The Taxonomist

Dept. of Boneheaded Studies

In 1999, two states, New Hampshire and Tennessee, considered adopting a broad-based income tax. This sent antitax lobbying groups into a frenzy of "studies" purporting to show that such a step would be a disaster for the economies of the two states.

The lamest of the reports was published in mid-October by the National Taxpayers Union (NTU), an anti-union group. The report's central observation was that six states that had adopted an income tax around 1970 had seen lower economic growth between 1970 and 1990 than they had between 1950 and 1970, before the income tax went into effect. Clearly, the NTU report concluded, those nefarious income taxes were the culprits behind the slower growth. But the report left out one small point: every single state in the country had lower economic growth after 1970 than before (remember OPEC, stagflation, and all that?). Talk about selective use of data.


The burning question among e-commerce types today is whether state sales taxes ought to apply to selling over the Internet [see "The Real McCain," page 14]. The answer is as simple as it is obvious: Of course sales taxes should apply. Otherwise, ordinary retailers are put at a big competitive disadvantage.

This is an issue on which you'd think the business community could take care of itself. But so far, lobbying groups that pretend to represent ordinary sellers, like the Chamber of Commerce and the National Federation of Independent Business (NFIB) have been strangely muted in their outrage at the push to permanently exempt Internet transactions from sales tax.

NFIB's Web site, for example, has propaganda opposing a minimum wage hike and expansion of the Family Leave Act, calling for repeal of the income and estate taxes, and pushing for Social Security privatization. But there's nary a mention of NFIB members' stake (fair competition in retail sales) in the sales tax question.

Likewise, the Chamber of Commerce's Web site calls for repeal of the estate tax, cuts in the capital gains tax, and lots of new tax breaks for business. But when it comes to taxing Internet sales, the Chamber punts. While conceding that a sales tax exemption for e-commerce is unfair, uncompetitive, and a threat to public services' business needs, the Chamber concludes in a recent paper, "Only a complete redesign of our [entire] tax system would effectively and fairly handle the unique aspects of Internet sales."

It seems like the knee-jerk antitax prejudices of the main business lobbies are stronger than any residual common sense they may have retained. Which is not good news for regular American retailers.

Finally: Conservative Admits Truth about Flat Tax

"The [federal income] tax system we have now is steeply progressive," said Steve Moore, a flat tax advocate and director of fiscal policies at the libertarian Cato Institute, a Washington nonprofit organization. "The wealthiest 1 per-cent are paying around one third of all [income] taxes, and the bottom 50 percent of the people pay only 4 percent of the burden. Anything you do to flatten tax rates will lead to lower taxes on the rich and more to those on the bottom" [The New York Times, November 14, 1999]. At least he's honest.

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