Friday, March 28, 2014

Taxes Won't Solve This Problem

I can remember, as a high school student in the 1970s, observing the advent of personal computers. The Apple, the IBM, the Commodore 64, the Radio Shack TRS-80. The Internet, in its earliest stages, remained the province of government officials and university professors.

Oh, how I longed to possess one of these space-age miracle machines. I begged my parents to help me buy one. (I already had a part-time job, and could contribute to the cause.) But what did I want it for? I didn’t know, exactly. In fact, I didn’t have a clue. I only knew that I wanted to join that exclusive club of the sophisticated and privileged.

No doubt, the rise of computer technology has brought challenges for businesses of all types. Online vendors enjoy low overhead and efficient distribution, and they don’t charge sales tax for interstate transactions. While consumers everywhere rejoice, brick-and-mortar stores are fighting for their survival. 

Recently, the Christian Booksellers Association sent out a plea to its members, “Act now to create fair plan for physical stores.” That is, they’re calling for passage of a new law to impose sales taxes on all Internet merchandise sales. This, they believe, will create a fair and level playing field for all retailers.

I’m not so sure.

In my youth, my family enjoyed mail-order shopping. Mom bought a new purse from the Fingerhut catalog about once a year. My uncle bought camping gear and hunting rifles from the Sears catalog. Nana favored Lillian Vernon. Altogether they spent tens of thousands of dollars on purchases from out-of-state vendors, and not a penny of that amount went toward sales taxes – to California, or to any other state.

So why aren’t these mail-order purchases taxable? Under Article 1, Section 8 of the U.S. Constitution, only Congress can regulate (therefore levy taxes on) interstate commerce. (The Supreme Court affirmed this principle in 1992, in Quill Corp. v. North Dakota.) Hence, the California Board of Equalization has no authority to collect sales tax on a purchase that takes place in (say) Oklahoma.

For over a century, consumers everywhere mailed in their paper order forms to Lillian Vernon and Land’s End and Montgomery Ward. The U.S. Post Office enabled the effort by classifying the Sears catalog as educational material, and the cost of sending said catalogs plummeted. Millions were seduced by TV commercials for Ronco’s Veg-O-Matic and Pocket Fisherman, and placed orders over the phone (which is even more analogous to an online transaction). Buyers across the land rejoiced over the bargains and the convenience.

But I can’t remember ever hearing a peep of protest from local shopkeepers.

The CBA has argued to the House Judiciary Committee, that the present arrangement gives an unfair advantage to the online vendors. The brick-and-mortars have seen their revenues decline, and they’re forced to lay off many employees. With fewer taxable transactions, states have slashed their budgets and either starve or kill many important programs. The U.S. Senate passed the Marketplace Fairness Act in 2013, but it now needs to be passed by the House before it can become law.

For the record, I work in the publishing business with several hats. No one longs more than me, for the book trade to thrive and prosper. Local retailers provide a shopping experience that a mouse-click can’t match. My town has a Barnes & Noble, a Family Christian Store, and a couple of mom-and-pops. I pray that they remain for many years to come.

Still, it seems to this observer that the arguments in favor of an Internet tax are seriously flawed. From what I can tell, every CBA member company has an online presence that handles interstate transactions tax-free. While the ranks of local workers decline, the e-tailers are hiring like crazy. They’re buying corrugated boxes by the millions, providing jobs for paper companies. UPS and FedEx have never enjoyed so much business, and they’re scooping up trucks and uniforms and pumping gasoline like never before.

All of those purchases are taxable, as are the wages of the new hires. Absent the World Wide Web, they wouldn’t exist. The sales tax rate here in Los Angeles County is 9%, among the highest in the country. With or without that tax, most of my online purchases will still be cheaper than at the merchants here in town. Huge centralized warehouses will always enjoy greater economies of scale.

A couple of years ago, the Census Bureau released the records of the 1940 census. Intrigued, I looked up my dad’s home (he was nine years old). This entry didn’t tell me much of anything new about my family, but I was struck by the occupations of his neighbors: They identified themselves as streetcar mechanic, milkman, switchboard operator, typesetter, doorman, clerk typist, (bowling alley) pinsetter, iceman, radio repairman, stenographer, shirt finisher, copy boy (at a newspaper), telegrapher, elevator operator, seamstress, houseman, and bill poster.

Here in L.A., streetcars disappeared decades ago; now we have bus mechanics. Switchboards are insanely inefficient. Computers replaced Linotypes, teletypes, and telegraphs. Doors open with automated motion sensors. Executives type their own emails. A Brunswick machine resets pins and rolls back your ball. Everyone prefers electric refrigeration. When a $12 radio breaks down, you throw it away and buy a new one. Permanent-press fabrics don't wrinkle. Anyone can push a button for the 8th floor. And so on. Modern technology not only makes these functions more efficient and cost-effective, but it also creates new jobs. Does anyone really want to go back to the old ways?

Just try to enter those keywords on, and see how many listings come up. They've become obsolete, either through automation (which creates different new jobs), or through changing tastes and habits.

Over the past 100 years or so, corner markets morphed into supermarkets and then into the likes of Walmart and Costco. Department stores disappeared, because consumers are now more concerned with price than service. With each tectonic shift, buying habits change, employment sinks and efficiencies rise. Nothing new here.
The shoe department staff at Sears no longer measure my feet. No one at my Shell station pumps my gas, or checks my tire pressure. I haven’t seen a TV repair shop for years, and Staples can’t sell me a ribbon for my old Underwood. Supermarket butchers aren’t half as skilled as they were 50 years ago, because they no longer have to break down hanging hindquarters. Anyone want to buy my old 8-track tapes?

A few years back, the State of California reclassified wine coolers as flavored wine (instead of flavored beer; it's complicated). With this new status came a higher tax rate. In response (and before the new levy took effect), the manufacturers simply reformulated their products in order to retain their old status. Even better, they didn't have to prove it, because their recipes are proprietary and legally protected. The whole affair was a waste of everyone's time.

To say that Internet commerce is throwing vast numbers of citizens out of work, is quite misleading and it misses a larger point. Jobs disappear in one place, and pop up in another. Old skills become obsolete, while opportunities abound for those who adapt and learn something new. No act of Congress will ever change that; businesses will always adapt, to do what's in their own best interests.

This has ever been so. It's the natural evolution of our economy. Free enterprise will prevail, eventually, every time.

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