How To Cartelize and Kill Web Commerce

Let’s say you are a farmer and most of your animals are dead from disease. But there are a handful of chickens still making it, and a couple of cows too. So you decided to kill them too.

Now, why would you do that? I want to ask the same question of those who are pushing new taxes on online purchases.

Web commerce has been largely exempt for many years (more on this), and this is one reason that the Internet is a bright spot of burgeoning commerce in a darkening world. The same month that global manufacturing took at turn for the worse, Internet retailers recorded record profits.

Of course the technology is very cool. It’s nice to avoid the traffic. The start up costs are far lower then brick-and-mortar stores. The selection is amazing. It’s easy to shop for the best price. You can often buy things without having to pay state sales tax, which only makes sense in cases where you are buying out of state.

The downside is that you often have to pay shipping.

But a bill has been floating around Congress for some years that would change the way the online shops are taxed. In 1992, the U.S. Supreme Court decision in Quill v. North Dakota held that online retailers don’t have to collect sales taxes in states where they don’t have a physical presence. There is now bipartisan support for changing that, so that states would collect revenue from Internet retailers that are not even located in the state where the money will be collected. This would take away a major advantage that web commerce has over brick and mortar.

The bill has languished for years, but it just got a major shot in the arm with the news that Amazon now supports it provided that new taxes are imposed on everyone equally. If that shocks you at first, it only takes a moment to figure this out. As the dominant player in a sector where competition is very intense, Amazon can only gain at others’ expense by seeing new universal taxes. It can bear these costs better than the competition.

This is hardly an unusual case. Since the turn of the twentieth, large businesses have been among the most passionate lobbyists for more controls, regulations, and taxes. The much-hidden secret about large business operations is that they don’t much like free-market competition. Competition threatens them all with extinction the day they fall behind in serving the consuming public.

Every successful business knows this. Its marketing strategies, product lines, and commercial functionality can be copied by anyone. For this reason, the innovation, the cost cutting, and the consumer service must become a daily obsession. There is no rest for the weary lest their profit margins sink and sink. In a competitive free market, keeping profits up is like keeping making a bowling ball appear to float in the air; you have to work very hard to forestall the natural downward trajectory.

For this reason, the entrenched business class welcomed the first round of business regulation at the turn of the century, loathed the deregulation after World War I, joined FDR in its industrial cartelization campaign, pushed for payroll taxes and mandated benefits for workers after World War II, cheered Nixon’s regulatory schemes, and has generally favored even environmental and labor regulation.

Think back to Wal-Mart’s support for raising the minimum wage three years ago. Why do you suppose? Because it has generally paid its workers higher than the minimum anyway. A raised ceiling could only hurt its big-box, lower-cost competition. Of course the company didn’t put it that way. Instead it mouthed the usual false pieties about workers’ rights and the need to uplift the poor, even though the minimum wage has nothing to do with either.

The Amazon case, however, is not so clear cut. It has spent millions for years trying to keep such taxes at bay. Perhaps it decided that the costs of trying to prevent the inevitable are too hard to take. Another theory is that Amazon is embracing a least-cost alternative to universal taxes would be a warehouse tax that Amazon would have to pay. In 12 states where Amazon customers do not currently pay tax, the company has a physical presence. If warehouses alone were taxed, Amazon would find itself at a disadvantage relative to its competition that has far fewer warehouses.

Whether you curse Amazon’s position or feel sorry for the bad position that the company is in, this much is clear. The very existence of a meddling Congress, a hungry cartel of governors, and tax authorities that can’t ever get enough have created a mine field for Amazon and all its competition. How much more beautiful and peaceful the world would be if only free enterprise were legalized?

If this tax comes to be, we will see the beginning of the end of the great Internet exception. Throughout all these dark years when economic growth has slowed to a crawl, when young people are shut out of the job market, when starting a successful physical business is darn-near impossible, when the state seems determined to snuff out the life of every living commercial thing except the largest among its friends, the Internet marketplace has nonetheless thrived.

It is still today the relatively free frontier where your dreams can come true. The digital world is the new world of our times, the world of the Jetsons that amazes us every day with its innovations and services. This bill would darken it and take it one step closer to becoming like the physical word, suffering under the boot of government and decaying under the strains of the political class of parasites and plunderers.

Politicians sure have a way, don’t they? They are like the farmer who shoots the last few of its chickens and wonders why he wakes up the next day without fresh scrambled eggs to eat. The least we could ask is that those who have benefited so mightily from the signs of life on the Internet not help pull the trigger.

The Daily Reckoning