The primary economic goal of conservatives should be to decouple the government from the economy at every opportunity, from prohibiting regulators from playing favorites to lowering taxes. As a recent report by eminent economists Donna Arduin and Arthur B. Laffer—and budgetary developments in Wisconsin and Ohio—demonstrate, the Marketplace Fairness Act would help forward pro-growth goals and conservative principles by creating a level playing field in the retail marketplace and giving states the ability to lower marginal tax rates.
The Marketplace Fairness Act seeks to tackle the disparity between tax collection regulations for online and offline retailers. Currently, online retailers are allowed to forgo collecting sales tax on the items they sell. Traditional, offline retailers are required to collect this tax. What this means in the real world is that online retailers get a tidy pricing advantage over their offline rivals, equaling whatever the sales tax is in their locality.
The Marketplace Fairness Act would allow states to collect these taxes from online retailers. No state would be forced to do so, and states that do not have a sales tax would not be impacted. By closing this “online sales tax loophole,” the Marketplace Fairness Act would end what until now has been a case of government picking winners and losers in the marketplace.
In their study, “Pro-Growth Tax Reform and E-Fairness,” Arduin and Laffer lay out what this would mean for the economy. Nationally, more than $563 billion would be added to GDP over the same time period, as well as over 1.5 million jobs. Conservative legislators in Wisconsin and Ohio are showing how this would work.
Recently, both states passed budgets that included provisions to cut income taxes if and when the Marketplace Fairness Act becomes law. Because states will be able to fully collect sales tax, they will not be forced to rely so heavily on income taxes to fulfill their obligations. Millions of people in just these two states will get a tax cut. States that follow their lead will be taking a classic conservative economic approach: broadening the tax base while cutting marginal rates to generate growth and jobs. This is exactly the prescription Arduin and Laffer argue will help cure the economy’s ailments.
Given how significantly the Marketplace Fairness Act would forward important conservative economic goals and engender massive economic growth, the vociferous opposition to the bill from a handful of misguided conservatives is more than ironic—it’s ludicrous. Their claims that the bill represents a new tax are obvious incorrect. Whether there should be a sales tax at all is a different discussion for a different time. On conservative principles alone—let alone the practical economics involved—if we do have a sales tax, all retailers should be held equally responsible for collecting it.
Arduin and Laffer’s report, coupled with the passage of the recent budgets in Wisconsin and Ohio, have greatly enhanced the already-strong arguments in favor of the Marketplace Fairness Act. We now have solid examples of how the Marketplace Fairness Act would not only help restore fairness to the retail marketplace, but could also provide some much-needed relief for all taxpayers and create real growth in the economy.
Those who choose to vote against the Marketplace Fairness Act will in essence be voting for continued stagnation and a tax increase for their fellow citizens. How is this conservative?
Hector V. Barreto is President & CEO of Barreto Inc., an international business consulting firm based in Southern California, as well as Chairman of the Latino Coalition. Barreto served as the 21st Administrator of the U.S. Small Business Administration under President George W. Bush.