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Posted on Wed. Nov. 28, 2012 - 12:01 am EDT


Let's think carefully about online sales tax

It's always risky to take more money out of the private sector.

Members of the General Assembly seemed inclined to rush something they probably should slow down and think about a bit. There seems strong support for a bill to be introduced by two legislators that would require and other online retailers to start collecting sales tax six months earlier than the deal brokered by Gov. Mitch Daniels last January.

The bill has the support of a number of conservatives, who ordinarily live by the common-sense rule that a tax – any tax – discourages the activity it is attached to; make retail purchases more expensive, and people will make fewer retail purchases. And they are supporting this tax proposal with the same reasoning liberals are fond of deploying in favor of taxes: The current system is “unfair” because some brick-and-mortar retailers are forced to collect the sales tax and online retailers aren’t.

Conservatives normally understand two things about taxes: 1. Any money taken out of the private sector and placed in public coffers, by whatever means, is money the private sector no longer has the use of and, 2. the best way to achieve fairness is to reduce the high rate, not increase the low one.

But it’s hard not to give in when those being “punished” are home-grown stores, and those “getting away with it” are giant corporations that respect no borders. When populist resentment hooks up with “local is better” sentimentality, it’s hard to stay on the conservative straight and narrow.

But emotion aside, economic reality still must be considered. And forcing more companies to collect a tax (the equivalent in this case of “increasing the low rate” instead of lowering the high), will discourage consumers from buying more, which will frustrate efforts to keep a healthy state economy going. Somebody needs to be suggesting that if “fairness” is so important, perhaps we ought to be considering ways to offset the costs of achieving it.

Here, for example, is but one idea: If more retailers are forced to collect sales tax, more money will come to the state from the sales tax. If there is more money, wouldn’t it be possible to lower the rate collected by all retailers? In fact, lowering the sales tax a cent or two might even create enough economic activity so that the net effect is better than revenue-neutral.

You wouldn’t think a penny or two would make a difference, but in the aggregate the effects could be enormous. At 7 percent, Indiana has among the highest sales tax rates in the country. If you really want to talk about unfairness, let’s talk about how that puts our retailers at a competitive disadvantage with other states.

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