Policy Documents

The Leaflet - The Misguided Push to Tax the Internet

March 21, 2013

This week sponsors of the Marketplace Fairness Act, Sens. Mike Enzi and Dick Durbin, are introducing an amendment intended as a proxy vote for the expansion of states’ ability to charge sales taxes on out-of-state retailers regardless of whether the retailer had a physical presence in the state.

Last week a group of 16 conservative, free-market, and libertarian groups, including The Heartland Institute, co-signed a letter to Congress opposing this expansion of taxing powers. The letter explains, “In seeking to address the failures of the ‘use tax’ systems employed by states, the ‘Marketplace Fairness Act’ ends up giving a federal blessing to a massive expansion in state tax collection authority, the dismantling of a vital taxpayer protection upon which virtually all tax systems are based, while harming a segment (online sales) that despite its dramatic expansion still only accounts for roughly $0.07 of every $1 in retail spending.”

Some states may see the Marketplace Fairness Act as an opportunity to tap a mostly untapped source of revenue. While that may be true, it also would hinder tax competition among the states, undercut federalism, push tax rates up, and even possibly pave the way for a national sales tax.

As I have pointed out in the past, “The so-called Marketplace Fairness Act is anything but fair for the marketplace. Giving states a new open-ended power to tax out-of-state residents regardless of physical presence would be a disaster for consumers. Bricks-and-mortar retailers enjoy many basic advantages over other retailers. Driving up the cost for purchases made online or by mail-order will hinder competition and open taxpayers up to a whole new slew of possible taxes.”

Ultimately, states need to be allowed to compete with one another rather than reaching over the borders for additional revenues. The federal government and states should focus their attention on balancing their budgets and creating a competitive tax climate that will grow the economy and encourage commerce rather than proposals such as this one that will burden consumers and small businesses.

This week’s edition of The Leaflet features research and commentary addressing the Marketplace Fairness Act, Gov. Dayton’s tax hike package, entitlement reform, the renewable fuel standard, money following the child, and an interactive map depicting Medicaid expansion costs.


John Nothdurft
Director of Government Relations
The Heartland Institute


Critics Slam Unfairness of ‘Marketplace Fairness Act’

New legislation that would significantly change how customers of online retailers are taxed is being considered in Congress. S. 336, the “Marketplace Fairness Act,” would expand the ability of state governments to charge sales taxes on purchases from out-of-state retailers, regardless of whether the retailer has a physical presence in the state.

In this article from The Heartlander digital magazine, Senior Policy Analyst Matthew Glans examines how the legislation, proposed by Sens. Dick Durbin (D-IL), Mike Enzi (R-WY), and Lamar Alexander (R-TN), has attracted a wide array of critics, who argued in a letter to Congress the act would override important tax precedents and harm consumers.

The letter was co-signed by several conservative, free-market, and libertarian groups, including The Heartland Institute, R Street Institute, Americans for Tax Reform, and FreedomWorks. The letter argues the Marketplace Fairness Act represents “an enormous expansion in state tax collection authority by wiping away the ‘physical presence standard,’ a baseline protection that shields taxpayers from harassment by out-of-state collectors.”

Research & Commentary: Governor Dayton’s Tax Hike Package
Budget & Tax

Minnesota Gov. Mark Dayton recently proposed as part of his state budget a $2.1 billion tax hike package that includes higher income tax rates on high-income earners, an expansion of the sales tax base, a hike in cigarette taxes, and a small reduction of the state’s corporate income tax.

In this Research & Commentary, Senior Policy Analyst Matthew Glans argues that instead of increasing taxes, many of which will place an undue added burden on businesses and consumers, Minnesota lawmakers should focus on policies that decrease both spending and tax rates. Minnesota’s tax rates are already higher than those in most states, and increasing them any further risks additional damage to Minnesota’s economic competitiveness. That will not fix the state’s budget shortfall.

The Foundation for Entitlement Reform: Get America Booming Again
Finance, Insurance, and Real Estate

In this new Policy Brief, Heartland Senior Fellow Peter Ferrara examines the recent history of economic development in the U.S. and explains why the U.S. economy has failed to recover from the current economic crisis. Ferrara argues that the economic downtown today is occurring because President Barack Obama has doubled down on the failed Keynesian economic policies of the 1970s.

Ferrara also offers hope: As history shows, the U.S. economy has a long-overdue boom already locked within it, straining to break out. He offers three policies that would return the U.S. economy to its long-term economic growth path, unleashing above-normal real economic growth of 4 to 6 percent for several years until the economy returned to its long-term growth path averaging real growth of 3.3 percent per year.

Research & Commentary: Renewable Fuel Standard

Heartland Policy Analyst Taylor Smith examines EPA’s renewable fuel standard (RFS), which requires billions of gallons of renewable fuel be blended with gasoline and diesel fuels. Supporters say this will reduce CO2 emissions, reduce reliance on foreign oil, and even reduce gas prices, but so far it has achieved none of these initiatives.

Smith writes, “Congress should repeal this mandate or at least waive the higher 2013 biodiesel requirement, which industry representatives say is impossible to meet.”

Podcast: End the Education Plantation

The federal government uses money to push states around all the time, so why not use it for something good for kids? That’s the idea behind a new advocacy group that wants a new federal law requiring any state that accepts any federal education dollars to change the method they use to fund K-12 education.

John Conlin with End the Education Plantation joins the podcast to talk about his group’s radical idea for having every education dollar follow each child into his or her chosen classroom.

Does Your State Benefit from the Medicaid Expansion?
Health Care

Does your state benefit from President Barack Obama’s expansion of the Medicaid program, or does the expansion just put you on the hook for millions or even billions in new taxes to pay for money presented as “free”? This map, built on numbers from the left-leaning Urban Institute modeled forward by the right-leaning Heritage Foundation, presents the amounts each state is expected to have to come up with under the Medicaid expansion over the next ten years. States in green are on the hook for more in taxes; states in blue aren’t. Mouse over the state to see the amounts, and click to see a graph of the costs going forward.