Tariffs are in the news after Trump decided that the playing field between the bureaucratically choked United States and the rest of the world needed leveling. But what about domestic tariffs? The states that make up the United States aren’t supposed to implement tariffs against each other but thanks to the Supreme Court they now can:
If an internet retailer in Pasadena, CA sells a good or service to a resident of Washington, D.C., simple logic dictates that the transaction not be sales-taxed in Washington, D.C. It shouldn’t because the business isn’t in Washington. It’s on the other side of the country, and there the business will pay Pasadena taxes. So when judges and politicians talk about the importance of levying sales taxes on outside vendors, what they’re really saying is that they want government to dip its hands into our pockets twice.
Stating the obvious, the internet sales tax isn’t about leveling the tax playing field as much as it’s yet another grab of the economy by politicians. “Grab of the economy” is an apt phrase simply because politicians don’t tax away our dollars to stare lovingly at them; rather they take our dollars for what they can be exchanged for. The more tax dollars that politicians collect, the greater their ability to be size buyers of cars, trucks, land, buildings, and most economy-suffocating of all, human labor. Having decided they’re not collecting enough of what we earn, and plainly averse to competing with other locales when it comes to keeping taxes down, gluttonous local governments naturally love the idea of using internet commerce as another way to take.
About all this, let’s make no mistake about what these tax-thirsty governments are doing. Much like businesses that seek protection from competition, they’re seeking protection from lower-tax cities, states and countries. To be very clear, they’re seeking tariff-protection. Let’s call them domestic protectionists.
The reason the issue of online sales taxes arose is because politicians in tax heavy states were losing out to states with less burdensome taxes. Online retailers can operate anywhere in the world, which means many operate in states with relatively low sales tax. For example, an online retailer could headquarter in Montana, which has no sales tax and sell to somebody living in Minnesota, which has an absurdly high 6.875 percent sales tax. The person in Minnesota will be encouraged to purchase from the online retailer over a local sellers because the local seller will charge an addition 6.875 percent on top of the cost of the good or service. This arrangement upsets the politicians in Minnesota because they lose the opportunity to pocket some of the buyer’s money. If Minnesota can force the retailer in Montana to collect sales tax for it, it wins (and, of course, retailers throughout the country lose because they have to become experts on Minnesota sales tax laws along with the sales tax laws of their own state).
A lot of people believe that arrangement sounds fair (funny enough, they’re often the same people who are currently bitching about federal tariffs). But the alternative, states with high sales taxes having to lower their taxes in order to compete with states with low sales taxes, would be far fairer to consumers, especially poorer consumers to whom an additional 6.875 percent isn’t chump change.