Taxing Your Way to the Poorhouse

Some of the states in the union are getting pretty desperate—or pretty greedy. Like California, which is now finally facing the consequences of its self-imposed high-tax-welfare-state way of doing business, a number of states are seeking to maintain their profligate ways by looking for new taxes to shore-up their sagging revenues in the face of the recession. A quick look at US history will show what a bad policy this is, but the lessons of the past seem lost on this generation of politician. They seem far less concerned with the impact their new taxes will have on the people of their state than on getting their hands on the money. Case in point: North Carolina. According to the Greensboro News & Record:

As part of the effort to bridge that gap, House members broadened the number of items to which state sales tax would apply and have to be collected by retailers. The tax on the category “digital click-throughs” under which the Amazon agreements fall would raise $13.2 million next year, according to estimates by the General Assembly’s fiscal research arm.

So, the North Carolina General Assembly passed a tax on digital click-throughs that would affect Amazon’s affiliates in that state. This is similar to a tax passed in New York. One has to wonder what the legislators were thinking, perhaps that this is easier to slide past the people than a big, obvious income tax hike that would make reelection more difficult, especially during these hard economic times. It did not, however, slide past Amazon. Here is their response, in the form of an email to their North Carolina affiliates:

We regret to inform you that the North Carolina state legislature (the General Assembly) appears ready to enact an unconstitutional tax collection scheme that would leave Amazon.com little choice but to end its relationships with North Carolina-based Associates. You are receiving this e-mail because our records indicate that you are an Amazon Associate and resident of North Carolina.

Please note that this is not an immediate termination notice and you are still a valued participant in the Associates Program. All referral fees earned on qualified traffic will continue to be paid as planned.

But because the new law is drafted to go into effect once enacted – which could happen in the next two weeks – we will have to terminate the participation of all North Carolina residents in the Amazon Associates program on or before that same day. After the termination day, we will no longer pay any referral fees for customers referred to Amazon.com or Endless.com nor will we accept new applications for the Associates program from North Carolina residents.

The unfortunate consequences of this legislation on North Carolina residents like you were explained in detail to key senators and representatives in Raleigh, including the leadership of the Senate, House, and both chambers’ finance committees. Other states, including Maryland, Minnesota, and Tennessee, considered nearly identical schemes, but rejected these proposals largely because of the adverse impact on their states’ residents.

The North Carolina General Assembly’s website is http://www.ncleg.net/, and additional information may be obtained from the Performance Marketing Alliance at http://www.performancemarketingalliance.com/.

We thank you for being part of the Amazon Associates program, and we will apprise you of the General Assembly’s action on this matter.

Sincerely,

Amazon.com

North Carolina imposes taxes, Amazon pulls out of the state to avoid the new taxes. The victims in all this, you guessed it, the affiliates who can no longer do business with Amazon. Now, I am not sure of the constitutionality of the taxes, though taxing the click-through and then the income derived from the click-through does smack of double taxation, there is a larger issue here.

We have learned in the past—and that lesson is being reinforced today—that the more government taxes, the more damage it does to the economy as a whole. Productivity tends to drop, fewer people have jobs and prosperity suffers. Moreover, those who can pull-up stakes and move to more tax-friendly places do so. That goes for individuals and companies like Amazon; it has always happened that way and it is happening today. When votes at the ballot box don’t seem to make a difference, people will vote with their feet.

Governments, like people, have two choices: They can either live within their means or they can go into debt. Unfortunately, in an effort to pander to the various pressure groups, constituencies, contributors and anyone else they can milk for money or votes, they are far more likely to go into debt than remain fiscally responsible. In other words, they game the system for their own benefit.

Illinois Governor Pat Quinn, who is championing a 60% income tax increase, is a prime example. During a recent radio interview on WLS, he was pressed to name a single state program that can be cut. He could not—or would not—do it. According to the Governor, there was nothing left to cut, but if something had to go, it would be police and medical services. In other words, give me the money or I will make cuts in two of the most important things to Illinois voters.

Pat Quinn, New York Governor Patterson, Nancy Pelosi, Barney Frank, President Obama—yes, even George W. Bush; what they don’t understand is that our governments—all of them—are simply too big, they are doing things now that they were never meant to do—and for the most part they are doing them badly—and that the cost associated with them has become prohibitive. It is long-past time for the people to take stock of their government and demand that it stop trying to be everything to everyone.

The Bottom Line

When we read in the Constitution that the role of government is to “promote the general welfare” that does not mean the creation of a ponderous, tax-heavy welfare state. It means that the government should foster individual prosperity through policies that promote business and commerce. It means that government acts as a referee, not a participant—except in those specific areas where the Constitution gives it authority—and that it stands back from the lives of the people.

We don’t have that now, we lost it years ago, but it is time to find it again. We cannot afford government growth spurred by political pandering at taxpayer expense. Amazon’s departure from North Carolina is a great example of that. Instead of looking for more ways to dip into the pockets of the taxpayers, the General Assembly should have come up with ways to spur business growth and prosperity. As Reagan’s tax cuts back in the 1980s demonstrated, the more money people get to keep, the more business and the economy are stimulated, the more taxes are paid. It may not be “progressive” but it is the perfect formula for increasing tax revenues.