Feds need to take thumb off state economies
Dr. Art Laffer
Gov. Scott Walker and the Wisconsin State Legislature should be commended for their work to enact pro-growth policies at the state level that will engender true economic expansion in the Badger State. Wisconsin is setting a blueprint for tax reform, much like they did in the 1990s by leading the way on welfare reform. But to take the next step, Walker needs Congress to do its part by returning power and authority back to the states.
A budget bill passed by legislators in Madison and signed into law by Walker last year will automatically trigger a reduction in the state income tax rates once Congress passes legislation closing the online sales tax collection loophole. This important tax reform would benefit Wisconsin families and small businesses alike; however, its implementation is dependent upon Congressional action to require out-of-state businesses to collect and remit the state sales tax — the same sales tax Wisconsin businesses collect and remit every single day.
For over 20 years, the disparity in the way our nation’s sales tax laws treat local businesses compared with their online-based counterparts has distorted what should be a free market — one unencumbered by government interference. Because local retailers must collect and remit state sales taxes, while online retailers are essentially given a pass, the government is picking winners and losers in the retail marketplace. That simply should not be the case in a free-market economy such as ours.
By holding one set of businesses to a completely different set of standards than another, our outdated tax laws not only handicap local small-business owners, but they also stifle economic expansion. Under the current tax regime, consumers are incentivized to shop online where they (mistakenly) believe they can escape paying sales taxes. Often, this puts a drain on local businesses’ resources, as the unlevel playing field has led to would-be customers frequenting local retailers to solicit advice, compare merchandise, even try out different products, and then leave empty-handed to purchase their goods online. Government has its thumb on the scale, and it is time they took it off.
Moreover, by fairly enforcing the collection of sales taxes due but often uncollected from Internet sales, states will begin seeing their sales tax bases broaden, giving fiscally minded state leaders such as Walker the tools necessary to lower other, more harmful taxes. While Wisconsin is one great example of how this could work, there are three other states — Idaho, Ohio, and Utah — that have passed similar laws or budgets and about a dozen others considering similar measures. Wisconsin is ahead of the curve, but their example should provide the path forward for other savvy governors.
A study I conducted with state budget expert Donna Arduin last year found that America could create 1.5 million new jobs and add over $560 billion to our economy in 10 years if Congress passes E-Fairness legislation and states take this pro-growth approach. In Wisconsin, that translates to nearly 24,000 jobs and over $7.5 billion added to the state’s economy in the same timeframe.
When Congress passes E-Fairness legislation, Wisconsin lawmakers would be able to follow through on the promise of lower income taxes for all Wisconsinites, local businesses would be granted a level playing field upon which to compete fairly, and the state would regain control over its own tax code, creating jobs and economic opportunities in the process.
It’s a win for local businesses, a win for taxpayers and a win for states’ rights. The only losers are those who support government meddling in the free market.
It is time for Washington to seize this unique opportunity by passing E-Fairness legislation and strengthening our free-enterprise system.
Dr. Art Laffer is an Economist and Chairman of Laffer Associates.