WASHINGTON (Reuters) - Legislation to allow U.S. states to collect sales taxes on purchases made online is garnering support from both sides of the political spectrum, with a leading conservative economist saying on Thursday the tax would foster growth and job creation.
Arthur Laffer, a former chief economist at the White House Office of Management and Budget best known for the “Laffer Curve” relating tax rates and revenues, released a study estimating states will lose out on annual revenues of between $27 billion and $33 billion by 2022 without Internet sales taxes.
“All taxes are bad. Some are a lot worse than others. And governments need to collect the requisite revenues to carry out their functions,” Laffer told reporters on a call.
The former member of President Ronald Reagan’s administration estimates that by 2022 taxing online sales would add $342.9 billion to the country’s gross domestic product and 916,627 jobs to its workforce. When considering the full legislation, which would also apply to catalog and other remote sales, Laffer found U.S. GDP would increase by $563.2 billion dollars and add 1.51 million jobs.
The bill, known as the “Marketplace Fairness Act” passed the Senate this spring and is now in the House of Representatives, where it faces challenges from Republicans viewing it as a tax increase. But it also has bipartisan backing there. Rep. Steve Womack, a Republican from Arkansas, and Rep. Jackie Speier, a Democrat from California, sponsored it.
Under a 1992 U.S. Supreme Court ruling, states can only tax Internet sales made by companies with a physical presence within their borders. The Senate bill would extend the authority of states to require retailers to collect sales taxes, although it exempts merchants with annual out-of-state sales of $1 million or less.
States say the bill enables them to patch budget holes without relying on the federal government. Many also say the bill gives “brick-and-mortar” retailers leverage to compete with online sellers.
Some states plan to use any revenue from the bill to offset cuts in other taxes. Virginia intends to replace most of its gasoline tax with potential revenue. Wisconsin Governor Scott Walker, a Republican, would like to cut income taxes.
Ohio has joined an agreement among states and sellers where retailers voluntarily collect the sales taxes. By 2015, Ohio will collect $60 million a year through the agreement and could collect more than $200 million if the bill passes, according to its tax commissioner, Joe Testa. Extra revenue will be used to drive down the personal income tax rate, he said.
Anti-tax activist Grover Norquist has decried the bill as a tax hike, and for setting a precedent of states taxing people beyond their borders. The online marketplace eBay Inc strongly opposes the bill and, within Congress, members from the five states that do not have sales taxes are against it.
Laffer estimated that Wisconsin’s gross state product would grow the most by 2022 if the legislation passed, by 4.63 percent, followed by Hawaii at 4.59 percent and Wyoming at 4.17 percent. Alaska would see the least impact, with growth of only 1.21 percent, followed by Virginia and Vermont, 1.43 percent.
Part of his calculations include using the tax “wisely” to lower other taxes and not to expand spending.
“Governors and legislators will have to determine what to do with the revenues. The beauty of the federalist system is they’re all going to make their own decisions,” said David Quam, director of federal relations for the National Governors Association, which represents governors of both parties and strongly supports the bill.
Quam does not expect the House’s Judiciary Committee to pass the bill before the August congressional recess, but state and city groups it will move on the bill soon after the break.
Reporting By Lisa Lambert. Editing by Andre Grenon