There's an extraordinary plot afoot in the nation's capital to stifle tax
competition among states, reverse Supreme Court precedent, circumvent
constitutional limitations on states' taxing authority and seriously
At the dawn of the 21st century our elected officials have stooped to
conniving ways to do exactly what the American revolutionaries beat the
brains out of King George for doing at the end of the 18th century. It's
called taxation without representation, and today it's being accomplished by
state politicians and national legislators busily forming a state-level tax
cartel to allow individual states to reach beyond their borders and levy
sales taxes on the residents of other states.
The Four Horsemen of the U.S. Senate ride again, and their names are
Byron Dorgan, Ron Wyden, John Kerry and John McCain. They have joined forces
to forge, euphemistically speaking, a "compromise" on the extension of the
Internet tax moratorium.
Under their reported agreement, the extension of the Internet tax
moratorium is being held hostage by these senators until they can reach
agreement on how to assist state governments to overcome Supreme Court
precedent and the Constitution to collect sales and use taxes from
non-residents. Worse yet, the agreement would pre-authorize the states to
create an interstate tax cartel to collect taxes on online sales even if
less than a majority of states harmonize their existing sales tax laws,
which is probably unconstitutional.
Make no mistake about it, if this plan is implemented as envisioned by
the senators, it will lead to a uniform national sales tax. It will be
levied collectively by all the states and be unalterable by individual state
legislatures. In order to alter their sales taxes, states would have to get
the approval of a "consensus board" of nonelected bureaucrats. So much for
local control of taxation in America.
Supporters of the agreement will tell you it's a matter of fairness. They
ask why federal law should put brick-and-mortar companies at a disadvantage
relative to Internet companies? Well, for one thing, federal law doesn't.
The Internet tax moratorium only bars access fees and new and discriminatory
taxes on the Internet. So, the restrictions on the ability of state and
local governments to tax remote sales are imposed by the U.S. Constitution,
not the moratorium. State and local governments are just as free under the
moratorium to collect their sales and use taxes as they would be in its
Thirty years ago state governments made the same arguments about catalog
sales that they're making about Internet taxation today; they were losing
revenue and if they couldn't tax remote sales, then life as we know it would
end. It didn't. The real reason they seek authorization to tax remote sales
is that current law prevents politicians from shifting their tax burden to
out-of-state residents who are unable to kick them out of office.
The real issues in this debate are not state revenues, but freedom from
overreaching politicians and from state tax practices that would harm the
national economy. Congress has a constitutional responsibility under the
Commerce Clause to prevent this kind of collusion among states to enrich
their own treasuries at the expense of the national economy, and federal
legislators would be derelict in that duty if they assist the states in this
unsavory tax grab.
I have seen many nations, states and locales expand their economy with
tax rate cuts. But, I have yet to see a single case of a jurisdiction taxing
its way to prosperity.
Now is a time for action; it is time to enact a clean and permanent
moratorium on new and discriminatory Internet taxation and it's time to
unseat the Four Horseman of the Senate.
However, if the price of extending the moratorium is a deal to authorize
a state cartel, then I say no deal. I would rather live to fight another
day. But if a deal has already been struck, then at a minimum, authorization
of any state compact should require the approval of three-quarters of the
states and specific approval of the compact by Congress, not the blank-check
approach currently in play.
Isn't it ironic, that just when Treasury Secretary Paul O'Neill
courageously told the EU the United States would not help create an
international tax cartel to eliminate tax competition among nations, our own
federal legislators are conspiring to construct a similar state-level cartel
to eliminate tax competition among the states?
And so we come back to the age-old question: Quis custodiet ipsos
custodes? Who will guard the guardians? In Federalist No. 32, James Madison
gave us the answer when he spoke of the "prudence and firmness of the
people." If politicians aren't careful, that prudence and firmness may
bounce them all from office which, come to think of it, might not be such a