7/15/2017

Massive government subsidies to Amazon.com and other internet retailers

This piece in the WSJ explains how the government has gotten around regulations put in place to stop them from unfairly competing against private companies.
A Citigroup analysis finds each box [Amazon ships] gets a $1.46 subsidy. It’s like a gift card from Uncle Sam. . . . 
Other companies, such as UPS and FedEx , compete with the Postal Service to deliver packages. Lawmakers, to their credit, wanted a level playing field between the post office and its private competitors. The 2006 Postal Accountability and Enhancement Act made it illegal for the Postal Service to price parcel delivery below its cost.  
But with a networked business using shared buildings and employees, calculating cost can be devilishly subjective. When our postal worker delivers 10 letters and one box to our home, how should we allocate the cost of her time, her truck, and the sorting network and systems that support her? What if the letter-to-box ratio changes? 
In 2007 the Postal Service and its regulator determined that, at a minimum, 5.5% of the agency’s fixed costs must be allocated to packages and similar products. A decade later, around 25% of its revenue comes from packages, but their share of fixed costs has not kept pace. First-class mail effectively subsidizes the national network, and the packages get a free ride. An April analysis from Citigroup estimates that if costs were fairly allocated, on average parcels would cost $1.46 more to deliver. It is as if every Amazon box comes with a dollar or two stapled to the packing slip—a gift card from Uncle Sam.
For years Amazon and other companies that sold over the internet didn't pay sales taxes.  Here is a National Conference of State Legislatures report in 2014.
Main Streets all across America are looking to Washington to close a loophole that gives online-only retailers an unfair advantage over their Main Street competitors. 
This unfair advantage costs local communities jobs and tax revenue and creates significant unfairness in the marketplace for businesses and consumers alike. 
NCSL advocates for passage of e-fairness legislation because it levels the playing field for local businesses, which are the economic backbones of our communities that provide employment and tax revenue to fund vital services. As sales taxes account for over a third of revenues for most states, including over half of tax collections for six states, the inability to collect taxes that are legally owed constrains states’ options to reform their tax code elsewhere. This includes lowering tax rates or requiring states to raise certain tax rates to fund necessary government services. 
How Did We Get Here?Two Supreme Court rulings (Bellas Hess and Quill) cite concern that collecting sales tax for multiple states would be too difficult. As it is now, the Supreme Court ruled that states can only require retailers to collect state taxes in territories where they have offices or stores. 
How Is it Affecting States?States lost an estimated $23.3 billion in 2012 from being prohibited from collecting sales tax from online and catalog purchases. With nearly every state still facing budget shortfalls, this revenue could help fund police, school teachers and other much-needed programs. . . .

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4 Comments:

Blogger FZ said...

Not sure why you posted that last part. It is fair that companies like Amazon don't pay sales tax. That sales tax would of course be passed on to consumers, just so greedy state governments can grab more of our money to fund their bloated bureaucracies. Even if I buy the state legislatures estimated "revenue" loss of 1.6 billion or whatever it was, they need to cut down on their budgets, get more efficient, and stop funding boondoggles and their pet projects before they demand yet even more dough from the public (whose money they always assume is somehow rightfully theirs.)

Here's more on this and why ecommerce taxes are crap:

http://www.heritage.org/taxes/commentary/internet-sales-taxes-are-regulation-without-representation

7/16/2017 12:58 PM  
Blogger ruralcounsel said...

They didn't pay sales tax because they didn't have a brick-and-morter presence, and so did not require the support and services of the state or local municipality. That is what our local SALT taxces are supposed to pay for, after all. They didn't cost them, so why should they pay them?

7/22/2017 12:32 PM  
Blogger Monte K said...

John
I like your work a lott! ;-)
However, I am a bit confused about your position on this article.
First, retailers don't "pay" sales tax, they collect them on behalf of state governments. The purchaser "pays" the tax. As a small government guy I cheer anytime any gov entity collects fewer tax dollars. And what are state sales taxes intended to fund. States with no Amazon in state presence incur no cost to support that business. So, are they entitled to the tax? Maybe not. Food for thought.
Second, the "subsidy" that online retailers get is the federal government's own doing. Is this an intentional subsidy to online retailers? Who knows? However, I would argue that online purchasers are the benefactors, not the retailers. And the taxpayers are the subsidizers. Hard for me to call that one on fairness, but it certainly points out the inability of government to function in a fair or efficient manner.
Just some food for thought.

7/23/2017 11:51 AM  
Blogger John Lott said...

Thanks, Monte. I understand you point. There is a benefit to getting around taxes, but as an economist, I would say that if you are going to have a tax, it should be imposed on all businesses equally. That you shouldn't have taxes that distort people's behavior.

I agree that it is the federal government's own doing. But the USPS has a long history of using the monopoly that the post office has on first class mail to subsidize other products where it is in competition. This subsidy not only unfair to brick and stone companies, but it is also unfair to Fedex and UPS.

8/20/2017 10:47 PM  

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