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.
Three years 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 of revenue.
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 to oppose.