Why online products are cheaper. Should they be?

Image via CrunchBase

I recently read an article about Amazon.com, and it's quite disgusting.  http://www.latimes.com/business/la-fi-hiltzik-20110717,0,1556564.column  Apparently, the reason online products are cheaper is that online retailers aren't charging a sales tax. 

I always thought that the reason that they were cheaper was that they didn't have the overhead of a brick and mortar store and related costs.  But not paying a sales tax is quite a big deal as well.  According to the article, and logically, a lot of the strong brick and mortar stores like Best Buy are tanking because they have to charge taxes, and thus more than online retailers. 

Some states, in order to right the balance, and increase tax revenue, are trying to right the balance.  California said that, because Amazon had associated groups in the state, Amazon needed to charge the sales tax.  Due to a supreme court ruling years ago, no state can make a company pay sales tax unless the company has a presence in the state.  These associated groups in California are web site owners that put a link to Amazon on their site, and get a small percentage of any purchases made by people buying after following a link from the site.   

Amazon disallowed all of these small businesses in the state of California from continuing, costing many their livelihoods.  Additionally, they have set up a ballot measure to decide the issue in the state of California.  In other states, Amazon has had to go to court to decide the issue of whether to pay or not.  I love this quote from the article.  "In court, Amazon would have to painstakingly muster credible legal arguments and present them to a judge who, more often than not, is no fool. In a California ballot campaign, one can try to mislead voters by deploying half-truths, outright lies and flagrant deceit. Lie to a judge, and you might end up with a stiff fine for contempt and maybe jail. Lie to the California electorate, and you might win an election. Amazon hasn't ruled out challenging the California law in court, and it might do so if the referendum fails."

This was a revelation to me personally.  I've always thought that reducing representative democracy and increasing direct decisions by the people would be better.  Instead of having elected representatives make laws, the people should be able to vote themselves on each measure.  Or so I thought. 

But thinking about it, the people have little time to learn and study about each measure, and in any decision involving two or more views, whichever group has the most money gets the most opportunities to persuade the voters, and will usually win.  Someone that is paid to actually look at each issue, and is educated regarding pertinent legal issues, and hopefully has some kind of objectivity, might be better able to decide these things. 

I guess we'll see what happens at the end of the day in California.  Hopefully though, online retailers will end up paying taxes just like everyone else.  The idea that tax rates are way too complex over thousands of locations ends up being a little silly in my opinion because... well, Wal Mart, Best Buy, and a lot of other mega chain retailers can do it.  Why can't Amazon?  The information about all of the varying tax rates may be easily compiled by a fairly small business and made available for a few dollars a month. 

It may end up costing me more, but it's unfair that online retailers have this advantage, and I'm sure it does end up costing employment, and has for a couple decades. 

Thoughts on "The Price of Taxing the Rich"

An article was written for the March 26, 2011, Wall Street Journal exposing a noted problem with taxing the rich. The article can be found be clicking: http://online.wsj.com/article/SB10001424052748704604704576220491592684626.html Robert Frank, who wrote it, compares states by the amount of tax income received by their top earners, the mega-rich. It is a very interesting article and I suggest reading it.

The issue is that, apparently, the incomes of the mega-rich are also the most volatile in the country, so a state that gets a large percentage of its income from taxing them, will suffer a lot more in a recession when those incomes are decreased more than income earners that are closer to the average. I totally agree. California and New York are really hurting, and it's mostly because the guys that pull in 10 or 20 million dollars per year on average only pulled in 2 or 3 million in the most recent couple of years. Don't ya feel bad for them? It's like an 80% drop in income. How do they live?

Anyway, my big disagreement with the article is the proposed solution. The solution, apparently is to lower their taxes, and raise the taxes of the guys that are making 30,000 to 100,000. This would make a state's tax income less susceptible to recession swings.

I think there's something morally wrong with lowering taxes on the millions a year guy and raising them on the thousands a year guy, just to keep state tax revenues steady.

How about this. It'll be insanely hard. The most hard thing a politician can do, probably... Save money. I would say leave the tax rates where they are, put a spending cap in place, compute a rolling 10 year average of tax incomes from the richest 1%. Whatever that average is, any income above it from a given year gets put into a rainy day fund for any year when the income from this group is below average.

Here's another insanely difficult thing for a state to do. After a few boom years, when this fund starts getting big enough to cover some bust years, start investing any extra money. States could actually start getting money from investments, and then they wouldn't need as much in taxes years down the road. Lots of foreign countries do this, including communist countries and oil rich tyrant countries. A state could invest in companies, currencies, etc.

Another unthinkable thing to do would be for the federal government to do it. Instead of our federal government paying other nations that underwrite our increasing debt, how about we get out of debt, and start investing our money? Some say I'm a dreamer, but I'm not the only one.