Ronald M. Nate, Ph.D.
Economics professor, and
Idaho Freedom Foundation Board of Scholars
Phone: 208-403-3609

The “Marketplace Fairness Act” allows states to collect sales taxes from online out-of-state retailers who sell products to residents of their states. Its advertised objective is to restore fairness because brick-and-mortar businesses must collect sales taxes, while competing with out-of-state businesses that don’t. It may not be a new tax, but it would require additional sales taxes to be collected by out-of-staters.

Sound good? Consider this:

First, why must “achieving fairness” be accomplished by imposing additional burdens through a federal law? If states want to “level the playing field,” they can already do it—just eliminate sales taxes on their own retailers (see Oregon and Montana). Idaho can best “protect” homegrown businesses, by making Idaho burdens lighter. Imagine the competitiveness and attractiveness that Idaho would have with a zero sales tax. If we had a low, simple, income tax, and nothing else, Idaho’s economy would soar.

Second, this law adds significant costs and burdens to businesses. Idaho companies should not be tax collectors/agents for other states—they should not be required to bear the costs of knowing tax laws and submitting payments in 50 states and 9,500 jurisdictions in order to comply.

Third, the interstate commerce clause was included the Constitution to stop states from imposing tariffs on goods coming from other states. The Commerce Clause is consistent with founders’ intent to create a nation of free trade within. The founders understood the myth of mercantilism.

Economics philosopher, Adam Smith ([T]he Wealth of Nations), explained how mercantilists mistakenly thought that a nation prospered by encouraging money and treasure to come in, and discouraging money and treasure from leaving. They established quotas and tariffs to limit the import of foreign goods (and its accompanying export of treasure), while encouraging exporting its own goods, sometimes with a subsidy (to get more treasure coming in).

Adam Smith expounded that the wealth of a nation lies in its production, not in its money—a nation’s wealth was better demonstrated by the value of goods and services and resources that it commanded. Thus, a nation truly prospered by encouraging trade (both imports and exports), rather than by restricting them. Prosperity comes from specialization, exchange, and industriousness—not by some false notion of shielding itself or its businesses from the benefits of things produced well elsewhere.

The Marketplace Fairness Act (MFA) creates 50 little nation-states that will all want tariffs on the others in order to “protect” their own. With the MFA, it’s only a matter of time before states will want to impose higher sales taxes on “imports” in the true spirit of mercantilism. Businesses, their employees, and consumers everywhere will be harmed. Mercantilism hurt in the 18th century, it will hurt even more now.