David R. Henderson  

The "Amazon" Tax

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Economists generally think that competition is good. Competition among computer makers causes prices to be lower. So does competition among airlines, rental car companies and insurance companies. Why would competition among tax authorities be bad?

But, says the pro-tax side, it's bad because then governments have trouble collecting revenue and some people who gain from government services don't pay their "fair share" for those services. Let's put that in perspective. A 2010 study by economists Jeffrey A. Eisenach and Robert E. Litan that was funded by Netchoice, the voice of the e-commerce industry, found that by 2012, the amount of revenue that California governments would be missing out on by not taxing interstate sales will be only $621 million, well below 0.5 percent of California governments' total tax take.

But even if the forfeited revenue were a large amount, there's still a problem. Even though the resident buyers pay the tax officially, what economists call the "burden" of the tax falls on both buyers and sellers. The percentage split of the burden depends on who - buyer or seller - is more price-sensitive.


This is from my "Tax on Interstate On-Line Sales Unfair," in the San Francisco Chronicle, July 31, 2011. In the piece I signed off on, I had the word "foregone," not "forfeited." I trust that my readers see the difference.


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CATEGORIES: Taxation



COMMENTS (3 to date)
Ben writes:

Isn't the issue with Amazon that the commerce clause requires that interstate transactions not be taxed at all? It's not a question of Oregon tax policy versus California tax policy, but rather that e-commerce is arbitrarily exempted from sales tax by the federal government.

Joe Cushing writes:

I consider "use" taxes to be a tariff. It's like the US putting a tax on imports because the exporting country has a lower corporate income tax than we do. For example, I bought a car in Ohio where I lived for a short while, but when I registered the car in Michigan, I had to pay Michigan the difference between the Ohio tax rate and the Michigan tax rate. Can somebody say how that's not a tariff?

Sushi Shrikanth writes:

Personally, I feel like the forfeiting revenue in a tax is counterproductive and defeats the purpose of imposing a tax to begin with. Especially in today's economy, the deadweight loss of taxes seems to be far outweighing the gains from the tax. I'm glad that Congress is currently focusing on cutting spending rather than imposing more and more taxes. This approach seems more economically sensible, as it directly addresses the problem and reduces the deadweight loss overall.

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