Commentary

Online Sales Tax Is a Money Grab by Politicians

The debate over the so-called Marketplace Fairness Act is not about a level playing field. It is an attempt by politicians to grab more tax revenue to facilitate bigger government.

It’s not unusual, of course, to find that politicians want more of our money. Heck, that’s a dog-bites-man story. What makes this situation so unusual, however, is that they’re trying to reach outside their borders to grab more money.

Here’s what you need to know. Some states impose very high sales taxes, and politicians get irked that some consumers avoid the taxes by using the Internet to buy products from out-of-state merchants. But rather than go after in-state consumers, they want to create an elaborate and intrusive system to force out-of-state merchants to act as tax collectors.

Talk about taxation without representation!

To understand why this is a radical step, imagine if you took a trip to Las Vegas and played blackjack, but then got arrested when you returned home because your state doesn’t allow gambling. That would be an outrage because a state only has sovereign power to enforce laws (good ones or bad ones) on things that take place within its borders. And it would be equally outrageous if state governments tried to force Las Vegas casinos to discriminate against non-Nevada residents.

The Marketplace Fairness Act violates the important sovereignty principle simply because some politicians have spent their states into a fiscal ditch. But this issue involves more than just greedy politicians and attacks on sovereignty. This legislation also has very troubling implications for privacy. It can only work by creating a massive database that matches online purchases with the state and local sales tax rates for every consumer.

I don’t know about you, but I’m not confident that this type of untested system will be secure. We’ve already seen major leaks of confidential data from both government and private companies. This database will be a magnet for identity thieves and other hackers looking for credit card information. And you also might not want the world to know that you’re buying skimpy undies from Victoria’s Secret or dirty movies from some Web site. Heck, it’s probably not a good idea to let government get all this information, even if they somehow managed to safeguard it from outside eyes.

Proponents of this risky tax are right about one thing. Many state and local governments are in fiscal trouble. But these governments got in trouble because politicians are compulsive spenders. And just as you don’t cure alcoholics by giving them keys to a liquor store, you don’t solve the problem of excessive spending by giving politicians a new tax.

Daniel J. Mitchell is a top expert on tax reform and supply-side tax policy at the Cato Institute.