I absolutely admire the performance in office of Haley Barbour as governor of Mississippi.  Contrast Mississippi’s recovery from Hurricane Katrina with Louisiana’s — both states suffered about the same amount of damage, but MS bounced back further and faster than LA — and you’ll see why governors and the competence of their team do matter.

Having said that, I absolutely disagree with Gov. Barbour’s article in National Review yesterday.  He writes in favor of the Marketplace “Fairness” Act (MFA), which would allow states to collect sales taxes on their residents’ purchases across state lines, mostly involving Internet sales.  Local politicos like Gov. Barbour often point to the disparate tax treatment of brick-and-mortar purchases, which are taxed, versus Internet purchases, which aren’t, and claim that the brick-and-mortar retailers (usually their constituents) suffer because of this disparity.  He also points out the rarity of the “use tax”, levied on out-of-state purchases, but not being paid by residents as a reason to level the tax playing field.

This analysis fails for many reasons:

  • The cost of shipping is not considered – and while the out-of-state seller may not pay taxes in the recipient’s state, certainly the purchaser, the shipping companies, and their employees do;
  • As Sen. Jim DeMint points out, MFA would levy a new tax on consumers – approximately $125 per year more per online consumer.
  • The complexity of local taxes will increase compliance costs for the online retailers.  There are 9,646 tax jurisdictions in the US, each with a specific set of rules (some tax all food, others only tax carry-out food, and still others exempt some food items while taxing others … the “soda tax” is another whole post).  Large retailers like Amazon would absorb the costs of compliance more easily than their smaller counterparts, further driving down the profitability of these small Internet businesses.
  • Gov. Barbour claims that the equalization of tax treatment would protect local brick-and-mortar businesses. If Amazon carries through with its threat of same-day delivery, its sheer economies of scale will crush both local retailers and smaller Internet businesses.
  • Although “taxation without representation” isn’t part of American law — it originated with the Stamp Act tax that resulted in the Boston Tea Party in 1773 — it certainly should be.  The MFA would impose state taxes and costs of compliance on out-of-state retailers.

Finally, Gov. Barbour makes the following statement:

Conservatives know that when loopholes are closed, the tax system can have lower rates for everyone. The first step to across-the-board tax relief is to effectively enforce existing laws to ensure that people actually pay the taxes they owe. Indeed, several governors have publicly identified the other state taxes they will cut or eliminate if this bill passes.

Governor Barbour, with all due respect, this is a painfully naïve statement that does nothing to advance the argument.  Almost all states are currently experiencing budget shortfalls, and expecting legislators to reduce state taxes in any significant way is just unrealistic.  For a Republican to make this statement, in a year when his fellow Republicans are confronting fiscal reality all over the country, is even worse.