We are the heirs of the Industrial Revolution, and, of course, the Industrial Revolution was all about economies of scale. Its efficiencies and advances were made possible by banding people together in larger and larger amalgamations, and we invented all sorts of institutions — from corporations to municipal governments — to do just that.
This process continues to this day. In its heyday, General Motors employed about 500,000 people; Wal-Mart employs more than twice that now. We continue to urbanize, depopulating the Great Plains and repopulating downtowns. Our most successful industry — the technology company — is driven by unprecedented economies of scale that allow a handful of programmers to make squintillions selling some software applications to half the world’s population.
This has left us, I think, with a cultural tendency to assume that everything is subject to economies of scale. You find this as much on the left as the right, about everything from government programs to corporations. People just take it as naturally given that making a company or an institution or a program bigger will drive cost efficiencies that allow them to get bigger still.
Of course, this often is the case. Facebook is better off with 2 billion customers than 1 billion, and a program that provides health insurance to everyone over the age of 65 has lower per-user overhead than a program that provides health insurance to 200 homeless drug users in Atlanta. I’m not trying to suggest that economies of scale don’t exist, only that not every successful model enjoys them. In fact, many successful models enjoy diseconomies of scale: After a certain point, the bigger you get, the worse you do.
Megan McArdle, “In-N-Out Doesn’t Want to Be McDonald’s”, Bloomberg View, 2014-10-02.
October 11, 2014
September 20, 2014
The most recent corporate inversion that hit the news — Burger King and Tim Hortons — may or may not work out, but it’s generally a sensible economic strategy that can yield strong results for the shareholders. In the most recent issue of The Freeman, Stewart Dompe and Adam C. Smith talk about why inversions are an example of competitive governance in action:
Populist themes like “economic patriotism” may appeal to voters, but such arguments are nonsensical: Firms are ultimately responsible to their shareholders. As Judge Learned Hand wrote, “Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.”
If anything, firms have a moral responsibility to minimize their taxable liabilities. The legal structure of a firm establishes the relationship between shareholders, who own the capital, and managers that make operating decisions. Executives have a fiduciary responsibility to pay the lowest tax possible because they are the stewards of their shareholders’ wealth. There is no functional difference between an executive who spends millions of dollars on a lavish party and an executive who gives that money to Washington instead—except that the former is probably a lot more fun to be around.
Think about tax compliance like a rent check owed to one’s landlord, with the added complication that it’s very difficult to move. Suppose a tenant is currently renting multiple apartments at one location, but decides the rent is just too damn high. Since the tenant can’t relocate entirely, suppose she moves some of her stuff out of one of the apartments into a storage unit across town, thus saving significantly on her rent. Would this be seen as unethical in that the tenant is attempting to avoid her fiduciary obligation to the landlord? Of course not. She is simply trying to reduce the costs of residing in a particular location.
In the same vein, minimizing the firm’s tax burden means minimizing part of the firm’s operating costs. Just as a resource manager can identify a more cost-efficient way to produce goods and services, so can a tax lawyer identify a more cost-efficient way of maintaining tax compliance. A business has no moral obligation to always use the same suppliers, be they suppliers of production inputs or corporate charters. The law is the law and firms have the option of changing how they are structured and located in order to minimize their taxable liabilities. If they use loopholes, so be it: Loopholes are by definition legal. Firms only have the obligation to pay the tax mandated by the law.
August 26, 2014
In Maclean’s, Jason Kirby looks for reasons why Tim Hortons is interested in a deal with Burger King:
For starters, let’s consider Burger King’s motivation for buying Tim Hortons. It is not looking for synergies. Don’t expect to see Burger King roll out twinned stores, with one counter selling Whoppers, the other Timbits, as per Wendy’s strategy when it owned Tims. Instead, Burger King wants to avoid paying U.S. taxes. If the deal goes ahead (no agreement has been finalized) Burger King will achieve this through what’s known as a “tax inversion.” It would buy Tim Hortons, then declare the newly merged company to be Canadian. And because companies in Canada enjoy a lower corporate tax rate than those in America — 15 per cent in Canada compared to an official U.S. rate of 35 per cent — Burger King’s future tax bills could be a lot smaller.
Canada, it would seem, is the new Delaware.
So Burger King is buying Tim Hortons, but in doing so, the combined Tim Hortons and Burger King will be financially engineered to be Canadian, at least on paper. A statement released by the companies following the Wall Street Journal‘s initial report on the deal said Burger King’s largest shareholder, 3G Capital, a Brazilian private equity firm, would own the majority of the shares of the newly created company. And you can be sure any tax savings will flow back to shareholders in the form of higher dividends.
It’s clear what’s driving Burger King to pursue this deal. But there’s been far less attention paid to the question: what’s in this for Tim Hortons?
According to Tim Hortons, the answer — as it unceasingly has been for the past two decades — is the pursuit of international growth. In the statement from Tim Hortons and Burger King, the companies said the coffee chain will have ”the potential to leverage Burger King’s worldwide footprint and experience in global development to accelerate Tim Hortons growth in international markets.”
Update: Kevin Williamson points out that relatively few US companies actually relocate to other countries now, but that the number is clearly increasing and knee-jerk reactions to that by politicians may well make it worse.
There are trillions of dollars in U.S. corporate earnings parked overseas, and progressives want the government to shove its greedy snout all up in that, denouncing “corporate cash hoarders” and blaming un-repatriated corporate earnings for everything from the weak job market to chronic halitosis. Harebrained schemes for putting that corporate cash in government coffers abound. So the current balance could quite easily be tipped. And after years of ad-hocracy under Barack Obama et al., U.S.-style “rule of law” may not be as attractive as it once was. A few more arbitrary NLRB decisions or political jihads from the IRS could change a few minds about the value of U.S. law and governance.
The question isn’t whether you can bully Walgreens out of its plan to move to Switzerland. The question is whether the next Apple or Pfizer ever puts down legal roots in the United States in the first place. Right now, the friction works in favor of the United States, but there is no reason to believe that that will always be the case. You think that Singapore wouldn’t like to be the world’s banking or pharmaceutical capital? That Seoul lacks ambition? That the Scots who brought us the Enlightenment can’t run a decent system of law and property rights? Burger King is not talking about moving to some steamy banana republic for tax purposes, but to stodgy, stable, predictable, boring old Canada. Boring and predictable looks pretty good if you’re Burger King, especially when the alternative is unpredictable and expensive. Unpredictable and expensive is what you date when you’re young and stupid — you don’t marry it.
Update the second:
Golly, I thought we were supposed to admire people who trek northward over the border seeking a better life for their families. #BurgerKing
— David Burge (@iowahawkblog) August 26, 2014
August 6, 2014
Oh, my. A few corporations are using the “corporate inversion” tactic to get out from underneath punitive taxes and the reaction is to talk about making it harder to escape? Tamara K. explains why this is breathtakingly dumb:
Dude, one of the complaints that nuanced cosmopolitan liberals have with Ayn Rand is that her villains are cartoonish caricatures, and here you go popping out an editorial that could have been written by Wesley Mouch. Tone-deafness on this scale is positively breathtaking. Atlas Shrugged was not an instruction manual, you knob.
I suspect more corporations have been considering the pro and con to corporate inversion recently … and the hysterical reaction to the few that have already taken place may trigger a rush to the exits. Nice work, guys!
April 30, 2014
Here’s Tim Worstall’s counter-intuitive post at the Adam Smith Institute blog from last week:
… Note “family foundation” there. Because of that inheritance tax rich people do tend to (and they have to be very rich for it to work) stick all of the money into a foundation. This wealth can then be maintained by professional money managers down the generations. Tax free, of course, as it’s inside a foundation. The stipulation is that said foundation must give away 5% of its assets each year. But such “giving away” obviously includes employing family members to run it. At pretty much any salary desired.
This obviously wouldn’t happen if the money could just be left directly to children without tax being due. And the effect of it going into such a foundation where the professional money managers can maintain it, rather than the heirs blow it, is that we’ve lost one of the major forces that disperses wealth through the society. The feckless heir.
So, we end up with the imposition of the tax leading to the continued concentration of old wealth, as the avoidance of the tax reduces the ability of the inheritors to waste it.
As an example, who thinks that any of the Kennedys would still be rich if they’d been able to get their hands on old Joe’s money directly?
I rest my case.
As one of the comments on that post points out, it’s not just the inheritance tax: it’s the interaction between the tax and the rules governing family foundations that create this unexpected-to-most-of-the-99% situation. I’m sure the 1% who can benefit from this are fully aware of it. This could be fixed either way, but the very people who benefit are the ones who would be pivotal in whether the changes could be made. So, it’s technically possible but not at all likely.
April 17, 2014
April 14, 2014
The RSS feed that used to track Megan McArdle’s posts at Bloomberg View has been on the fritz for a couple of weeks, so I missed this article when it was posted earlier this month:
The argument for unlimited liability isn’t just a libertarian evergreen; it’s also something you occasionally hear from the far left, because it would basically make the corporate form untenable. Imagine, if you would, that by buying and holding the share of a firm for 10 minutes, you thereby subjected yourself to seizure of all your goods to satisfy potential lawsuit judgments — even if those judgments involved behavior that involved no legal liability at the time of the acts.
Not possible? That’s basically what happened with asbestos liability. Firms that had had no legal liability under the doctrines of the times in which the asbestos was sold or used suddenly found themselves driven into bankruptcy by massive settlements. Moreover, after the first wave of lawsuits exhausted the funds available to pay asbestos claims, plaintiffs’ lawyers started pushing to expand the number of pockets that could be dipped into.
A company that had never manufactured asbestos could be sued and have to spend hundreds of millions of dollars on lawsuits and settlements because it had once bought a company with an insulation division that had formerly manufactured asbestos — even though it had immediately sold off that division in the process of completing the merger. Insurers could be forced to pay out for the whole of a company’s liability if they had sold a company insurance for even a year between the time a company started making or using asbestos and the time that the plaintiff discovered the harm. And “harm” wasn’t limited to getting sick; you could sue for the emotional distress of worrying that you might get sick.
Kind of hard to imagine becoming a shareholder under those circumstances, isn’t it? Maybe you’d better put your money in the bank — a small, privately held bank, of course. Commerce would look something like it did in medieval Italy, where all economic activity was basically organized by the family or the partnership.
Growth would have to be financed by debt or by retained earnings. That’s how British firms financed expansion in the early days of the Industrial Revolution. It’s how small businesses tend to finance expansion now.
The traditional libertarian answer is “insurance”, but that’s a non-starter as well.
To which I answer: What insurance company?
Insurers are also corporations, and their owners get the same valuable shield from liability that everyone else gets from the corporate form. They may have shareholders, or they may be mutually held by their policy holders, but either way, someone is getting protection from lawsuit by the same laws that protect General Motors Co. This sort of liability shield is vital for any large aggregation of capital requiring lots of contributors — which is basically the definition of an insurance company.
November 15, 2013
In this week’s Goldberg File email, Jonah Goldberg talks about the notion that corporations should operate with an eye to “social responsibility”:
Milton Friedman was famously opposed to the whole idea of “corporate social responsibility.” His argument was that corporations have a single obligation: to maximize profits for shareholders. When CEOs spend money on gitchy-goo feel-good projects, they are exceeding their authority and wandering outside the lines of their job description. I’ve always been very sympathetic to this view. If you asked me to invest $10,000 dollars in your startup company and then I found out you spent $5,000 of it to sponsor a program to teach prison-gang members to settle their disagreements by acting out scenes from Little Women, I’d be pretty pissed. That’s not why I gave you the money. And it’s pretty shabby of you to buy fame and praise for your generosity while spending someone else’s money. Indeed, it’s not much less selfish than blowing it on a three-day bender with the mayor of Toronto.
There are lots of different takes on this argument and, because this is my “news”letter, I choose not to deal with most of them. My problem with the profit-maximizing-über-alles creed for Big Business is that it offers no principled or moral reason for Big Business to stay out of Uncle Sam’s bed. If the federal government can make it rain Benjamins for any business willing to twerk for its amusement, why should GE or Big Pharma or the insurance companies demur?
Of course, some businessmen understand the risks of getting in bed with the government. But, since there’s lots of money to be made, there will always be other businessmen perfectly happy to put on the French-maid uniform and bark like a dog.
Even Adam Smith said, “people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” That’s true. What’s even more true is that when government officials and business leaders sit down to talk, the inevitable result is a new “public-private partnership” that uses government force to limit competition from non-whorish corporations. Railroad magnates lobbied for the Interstate Commerce Commission. AT&T asked the government to make them a monopoly in the name of “efficiency” so they could clear the field of competition. Andrew Carnegie wanted government control of the steel industry so he could rely on Uncle Sam to guarantee his profit margins. GE loves Obama’s green-energy stuff, because without the inherent subsidies and regulations, it couldn’t make money off of its green tech.
I have no problem with contractors doing work for the government. It’s better that the guys building roads and bridges work for the private sector. But when big businesses agree to make the country less free, the market less competitive, Americans less prosperous, and the state more powerful just to make a few more bucks for their shareholders, it makes me think that Milton Friedman was wrong. We need a free-market version of corporate social responsibility. We need to equip businessmen with an ethical code that tells them there’s a principled reason not to get in bed with the government. They’d still be free to violate that principle, of course, but if they did, I hope they’d have the good sense not to come running to us to complain that the government has asked them to eat a bowl of dogsh**t.
September 25, 2013
The Register‘s headline perfectly encapsulates the dispute between Oracle/American Express and a high-end strip club:
A San Francisco strip club is suing Oracle after the tech goliath refused to pay a $33,540 bill allegedly racked up on the company credit card.
Larkin Street’s New Century Theater has filed a lawsuit claiming a man — named in the legal paperwork as Jose Manuel Gomez Sanchez — slid into the sexy flesh-pit last year and partied through the night.
It’s alleged he used an Oracle-issued American Express card between 1am and 5am to pay for $16,490 of undisclosed services on 2 October — right in the middle of Oracle’s OpenWorld 2012 conference in the city — and then returned two days later to splurge $17,050.
According to the San Fran Chronicle, Oracle was not willing to settle the subsequent bill. The database giant, easing itself into the software-as-a-service market, declined to comment on the lawsuit, which was submitted earlier this month to the Superior Court of California in San Francisco. The next hearing will take place in February. Sanchez is named as a defendant along with Oracle.
I’m not a lawyer, but it strikes me as a bad idea for Oracle to dispute the charges on the Amex card unless there are strong indications of “creative” billing on the part of the strip club. Just because they disapprove of how their employee racked up the charges doesn’t mean they can stiff the vendor.
I’ve never worked in the investment banking world, but even at the tech companies I’ve worked for over the years, I saw smaller versions of the kind of behaviour that Chris Tell says are sure-fire signs of a toxic corporate culture:
It was the late 90′s, markets were booming and the only thing that seemed to be flowing faster than the pints on a typical Thursday night in the city of London’s watering holes, was of course the money.
Living it up … great food, expensive cocktails — in fact the more expensive the better — that was the prevailing attitude. Never on your own dime of course.
This wasn’t unique to Lehman, who I was with at the time, or to any other bank for that matter. I contracted to a handful of the big names, and they were all abusers.
It was, and still is deeply ingrained in much of the investment banking corporate culture. It’s also been a cancer in many of the businesses I’ve researched over the years.
I now have zero tolerance for it as an investor and business owner, despite the fact that I was more impressionable when younger.
Back then, being young and naive, working for a fancy-pants IB, I was awestruck by my bosses spending hundreds of pounds in a drinking session. As I look back I’m embarrassed for thinking that these wealthy parasites where gods of some kind. The more they spent … the bigger an asshole they were … the more they were idolized and revered!
As far as I could tell most of my fellow inmates had applied to an ad that read something like: Arrogant, obnoxious, self-aggrandizing types being accepted now.
Humans have a desire for fairness but also love a free lunch. These two aspects work against each other.
Soon one manager sees another manager ordering lobster at lunch and thinks to himself, “Screw it, if he’s getting it so should I.” Rapidly a culture of entitlement develops where mysteriously, corporate travel, apartments, dinners, drinks and other things that have little to no ROI start burning up the expense accounts. These folks rarely stop to consider the impact of their actions, while somehow believing that they have “earned it” and indeed “deserve it.”
I was never able to put my finger on it at the time, but having subsequently spent the majority of my adult life researching and investing in early-stage businesses, I now have a keen eye for spotting this, and will never invest in businesses which allow this type of culture to gain footing.
Once let in the door it grows like a cancer and completely destroys shareholder value.
Incidentally, it’s not distinctly different to how career politicians view themselves. They actually believe that what the do, day in and day out is worth something more than it is. That it’s somehow more than just community service, and they should be compensated in the fashion that they (currently — hopefully temporarily) are.
September 4, 2013
At Not Quite Noahpinion, Josiah Neeley explains why the legal notion of corporate personhood was actually intended as consumer protection:
Contrary to popular impression, corporate personhood did not start with Citizens United. In fact, corporate personhood dates back to the old English common law, where it was originally conceived as a consumer protection measure.
Suppose I buy meat from a butcher and it makes me sick. I might wish to sue the butcher for damages. But suppose that I bought the meat not from an individual butcher but from Acme Meat, Inc. It was a central doctrine of the common law that only persons could sue or be sued, own property, or make legally binding contracts. So if a corporation is not a person, I am out of luck. The response to this was to treat corporations as legal persons, who could sue or be sued, make and enforce contracts, buy, sell, and hold property, and so on.
Of course, courts could have granted corporations all the same rights, abilities and duties without calling them persons. But this would have been merely a semantic difference. Once a society decides to have corporations, it has to grant them something along the lines of legal personhood if for no other reason than to protect those who deal with it.
Likewise, once a society decides to grant corporations the right to own property, it is absurd to deny them constitutional protections. The New York Times, the AFL-CIO, and the Sierra Club are all corporations. But it would be ridiculous if the government tried to use those organizations’ corporate status as a justification for regulating the editorial position of the New York Times, or controlling the advocacy position of the Sierra Club or the AFL-CIO.
More than 150 years ago Alexis de Tocqueville noted in his Democracy in America that the genius of the American political tradition lay in what he called associations but what in today’s terminology we would call corporations. In Europe, to advance some political, social, or economic cause required some wealthy patron. In America, by contrary, groups of people who individually might not have had deep pockets could come together and pool their resources by founding an organization to advance the cause.
Far from being a tool of repression, corporations advanced the interests of democracy and equality by allowing the little guy to organize to accomplish what otherwise could only be achieved by the very rich. Ending corporate personhood would not stop billionaire individuals like the Koch brothers or George Soros from using their wealth to affect the political process, but it would hamper small grass roots organizations which choose to use the corporate form. Ultimately, the long tradition of corporate personhood represents not a threat to democracy, but a support of it.
August 1, 2013
Better still is Banksy’s satirical picture, this one on a wall in London’s Essex Road, of two small children pledging allegiance, with hand on heart, to a Tesco plastic bag on a flagpole — actually an electric cable — being run up like a flag by a third child. Tesco is Britain’s largest supermarket chain, and its plastic bags, white with blue stripes and red lettering, litter the countryside, often flapping from trees or disfiguring hedgerows.
Of course, Banksy, as a spoiled child of a consumer society in which real shortage is unthinkable, has all the unexamined anticapitalist prejudices of the lumpenintelligentsia to whom he appeals. But it would be wrong to dismiss the satire of this image out of hand. Tesco, after all, issues a “loyalty card” called a Clubcard; every customer is asked at the checkout, now sometimes by machine, whether he has such a card. The card’s name implies that shopping repeatedly in the stores of one giant corporation rather than in those of another, in the hope of a small price rebate, constitutes membership in a club. You don’t have to be anticapitalist to think that such an idea debases the concept of human clubbability. (In the same way, the word “solidarity” is degraded in France by its association with the payment of high taxes extracted from citizens by force of law.) It is no new thought — but not therefore a false one — that at the heart of consumer society is often a spiritual vacuum, at least for many people. They fill the vacuum with meaningless gestures, such as loyalty to brands almost indistinguishable from one another. I have known murder committed over brands of footwear. Banksy’s image captures, both succinctly and wittily, the vacuum and what fills it.
You also don’t have to be anticapitalist to acknowledge that the power of corporations like Tesco is not altogether benign. The small and beautiful town in which I live when I am in England illustrates this. When my next-door neighbor decided to restore and redecorate his house, which dated from 1709, the local council’s conservation department demanded that the new lead flashing on his roof, invisible from the street, be stamped with a design of bees, presumably because it had been so stamped at some time in history. Certainly conservation is important and cannot be left entirely to individuals. But why was my neighbor bullied in this fashion when Tesco was permitted to open a store not 100 yards away with a frontage completely out of keeping with the town — an eyesore that affects the town’s aesthetic fabric infinitely more than the absence of bees on my neighbor’s invisible lead does? The great majority of British towns have been ruined aesthetically in a similar way, their main streets becoming dispiritingly uniform and ugly, no doubt through some combination of corporate power, bribery, and administrative incompetence. Bullying people like my neighbor is perhaps the officials’ overcompensation for their cowardice or dishonesty in the face of corporations. Banksy’s image therefore has some satirical depth to it.
Banksy’s attitude toward authority and property rights is the standard hostility of the lumpenintelligentsia. Here he is particularly hypocritical because, while maintaining that pose of hostility, he employs lawyers, owns private companies, and is reputed to be highly authoritarian in his dealings with his associates. Inside every rebel, goes the saying, there’s a dictator trying to get out.
Theodore Dalrymple, “The Discriminating Philistine: Banksy’s wit and talent don’t excuse his vandalism and juvenility”, City Journal, 2013-06
June 16, 2013
In Forbes, Tim Worstall explains why a company that has paid full corporate taxes on its income has no further legal or moral obligation to pay more:
Read that through again: they’re saying that the company has already paid full corporation tax on that money. And we don’t tax dividends going to people in foreign countries. Whatever the tax rate is there, we simply don’t tax them. Because of course that’s up to the country where the money goes to to tax: it’s not actually something that is taxable in the UK. For, obviously, they’ve already paid the full corporation tax due.
But it does actually get better. Those dividends, paid out of post tax (and do please note, post tax) profits wouldn’t be subject to further corporation tax in the UK either:
The general rule is that dividends paid by a UK company to another UK company out of post-tax profits are exempt from further taxation.
That the recipient corporation is in the British Virgin Islands thus makes not one whit or iota of difference to the amount of corporation tax payable. So this is all really a rather strange complaint. Perhaps the newspaper has just got caught up in the frenzied atmosphere over the subject.
[. . .]
As to why this story is being blown up allow me to offer some speculation. There’s a group of people who are quite vociferous in their demands that the corporate tax system must be radically changed. Richard Murphy (who just for complete disclosure, used to write here at Forbes) is one of the leading lights of that group. Various members of the loose knit group have been behind all sorts of claims about Vodafone, Boots, Starbucks, Google, Apple and a number of other companies. The problem with the claims is that none of them have really stuck. There’s been absolutely no finding of illegality anywhere.
The claim has thus moved onto, well, OK, so it’s not illegal: all of these companies are indeed obeying the law. But we still don’t think they’re paying enough tax. Therefore the law must be changed simply because we think they should be paying more tax. Which is, when you think about it, a fairly extreme claim. Companies should pay more tax because a group of 20 or so people demand that they should be doing so?
May 25, 2013
At the Adam Smith Institute, Tim Worstall explains why Ireland has — and should continue to have — a low rate of corporate tax:
Companies don’t pay corporation tax: it’s some combination of the shareholders and the workers who do. This is not a point in argument: the only argument is about what the portions are, not the fact that the burden falls upon these two groups. We also know what it is that influences which group: it’s how large the economy is in relation to the world economy and how open it is to capital movement. The smaller and more mobile, the more the workers get it in the neck.
The mechanism is simple enough. It’s pretty much straight from Adam Smith in fact. There’s an average rate of return to capital: a jurisdiction that taxes that return to capital will have a return lower than that global average. So, some domestic capital will flow out seeking the higher foreign returns, some foreign capital will not flow in for the lower domestic ones. There’s thus less capital employed in the economy. Adding capital to labour is what drives up the productivity of labour: the average wages in a country are determined by the average productivity in that economy. So, tax companies, get less capital employed, wages are lower than they otherwise would be. The workers are bearing part of the burden.
As I say, the smaller the economy and the more open it is then the more of that burden is upon the workers. And in a wonderful result back in 1980 Joe Stiglitz showed that the burden upon the workers can actually be more than 100%. That is, the workers lose more in wages than the government gets in tax.
Ireland’s a small economy, 3.5 million people or so and as it’s in the EU has about as close to perfect capital mobility as it is possible to get. Thus it ought to have a lower corporation tax rate than larger economies. And it does, so that’s just fine then. Attempts to push it up (as various EU types are currently muttering) would simply lower wages in that country.
May 4, 2013
As you probably guessed, he’s against it:
David French, Senior Vice President of the National Retail Federation, the major industry group lobbying for the so-called “Marketplace Fairness Act,” (more aptly named the “National Internet Tax Mandate”) recently commented that “…the law [governing Internet sales] today is a 20th-century interpretation of an 18th-century document…” Mr. French’s comments are typical of those wishing to expand government power beyond the limits established by the United States Constitution.
[. . .]
The National Internet Tax Mandate overturns the Supreme Court’s 1992 Quill v. North Dakota decision that states can only force businesses to collect sales tax if the business has a “physical presence” in the state. Quill represented a rare instance where the Supreme Court properly interpreted the Commerce Clause. Thanks to the Quill decision, the Internet has remained a tax-free zone, though some states require consumers to later pay taxes on products they purchased online. This freedom has helped turn the Internet into a thriving and dynamic sector of the economy, to the benefit of entrepreneurs and consumers.
Now that status is threatened by an alliance of big business and tax-hungry state governments seeking new powers to force out-of-state business to collect state sales taxes. Far from updating the Constitution to fit the needs of the 21st century, the National Internet Tax Mandate is a throwback to 18th century mercantilism.
The National Internet Tax Mandate will raise the costs of doing business over the Internet. Large, established Internet companies, such as Amazon, can absorb these costs, whereas their smaller competitors cannot. More importantly, the Mandate’s increased costs and regulations could prevent the creation and growth of the next Amazon.