Categorized | 2003 Enterprise Articles



Congress Debates Tax Policies that Affect States — Considers Budget-busting Welfare Prescriptions for the Elderly

howardnlby Howard Stephenson
Congress is currently considering two issues affecting tax policy for states and one issue that could raise federal taxes for generations to come.

The Internet has given birth to two contentious taxation issues that have become confused. The first is a proposed ban on Internet access taxes and the second is a proposal to allow states to cooperate in collecting sales taxes when the purchaser and seller are each in a different state.

Banning Taxes on Internet Access

State and local governments are fighting for additional revenue streams. However, current federal legislation might permanently prevent states from imposing Internet-access taxes. A permanent federal moratorium on Internet access taxes is proposed in the House (H.R. 49 which was passed in September) and in the Senate (S. 150). There are vital components in each version that eliminate the current November 1, 2003 sunset date for the moratorium on state and local taxes on electronic commerce; and eliminate the grandfather provision permitting Internet-access taxes imposed prior to October 1, 1998. This legislation would be a huge victory for taxpayers because it would eliminate the existing Internet-access taxes in ten states and several local jurisdictions and prevent all other states from imposing the tax. However, the legislation still awaits Senate approval.

Collection of Sales Taxes on Remote Sales

Erroneously associated with the ban on Internet-access taxes is the Streamlined Sales Tax project (SST). SST is not a new tax but is a collaborative project by thirty-nine states and the District of Columbia that seeks uniform collection of sales taxes on remote sales regardless of whether sales are made through the Internet, mail order, telemarketing, infomercial or other remote means. The root of the collection problem lies with a 1992 U.S. Supreme Court Decision (Quill) that ruled it was too burdensome to require a vendor to assess the sales tax of every state and local jurisdiction to which an item is delivered. Therefore, the collection of the tax is through a self-assessed use tax (equivalent to the sales tax). However, it is nearly impossible for a state to audit use taxes by its residents because it would not be profitible to go through every citizen’s closet to find out which items were purchased by mail order without paying sales taxes. It is too difficult for states to enforce the self-assessed use tax. Therefore, states are working together to simplify sales tax collection so they can shift the responsibility back to vendors and therefore capture sales taxes that are currently owed by law. The amount of sales taxes on remote sales which are not being collected is still undefined. The Streamlined Sales Tax project makes sense only if the newly collected taxes are used to cut taxes in other areas. Neither state nor local governments should get a new windfall as a result of collecting taxes on remote sales.

The federal moratorium, Internet Tax Nondiscrimination Act, is an attempt to prevent the addition of new taxes associated with Internet-access. The Streamlined Sales Tax project, on the other hand, is an attempt to simplify a pre-existing problem of capturing sales taxes already owed on items that are purchased remotely by whatever means the sale is made.

Medicare Prescription Plan Spells Disaster

Congress appears about to make its biggest mistake since LBJ’s Great Society legislation which launched this nation on the biggest welfare spending binge in history.

Congress is currently considering the addition of prescription drug coverage to the already fiscallychallenged Medicare program. Ultimately, the prescription drug plan is expected to cost as much as a full percent of Gross Domestic Product.

Most fiscally conservative groups believe the prescription drug proposal is absolutely unaffordable and irresponsible, especially for a Republican President and Congress. It seems that Republicans and Democrats alike are dialing for votes. If Congress really wants to do something to help with medical costs, it should immediately eliminate income taxes on money spent by individual citizens for health insurance and cut the strings loose from Medical Savings Accounts. If they are sincere about enabling more citizens to be medically self-sufficient, they should end the hypocrisy stop punishing those willing to pay their own way.



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