Wednesday, July 20, 2011

Taxes and Their Consequences

Christopher Caldwell, senior editor of The Weekly Standard, writes in a recent op-ed in the Financial Times that's "tax-free landscape needs bulldozing." Discussing California's new law requiring retailers on-line to collect sales tax, he begins:
California governor Jerry Brown killed two birds with one stone last month when he signed a law that would require internet retailers to collect the state’s 7.25 per cent sales tax. He was raising needed revenue. And he was addressing a great injustice of the information age. State and federal legislators made a big mistake when they exempted e-commerce from taxes in the 1990s. They were giddy with the rhetoric of cyberanarchism and inspired by anti-tax yahoos convinced that raising revenue is an optional part of running a government. The kindest thing one can say about the policy is that it constituted an overgenerous subsidy to an infant industry.

Caldwell goes on to explain that before the new law, competitors such as Barnes and Noble and Borders, merely because they have brick and mortar stores located in California, had to charge sales tax while Amazon did not. "The tax exemption, not technology, is what distinguishes the company from its rivals." Forcing Amazon to charge sales tax, according to Caldwell, eliminates this injustice.

I understand his point about justice. It does not seem right that one retailer is exempt from sales tax while its other competitors are at an automatic cost disadvantage.

One thought that immediately came to mind as I read Caldwell's piece, however, was that there is more than one way to rectify the problem. Why not get rid of the sales tax for all of the retailers? Would not this also remove any injustice? Also why is it not unjust to tax consumers for California's immense welfare state? Surely robbing Peter to pay Paul is not the quintessence of justice.

Additionally, more taxes certainly are not helping the business environment in California. CNN reports that, due to high taxes, extensive regulation of business, and uncertain government fiscal stability, companies are leaving California. Perhaps a better solution from the perspective both of justice and economic prosperity would be for California to cut spending so it could eliminate the sales tax. Count me, I guess, as one of the anti-tax yahoos.

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