is up against it: what to do about Internet commerce?
To return to
an example given earlier in this space, you have a mother living
in Hartford, Connecticut, looking for a new mattress and spotting
one on the website of a producer in Massachusetts. The feel of it
is right, and so is the price, so the $500 order is placed. The
mattress crossing the border is not taxed, because writing the Constitution
in Philadelphia in 1787, it was decided: no tariffs within the 13
states. Interstate commerce would be regulated only by Congress.
Which is all to the good, but Connecticut takes the position that
the family living happily in Hartford has to pay its share of the
cost of government, which entitles the treasury to a use tax. If
the mother in Hartford who sent out for the mattress in Massachusetts
were a perfect citizen, she would write a check for $30 (6 percent)
to the State of Connecticut and sleep at complete ease with her
conscience. What she does do, is sleep at complete ease with her
conscience without sending in the check for $30. The reason
for it is that taxes of that order are pretty well uncollectable.
An uncollectable tax is one which would cost more to exact it would
yield in profit. There is, in addition, the political question.
People wouldn't like it when Big Brother stared into every out-of-state
package, inquiring whether there is something in it for city hall.
So that one part of the pressure building on Congress is collectivist:
to let states come in with a transfer tax. But a second pressure
is from merchants who see themselves affected by untaxed transactions.
The mattress maker in Connecticut is willing to compete with the
company in Massachusetts, but does not like it if out-of-state businesses
are, in practical terms, subsidized; that's what the non-tax amounts
to. Local concerns are complaining about traffic in mattresses and
books and records and computer equipment which, ordered through
the Internet, come in, so to speak, duty free.
ago, Congress voted to continue until 2001 the tax-free character
of interstate commerce. This meant not only a prospective loss of
tax to the affected states, it meant also something on the order
of a benediction on a staggering development in technology. The
Internet is the happiest intellectual, journalistic, and educational
development in history, and the thought of letting the weeds of
prehensile government crawl about it struck some as on the order
of enforced shutters on sunlight, or taps on waterfalls.
But, sigh, that was three years ago, which in the Internet business
is three millennia ago. The estimated commerce done by the Internet
in 1998 was $9 billion. Last year it was $26 billion. Which means
we have to come to earth, and face homespun economic truths. If
the advantage of tax-free Internet commerce marginally closes out
local industry, reforms are required.
The mechanics of reforms call on holding not the buyer, but the
seller, responsible. It still won't be possible to target the mother
in Hartford directly when the mattress arrives, but the exporter
of it in Massachusetts can be required to add $30 to the cost of
the mattress, and send the check off to Connecticut Internal Revenue.
It is, finally, impossible for Congress to wrestle with the problem
without yielding to legitimate demands of the states spending the
money on education, police, and fire departments, and deprive them
The question has not come up in the current welter of proposals,
but we have to watch carefully to prevent the United States Postal
Service from getting into the act. The most calamitous exposure
of the postal service since the days of mail-train robberies is
of course fax and the Internet. These are, for all intents and purposes,
absolutely free transactions. One hundred messages can be sent out,
or for that matter one thousand, for less than the cost of a first-class
postage stamp. A rumor swept about the medium, a year or so back,
that a proposal was making way that would charge five cents for
every communication sent out on the Internet.
The very idea is heretical, like charging for Communion wafers.
To tax the Internet for the benefit of the postal service is unsupportable
reasoning. The postal service needs to survive from its own revenues.
If there is a shortfall, the government can come up with it, as
required, on the same principle as rural free delivery. But to attempt
to relieve its problems by contaminating the Internet is something
that any congressman who has taken an oath to right reason is bound