Arthur Laffer has been hailed as a key player in the tax-cutting movement of the 1980s.
A noted economic adviser to former President Ronald Reagan, he theorized that lower tax rates could result in higher revenues. His "Laffer curve'' showed that boosting tax rates beyond a certain point is counterproductive for raising more tax revenue.
So it might come as a surprise to some conservatives that he's on a mission to collect more sales taxes.
On Thursday, Laffer announced results of his new study that backs federal legislation allowing states to collect sales tax from remote online retailers. If used correctly by states, he said, the Marketplace Fairness Act could be a boon to the U.S. economy, resulting in 1.5 million new jobs and an additional $563 billion in gross domestic product over the next decade. In Florida, he estimates it would create about 107,000 jobs and $34.9 billion in GDP.
"This is not a conservative or a liberal paper,'' Laffer said. "This is just economic efficiency. If you use a better tax structure, you're going to be able to get better growth, output, employment, production and tax revenues. The better tax structure would include all sales, not just those sales in brick-and-mortar operations in a state.''
The study becomes particularly relevant in Florida, where online retail giant Amazon has proposed building one or more distribution centers — and adding 3,000 jobs — as part of a deal that would require Amazon to collect sales tax on Florida purchases. Currently, only retailers with a brick-and-mortar presence in the state have to charge sales tax — a contentious rule some Florida lawmakers have tried unsuccessfully to change.
Co-authored by Laffer and Donna Arduin, the study estimates states lost more than $23 billion last year by not collecting sales tax on purchases made through online-only retailers. In Florida, that amount has been estimated at $450 million a year.
Those losses have resulted in a smaller sales tax base that stifles job creation and economic growth, especially in states like Florida with no income tax, Laffer said.
And instead of cutting spending to adjust for reduced revenues, many states have raised tax rates, compounding the problem.
Laffer advocates that the 45 states with a sales tax could use the additional revenue to reduce other more burdensome taxes, like income or property tax. He characterized sales tax as the "optimal,'' most neutral tax with the least loopholes and incentives for dodging.
Opponents of the Marketplace Fairness Act, most of them fiscal conservatives, have argued that charging sales tax on Internet purchases amounts to a new tax that leads to more tax revenue and bigger government.
Supporters counter that the 1992 U.S. Supreme Court ruling allowing e-retailers to avoid sales tax across state lines came before e-commerce came into play.
"The situation has now changed dramatically and has reversed to the point where the small main street retailers are operating at a statuarily endorsed competitive disadvantage,'' said Colin Hanna of the Alliance for Main Street Fairness, a study proponent. "Putting everyone on the same plane so the same rules apply is a conservative principle of taxation.''
Laffer's study was funded by the Marketplace Fairness Coalition, a business group backing the e-commerce legislation.
Susan Thurston can be reached at [email protected] and (813) 225-3110.