The United States is a bad place to be a revenue collector right now. Public “servants” at all levels are scrambling to make up projected and real budget shortfalls. Enter New York Governer David Paterson, who wants to tax everything New Yorkers download to solve the problem.
According to the Pacific Research Institute’s Jason Clemens and Adam Frey, the $787 billion dollar package will actually grow to at least $1.34 trillion over the next 10 years, due to the fact that the government will need to borrow money not only to cover the stimulus, but also the interest on that debt. That means taxes are going to go up, and New York’s additional proposals to tax the technology sector will be a true anti-stimulus. They will not only create a disincentive to buy, but also push businesses to relocate and thus destroy jobs in New York — for years one of the unfriendliest states to private enterprise, consumer choice and the Internet.
This is a constant problem with government – once you give them authority over something and a budget to fund that authority, it is nearly impossible to get rid of the program and the problem the program was designed to solve never goes away. Do you really think the War on Drugs will ever be over unless Americans riot in the streets? How about the War on Poverty? War on Terror? If New Yorkers allow an internet tax on downloads to be created and foisted on the state it will never go away and will only grow and grow. The end result will be that living in New York will continue to get more expensive – more people will evacuate to other locales. More businesses will leave. Don’t take my word for it.
Perhaps the current anticapitalist zeitgeist is responsible for the apparent disregard for incentives and the universal reality that they matter a great deal. It shouldn’t take a rocket scientist to recognize that incentives to purchase goods directly affect producers’ incentives to hire employees or lay them off. What Governor Paterson clearly hasn’t considered is that by penalizing sales of digital goods, he will discourage employment — and his state’s tax revenues could actually decrease. A study I coauthored when California was considering Internet taxes empirically demonstrates a significant trade-off between sales-tax revenue collected and number of jobs in the economy. For instance, if California had applied sales tax revenue to all Internet purchases in the year 2000, California would have gained $184 million in additional state revenue — but it would have lost 45,207 jobs in 2001. The loss of jobs impacts tax revenue in many forms, mainly in terms of lost income tax and sales tax. This finding is in line with other such studies and was even recognized as a potential result of taxation by John Maynard Keynes in his landmark book, The General Theory of Employment, Interest, and Money.
What’s the end of the road in this battle between “stimulus” and fiscal responsibility? I am not sure, but one likely scenario is civil insurrection. No one wants to talk about tipping points and debt bombs. They’re real though. Government is basically parasitic. It relies on the host organism (taxpayers) for its health, not the other way around. When the parasite feeds too heavily from the host one of two things happen – the host becomes annoyed and kills the parasite or the host succumbs to blood loss, disease or weakness and dies. Then the parasite dies too. Neither scenario is very attractive.
Why can’t we talk about reducing the size of government and getting back to fiscal responsibility? Because we’ve trained the last three generations of Americans to expect government to take care of them no matter what happens. And now we’re paying the price.