient overall.
The sales tax situation is a great example: In-state vendors are required to collect sales tax, while out-of-state vendors are not. Technically, the purchaser is required to pay a tax on out-of-state purchases equal to what he would have paid in local sales tax. But that tax is impossible to collect as a practical matter.
This differential treatment pushes people to prefer out-of-state purchases over in-state purchases to some extent, solely because of the tax system. That's inefficient in many cases. Many types of products can be sold more efficiently through brick-and-mortar stores, but the tax system pushes people away from those and towards less efficient purchases by mail. That tax-based distortion generates pure economic waste.
Or here's another way to think about it: When the story says that the states have lost $16 billion, that means that some people have gamed the system to evade $16 billion in tax, and the rest of the taxpayers must pay more to cover the shortfall.
It's usually a mistake to think about tax law in ideological terms. As my tax prof liked to say: "We've got to pay the Marines." We're going to give the government some amount of our money. The total amount that the government takes is a political question. But once politics has set that amount, the next question is not political: How much should you pay? How much should I pay? And how much should the guy down the street pay? Or, more globally: How do we determine who pays how much?
The correct answer must be: Buying from a local merchant shouldn't cost you more in tax than buying from a small out-of-state merchant. That's the problem that this multistate compact is trying to fix.
BB: I disagree! I think the question of who pays how much is entirely political. Should everyone pay the same amount? Should everyone pay the same percentage? Percentage of income, wealth, spending, what? How are those questions not political?
Now, I see your point, which is that if we want lower taxes we should cut rates, not just let certain transactions slide past. That makes sense. And I'm sure it is inefficient for me to purposefully buy from other states and pay shipping just to avoid sales taxes.
"BB: I disagree! I think the question of who pays how much is entirely political. Should everyone pay the same amount? Should everyone pay the same percentage? Percentage of income, wealth, spending, what? How are those questions not political?"
Maybe I should have written that those questions shouldn't be political. I suppose that anything can be made political.
The reason that they shouldn't be political is that they are ultimately held against an objective standard of economic efficiency. Suppose that the government is going to remove a certain number of dollars from the economy, and its advisors propose a dozen different methods of doing it. Each of those methods will drag down the economy to some extent. The question is: How much? In this objective sense, some taxes are better than others. If you use tax method #1, then after five years you'll have a smaller economy than if you had used tax method #2.
It's like civil engineering. If you're building a building, then you can specify various details about the building: size, appearance, floor plan, etc. But the details of your building are not entirely your to imagine. There are the laws of physics to contend with, too. At some point in designing your building, you had best turn the details over to a civil engineer or architect, who will ensure that your building won't leak or blow over in a strong wind.
Politicians can legislate any tax system they want, but they can't legislate the consequences of those tax systems. They can impose high marginal rates on the incomes of the rich, but they can't make the rich keep working. They can impose high sales taxes, but they can't stop black markets. They can impose high tariffs, but they can't stop smugglers.
If the point of taxation is raising money for the government while leaving the economy as healthy as possible, then there's only one best way to organize the system. Nobody knows quite what that answer is, but the objective truth is out there. If the point is to use the tax system to express some moral or ideological view, such as sin taxes on alcohol or estate taxes on the wealthy, then in some sense it isn't really a tax system any more. The same is true of tax credits, as with low-income housing or alternative fuel sources. It's government paying a hidden price through economic distortion to encourage or discourage particular behaviors. And history shows that the tax code is a very poor place to try to control behavior.
BB: "And history shows that the tax code is a very poor place to try to control behavior."
One prime example of this is cigarette taxes. Smokers pay a lot of money to buy cigarettes (unless they're bought on Indian reservations or something)... less than half of that cost per pack is the cost for the actual product in some states.
The result? Well, let me put it this way: cigarette companies are certainly not falling on hard times.
You would also include the tobacco compaines also made very good buisness decisions in other investments, if memory serves me right cities like Mission Viejo are built on old Phillip Morris land.
Or also with cigarette tax, the increased tax in California was hailed as reducing cigarette sales in the state, while for some unknown reason sales spiked in Oregon, Nevada, Arizon, & Mexico.
Also dont' forget the tobacco companies do very well oversease, which adds to them doing well.
Architects make it look pretty or 'artistic' civil engineers make it stand up and remain that way, I wouldn't trust an architech to keep a anything standing!
Don't forget their are government laws that influence buildings too. Sepcifically desicined to influence the behavior, can't build higher than 3 stoies, rebar must be spaced ever 4 inches, oh crap its a k-rat!, have to sell/rent so many units below market value. Infact the building a building is very political and laws are geared by governemnt to support a certian ideology.
Ben: But since there's no objective standard by which to even measure the strength of an economy, it's hard to see how one could predict the effects of one tax system over another. Part of the politics is deciding what allows an economy to qualify as "strong". You and I would probably agree, but many leftists who think France has a great thing going would probably disagree with our method of evaluation.
The government has a natural objective measure of economic strength: Its capacity to do what it wants. The whole point of taxation is to allow government to exert its will. In fact, once upon a time some governments taxed directly in labor instead of money. Taxation meant that you did whatever the king wanted for two weeks of the year, or some such.
Suppose that our government decided to impose a 90% tax on all incomes over $20k per year. That tax system would bring less money into the government than the current tax system. And, more significantly, that government would be less capable of doing the things it wants to do. This would be true not only because the government would have fewer dollars with which to buy goods and services, but also because the citizens would produce fewer goods and services to buy. The difference between a government being able to do what it wants and not being able to do so is not a matter of opinion.
A government is a social organism, in many respects equivalent to any animal or person. Governments die, just like people die. And governments can act in ways to bring them nearer to or farther from death.
Proximity to death is an objective fact. Oliver Wendell Holmes famously said, “I happen to prefer champagne to ditchwater, but there is no reason to suppose that the cosmos does." Perhaps the cosmos doesn’t, but life does. If you value the life of persons, then ditchwater is not equivalent to champagne. And if you value the lives of governments, then bad tax systems are not equivalent to good ones.
This is true in many areas of law: Is there any objective difference between making murder a crime and not doing so? Could we repeal all our criminal laws on a whim? Yes, of course. It is obviously physically possible to write that down on a piece of paper and have some government enact it as law. But it would be very difficult for that government to survive for long. Governments outlaw murder because they must, not because they choose to. And that same type of necessity determines most of the details of their tax laws.
BB: So, according to the government, the best tax code is the one that gives them the most power? That reflects my point perfectly, in that I don't think that's the best tax code. Some people may choose that standard, but that decision is subjective.
Even within that framework, the government doesn't just use the tax code to gain fungible power (money), it also uses the tax code as a tool to directly influence events. Taxing sugar imports doesn't increase revenues, but perhaps the goal isn't to get more money and then use that money to reduce sugar revenues; instead, government cuts out the middle and directly taxes sugar imports. By your stated measure that tax may be inefficient, but it's directly accomplishing a specific goal rather than generating power (money), so which is more efficient?
The determination of specific goals is political, and in many cases it may be more efficient to tax-with-purpose rather than to increase revenue and then apply that revenue to a goal.