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California Targets Amazon.com at the Expense of Local Businesses
Online companies have seen their sales surge despite a two year economic slump. Amazon.com alone saw worldwide sales jump nearly 30 percent in 2008 to $19 billion and to $24 billion in 2009. This upward trend only continued in 2010. Brick-and-mortar retailers did not fare as well. They, along with National Retail Federation and many state legislators have back lashed against this success claiming it is predicated on the fact that Amazon “skirts” state sales taxes. They claim Amazon under cuts in-state retailers and strips state coffers of revenue. In response, Legislatures across the country are trying to skirt Supreme Court rulings to levy taxes on companies operating outside their borders.
The most recent attempt comes from high-tax California. Assemblywoman Nancy Skinner recently re-introduced a bill (AB 153) that would require out-of-state companies with in-state advertizing affiliates to collect and remit sales taxes it supposedly owes the state. She estimates the state is being shortchanged between $250 and $500 million.
The kicker: Amazon is not doing anything wrong. According to the U.S Supreme Court ruling in Quill Corp. v. North Dakota, companies are only required to collect state sales taxes from their customers when they have a physical presence in the state (state-based factories, warehouses, employees, etc. conducting general operations). Amazon currently passes this “physical presence” nexus as it is headquartered in Seattle, Washington and has warehouses and facilities considered legal entities in Kansas, Kentucky, and North Dakota. Only residents in those states pay taxes on Amazon purchases.
Quill cited the commerce clause in its ruling, arguing that if enacted, retailers would need to track a myriad of state and local sales tax rates (about 8,000) which constantly change. Facing these new barriers to entry online companies simply end their in-state affiliate programs. For example, in July 2009 Rhode Island included an affiliate-nexus tax in its budget. Amazon.com severed formal ties with all Rhode Island businesses enrolled in the “Amazon Associates Program,” which refers buyers to Amazon.com, while giving business owners up to 15 percent of the profit. As a result, Rhode Island saw less tax revenue and less economic growth as local businesses dependent on advertizing revenue were forced to close up shop.
California will suffer the same fate if Skinner gets her way. Our colleagues at Americans for Tax Reform, Patrick Gleason and Kelly Cobb, spell out the disastrous effects this new tax will have on California’s budget, businesses, and taxpayers. They note that in 2009, 25,000 individuals and small businesses in California earned $1.6 billion from online advertising, paying $124 million in state income tax. The state will loose that money, not to mention revenue from lost payroll, business, property and sales taxes. Sacramento’s budget problems are sure to get worse.
While Amazon contests the unconstitutional imposition of state sales taxes on their customers the company does support the goal of making tax laws "simple and harmonized" and does not oppose "a constitutionally permissible national system applied even-handedly.” Similarly the retail federation and 24 other states have been seeking federal approval of a formal compact that would simplify and harmonize sales tax administration among the states to get around constitutional hurdles to taxing interstate vendors.
However, this tax collusion is an affront to American federalism and tax competition. States are attempting to abandon true federalism and jurisdictional tax competition in exchange for the power to potentially recoup a small amount of tax revenue. The federalism of the Founders fostered friction and tension between competing units of government –“laboratories of democracy” if you will. Proponents of so-called tax streamlining use colorful words like “cooperation” and “harmonization” as a guise to extend tax burdens.1 Comments | Post a Comment | Sign up for NTU Action Alerts
Tune into NTU's State of the Union Coverage tonight
Tonight at 9 p.m. EST, the National Taxpayers Union's crack government affairs and policy analysis teams will provide special online coverage of the President’s State of the Union Address, and we want you to be there and be a part of the discussion. We will be breaking down the President's proposals and what they will mean for taxpayers. Details on how you can join the conversation are below.
We look forward to seeing you online tonight at 9 p.m. EST!
We look forward to seeing you online tonight at 9 p.m. EST!
2011 Index of Economic Freedom
Our friends at the Heritage Foundation, in conjunction with the Wall Street Journal, recently published their Index of Economic Freedom. For those of you unfamiliar with the publication, the Index measures ten components of economic freedom, assigning each a score between 1 and 100. All scores are then combined to give an overall economic freedom grade to participating countries. The ten components include the following: business freedom, trade freedom, fiscal freedom, government spending, monetary freedom, investment freedom, financial freedom, property rights, freedom from corruption, and labor freedom. The recently-distributed Index reports on policy developments in the second half of 2009 in 183 countries.
Just a few of its key findings:
The top 5 countries in the Index of Economic Freedom are Hong Kong, Singapore, Australia, New Zealand, and Switzerland. The United States comes in 9th with a “Mostly Free” score of 77.8%.0 Comments | Post a Comment | Sign up for NTU Action Alerts
What's the Lame Duck Done So Far?
So, Congress was in a Lame Duck session last week. What did they accomplish? The following four bills passed Congress and were sent to the President for his signature, according to the Library of Congress.
Can't wait for the after-Thanksgiving break flurry of activity.0 Comments | Post a Comment | Sign up for NTU Action Alerts
Election 2010: What a night
Oh what a night!
As of this morning, Republicans won 60 additional seats and control of the U.S. House of Representatives. Also, Republicans expanded the size of their caucus by six in the Senate. These two changes that will have serious implications for a host of economic policies at the national level, including energy production, taxes, entitlements, and the debt. My colleague Jordan Forbes will have more to say about the federal results soon.
But for all of the dramatic change at the federal level, what happened in Congress pales in comparison to the changes that voters made at the state level. Republicans picked up nine governorships, including several in the economically important Midwestern states, and won control of 18 state legislative bodies, including chambers in North Carolina and Alabama; today marks the first time since Reconstruction the GOP has controlled those chambers. The larger number of fiscal conservatives in state legislative chambers will have a significant impact on the next round of budget negotiations, when states will have to face no easy choices to balance the budget in the midst of uncertain economic times.
Voters also weighed in on hundreds of state and local ballot measures that affect tax and budget policies. There were several setbacks for taxpayers yesterday. It appears as though voters rejected efforts to reduce taxes income and property taxes in Colorado and sales taxes in Massachusetts. Additionally, California passed a measure that would allow the legislature to enact a budget with a simple majority vote, which will likely open the door to more tax hikes. Unfortunately, Californians also rejected an effort to repeal a costly cap-and-trade emissions program in the state. However, at the same time, Californians voted to require supermajority votes on fees and to prevent the state from raiding funds for local government.
But taxpayers did score several important victories. Despite rejecting a broad reduction in the sales tax, Massachusetts approved a cut in the sales tax on alcoholic beverages. Washington voters resoundingly rejected an effort to enact a new state income tax and approved a measure rolling back a tax on soda, candy, and bottled water. Washingtonians also voted for a measure to require a supermajority in the legislature for any tax increase. Missourians voted overwhelmingly to require votes on local earnings taxes. Meanwhile, Indiana approved a measure to enshrine caps on property tax increases in the state’s constitution.
Elsewhere, Arizona and Oklahoma approved measures that projected the right to choose a health care plan from the individual insurance mandate in Obamacare. Several states, including Oklahoma, South Carolina, and Virginia approved measures to increase the size of their rainy day funds to weather bad economic times. Other states also approved measures that would provide property tax exemptions, impose term limits, and improve government accountability.
Of course, these are just a sample of the hundreds of measures that NTU is analyzing for its report showing how taxpayers fared at the ballot box yesterday. Stay tuned.1 Comments | Post a Comment | Sign up for NTU Action Alerts
Can California afford to Live like Ed Begley Jr.? Nope
The reality television show “Living with Ed” documents actor and environmentalist Ed Begley Jr.’s adventures and challenges in living a low-carbon emission, or so-called “green” lifestyle outside of Los Angeles. In each episode, we watch as Ed tries to grow his own drought-resistant crops or get good mileage out of his electric car. Though we may chuckle as Ed endeavors to practice what he preaches, his reality could become the reality for all of California unless Proposition 23 passes.
Proposition 23 on the statewide ballot would suspend AB 32, a 2006 law that requires a 30% reduction in carbon emissions by 2020, until unemployment falls to 5.5 percent for four consecutive quarters. AB 32 achieves the emissions reductions through new taxes and regulations on cars, trucks, appliances, and farming. Additionally, AB 32 mandates electricity from renewable sources like wind and solar power.
The bill’s supporters said it would create jobs, so-called “green jobs,” in California, but a study a the Pacific Research Institute, a San Francisco-based think tank, predicts 150,000 lost jobs by 2012 and another 1.3 million by 2020. Additionally, a Sacramento State University study shows that AB 32 will actually increase a family’s cost of living nearly $4,000, boost the regulatory burden on an average small business by nearly $50,000. All of this to create a “green” lifestyle for all of California.
These figures are not idle speculation. European countries that have tried programs like AB 32 have actually experienced job losses. Gabriel Calzada, a Spanish economist and lead author of a study detailing the economic costs of Spain’s green experiment, found that the Spanish economy lost a net 2.2 jobs for every “green job” the mandates created. And most of the green jobs (9 out of 10) created from renewable energy mandates were temporary because they were installation jobs. As a result of the mandates, Spanish companies like Acerinox, a steel maker, exported manufacturing jobs to South Africa and Kentucky. California companies will likely do the same.
California simply cannot afford this. The American Legislative Exchange Council already ranks California 46th out of 50 on its Economic Outlook Rank. The state ranks so poorly due to its high state and local tax burden, its income tax progressivity, size of its public workforce, and public employee compensation. For example, the state boasts one of the highest marginal income tax rates on high-income earners, currently at 10.55 percent, and the highest marginal corporate income tax rate in the West, at 8.84 percent. However, all of this translates into a weaker economic output. Adding to the tax burden by allowing AB 32 to take effect would only exacerbate the state’s bad economic problems.
No other state has tried to follow California’ lead in creating it’s own cap and trade program, and for good reason. Even under the best economic conditions, the impacts of AB 32 on the state would be terribly harmful. But at a time when the state’s unemployment rate is in excess of 12 percent and the state is broke by $20 billion, allowing AB 32 to take affect would be downright devastating to Californians. Though we may laugh and envy some aspects of Ed Bagley’s lifestyle, California simply cannot afford it.0 Comments | Post a Comment | Sign up for NTU Action Alerts
NTU Joins with Liberal Group to Identify $600 Billion in Waste
Today, NTU joined with the liberal group U.S. PIRG to release a report called "Toward Common Ground: Bridging the Political Divide to Reduce Spending." This report debuts a list of $600 billion worth of specific federal spending reductions. With all the talk about debt and deficits, we saw an opportunity to put together a true left-right coalition in order to begin the conversation about the difficult choices we’ll have to make as a nation. We thought it would be useful to reach across the ideological divide to identify specific items that we could cut from the federal budget without reducing the quality of government services or neglecting the government's basic commitments. The U.S. PIRG and NTU study identifies 30 specific, actionable items to cut in federal spending, including:
Today, NTU joined with the liberal group U.S. PIRG to release a report called "Toward Common Ground: Bridging the Political Divide to Reduce Spending." This report debuts a list of $600 billion worth of specific federal spending reductions. With all the talk about debt and deficits, we saw an opportunity to put together a true left-right coalition in order to begin the conversation about the difficult choices we’ll have to make as a nation. We thought it would be useful to reach across the ideological divide to identify specific items that we could cut from the federal budget without reducing the quality of government services or neglecting the government's basic commitments.
The U.S. PIRG and NTU study identifies 30 specific, actionable items to cut in federal spending, including:
While we're under no illusions that every group or individual on the left and right will agree with our list, we think that it can serve as something of a consensus document from which Congress and the President's Fiscal Commission can work. Simply stated, we can't continue to kick the can down the road on reducing the size of the federal government. In order to head off a debt crisis like that facing Greece today, we need to begin scaling back our unsustainable spending habits. This list can help to do that without starting a political food fight.1 Comments | Post a Comment | Sign up for NTU Action Alerts
Taxpayers win in court
Taxpayers have won an important first-round victory in the battle against taxing Internet sales.
Late Monday, a U.S. district court judge in Seattle ruled that the First Amendment of the U.S. Constitution forbids state tax authorities from knowing what goods customers purchase from online retailers. At issue was an effort by North Carolina to require online retailers to report the names, addresses, and purchases of their customers so that they could collect sales taxes from the transactions. Amazon, which filed the lawsuit challenging the effort, successfully argued that such “data demands would make customers think twice about buying controversial products” when they purchase books, movies, and music.
Across the country, states starving for tax revenue, yet unwilling to reduce spending, have gone after out-of-state online retailers. The states claim that the out-of-state retailers have an obligation to collect sales taxes on purchases with their citizens. But not according to a 1992 U.S. Supreme Court case, which says that retailers are not required to collect a state’s sales tax unless they have a physical presence within the state.
Despite the Supreme Court’s ruling, several states, namely New York, Colorado, and North Carolina, have zealously sought to collect taxes from out-of-state online retailers through creative schemes commonly known as “Amazon laws.” Basically, these laws require out-of-state retailers to collect taxes because they have in-state affiliates, which are websites that link to the retailers. Other variations of Amazon laws require the retailers to report purchases to the state or send notices to customers that they owe sales tax. Online retailers have shut down their affiliates programs rather than meet these burdensome requirements. What these Amazon laws have done is cost the state revenues because without the affiliates, there is no business activity for the states to tax.
This case is an important victory for taxpayers. Not only does it protect Internet commerce from tax revenue-hungry states, but it also ensures the right to privacy in online shopping. But it is only a first step. Appeals will likely follow. There are also other states considering similar laws. Stay tuned. Rest assured, NTU will be watching these cases closely.0 Comments | Post a Comment | Sign up for NTU Action Alerts
New governors with new plans for economic growth?
Today's New York Times features a story entitled, "Storming Statehouses With Plans for Growth," which details some of the plans that many of the Democrat and Republican candidates for governor have to spur job creation and economic growth.
As Damien Cave writes, "Democrats and Republicans in the 37 races for governor this year have published economic plans that for all their differences share what experts describe as a significant shift: public investment, government support and education are all likely to become less one-size-fits-all, and more focused on the dorm-room dreams of budding entrepreneurs." He goes on to write, "And government, many future governors now say, must become more agile and responsive to business. Corporate regulations would be eased or eliminated by candidates from both parties in California, Pennsylvania and several other states, while plans to simply create connections among employers, state government, other nations, venture capitalists and universities are being promoted by candidates across the country."
Among the proposals are tax breaks for startups and job creation, replacing economic development corporations with non-profit groups run by business executives, locating enterprise zones near universities to link entrepreneurs with research talent pools, and applying business concepts to education. There are also proposals to streamline government to make it more nimble. On balance, many of these proposals look to make government more equipped to work with businesses in a 21st-century economy.
Overall, I think these plans are welcome news. Governors look as though they realize that the old way of doing business and creating jobs, namely more government spending, has not worked. It also appears as if the governors are seriously looking at tax reforms to reduce the crippling tax burden. However, many of these proposals are targeted tax credits and incentives for certain industries to site businesses in the states. These narrowly-targeted policies have had mixed results. Given the state of the states, what is needed most is broad-based, bold reforms to taxes and spending. What would work best is what governors like Rick Perry of Texas and Chris Christie of New Jersey have proposed, including reductions in state spending, caps on taxes, and more manageable and accountable government.
While these proposals are good start, they are only a start. A lot more will be needed to turn the states around in the worst economic downturn in generations.
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You've probably heard about the recent end of the Troubled Asset Relief Program (better known as TARP) ((also known as the outrageously outrageous $700 billion Wall Street Bailout)) (((also known as the "reelection killer"))). Supporters of the program have been crowing about the fact that it appears to have made money, about $25 billion worth over two years. So, all is peachy, right? I mean, we totally saved the economy from complete and total armageddon that would have resulted in approximately 9.8 BILLION people losing their jobs and an unemployment rate of 6,728% and made a PROFIT for our trouble.
Allow me to burst your bubble. That $25 billion profit is a myth, a fiction of Washington accounting (like so many other numbers we hear), and here's why: because the banks that got bailed out through TARP shuffled all of their bad assets over to Fannie Mae and Freddie Mac, which got their own separate bailout. So, really, it should be no surprise that they're relatively healthy. They cut out the cancer and passed it right along to Fannie and Freddie. The banks have issues with the current foreclosure mess, but the worst loans are no longer their problem, they're taxpayers' problem.
So, just how big is that problem? Well, big. Really big. Their regulator is reporting that they could need another $215 billion worth of cash infusions over the next three years alone just to stay afloat. That's on top of the $148 billion we've already shelled out for them. That means that the top-line cost could rise as high as $363 billion. When you subtract the $25 billion profit from TARP from that number, our bailout of Wall Street from their mortgage mess through Fannie/Freddie could cost $338 billion.
That's what a REAL accounting of the bailout would look like. Sure, TARP doesn't look so bad on paper, but that's because we just had Fannie/Freddie buy up most of their toxic assets. It's not unlike what happened with General Motors in their bankruptcy restructuring. They only exist because bankruptcy allowed them to cut out much of their cancer and leave it in a holding company that's worth very little and is separate from GM.
We may have made a profit on TARP, but we did NOT make a profit on the Wall Street bailout as a whole and anyone who suggests we did isn't telling you the truth.3 Comments | Post a Comment | Sign up for NTU Action Alerts