Impact of South Dakota v Wayfair

Finance: Examining the Impact of South Dakota v. Wayfair on Small Businesses and Remote Sales, June 14, 2022

I have attached our tax reform proposals to provide context for our comments. Note that these proposals have been changed. Taxation of dividends and interest have been shifted to the high income surtax and higher tiers of the subtraction VAT. This is more appropriate because the S-VAT is designed to capture both capital and wage income. This change is consistent with that principle.

Fifty years ago, cash registers were not computerized. This forced cashiers to either use math to determine sales taxes or refer to a table provided by the state revenue department. We have come a long way since then. Online ordering programs now easily calculate and allocate sales tax payments on interstate transactions.

If goods and services value added taxes were the rule, rather than sales taxes, the Wayfair case would not have come up. Taxes would have already been embedded in the price. There would have been no incentive for tax avoidance to keep customers happy. Instead, states would have been more aggressive in seeking interstate compacts to redistribute that last bit of value added at point of sale.

In the current regime, firms that collect sales taxes receive sales taxes paid out through their federal tax filing. In essence, the United States already has value added taxes, except that they are also an intergovernmental transfer. 

We advocate a national GST (invoice VAT) to fund military and civil discretionary spending. Adding a line item for taxes to the invoice creates downward pressure on such spending. Passing a constitutional amendment to allow regional excise taxes and spending would introduce competition to cut discretionary spending even more. 

At the same time, adding a consumption tax reduces any advantage to borrow from assets to avoid taxes on current consumption or to seek tax advantage schemes to eliminate inheritance taxes. This includes life insurance, establishing trusts and advocating against the “death tax.”

We also propose a subtraction value added tax (S-VAT) to collect taxes to either be submitted to the government to fund social services, healthcare, family income and education or create tax expenditures so that employers would simply provide family income and services in lieu of paying higher taxes. In essence, this would be the Fair Tax without prebates or the covert effort to end support for needy families through the tax system.

The federal S-VAT is not relevant to our discussion. A local one is. There would be no interstate (or international) adjustment because a state and local S-VAT would be used to fund benefits to employees and their families. They are a placeholder for a cooperative economy in which employee-owned firms would provide health, social and educational services to employees and their families, as well as income support for larger families. 

In a mature cooperative economy, a federal S-VAT would be unnecessary. Firms would simply do the right thing on family income in a way that is not possible today because of market disincentives to provide more family income, regardless of individual productivity. These circumstances are why the child tax credit at median income levels is the only moral choice.

Back to the matter at hand, firms that will charge no VAT will not report it, but this would deprive them and any of their customers the opportunity to take advantage of any VAT credit. We suspect most firms will register for a VAT number.

Attachment: Tax Reform (links included)

Video: https://youtu.be/2Ivw3CjDpbs