A bill that would close tax loopholes in online shopping by giving states a mechanism to compel online retailers to charge sales taxes got a big boost Thursday (July 18) as conservative economist Dr. Art Laffer released a study that backed the Marketplace Fairness Act, a House bill sponsored by U.S. Rep. Steve Womack, R-Rogers.
According to Laffer’s study, the MFA could generate “$563.2 billion in state GDP (gross domestic product) growth and 1.5 million new jobs nationwide – with $6.5 billion in GDP growth and 22,600 new jobs in Arkansas alone – by 2022,” according to a press release from Womack’s office.
The study, titled “Pro-Growth Tax Reform and E-Fairness,” attempts to show the favorable impacts that could be made by having states collect revenue from online shopping at various retailers.
“The arguments in favor of this legislation are overwhelming. It is not only fair to level the playing field for our local small businesses, but Dr. Laffer’s study proves the concept is a crucial step towards greater growth and job creation through lower tax rates across the board. We hope the House will follow the Senate’s lead and pass e-fairness legislation that corrects the current inequity and allows forward-thinking governors the opportunity to lower tax rates and jumpstart economic growth in their states,” wrote Colin Hanna, president of the group Let Freedom Ring, in the study’s forward.
According to the study, “sales taxes and other broad-based tax regimes with fewer loopholes and lower rates are the least damaging taxes to state economies and state employment.”
The estimates listed in the study show that 1-year gross state product (GSP) growth in Arkansas could be 4.13%, with an additional $6.5 billion in GDP, resulting in 1.32% employment growth in the state by 2022.
Recent unemployment numbers showed the state’s jobless rate at 7.3% in May, up from 7.2% in April and unchanged from the same period last year. The jobless rate has been at or above 7% for 52 consecutive months in Arkansas.
Not only have jobless rates remained high in Arkansas and across the nation, but the level of growth has stalled, as well, according to Laffer’s study.
“The simple arithmetic tells it all. Due to the drop in the country’s economic growth rate, we are currently close to 15% poorer than we would have been had the pre-2000 growth rate persisted. And, less national income compounds the federal and state governments’ fiscal problems. Slow growth leads to reduced tax revenues and more poverty, which, in turn, leads to greater need for government support programs. And deficits can’t go on forever,” he wrote. “Tax reforms that broaden the tax base and use the estimated increase in revenues (on a static basis) to lower marginal tax rates can help revitalize the U.S. economy and increase overall national wealth.”
The study also points to purchasing trends, which it says hurts small brick-and-mortar businesses.
“Current purchasing trends (e.g. the growing market share of Internet sales versus brick and mortar retail sales) will for sure continue if Internet sales remain effectively tax exempt. …Linearly projecting out the current growth path of e-commerce, by 2022, 8.6% of all retail trade sales will be conducted via e-commerce, which is almost 60% larger than total sales a decade prior.”
Womack said the study supports the premiss of his legislation – that passing the Marketplace Fairness act would be good for business and good for states struggling to balance their budgets.
“Our small retail businesses can grow, create jobs and prosper if Congress passes the Marketplace Fairness Act and closes this unfair and confusing tax loophole – one that amounts to a subsidy for out-of-state businesses. Dr. Laffer’s study clearly shows this. And it’s not just small businesses that stand to benefit,” he said. “Leaders like Gov. Scott Walker of Wisconsin and Gov. John Kasich of Ohio have already implemented plans to cut their state income taxes once they are enabled to collect this due – not new – sales tax, allowing taxpayers to also see significant growth from tax cuts MFA makes possible.”
But not everyone is in favor of MFA. An open letter signed by conservative activists, such as Americans for Tax Reform President Grover Norquist, says, “Rather than pass this misguided legislation, Congress should pursue alternatives that encourage tax competition and preserve the American standard of geographical limits to tax authority.”
Womack has appeared undeterred in his efforts, saying that there is “no question in my mind that when Congress passes MFA, more tax cuts will be first thing on our state’s agenda, as well as others across the country.
“I’m thrilled by Dr. Laffer’s study and encouraged by the tremendous economic benefits it highlights. So, let’s level the playing field for our brick and mortar retail businesses once and for all.”
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