Shrinking Government to a Bathtub

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Internet sales continue to rise:

The rapid growth in internet sales is great for online retailers. But it’s not such good news for state and local governments. The Commerce Department reported Thursday that e-commerce retail sales totaled $44 billion in the fourth quarter last year, up from $38 billion a year earlier. E-commerce sales now account for 4.3% of total retail sales.

….Many of those online purchases didn’t have any sales tax attached to them. Long before the Internet was on anybody’s radar, the Supreme Court ruled that states couldn’t require that retailers without a physical presence in a state, like mail-order companies, charge sales tax on their behalf.

This is a good example of what Jacob Hacker and Paul Pierson call “policy drift” in Winner Take All Politics. As long as non-store retail was mostly just mail-order houses, the tax issue wasn’t too big a deal because mail order never accounted for more than about 3% of total retail sales. But e-commerce already accounts for more than 4% of retail sales and it’s obviously poised to get larger and larger over time. As that happens, state and local tax revenues will decline not because of any active change in public policy, but because Congress has chosen to sit idly by. Conservatives will succeed in starving government simply by doing nothing to respond to a technological change.

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