One of the greatest blessings of the United States Constitution was the de facto creation of one huge free trade zone between states. But as the rapacious appetite of both state and federal governments grows, now backed by the populist whim of our Tweeter in Chief, this dwindling zone is under threat.
While states can regulate commerce within their own jurisdictions, interstate commerce falls under the jurisdiction of the federal government. States are generally forbidden from imposing taxes or regulations on commerce conducted in other states or across state lines.
This means online retailers like Amazon, Etsy, Overstock, and countless others can sell across state lines without being subject to state and local sales taxes. As eCommerce continues to grow exponentially, consumers can not only find great deals because of the sheer volume such companies supply, but they also avoid local and state sales taxes by doing so.
Predictably, local retailers cry foul because the development in the past 20 years or so has caused them to lose market share. Stores everywhere are suffering and closing—and not just small mom and pop stores, but retail chains like Sears, Toys R Us, Barnes and Noble, Hastings, etc.
More importantly, however, the people most upset over this change are the state governments and municipalities. The combination of tax-free commerce and much-reduced local commerce means a huge double-gut-punch to tax revenues.
If you want to get state officials’ and bureaucrats’ attention, start cutting into their revenues. You’ll see the Dracula fangs come out quickly. And this is what we are now seeing.
The Supreme Court heard arguments yesterday in the case, South Dakota v. Wayfair, Inc., et al, which could potentially reverse the status quo on this issue, giving states the unprecedented power to collect sales taxes on various online transactions.
You would think that for a Republican and business-minded president, this would be a no-brainer: side with free markets and low taxation. Yet Trump displayed his populist plumage in language even a Bernie Sanders could love:
States and Cities throughout our Country are being cheated and treated so badly by online retailers. Very unfair to traditional tax paying stores!
— Donald J. Trump (@realDonaldTrump) April 17, 2018
“Cheated” and “unfair” in regards to taxation are the language of socialism. The ideas are, as I explained earlier this week, based on the assumption that the government owns or is entitled to your income.
It assumes that government taking your money is “fair.” Imagine, an alleged proponent of the free market speaking like a socialist Bernie Sanders: let’s make the big online corporations “pay their fair share”!
Further, this language partakes of the socialist charade of class warfare. Just pay attention here: the class of “traditional tax paying stores” is set over against the class of “online retailers,” and the online retailers are the ones committing an offense against the other class.
Note the assumption that the “good” guys are “traditional tax paying stores.” Since when was paying taxes on interstate commerce “traditional”? Since when was taxation of sales transactions just the assumed, status quo, and that freedom is unimaginable?
Since when do we use government to prop up businesses that can no longer compete in the marketplace? That’s not free market. That’s classic protectionism, mercantilism, or socialistic nonsense.
Alongside Trump, the leaders of this agenda are state officials. To see the state-based greed behind this attack on online commerce, one need only read the very first words stated in oral argumentation yesterday. These came from Marty Jackley, Attorney General for South Dakota:
First, our states are losing massive sales tax revenues that we need for education, healthcare, and infrastructure.
Second, our small businesses on Main Street are being harmed because of the unlevel playing field created by Quill [the current precedent], where out-of-state remote sellers are given a price advantage.
Notice the baseline in these arguments: we need “massive” funds for government services, including healthcare; and not being taxed is a “price advantage” that is “given.”
Consider just a couple points about this socialistic morass. First, this push for collecting online sales taxes is rooted in the paternalistic state: the state is assumed to provide services such as education and healthcare. For these, the state must have a robust tax collection scheme. When those revenues get pinched, the state does not question whether it should even be involved in such socialistic schemes, it simply finds whatever means possible to increase revenues. Even if this means a redefinition of the Constitution, it will be for it.
The fact that this agenda reveals a rapacious appetite for tax revenue becomes more transparent later in the oral argumentation. At one point, Justice Alito essentially asked the attorney general to cut through the pretense: “[D]o you have any doubt that states that are tottering on the edge of insolvency and municipalities which may be in even worse position have a strong incentive to grab everything they possibly can?”
Not only is the answer to this question obvious, it opened up discussion of one of the most onerous aspects of the push to collect online sales taxes: retroactive collection of alleged “back taxes.” The agents in favor of states grabbing “everything they possibly can” are trying to get the Court to say that the previous decisions never really meant to prevent states collecting online sales taxes to begin with. Therefore, it was actually legal all along, since 1992, and this means the states can go after these large corporations for 26 years of sales taxes they deem should have been paid all along. The agenda on behalf of the states is to get the Court to declare collection of such back taxes “constitutional.”
If this desire—which no doubt the state officials would have preferred to leave buried in the fine print—does not speak of a rapacious appetite attacking free market revenues, what more could?
What underlies this problem, however, is the people going along with it, and the most disappointing aspect of this is that the people who should oppose it more vehemently on principle are Christians and conservatives—people who profess to believe in limited government, low taxes, cutting budgets, and free markets.
While this seems like an obscure Constitutional issue, at the root of it are moral issues: theft and redistribution of wealth, tyranny and unlimited taxation, etc. (see 1 Sam. 8:10–18). America’s pulpits ought to be screaming against it.
Second, the assumption that lower taxes constitute a “price advantage” “given” to the retailer, and that the retailer bears responsibility for this, is utter nonsense from a free market perspective. It is not a “price” advantage to begin with, it is freedom from taxation by the state being added on. It is not the retailer’s fault, or some kind of predatory procedure on their part. The predator is the state, devouring the substance of free market actors. The injustice here is not between one retailer and another. The injustice is on the part of the state and against the retailers forced to pay the taxes.
The solution to all of this, which no one is really discussing, is not to “even the playing field” by taxing online retailers, too. This is merely to increase the power of the behemoth state, and spread the tyranny of taxation into unprecedented venues. Why would anyone but a socialist or a communist want that?
No, the solution is to even the playing field by eliminating sales taxes for the state and local jurisdictions, too. Get rid of the sales tax altogether. Nix it. Free up the mom and pop shoppes, the brick-and-mortar stores from the government intrusion and confiscation. I repeat: get rid of the taxes.
This would not only level the playing field on the tax front, it would free up all businesses from a plethora of demands that require increased bookkeeping, accounting, etc.—all of which compound costs for local businesses. End it.
Granted, this would drastically decrease revenues for the state, and this would endanger state services. This means we would need to open up free markets for education, healthcare, and more. Praise God! Why are we so afraid of freedom in education and healthcare?
Instead of fearing what unintended consequences may come, lawsuits, etc., from imposing tax collection schemes on online retailers (a topic Sotomayor kept bringing up), how about we try braving the unintended consequences of freedom?
Read the oral argumentation for South Dakota v. Wayfair, Inc.