Wednesday, September 28, 2011

The impact of online sales tax

It seems that Amazon will be collecting tax on California sales in a year, and I expect that to become the national norm. What might the impact of the tax be?

The US Department of Commerce estimated that online shoppers spent $165.4 billion in 2010 and Vertex Inc. estimated the average state tax rate as 5.5224% during the first nine months of 2010. That says states are losing around $9.13 billion annualy in Internet sales tax.

That may be a small portion of our 14.7 trillion dollar GNP, but it would pay the salaries of a lot of state workers (especially professors :-), which would help the economy and make a lot of people happy.

But, aren't sales taxes regressive, taking a bigger percent of a poor person's income than a rich person's? For sure.

If it were up to me, I would raise revenue with a progressive tax that came out of the pockets of those better able to pay (like me) and corporations that take advantage of unreasonable loopholes..

But we are talking about sales tax, and my guess is that a sales tax on Internet purchases is relatively fair -- less regressive than general sales tax. Online shoppers tend to be relatively well off. They have computers, broadband connections to the Internet, credit cards, can accept daytime deliveries, etc.

We need emperical data on this question -- it would make a good thesis or dissertation if economists have not already studied it.

On balance, I favor taxing online sales, but if it turned out to be as regressive as our general sales tax, I would probably change my mind.

Regressive taxes are a bad idea for a couple of reasons. Most directly, they make the lives of poor people -- little kids and adults -- less happy. But they also reinforce the growing economic inequality in the United States.

What do
Namibia, South Africa, Lesotho, Botswana, Sierra Leone, Central African Republic, Haiti, Colombia, Bolivia, Brazil, Guatemala, Honduras, Hong Kong, Paraguay, El Salvador, Chile, Panama, Papua New Guinea, Zambia, Niger, Swaziland, Gambia, Zimbabwe, Dominican Republic, Peru, Sri Lanka, Mexico, Costa Rica, Singapore, Madagascar, Mozambique, Nepal, Uruguay, Ecuador, Rwanda, Philippines, Uganda, and Jamaica
have in common?

According to the CIA World Factbook, they are the only nations with higher GINI coefficients than the United States, suggesting that their income inequality is even greater than ours. That is not very good company, and it does not make for a comfortable, sustainable place to live.