May 01, 2011
That might speak better of him than the possibility that he wrote this column out of ignorance. The column is a criticism of Illinois and other states for trying to apply sales tax to Internet sales. As it stands now, many Internet retailers do not collect state and local sales taxes on most of their sales since they are only required to collect the tax in states where they have a physical presence.
This creates an enormous loophole whereby individuals who mostly shop at traditional retailers (who are less wealthy on average) subsidize individuals who shop frequently on-line. In particular, it provides an enormous subsidy to on-line retailers who split the gains with their customers. Amazon, as the country’s largest on-line retailer, is the biggest beneficiary of this subsidy, which is why it is often known as the “Jeff Bezos public welfare program.”
There is no rationale that passes the laugh test for this subsidy. It would be comparable to saying that businesses that have addresses ending in the number “6” don’t have to collect sales tax. This would imply higher taxes on other businesses to subsidize the lack of tax collections on businesses with addresses ending in the number “6.” This particular story is somewhat worse than giving a random subsidy since the current policy subsidizes a huge Internet retailer at the expense of mom and pop retailers. It is difficult to see why anyone would want to weaken local businesses as a matter of public policy.
Will’s arguments against taxing Internet sales look like Amazon press releases since they make no economic sense. He argues that Internet retailers don’t benefit from the police and fire protection and local schools in the same way as traditional brick and mortar retailers. Actually, the UPS drivers that deliver Amazon’s products do depend on publicly maintained roads, as well as police and fire protection.
It is an arguable, but irrelevant, point as to whether the ratio of public benefit to sales volume is greater for the products that Amazon typically ships than a retailer in which most of the value-added takes place elsewhere, like a car dealership. The more fundamental point is that the sales tax is primarily a tax on the consumer, who typically bears the vast majority of the sales tax. This is simply a way to get consumers to pay for the public services that they get from the government. The current system allows consumers who buy from Amazon to avoid paying their fair share.
The next step for Will in this argument is to point out that Wal-Mart, Target and other major retailers are doing a big push to tax away Jeff Bezos’ welfare check and make Amazon pay the same sales tax as everyone else. It is quite a sight to have Will, who has repeatedly argued for the beneficial effects of money in politics, suddenly troubled by the fact that major retailers are acting in their own interest. In this case, they also happen to be acting in the public interest as well.
Finally Will gives us the horror story that making Amazon pay taxes will cost JOBS!!!!!! His poster child is Tim Storm, the owner of an Internet retailer who had been based in Illinois. The retailer was an Amazon affiliate. Under a new state law, Amazon was supposed to pay sales tax on its Internet sales in Illinois because its affiliates gave it a physical presence in the state. Amazon responded by cutting ties to any businesses that were located in Illinois so that it would not have to collect Illinois state sales tax.
Will’s hero moved his business with 54 employees five miles north across the Illinois border into Wisconsin. He made this move even though less than 1 percent of his business is with Amazon. Will then tells us that Illinois’s decision cost the state jobs and tax revenue.
Actually Will’s story shows nothing of the sort. First, if the claim that less 1 percent of Storm’s business was with Amazon, then Storm’s decision to move was motivated by politics or factors other than the economics of the Internet tax. It is very costly to move a business. There is no way that the profits earned on Storm’s Amazon sales will make up for these costs. Politicians would be fools to base public policy on political motivated decisions by business people.
Furthermore, Storm’s move almost certainly did not cost jobs, or at least not the 54 jobs that Will implies. In the United States people are allowed to cross state borders to work. It is likely that the vast majority of Storm’s 54 employees followed the business north of the state border. And the revenue loss may not be substantial either, since those workers who lived in Illinois (some probably already lived in Wisconsin) will still be paying taxes on their wages from Storm’s business.
Finally, Will gives us a picture of Illinois as a state that is horribly mismanaged and being taxed to death. He tells is that”
“A study by the Illinois Policy Institute, a market-oriented think tank, concludes that between 1991 and 2009, Illinois lost more than 1.2 million residents — more than one every 10 minutes — to other states.”
If we look at population changes between 1990 and 2009, we find that Indiana, Will’s low tax hero state saw population growth of 15.6 percent, while Wisconsin had growth of 15.3 percent. This is somewhat higher than Illinois’s 12.7 percent rate. However the gap does not suggest the mass flight from high taxes that Will implies. Illinois’s growth was still considerably faster than the 8.1 percent rate in Iowa, its western neighbor. So the data do not quite fit the story.
In short, Will does not have much of a case here. Is it better that he knows it and gets paid to say otherwise or that he simply has no clue on the things he writes about? This is the great philosophical question of the week.
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