Will the internet doom an economic recovery?
posted at 2:32 pm on March 2, 2012 by Jazz Shaw
What is the greatest danger to any possible, sustained economic recovery? Obama’s regulatory policies? Unrest in the global energy market? Increased taxes squelching productivity and investment? How about… the internet.
The recession and the early, brittle years of the economic recovery absolutely shredded state budgets. With growth now returning to healthier levels, this should be a time for relief legislators. Unfortunately, as USA Today reports, they might have to face another sobering reality: The system most states rely on to generate sales tax revenue could become obsolete.
The paper writes that last year, state sales taxes claimed the smallest fraction of overall consumer spending since 1967. Americans paid an average tax of 4.27 percent on purchases, down from 4.63 percent five years before. While overall consumer spending rose 4.7 percent in 2011, collections grew by a mere 1.2 percent.
To put it mildly, this is no good. States are desperate for money. And in parts of the country that lack an income tax, such as Texas and Florida, sales taxes are crucial for funding a basic level of government services.
This article from The Atlantic touches yet again on a currently pending bill, the Marketplace Fairness Act, which we’ve written about here before. But it does highlight a larger question of state economies vs. the national economy as a whole. If those numbers from the USA Today report are accurate – and I see no reason to doubt them yet – then this trend represents a pretty big hit to the coffers of the individual states just as some of them are starting to climb out of the hole.
This is one aspect which I hadn’t considered earlier regarding the Marketplace Fairness Act. Apparently, given the SCOTUS ruling in question, there are already some states which are collecting taxes from online retailers (in states where they have a physical, brick and mortar presence) but others which can not. That type of imbalance, if it gets to a significant level, could begin spurring population creep between states.
I’m still on the fence about this legislation. Let’s collect some other opinions and data on it here.