Over the past few years many states have passed so-called Amazon taxes that have produced very little revenue and in some cases have been overturned in court. At the same time Congress has tried to expand states’ ability to tax purchases made online and from mail-order catalogs by neutering the physical presence standard. Only last week the Marketplace Fairness Act was introduced. It would expand states’ ability to charge sales taxes on out-of-state retailers regardless of whether the retailer had a physical presence in the state.
Allowing states to collect taxes on transactions occurring outside their borders is fundamentally unfair and threatens basic economic liberties. The persons paying and collecting the taxes do not have an opportunity to vote or otherwise participate in the government process that creates the tax or sets its rate. This “taxation without representation” is compounded by the fact that those paying the taxes receive no public goods or services in return for their payment – “taxation without benefits.”
Heartland’s Senior Policy Analyst Matthew Glans offers an alternative. In a recent Research & Commentary he wrote that, “Instead of forcing out-of-state businesses to serve as government tax collectors, Congress and state legislators should implement a sales tax system based on where the product was sold, known as an origin-based tax system. This would truly level the playing field, with both online and bricks-and-mortar retailers paying the same tax.”
Some states may see the Marketplace Fairness Act as an opportunity to tap a mostly untapped source of revenue. While that may be true, it would also hinder tax competition among the states, undercut federalism, push tax rates up, and even possibly pave the way for a national sales tax.
This week’s edition of The Leaflet features research and commentary addressing the Marketplace Fairness Act, Wisconsin tax reform, one reason dollars ain’t worth what they used to be, North Carolina’s renewable energy mandate, Maine parent trigger, and Medicaid expansion in North Carolina, Ohio, Pennsylvania, and Michigan.
Director of Government Relations
The Heartland Institute
Research & Commentary: Marketplace Fairness Act
In this Research & Commentary, Senior Policy Analyst Matthew Glans examines Internet sales taxes and the proposed extension of state taxing powers and argues that instead of forcing out-of-state businesses to serve as government tax collectors, Congress and state legislators should implement a sales tax system based on where the product was sold, known as an origin-based tax system. This would truly level the playing field, with both online and bricks-and-mortar retailers paying the same tax.
In recent years, states and Congress have brought forth legislation that would expand the ability of government to collect sales taxes from out-of-state retailers for online and mail-order sales, even if the seller has no physical presence in the state. The latest proposal before Congress is the Marketplace Fairness Act, proposed by Sens. Dick Durbin (D-IL), Mike Enzi (R-WY), and Lamar Alexander (R-TN).
Under the proposed law, states would be given vast new power over retailers outside their borders, including the imposition of auditing requirements on out-of-state online sellers. States would be allowed to create their own unique definitions of how and when items are taxed, increasing confusion for out-of-state sellers. Removing the physical presence standard for sales taxes also reduces states’ accountability to taxpayers and constitutes a dramatic expansion of state taxing powers. Consumers, who ultimately bear the burden of added costs, are the real losers in this scenario.
WHAT WE’RE WORKING ON
Research & Commentary: Wisconsin Income Tax Reform
Budget & Tax
In the past decade, several states have had substantial success in improving their economy and business climate by lowering their income tax rates. As a result, several states this year are expected to consider lowering or eliminating their income tax in order to spur economic growth.
In his 2013 State of the State Address, Wisconsin Gov. Scott Walker proposed cuts in the state’s income tax rates to be phased in over a few years. According to Assembly Speaker Robin Vos (R-Rochester), the tax cut, which could take effect in 2013, would amount to $300 million to $350 million over two years. According to the Milwaukee Journal Sentinel, Walker says the tax cut will mean about $200 in tax savings for the typical middle-income family.
Income taxes are among the most disruptive factors affecting economic growth; they discourage capital from flowing into a state and hinder job-creation. As the tax competition heats up, lowering Wisconsin’s income tax would help the state attract more jobs and high-quality workers. In this Research & Commentary, Matthew Glans examines income tax reform, the effectiveness of low income tax rates, and Gov. Walker’s tax reforms, and argues that a cut in Wisconsin’s income tax rates would make the state more competitive and attract new business.
One Reason Dollars Ain’t Worth What They Used to Be
Finance, Insurance and Real Estate
In this Heartlander article from The Foundation for Economic Freedom, Lawrence W. Reed examines the history of private coinage in the United States. In the article, Reed argues that private coinage was not banned because it did not work, but because the government did not want the competition. “Private coinage was banned not because it didn’t work but because it did. Governments just don’t care much for competition or for sound and honest money. The Civil War ban on private coinage has remained the law of the land since June 1864—a hallmark on the shameful path of monetary debasement. This, my friends, is one of the reasons your dollars ain’t what they used to be.”
Tip Sheet: North Carolina Renewable Energy Mandate
Policy Analyst Taylor Smith examines the effects North Carolina’s renewable portfolio standard – originally passed in 2007 – has had on North Carolina’s electricity prices and the economy. Taylor says by mandating the consumption of more expensive and less reliable electricity, both business and individuals will have to pay higher energy costs and jobs will inevitably be destroyed.
Taylor estimates that North Carolina industries “spent more than $215 million more on electricity in 2010 than they would have in the average non-RPS mandated state.”
Research & Commentary: Maine Parent Trigger
Maine legislators are considering an education reform that has garnered significant national attention: the Parent Trigger. By allowing a simple majority of parents at a school to “trigger” one of several options (including conversion to a charter, closure, or offering students vouchers with the school’s per-pupil funds), this law would empower parents and increase competition among schools, thus holding educators and school systems directly accountable for their performance.
Joy Pullmann, managing editor of School Reform News, writes, “Given Maine’s poor academic performance, parents and children need all available tools at their disposal.”
Research & Commentary: Ohio Medicaid Expansion
Research & Commentary: North Carolina Medicaid Expansion
Research & Commentary: Michigan Medicaid Expansion
Research & Commentary: Pennsylvania Medicaid Expansion
In the wake of the U.S. Supreme Court’s decision on the Patient Protection and Affordable Care Act (PPACA), also known as Obamacare, states must now decide whether to expand their Medicaid programs by accepting a larger federal subsidy.
Kendall Antekeier argues in each of these state-specific Research & Commentaries that expansion would add to state costs as well as expand a system already producing poor-quality care. The commentary says that, “Manhattan Institute Senior Fellow Avik Roy notes a report from The University of Virginia found ‘Medicaid patients were almost twice as likely to die as those with private insurance; their hospital stays were 42% longer, and cost 26% more. Compared to those without health insurance, Medicaid patients were 13% more likely to die, stayed in the hospital for 50% longer, and cost 20% more. It is hard to see how this problem doesn’t get significantly worse when Obamacare’s expansion of Medicaid is fully phased in.'”