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Short-Circuit the Internet Tax


The wish to tax sales over the Internet has only one explanation: greed. I use that word advisedly. It is typically thrown around promiscuously to smear business people who earn fortunes by making consumers better off. That’s a bad use of the term.

But if by “greed” we mean the relentless grasping for other people’s money without giving value in exchange, then that’s the point of any tax on the Internet. This sense of greed describes government to a T.

Do state and local governments need revenue? They are awash in it, thanks to the robust economy in which private citizens are producing record amounts of wealth. State and local sales and income taxes are raking in windfalls because of this productivity. But governments need revenue as drunks need a drink. They can never have enough. Taxation, the forcible appropriation of private wealth, stifles production. The economic novice might point to the boom and wonder how anyone could believe that production is stifled. This is the fallacy of ignoring the unseen effects of government policy. We would be even more prosperous if governments at all levels were not siphoning capital out of the hands of consumer, producers, and innovators.

Some people favor a moratorium on taxes on the Internet for a few years until it matures commercially. After three or four years, taxes would be imposed. That’s like taking time to fatten the pig before the slaughter. If taxes are a bad idea now, they’re a bad idea later.

Inevitably, the fairness issue has entered the debate. Is it fair, we are asked, that traditional businesses have to charge sales taxes while online businesses do not? The treatment is disparate, to be sure, but the solution isn’t to tax the untaxed. The solution is to untax the taxed! I’m not surprised that state and local officials haven’t thought of this.

Government at all levels does too much. It goes far beyond its traditional role of keeping the peace and protecting property. Over the decades government has expanded its scope because it had the revenue to do so. One way to roll back the stultifying power of government is to deprive it of revenue-starve the beast. But while we’re finding ways to do that, let’s at least not throw the beast any additional red meat. It has its eyes on the Internet; let’s make that off limits.

If we’re lucky, the offline businesses will respond to the tax-free Internet by demanding that the taxes on them be removed. Maybe the Internet will help spark a broad-based anti-tax movement. My fear is that traditional retailers will take the short-term easy way out and demand taxation of their cyber competitors. That fear may be unfounded, however, since retailers will increasingly see the value of expanding into online operations, where the tax-free policy will benefit them.

Clearly, governments worry that commerce will shift from storefronts to Web sites and cost them revenue. But it’s not their money! It’s ours. We don’t live and work to serve government. Therefore, government should not eye every technological advance as an opportunity to sink in its fangs and deprive us of our wealth.

As to be expected, someone has even claimed that the tax disparity hurts the poor because they shop online far less than wealthier people do. This is hardly a good reason to tax the Internet, since untaxing retail stores would accomplish the same goal – even-handed treatment of business. Moreover, the logic of the free market is that access to the World Wide Web will become more and more within the reach of even low-income people.

If we are to put this issue into its proper context, we must remember that government is largely in the wealth-transfer business. Most of what it does constitutes a transfer of money from those who earned it to those (not necessarily poor) who did not. In the process, it retards economic activity and innovation, which reduces the improvement of our living standards. The poor suffer from this disproportionately.

For everyone’s sake, hands off the Internet!

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    Sheldon Richman is former vice president and editor at The Future of Freedom Foundation and editor of FFF's monthly journal, Future of Freedom. For 15 years he was editor of The Freeman, published by the Foundation for Economic Education in Irvington, New York. He is the author of FFF's award-winning book Separating School & State: How to Liberate America's Families; Your Money or Your Life: Why We Must Abolish the Income Tax; and Tethered Citizens: Time to Repeal the Welfare State. Calling for the abolition, not the reform, of public schooling. Separating School & State has become a landmark book in both libertarian and educational circles. In his column in the Financial Times, Michael Prowse wrote: "I recommend a subversive tract, Separating School & State by Sheldon Richman of the Cato Institute, a Washington think tank... . I also think that Mr. Richman is right to fear that state education undermines personal responsibility..." Sheldon's articles on economic policy, education, civil liberties, American history, foreign policy, and the Middle East have appeared in the Washington Post, Wall Street Journal, American Scholar, Chicago Tribune, USA Today, Washington Times, The American Conservative, Insight, Cato Policy Report, Journal of Economic Development, The Freeman, The World & I, Reason, Washington Report on Middle East Affairs, Middle East Policy, Liberty magazine, and other publications. He is a contributor to the The Concise Encyclopedia of Economics. A former newspaper reporter and senior editor at the Cato Institute and the Institute for Humane Studies, Sheldon is a graduate of Temple University in Philadelphia. He blogs at Free Association. Send him e-mail.