GOP Should Reject Internet Tax

In the aftermath of the November 2012 elections, there has been no shortage of post-mortems by wise men seeking prescription for what ails the Republican Party. It has been said that Republicans no longer appeal to key voting blocks - women, Hispanics and most recently, young people. Much of the criticism focused on our candidate at the top of the ticket. For many, Mitt Romney was easily caricatured as an establishment figure who only represented the interests of wealthy individuals and corporations. That is largely unfair but what is true is that the Republican Party has deviated from our populist roots and we are paying a political price for that departure.

The Republican Party was once home to a broad swath of Americans largely because we sought centrist, market-oriented solutions to the problems of the middle class. For Republicans, winning in the future will require some changes and a concerted effort to regain that mantle. Some of our changes are cosmetic - making sure that our messengers match our message. But defeating the notion that Republicans favor only the rich and big corporations also means that we must pursue a policy agenda that does not allow the government to pick winners and losers. The growing distrust that many voters feel toward their government is rooted in the belief that there is a thumb on the scale in Washington. For Republicans to regain that trust, we must focus on pursuing polices that grow the economy, gets people jobs, and helps small business.

The debate over Internet taxes is a primary example of how many Republicans have lost their way and in the process, validated the central critique that we are a "fat-cat" party. In 1999, when I was Chairman of the Congressional Advisory Commission on Electronic Commerce, a reporter asked me on the eve of our first meeting, if I my stand against Internet taxes was because Virginia was home to many of the technology companies that also opposed online sales taxes. The implication was that as a Republican governor, I was just carrying water for my home state's corporate constituency. Back then, my opposition to Internet taxes was rooted in my desire to help grow new technology industries, create jobs for people, and foster a generation of bright new entrepreneurs then. That is still true today.

In the nearly 15 years since this debate began, many of those once emerging technology companies have grown to dominate their particular markets. That should be applauded. But back when they were the little guys, they were staunchly opposed to taxing online sales. Now that it serves their interests as large corporations, some of the same companies that once opposed online sales taxes have thrown their support behind the so-called "Marketplace Fairness Act" a bill that would impose a national sales tax collection mandate on Internet sellers. Many elected Republicans have joined them. We should be clear about what this corporate evolution represents - an effort by large established companies to erect barriers to entry for the next generation of emerging small business competitors - all in the name of "fairness."

The Marketplace Fairness Act is about establishing market protection from new small competition, plain and simple. While it is natural for established business to want to protect their share of the market, Republicans should be very careful about following corporate interests down the same path.

The Internet still represents a global tool of empowerment for citizens, consumers and entrepreneurs. Because of that, taxing Internet commerce remains deeply unpopular. A recent survey of consumers by Endicia, an online software company found that 61% of respondents, aged 18-25 opposed the Marketplace Fairness Act. For more than half of them, their opposition is based on the belief that the bill "will be bad for economic growth." In that same survey 44% of voters indicated that they will buy less online because of the bill. Brick and mortar retailers may take solace in those numbers, assuming that if consumers are not buying online - they will instead return to neighborhood stores. But the retailers fail to see that business is not a zero-sum game. More business is good for all business. Government expects a windfall of tax revenue from imposing tax collection burdens on small on-line start-ups. But for the vast majority of online sellers, those sales are already being taxed.

The largest 100 online sellers represented 83% of all online sales. To give you an idea of how big these companies are the 101st largest online retailer - Dicks Sporting Goods - had $208 million in sales last year. These top online companies also happen to be the top brick and mortar retailers with physical stores across the country. As a result, these large on-line sellers are already collecting the tax on Internet sales.

In the American marketplace, businesses large and small compete for customers and revenue based on the value proposition that they offer the consumer. Hopefully, they do so in the context of a fair, transparent and predictable tax code that doesn't pick winners and losers. The Marketplace Fairness Act distorts these principles at the expense of small businesses and for the benefit of large corporations. While we should hope that decision makers in Washington would reject that type of interference regardless of political party, Republicans especially have no business supporting this type of legislation.

 

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