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How Government (Almost) Stole Cyber Monday

Black Friday isn’t going away anytime soon. But if you’re like me, you’d prefer to save some time and wait a few days to take advantage of the Cyber Monday sales.

And you really should “celebrate” Cyber Monday this year, because a measure called the Marketplace Fairness Act (MFA) almost made online shopping a lot more difficult for everyone involved.

In case you weren’t keeping up with this particular issue, the bill would have levelled a sales tax on internet retailers; its supporters reasoned that if brick-and-mortar stores had to deal with sales taxes, online stores should have to follow suit.

The reasoning seems solid on the surface, but there were a couple of problems:

An Internet sales tax isn’t really feasible.

If you’ve ever had to file your taxes after working in several states, you’ll identify with this one.

Brick-and-mortar stores collect their sales taxes based on their physical location. That’s hassle enough. But the MFA proposed that online retailers collect and pay taxes based on the location of their buyer. If you don’t think that sounds crazy, think of it this way: an internet sales tax would impose almost 10,000 new tax codes on online businesses, many of them small startups.

You can imagine the expense and work this would have entailed for every single business—not to mention that forcing consumers and businesses to pay and collect taxes outside their home state equates to taxation without representation. Last time I checked, that’s about as un-American as it gets.

An Internet sales tax hurts small businesses and entrepreneurs.

As I implied above, an internet sales tax seems like it would be equalizing opportunity between online and brick-and-mortar retailers. But it actually gives stores with physical locations an advantage.

Most big businesses—even Amazon—have physical locations, while many smaller companies just starting out do not. That’s why big businesses—including Amazon—came out in support of the internet sales tax. It promised to crush their competition by putting an extra burden on the businesses that could not yet afford a brick-and-mortar location.

An Internet sales tax would have been one more blow to the economy.

Young people love the internet. In fact, 45 percent of 18-34 year-olds spend an hour or more shopping online PER DAY. That’s a lot of people getting the products they need and a lot of money pouring into businesses.

In total, the internet has been responsible for almost one trillion dollars of economic output from 1997 to 2007. A sales tax, and all the extra work and money that entails for both customers and businesses, would channel a good portion of that revenue from the economy to the government.

The story has a happy ending—this year.

For the reasons stated above, the MFA was a huge threat to internet retail until a few weeks ago when House Speaker John Boehner (R-OH) said that he would block the measure, meaning that the bill will not move forward this year.

But the measure is popular with many lawmakers, large businesses, and the Obama administration. The government eyes a new source of revenue and established businesses see a way to block competition. For these reasons it’s likely that the internet sales taxes will resurface again in another piece of legislation. It will be back sooner or later.

So enjoy all the tax-free Cyber Monday sales today, remember the beauty and power of the unfettered market, and keep in mind that even the most seemingly harmless policies can have terrible unintended consequences.

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