The ‘deficit-neutral reserve fund’ game to corner conservatives on Internet Sales Taxes
Later this week, the Senate is likely to vote on a “deficit-neutral reserve fund” amendment regarding internet sales taxes, couched in terms of state sales and use tax laws. As is frequently the case with such resolutions, it will contain plain language that is sufficiently generic as to hide its true intention: to corner conservatives into a proxy vote on the “Marketplace Fairness Act,” a flawed bill opposed by most of the conservative movement. If a vaguely-worded resolution draws significant support, then sponsors like Senator Dick Durbin (D-IL) will point to it as proof that his misguided legislation to dramatically expand state tax collection authority should get an immediate vote on the Senate floor. Supporters of limited government should oppose the Marketplace Fairness Act and any “reserve fund” scheme to aid its passage because it is bad policy for conservatives and even worse politics.
First, a brief reminder of why this bill is misguided. It would allow states to tax businesses beyond their borders for sales made online, setting a terrible precedent for other areas of tax policy and subjecting businesses to huge compliance burdens. It also imposes an “unlevel” playing field by allowing brick-and-mortar sales to collect tax based on the business’ location while forcing online sales to collect tax based on their customer’s location (a much more burdensome and complicated standard). Third, it creates real interstate commerce burdens of the kind that Congress should be actively avoiding.
But let’s focus on the politics. This is, after all, the United States Senate we’re talking about. Simply stated, the next Republican Senator to get in electoral trouble for being insufficiently supportive of expanding tax collection on businesses across state borders for internet sales will be the first. It’s true that there’s a lot of noise about this bill; that much is undeniable. Big box retailers have poured tens of millions of dollars into a high-powered lobbying and PR blitz to support the Marketplace Fairness Act because it would advantage them against their competition. But I haven’t heard much from what you could call “regular” folks without a business or lobbying interest in the bill saying, “Yes, please. Let’s give state revenue collectors the authority to target businesses outside their borders and levy their complicated taxes on my internet purchases.” In fact, polling on the matter pretty consistently shows that the public opposes the concept behind the bill, including upwards of 75% of conservatives.
A “no” vote on a “reserve fund” scheme might annoy lobbyists in gleaming penthouse offices on K Street, but so what? Regardless of one’s feelings on the underlying issue, a “no” vote is easier to defend back home because a failed reserve fund amendment does nothing to materially impact the fate of the Marketplace Fairness Act (it can always be brought up later) while a successful resolution helps to manufacture pressure to pass the bill ASAP, before committees can fully vet it and before the eyes of the world are truly set upon it. Any Senator with questions about the bill or who has yet to make up his or her mind on it should vote “no” by default, since there is no deadline that must be met and the bill has not been subjected to enough analysis on the Hill.
Beyond the lobbying game, a Republican Party that sees itself as resurgent on thwarting government intrusion on technology policy (witness conservative engagement on cybersecurity, wireless spectrum, and copyright issues) would look awfully strange simultaneously supporting greater tax collection authority via the internet. Some conservatives have made real inroads into tech-focused communities by being consistent opponents of unwarranted government involvement, something quite at odds with the Marketplace Fairness Act.
A lot of Republican Senators have kept their powder dry on the Marketplace Fairness Act because it’s a complicated issue and there have been much more important battles being fought over the last year or so. This week’s vote seems poised to try to trick them into effectively supporting that bill by instead presenting them a generically-worded deficit-neutral reserve fund. Time will tell whether or not they make the right choice, but rest assured that conservatives will be watching very closely.
