Spreading Tax Misery (2013 Jan)

by Barry A. Liebling

There is an old joke about two farmers who each has a milk cow. One of the farmer’s cow dies, and on the same day he finds a magic lamp that contains a genie. The farmer frees the genie and is granted one wish as his reward. Without hesitation the farmer says, “I wish my neighbor’s cow would die.”

The joke is funny because it reveals so much about the mindset of a person with an essentially malevolent sense of life. It does not occur to the farmer to seek an outcome where prosperity will be enhanced. Instead his default is the desire to “even things out” by making his neighbor worse off.

The joke is tragic because, unfortunately, in real life there is no shortage of people who are disposed to behave just like the bitter farmer.

Recently Christine Gregoire (governor of the state of Washington) and Sally Jewell (president of the retailer REI) wrote an opinion column for The Wall Street Journal where they lament that merchandise bought on the internet often escapes state sales tax. This is problematic to them for two reasons. It is disadvantageous to traditional brick and mortar retail outlets that are forced to pay sales tax. But even more salient to the authors is that it “diverts” billions of dollars from state and local treasuries. Their solution to the “problem” is federal legislation that would require all internet retail outlets to calculate, collect, and pay state and local sales tax. http://online.wsj.com/article/SB10001424127887323713104578133491334068264.html?mod=WSJ_Opinion_LEFTTopOpinion

The sincerity of the writers’ concern for traditional retail outlets is suspect. Like the morose farmer in the old joke, it does not enter their minds to take actions aimed at making things better for the businesses with physical showrooms. Instead they are intent on using the government boot to stamp down internet-based businesses. If they had a benevolent disposition they might have argued to reduce (and even better to end) sales tax on brick and mortar merchants. Certainly merchants with an appreciation of justice would prefer to have their own tax burden reduced rather than socking extra taxes to their competitors. Note that this would not necessarily reduce the plunder collected by local governments. For example, in lieu of an income tax the state of Washington has a business and occupation tax (B&O tax) that is based on the gross income of the business. Increased sales due to lower sales tax would result in higher B&O tax receipts.

As an aside, Gregoire’s and Jewell’s proposal for using federal muscle to make things “more fair” is reminiscent of the Buffett Rule. Warren Buffett, one of the wealthiest men in the world, famously complained that his secretary’s tax rate was higher than his. But he displayed no sympathy at all for his secretary since he called for an increase in taxes on the very rich and never entertained the thought of reducing the burden on his employee.

The writers assert that they are upset that the internet has increased the occurrence of “showrooming.” Apparently customers often visit physical retail establishments, examine the merchandise while taking up the time of the sales staff, and then make their final purchase online where they can get a better deal. The authors assert that this causes two “harms” – the store loses profits and the state does not obtain its sales tax.

They are baring their true feelings when they complain that the state is not collecting as much loot as it desires. It is clear that the most important item on their agenda is to assure an ever increasing flow of money to the government – a government that has an unquenchable thirst for money, a government that will never fail to concoct excuses for starting new programs and for growing the budgets of existing programs. No matter how much money it confiscates there will always be new “emergencies” that require taxpayers to “contribute just a little bit more.”

But Gregoire and Jewell cannot be serious when they complain about “showrooming.” Well before there was an internet it was common for customers to visit luxury department and specialty stores to learn about products, speak at length with salespeople, only to leave and buy at a discount establishment. In a free market economy the high-end retailer can change its tactics – perhaps lower its prices, or give better after-purchase service, or offer unique merchandise. Would the authors condemn buyers for seeking bargains? Would they like to assure – via government edict – that stores with fancy showrooms be exempt from competition?

The authors are frustrated and disappointed that state and local governments are finding it difficult to devour more of the wealth generated through internet commerce. Their detestable objective and policy recommendation – punitive action against buyers and sellers – is no joke.

*** See other entries at AlertMindPublishing.com in “Monthly Columns.” ***

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