Tax Internet Sales, Stimulate Growth

[Commentary] At the state level, there are reforms that can alleviate the problems associated with declining sales-tax bases and, at the same time, allow the states to move closer to a pro-growth tax system. One such reform would be to have Internet sellers collect the sales taxes that are owed by in-state consumers when they purchase goods over the Web.

So-called e-fairness legislation addresses the inequitable treatment of retailers based on whether they are located in-state (either a traditional brick-and-mortar store or an Internet retailer with a physical presence in the state) or out of state (again as a brick-and-mortar establishment or on the Internet). Addressing e-fairness from a pro-growth perspective creates several benefits for the economy. A gross inequity is addressed—all retailers would be treated equally under state law. It also provides states with the opportunity to make their tax systems more efficient and better aligned toward economic growth, as well as improve the productivity of local retailers. The principle of levying the lowest possible tax rate on the broadest possible tax base is the way to improve the incentives to work, save and produce—which are necessary to reinvigorate the American economy and cope with the nation's fiscal problems. Properly addressing the problem of e-fairness on the state level is a small, but important, step toward achieving this goal.

[Laffer is the chairman of Laffer Associates and regarded by some to be “The Father of Supply-Side Economics.”]