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What if they imposed a tax and nobody paid?

The MFA has a massive enforcement problem. But perhaps, therein lies the solution.

Unless you‚??ve been living underneath a rock (or imbibed too much at Thanksgiving), you‚??re well aware of the saga unfolding in Ferguson, Missouri. I am not going to add to the ongoing debates about race relations or police abuses. Those are serious things. Rather, I want to focus on the protests. The peaceful ones, with their images of raised hands, placards and chants, are a reminder of the power of civil disobedience.

Hold that thought.

Typically, the days between Thanksgiving and Christmas, when Congress reconvenes before adjournment sine die, are a quiet time for legislative mopping-up‚??renaming post offices, holding ceremonial hearings, and letting controversial bills die.

But that legislative numbness morphs into legislative urgency when the majority party knows it will be relegated to minority status come January. And that‚??s when the holiday interlude becomes a time that can truly try men‚??s souls. Because it‚??s a Last Stand of sorts, when a ticking legislative clock creates desperation that often leads to bad policy.

That‚??s exactly what‚??s happening now. And we‚??re facing bad policy indeed.

For years, states and several large retailers have lobbied Congress to pass the Marketplace Fairness Act (MFA), to allow states to collect sales taxes from vendors outside their borders. The Senate passed it in 2013, but it stalled in the House‚??the furthest the legislation has advanced to date. The MFA would overcome the U.S. Constitution‚??s Commerce Clause‚??s limits on state action by giving states Congressional approval to collect taxes from remote sellers.

This is a bad idea. Summarizing my colleague Jessica Melugin, here are four reasons why:

The MFA undermines state sovereignty. Empowering a state to reach beyond its borders to tax businesses in other states is simply taxation without representation, as the businesses being taxed have no political voice in the taxing state. It also sets an unprecedented expansion of state taxing authority.

It threatens privacy. Some states have already asked out-of-state retailers for their own residents‚?? transaction histories. Courts have blocked these efforts, but the MFA would destroy that safeguard by making such information requests lawful.

It reduces tax competition. It‚??s the equivalent of gas stations collecting fuel tax based on a customer‚??s license plate. This is like forcing residents of high-tax states to wear their home state‚??s tax regime like an albatross when shopping online.

Finally, it guts due process and creates uncertainty. The Supreme Court has yet to weigh in on whether a business having a website accessible from another state amounts to its availing itself of the other state‚??s taxing regime. Until it does, retailers face an uncertain fiscal climate.

Clearly, this is bad policy. So how could we end up with it? The problem lies in the politics.

The current continuing resolution to keep the government funded expires on December 11. If lawmakers don‚??t extend it, we may face another government shutdown. If that happens, the Republicans will take the blame, and their hard fought return to the majority will be quite temporary. Democrats know this and will use their bargaining position to insist on a host of riders to any budget resolution. And if experience is any guide, Republicans will likely cry ‚??uncle.‚?Ě Just in time for Christmas.

So, back to that opening thought experiment.

What if the MFA becomes law, and businesses and customers en masse, simply don‚??t go along? There are not enough IRS agents or state attorneys general to identify, collect, and enforce tax collection on thousands of small merchants throughout the country. Imagine massive civil disobedience by those tasked to bear the burden of processing, calculating, and remitting the local tax. What happens when a state suspects a mistake? Will it send agents across state lines to investigate? Will Florida send its tax auditors to northern Idaho to look at the books of Big Boxes ‚??R‚?? Us? Certainly not in January!

George Mason University law professor Michael Greve, comments:

Even in interstate commerce, [it] won‚??t result in neutrality. Delaware will remain a ‚??tax-free‚?Ě shopping haven for shoppers on buses from New York, New Jersey and Maryland. The Internet offers the same opportunity, at a lower cost, to folks who don‚??t happen to live near a ‚??tax-free‚?Ě state. If we make Internet sellers collect and remit the locally applicable tax, why shouldn‚??t we force shopping malls in Delaware to do likewise?

Imagine‚??brick and mortar stores requiring zip codes to determine where their customers come from and how much local tax should be collected. More sophisticated software won‚??t help much and it corrupts too easily anyway.

The MFA has a massive enforcement problem. But perhaps, therein lies the solution. Imagine the federal government passing a law that can‚??t actually be enforced. Congress might want to consider that and save face.

Lawson Bader is president of the Competitive Enterprise Institute (CEI).

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