As a policy measure, there’s nothing complicated about the online sales tax. Because they exist on the internet, and not in any particular state, digital retailers have never felt compelled to collect taxes for the sales they make. The result has been billions in lost revenue for states and localities across the country. In a growing economy, this is a problem, but not a huge one — with economic expansion, states often have the tax revenue they need.
Under contractionary conditions, however states need as much revenue as they can muster, lest they cut services, fire workers, and exacerbate the economic problems in their state. Implementation won’t be easy — retailers will have to collect separate taxes for every customer, depending on where they reside — but online sales taxes are a sensible solution to the problem. And indeed, it’s good to think of this as an enforcement mechanism for existing laws. Online buyers are already required to pay sales tax on purchases, they just rarely do.
Predictably, the tax has inspired real opposition from online retailers like Amazon, who depend on the quasi-tax free environment of internet commerce for sales and revenue. What’s interesting about the political fight, however, is how it’s exposed fissures in the Republican Party. As the New York Times describes, the Marketplace Fairness Act has significant GOP support— GOP Reps. Scott Rigell, Steve Womack and others back the bill in the House of Representatives, as do Senators Ron Johnson, John Thune, and Roy Blunt. Overall, the bill is expected to pass the Senate with wide support — a procedural measure won 63 votes in favor, and the final tally may show even stronger support.
Supporters are looking out for the interests of brick-and-mortar businesses in their states:
“It’s obviously an issue that can be divisive for Republicans because a lot of the antitax groups are weighing in against it,” Senator Thune said. “But in states like mine where you’ve got a lot of smaller retailers trying to compete in smaller communities, people are going to do their business online, and that has grown dramatically over the last few years.”
The real pull has come from personal experiences back home, and the emergence of reliable Republican business voices who have provided a rare counterargument to the activists in Washington.
Opposing the Marketplace Fairness Act is anti-tax crusader Grover Norquist and his group Americans for Tax Reform, as well as the Heritage Foundation. They see the bill as just another tax increase, and are doing as much as possible to derail the legislation:
Mr. Norquist, whose organization maintains the antitax pledge that virtually every Republican in Washington has signed, calls it the “Let People in Alabama Loot People in New York Act.” […]
The Heritage Foundation and its more overt political arm, Heritage Action, have made no such equivocations. It is making a yes vote a black mark for a lawmaker on Heritage’s conservative scorecard, urging its members to call their representatives and senators, “pretty much everything we can,” said Dan Holler, a spokesman for Heritage Action.
At a certain point, conservative lawmakers are responsible for governing and giving voice to the concerns of their constituents. Activists are not, and occasionally, this puts them in conflict.
What Heritage and Norquist want is a Republican Party governed by ideology alone, where no tax is acceptable, no matter what. That they’re losing this fight is a sign Republicans are at least open to bucking anti-tax extremists. Which is a small, but important, step in the right direction.