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Life Arts    H3'ed 2/27/12

Why Sales Taxes?

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Mason Gaffney
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Sections 8 and 10 are there by design.   James Monroe was the leading champion (T.J. Norton, p.51), so I shall herein call the Commerce Clause "The Monroe Doctrine" --one that did and does more for the greatness of the U.S.A. than the better-known doctrine of the same name (actually the work of J.Q. Adams, anyway).   One could equally well name it the "Turgot Doctrine" after a great French economist and statesman of the 18th Century who devoted his life and career to removing France's interprovincial trade barriers. Turgot never set foot in America, but was one of our true "Founding Fathers" because of his direct influence on several leading Americans who learned from him when they represented the colonies in France.   This is a story in itself (Appendix I).

Media and academic pundits slight domestic trade, yet this is the basis of our greatness.   They write and speak of "trade" and "commerce" and "specialization" as basic good things, but synonymous with international trade.   (Look up "commerce" in The New Palgrave Dictionary of Economics: it says "see International Trade.")   States and cities speak of their export industries as their "economic base," yet their internal trade is far more important (Jane Jacobs, among others, has nicely demolished this hoary "economic base" fallacy).   Consider the case of The Erie Canal: it thrived and made money for 20 years, 1825-45, based purely on internal trade, inside the State of NY (Carter Goodrich, Philip Cornick). 

Neo-con "free traders" push free international trade, while also pushing AGAINST interstate trade.   How much sense does that make? Worse, it is not clear that California would or could make e-retailers in foreign NATIONS collect and remit sales taxes on California buyers. There is this delicate question of national sovereignty, as Senator Jesse Helms discovered when Canada defied his "Trading with the Enemy" Act and pointed out that American-owned firms exporting from Canada could sell to Cuba if they darned pleased -- which they did. Thus, if California wins against Amazon, but cannot block or tax sales from Mumbai, we will end up with a negative protective tariff. This is either a major unintended consequence, or, with a touch of reasonable paranoia, a silently intended one calculated to benefit giant firms that have outsourced.

4.   How Congress might circumvent the Monroe Doctrine - but probably won't. 

A.   "The consent of Congress."  

States may tax imports "with the consent of Congress."   McGoldrick v. Berwind White (1940) also established they might apply a sales tax if the seller has a "nexus" (physical presence) in the taxing state.   Quill Co. v. N.D. 1992, seems to have established that Congress (not any state) has the power to enact legislation letting states levy sales- and use-tax on remote sales, including mail-order and electronic sales, without the current requirement of physical presence.   Congress and the President have the power to require all online vendors (and all mail-order sellers) to collect sales- and use-tax on all sales to all states.

That's interesting, but only speculative and hypothetical to date because Congress doesn't pass laws just because it may.   It also has power, for example, to tax capital gains as they accrue, but it never has, and the leading case where the U.S.S.C. ruled that Congress has this power under the 16th Amendment is usually cited, tendentiously and misleadingly, to show the opposite.   This is because the Court told the Wilson Administration it needed the consent of Congress (Eisner v. Macomber, 1920); it is Congress that has the power to define taxable income, which the 16th Amendment does not. Congress has never given this consent, but it could, any day of the week.  

For another example, the very first power the Constitution enumerates for Congress is the power to levy a national land tax (Art. I, Sect. 2, Para. 3), but it hasn't since 1862.

So Congress could empower states to collect sales taxes from out of state vendors; it simply has not done so.   It has not lacked for urging and lobbying by the States.   The ACEC includes a large number of state representatives who keep asking for authority to tax remote sales, both electronic and traditional. Congress is simply not inclined to open this Pandora's Box. Here are some of the snakes in it. 

B.   The Uniformity Requirement

Congress is bound by the constitutional mandate of uniformity.   "... all Duties, Imposts and Excises shall be uniform throughout the U.S."   (Art. I, Sect. 8).   Many states are not so bound.   There are over 7,000 sales tax jurisdictions (counting cities and counties), and constant flux in the rules.   Then there are business license fees: in Riverside, California, for example, business license fees vary from business to business because the city uses 35 (sic) formulas to calculate the charge.   Some fees are based on gross receipts, which would seem to make them city sales taxes, de facto.   The chances of achieving uniformity are near zero.

One might object that many Federal taxes appear non-uniform, but "the uniformity of taxation throughout the U.S. is geographic, not intrinsic" (Bromley v. McCaughn, 1929; also the Head Money Cases, 1884).   Thus, the U.S. may tax maple syrup and exempt cotton, but it must do so the same in every state. 

Then there are the 5 states without any sales taxes at all.   Can Congress get into helping enforce a Duty, Impost or Excise in 45 states while exempting five?

C.   Zeitgeist 

The spirit of the times is for Decentralization and "Devolution" - of power and responsibility from the Feds to the states.  There are large cuts in Federal programs.   Some old centralists, like Alice Rivlin, are still proposing a national sales tax or VAT to be divided among the states, but they are swimming against a current. They are also, of course, reversing their lifelong "demand-side" (underconsumptionist, early-Keynesian) preachments.

The EU and the OECD are centralist, but have hit major roadblocks in their drive for tax "harmonization" among all nations.   Even in Europe, the "principle of subsidiarity" (Devolution) is written into the original Maastricht Treaty.   Oskar Lafontaine is gone.   The pro-harmonization Commissioners of the EU were all disgraced and replaced as of 1999. 

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Mason Gaffney first read Henry George when a high school junior , and became notorious among his classmates for preaching LVT to them . H e served in the S.W. Pacific during W.W. II, where he observed the results of land monopoly in The (more...)
 
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