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The Senate's $100 Billion-Plus Deception


Supporters falsely claim out-of-state "Internet" sellers have an unfair price advantage over small local stores who must charge tax. In fact, accounting for size, online sellers pay more than local stores for the products they sell you; they actually have a price disadvantage. Small online sellers can't hold product like small local stores and routinely pay drop ship fees. Larger online vendors can level the playing field by holding inventory. But, unlike local sellers, they lack stores that generate sales to pay the cost to stock inventory. Online sellers pay more for product and must net-charge shipping, but without the cost of stores.

This often allows online retailers to offer you products at lower prices than stores do. Higher product prices plus shipping cost are often less than the costs local stores pass you. But even small retail stores can offer you lower prices online and have a price advantage selling out of state. This bill essentially asks taxpayers to pay retailers for the cost of their stores which generate them sales. It's more having cake and eating it too.


The argument is a distraction/deception from the fact the bill actually benefits the jumbo retailers like Wal-Mart (WMT - Get Report) and Amazon (AMZN - Get Report) (its biggest supporters) as well as tiny retailers, at the expense of medium-size retailers (both online and brick-and-mortar retailers). It exempts those with out-of-state sales below $1mm from collecting taxes. But, it forces medium-sized vendors to raise prices by taxing out-of-state sales. Huge retailers benefit by becoming more competitive; they tax you now, or will soon, because they're in, or will be in, most states.

The very largest retailers, like Amazon, Walmart and Target (TGT - Get Report), already have a huge price advantage because they can squeeze manufacturers and buy product in huge volume well below standard wholesale pricing. Only a small group of the very largest retailers, like Walmart and Amazon, can buy tens of thousands or even hundreds of thousands of products in the kind of volume needed to get best pricing, creating a kind of oligopoly on best pricing in retailing. Once you fathom Amazon and Walmart as the bill's leading behind-the-scene proponents you are immediately skeptical about its fairness claim.


Only medium-sized retailers can even think about competing on pricing with the huge retailers--and higher taxes on you will hurt that. There's no doubt the bill intends to benefit the very largest retailers, both brick and online, at the expense of competition. It's bad for competition. If you believe in broad competition and Adam Smith's invisible hand, you disbelieve in this bill.

Service will be the differentiator online and that means delivery speed. Amazon has set up distribution facilities to have the fastest delivery. By locking in best pricing for Amazon, which already has the Internet's fastest delivery, the bill essentially hands Amazon a kind of future online speed monopoly other huge retailers will find hard to catch.

While pretending to go after online retailers, big or small, it actually hurts U.S. manufacturing more. Senators probably haven't read to page 16 of the estimates behind the bill and may be surprised to hear 65% of ecommerce sales are generated by manufacturers ( read it). The bill is bad for US manufacturing! Can that be good?


By duping Senate Republicans into voting on the bill, Harry Reid has masterminded a no-win situation for them. Any Republican Senator who votes for the bill will face backlash come election day from every consumer with a brain--because they've been gouged. These Republican Senators will be benefiting state legislators and a very small group of tiny and huge retailers at the expense of manufacturers, mid-sized retailers and consumers in their state.

Total federal, state, and local government spending has crept to about 40% of GDP and it's outright scary. Federal spending is just over half that. Rapidly growing state and local spending seemingly has no end. It crowds out private industry, causing the poor job growth and economy we have. Any doubters are well reminded of Spain's 27% unemployment rate.

Any senator considering voting for this massive tax hike can't truthfully claim to be conservative; potentially endless government spending like this is something you'd expect from liberal European socialists. It's one giant step closer to Europe's problems and VAT. This bill actually benefits very few. It's bad for everyone else, bad for America and it's certainly bad for you.

--Written by Clay and Ken Fisher.
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