Trump, Amazon, and Taxes

James Pethokoukis | AEIdeas

Back in 2012, my AEI colleague Alex Brill wrote about the wisdom of combining internet sales taxes with income-tax base broadening. Back then, Congress was considering legislation, the Marketplace Equity Act, that would have permitted states to collect the sales tax they are owed when their residents purchase goods online from out-of-state sellers. Brill:

“State governors are eyeing the federal tax reform debate closely, as potential reforms to broaden the income tax base could curtail a set of subsidies they currently enjoy — the deductibility of state and local taxes. But there is another policy debate underway that would have the opposite effect for states — permitting the collection of sales tax on out-of-state Internet and catalog sales just as they are collected on goods from brick-and-mortar retailers. Combining these two ideas could improve the U.S. tax system on both the state and federal level by creating a level playing field for state and local governments, businesses and taxpayers…. Eliminating the deduction for all state and local taxes, including property taxes, would raise over $860 billion over the next 10 years relative to current law…. While such base-broadening would promote economic efficiency, could it hurt state and local governments at precisely the time they are struggling to repair their own budgets? Potentially, but that’s where Congress can play an important role in encouraging state tax policy oriented toward economic growth….The benefits of the Marketplace Equity Act are twofold. First, it would facilitate a level playing field between online merchants and brick-and-mortar stores. States that take advantage of this opportunity can ensure that consumers pay the same sales tax regardless of how or where they purchase a good. The Internet is my favorite place to shop, but it doesn’t deserve a tax advantage. Second, a broader sales tax base for states and a federal policy that encourages broad-based consumption taxes are consistent with pro-growth tax policy. What states do with the additional sales tax revenue they collect would be their choice, but one appealing option would be to lower income-tax rates.”

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