5/7/13 − Remember When I Said Taxes Were Going Up?

Posted by Brad McMillan, CFA, CAIA, MAI

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This entry was posted on May 7, 2013 9:55:58 AM

and tagged Politics and the Economy

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As I’ve written several times, taxes have to go up, and when they do, it will be done in a stealth manner, without specifically calling it a tax increase, or by using some other justification.

We’re seeing exactly that right now in the form of Internet sales taxes. Just yesterday, the Senate approved a bill that would allow states to force large online retailers to collect sales tax, even if they have no operation in that jurisdiction.

This isn’t being presented as a revenue-generating measure—God forbid—but as a business protection measure. Even the name, the Marketplace Fairness Act, doesn’t mention taxes at all. Funny, that.

The bill amounts to a tax increase, and a substantial one at that, for the many consumers who buy online. That it has substantial bipartisan support suggests that the Republicans, at least in the Senate, are fully on board for tax increases, provided they’re properly presented.

The House, of course, hasn’t yet passed the bill, and it may not do so. Stories in the papers today, however, suggest that the bill will at least get a shot. With 65 cosponsors in the House, half of whom are Republicans, it won’t face widespread die-hard Republican opposition. The fact that the bill will be considered in the Judiciary Committee and not Ways and Means, the committee that normally handles tax matters, may also help it along.

The split between Main Street Republican businesses and Beltway-based anti-tax organizations is what may allow this to happen. Pragmatism suggests the states need the revenue, and basic economics suggests that giving online merchants a cost advantage against local stores is a double hit to local economies. The conjunction of need and narrative suggests that it’s now becoming possible for the Republicans to move against some of their ideological boundaries.

This is all part of the mean reversion in politics that I’ve discussed before. We’re seeing it in immigration, on taxes, and even in the President’s most recent budget, which adopted the Republican idea of the chained consumer price index for social security. Both sides are moving toward the center.

We’re certainly not there yet, but this type of deal is what will ultimately help us solve our problems. Good for the Republicans for letting this bill move forward.

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