Congress is preparing to bow to the increasing pressure of state and local tax collectors (as well as retailers) to insist that sales taxes are collected. The sales tax is the least collectible of all taxes. One congressional friend of mine told me about the experience in her state, when she worked to replace the income tax with a sales tax. The state wound up with 700 additional tax revenue collectors.
If you don’t like the IRS now, wait until they get into your computer (or all companies that are supposed to be collecting the tax, forcing them to analyze all your purchases). The information needed multiplies exponentially.
In tracking everything from meth and its precursors to Internet pornography, Internet gambling to terrorist transactions, the problem is the same. Wal-Mart, Target, Walgreens and CVS all suddenly jumped on the pseudoephedrine control bill because they had tracking systems and realized that all the competition without an on-site pharmacy would be eliminated as competition. The giant retailers already are charging, or have the ability to charge, sales tax.
The smaller companies with less than $1 million in sales, perhaps more, will be exempted. The foundation of eBay and small sites is not really set to purchase half-million-dollar tracking systems to sell 50 postcards a year or even 50,000 of them. The cost of doing it would be greater than the profit. The midsized online retailers like Sweetwater of Fort Wayne will get hammered by big and small.
The government will expand tax collectors significantly over time. New methods of avoidance will be created as was done for music sharing after the Napster decision. With the rising applications of hand-held devices it is downright silly to think the government can collect sales taxes without nearly full-time tracking of each device and application.
Part of the government’s tax gain can be spent on revenue collection, but is the growth in the underground economy and what is likely to be future major intrusions in privacy worth it?
Sometimes Congress passes legislation even knowing that in trying to do the right thing, the result is negative unintended consequences. However, when we know the future negative impact is this intrusive and expensive-to-achieve fairness, why not switch the taxing system?
The sales tax cannot be fairly enforced, and other tax collections are far simpler. Fairness is the right goal, but long term this solution will create more problems than it solves.