On Monday it was my great pleasure to participate in a Cato Institute briefing on Capitol Hill about “Internet Taxation: Should States Be Allowed to Tax outside Their Borders?” Also speaking was my old friend Dan Mitchell, a senior fellow with Cato. From the event description: “State officials have spent the last 15 years attempting to devise a regime so they can force out-of-state vendors to collect sales taxes, but the Supreme Court has ruled that such a cartel is not permissible without congressional approval. Congress is currently considering the Main Street Fairness Act, a bill that would authorize a multistate tax compact and force many Internet retailers to collect sales taxes for the first time. Is this sensible? Are there alternative ways to address tax “fairness” concerns in this context?”
Watch the video for our answers. Also, here’s the big Cato paper that Veronique de Rugy and I penned for Cato on this back in 2003 and here’s a shorter recent piece we did for Mercatus.
Reps. Jackie Speier (D-Calif.) and Steve Womack (R-Ark.) have introduced “The Marketplace Equity Act,” which would open the floodgates to anything-goes State-based taxation of the Internet and interstate commerce. The bill essentially sacrifices constitutional fairness at the alter of “tax fairness.” Building on concerns raised by state and local officials as well as “bricks-and-mortar” retailers, Speier and Womack claim that, as “a matter of states’ rights” and “leveling the playing field,” Congress should bless state efforts to impose sales tax collection obligation on interstate (“remote”) companies.The measure would allow States to do so using one of three rate structures: (1) a single blended state/local rate; (2) a single maximum State rate; or (3) the actual local jurisdiction destination rate + the State rate (so long as the State “make(s) available adequate software to remote sellers that substantially eases the burden of collecting at multiple rates within the State.”)
This builds on a long-standing effort by some States to devise a multistate sales tax compact to collude and impose taxes on interstate transactions. In the Senate, Sen. Dick Durbin (D-IL) has floated legislation (“The Main Street Fairness Act”) that would bless such a state-based de facto national sales tax regime for the Internet.
There is a better way to achieve fairness without sacrificing tax competition or opening the doors to unjust, unconstitutional, and burdensome state-based taxation of interstate sales. In a new Mercatus Center essay,”The Internet, Sales Taxes, and Tax Competition,” Veronique de Rugy and I argue that: Continue reading →
The debate over the imposition of sales tax collection obligations on interstate vendors is heating up again at the federal level with the introduction of S. 1452, “The Main Street Fairness Act.” [pdf] The measure would give congressional blessing to a multistate compact that would let states impose sales taxes on interstate commerce, something usually blocked by the Commerce Clause of the U.S. Constitution. Senator Dick Durbin (D-IL) introduced the bill in the Senate along with Tim Johnson (D-SD) and Jack Reed (D-RI). The measure is being sponsored in the House of Representatives by John Conyers (D-MI) and Peter Welch (D-VT). At this time, there are no Republican co-sponsors even though Sen. Mike Enzi was rumored to be a considered co-sponsoring the measure before introduction.
Without any Republicans on board the effort, the measure may not advance very far in Congress. Nonetheless, to the extent the measure gets any traction, it is worth itemizing a few of the problems with this approach. My Mercatus Center colleague Veronique de Rugy and I have done some work on this issue together in the past and we are planning a short new paper on the topic. It will build on this lengthy Cato Institute paper we authored together in 2003, “The Internet Tax Solution: Tax Competition, Not Tax Collusion.” The key principle we set forth was this: “Congress must.. take an affirmative stand against efforts by state and local governments to create a collusive multistate tax compact to tax interstate sales.” “It would be wrong,” we argued, “for members of Congress to abdicate their responsibility to safeguard the national marketplace by giving the states carte blanche to tax interstate commercial activities through a tax compact. The guiding ethic of this debate must remain tax competition, not tax collusion.” Continue reading →
There’s a movement afoot in Congress to advance legislation that would eviscerate the Commerce Clause of the Constitution, empower a state-based tax cartel, and potentially decimate the Internet economy in the process. Business Week has the details:
In the next week, legislators are expected to introduce bills in the House and Senate promising to do away with the “physical presence” requirement. If a bill passes — and that’s a big “if” — it would require all online retailers, except for the tiniest companies, to collect sales taxes in the 23 states that are part of the Streamlined Sales Tax Project. The states would compensate the retailers for the trouble, while promising not to sue them for tax collection mistakes that are made.
The Streamlined Sales Tax Project, or “SSTP”, sounds good in theory but would be disastrous in practice. Michael Graham of the
Boston Herald penned an editorial about the SSTP today and he does a nice job pointing out why, when it comes to “tax simplification,” the devil is always in the details and those details are typically anything but “simple” (or taxpayer-friendly for that matter).
The real danger of the SSTP, however, is what it means for the Constitution and tax competition among the states. In this 2003 paper I penned with Veronique de Rugy for the Cato Institute, we showed why the SSTP would not only fail to simplify the sales tax code, but would actually cede dangerous taxing powers to state and local governments over the interstate marketplace. In the process, Veronique and I argued, a multi-state sales tax cartel would be spawned: Continue reading →
A new report from TeleGeography finds that bandwidth prices for backbone transit continue to decline rapidly across the globe. In San Francisco, for instance, the price per mbps of Gigabit Ethernet transit has dropped 38 % in the past 12 months. Developing countries are also enjoying substantial price cuts in 15 to 20% range.
But if the Internet’s core is controlled by an oligopolistic cartel—as Tim Wu argued in a recent New York Times essay—then why does bandwidth keep getting cheaper?
Perhaps it’s because the fourteen or so firms which offer backbone IP transit are competing fiercely to win over business from smaller carriers and enterprises. And as businesses of all sizes demand faster connectivity, more dark fiber is being lit, creating an expansion in network capacity. In DC, for instance, a price war has made high-speed commercial data services much more affordable, with one communications provider offering converged 10mbps full-duplex dedicated Ethernet over copper for less than the market price of four bonded T1 lines.
Why are some providers moving towards data transfer caps if bandwidth prices are dropping ? In part, it’s because backbone transit is not the only usage-variable expense that residential ISPs face. Last-mile bandwidth remains a highly contested resource in many neighborhoods, and the cost per megabit of bringing faster speeds to the doorstep far exceeds the cost of adding more wavelengths to a long-distance fiber optic line. As consumers demand greater speeds, providers are investing heavily in network upgrades—these costs are adding up, and there’s a strong case to be made that heavy users ought to shoulder a larger portion of the burden than light users.
So, if Tim Wu’s thesis is correct that the broadband marketplace is “a cartel,” should we be reading headlines in today’s Wall Street Journal and CNET News.com like this: “Price War Erupts For High-Speed Internet Service” and “Broadband Price War Brews“? From the WSJ story:
The battle between cable and phone companies to sign up new customers for high-speed Internet service is heating up, creating fresh opportunities for consumers to cut their bills. […] While the most generous offers are coming from the phone companies, some analysts expect cable companies will also become more aggressive in their own promotions as they compete to retain customers.
Geez, if that’s a cartel, give me more of them!
Tim Wu has an absurd piece in today’s New York Times comparing America’s broadband marketplace to OPEC. This really is quite outrageous, beginning with the fact that OPEC is a GOVERNMENT-RUN cartel. Wu also had a comment in the Washington Post today saying that he didn’t think broadband metering was an outrage. Well, that’s nice. I’m happy that we have Tim’s permission to experiment with new business models for financing broadband networks going forward!
This is indicative of what we can expect in the future once Net neutrality laws get on the books: A world of incessant “Mother may I?” permission-based forms of preemptive Internet regulation. Tim and his radical band of regulatory advocates over at Free Press will incessantly petition the FCC to review each and every business model decision and encourage the unelected bureaucrats at the agency to manage the Internet to their heart’s content.
And what does Tim offer for an alternative vision of the way the world should work since he doesn’t believe private markets can handle the job? Well, it’s back to the Big Government drawing board for more tax-spend-and-subsidize solutions! “Amsterdam and some cities in Utah have deployed their own fiber to carry bandwidth as a public utility,” he says. Yeah, that’s the promised land. After all, it’s working out soooooo well at the municipal level. Please.
The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.