Tax the Internet?

Tax the Internet?  Once again government is looking for new ways to generate revenue.  And it should come as no surprise that once again the topic of generating tax revenue from the Internet has come up.

If the unemployment rate reflects the fact that 5 million Americans who were working a year ago, now are no longer working, then it stands to reason that state sales tax revenues have also decreased.  State sales tax revenue has been off between 15% to 25% in some states his most hard by the recession.

But rather than make appropriate budget cuts to reduce expenses, some state government are responding by passing laws to raise new tax revenues.  What an option!  Run out of money?  Pass a law and take more from someone else.   That seems to be the new version of Democracy in Action at all levels of government, state, local and Federal.

So the latest innovation in creative tax legislation is a proposal that State sales taxes should be collected on Internet sales.  Even if your company doesn’t own property in the state to which the merchandise is shipped.  In conventional retail sales,  when you sell outside the state your business is located in, the business is not required to collect state sales taxes.

But what makes the current legislative situation really peculiar is that the legislature in say, New York, can pass a law that compels a company in Georgia to collect taxes for sales and shipments made to New York.  Since the taxing authority is outside the state that the business operates in, it’s not clear what the basis is for being able to enforce such a requirement.

Consumers increasingly use the Internet for retail transactions.  The Internet provides the convenience of shopping without getting in the car and driving around from store to store.  Translates as lower cost.   Sometimes Internet shopping also provides access to hard-to-find items.  Less time wasted running around, translates as lower cost.  Since retail sales taxes are not collected, this also translates as lower cost.  Maybe that’s why Internet sales are doing so well,.

But Internet retailers must ship products to their customers.  Which adds cost.  And to some extent, the real innovation of Amazon.com was the efficiency of their logistics, translate as low cost.  So collecting taxes on Internet transactions has the unintended consequence of increasing costs to the consumer.

The logistics piece, by the way, requires companies like Fedex and UPS to move freight.  So there are real people moving your purchase from a warehouse to your home or office.  And there are complex material handling systems, bar code scanning systems, PLC controls, fork lifts, battery controls and computer data systems required to achieve all this performance.  Mechatronics being a large part of the technology that enables this cost efficiency.

So the current debate is an ethical problem.  Do state legislatures or does the federal government have the authority to tax transactions made on the Interntet?  Does the proposed legislation represent a public safety concern?  Does legislation of this kind open the door to further control of what will and will not be considered “legal” about the internet.

All weighty matters.  And matters that must be considered sooner rather than later.  Without public response, the trend is toward more government, more government control and rising costs.  None of which will get the US economy going in the direction we need to be going.

The Innovation Equation

When people start talking about how “technology will restore our economy” I tend to get a little nervous.  Generally, it is not good to mix politics and science.  It is worse for politicians to make national policy using science or technology as the justification.  Politicians are rarely technically astute enough to interpret the opinions of the “experts”, especially when they conflict with each other.  And due to the politics of funding, experts sometimes have to be politically sensitive to their patrons.

What is the proper role of government in the realm of science and technology?  Personally, I think there should be no direct role.  But the cat’s out of the bag.  And government has taken a large part of the role controlling what technology we as a nation will work on when $9Bil is spent by the DOE and many times that is spent through the various military and non-military agencies of the government who contract research and development.  There is a legitimate interest in our country’s defence, but the lines have become blurred as more and more funding comes from government sources.

Industry in the United States, it seems, has outsourced a lot of the Research and Development that it used to fund.  The Euorpeans work closely with their Universities to leverage the available talent at low cost to get some things done.  The US is doing some of that, but maybe we need to do more.

Sometimes there are bigger forces at work that no single company can overcome in its marketplace.  Transitioning from gasoline based cars to electric cars might be one.  Auto makers need volumes of 50,000 to 100,000 units to get cost effective.  Notwithstanding that claim, I am pretty sure that the Japanese hybrids are just now reaching those volumes.  Those are cars American workers didn’t get to build.

And taxing things is a form of economic punishment.  Taxation is intended to discourage certain behaviors.  But taxing (punishing) is a form of negative reinforcement.  Instead, wouldn’t we be better off by encouraging good behavior?

So here’s are a really radical idea; instead of taxing carbon, or creating a shadow currency that only a few large companies can profit from, why don’t we incentivize any new technology that can be substituted for combustion?  Let’s figure out some novel ways to run our systems without burning something.  Carcinogenic diesel emissions and other atmospheric polutants, will gradually disappear.  Clean air and water will be an almost certain result in years to come.

Solar Power, Wind Power and Electric Cars all avoid combustion.  Tax Credit? You bet.  Fuel Cell Bus(already available) for city transportation systems? Yup.  Injection heaters for hot water?  Hot water heat exchanger for central heating systems? That would replace burning natural gas, right? Cha-ching, tax credit. Electricity generated by atomic energy in mini-reactors instead of burning coal? That too.  In fact, we could affort to give the whole coal industry help to convert itself into the fuel refining and encapsulating industry instead of paying $60 to $90 Billion to rebuild the national grid.  The grid won’t be needed except in an emergency.

We would have so many new businesses opening up, employment would go up and the national debt would go down, without raising taxes.  Let’s give American innovation a chance.