Marketplace Fairness Act: A Matter of Fiscal Discipline and Basic Fairness
Text of Remarks as Delivered
National Association of Counties 2012 Legislative Conference
Washington, DC
I want to thank NACO’s president, Commissioner Lenny Eliason, for that generous introduction. I also want to recognize NACO’s executive director Larry Naake. I understand we have a good-sized delegation from Illinois here including leaders from Cook County, DeKalb County, Lake County, McHenry County and Peoria, Tazewell and Will counties. It’s good to see so many people from home.
Thank you all for inviting me to join you NACO’s 2012 Legislative Conference. These last few years have been tough for county lawmakers. Year after year, demand for the services you provide has gone up while the revenues to pay for those services have gone down.
This morning I want to talk about a way that Congress can help states and counties deal with their budget deficits without raising taxes and without adding a dime to the deficit. Before I do that, though, I want to say a word about what I saw when I was home this weekend.
On Saturday,I toured two towns in my state that were devastated last week by tornadoes. Both towns were hit by an “EF4” tornado -- the second-highest rating given to twisters based on damage. Scientists say the funnel was 200 yards wide with winds up to 170 mph. I’m told that the winds were even stronger than Hurricane Katrina.
I’ve seen a lot of tornadoes, but I’ve never seen damage this bad. In the town of Ridgeway, in Gallatin County, scores of homes were reduced to heaps of lumber and bricks. Houses were lifted off concrete slabs and thrown into the air.
Twenty-four miles away, in the town of Harrisburg, in Saline County, six people died and a hundred more were injured in a town of only about 9,000 people. Cars and trucks that had been picked up by the tornado and flung back down, landing on their sides or roofs.
I spoke to one woman who was buried under rubble from two houses. It took rescue workers an hour and a half to dig her out. She escaped with cuts and bruises, but a 22-year-old nurse who lived across the street died.
We’re not alone. The same string of tornadoes that tore through Illinois last Wednesday also ripped into parts of Missouri and Kansas. Over the weekend, a new string of violent storms and tornadoes pummeled parts of Alabama, Tennessee, Indiana, North Carolina, Kentucky, Ohio, West Virginia, Mississippi, Georgia, Virginia, South Carolina and Nebraska.
As stunned as I was by the devastation, I was also inspired by the outpouring of support from people all across our state. Volunteers by the hundreds poured in to help out. The American Red Cross was there, as they always are. Church groups were there. Miners from the Peabody Willow Lake Mine in Saline County arrived with coal dust still on their faces to help out.
State and local emergency officials were also on the ground working. FEMA was there yesterday. We expect the area to be designated as federal disaster zone very soon.
Seeing devastation of that magnitude reminds me of what Bill Cohen, former Secretary of Defense and before that, a Republican Senator from Maine, once said. Bill Cohen said, “Government is the enemy until you need a friend.” He understood, as you do, that some crises are too big for individuals and even communities to handle on their own. It could be a natural disaster like the tornadoes so many of our states are reeling from today. We expect FEMA to be there. It could be an economic disaster, like the financial crisis of 2008, which plunged our economy into the worst recession in our lifetimes. When that sort of economic crisis hits, we also expect the federal government to step up.
That’s what happened three years ago when Congress passed and President Obama signed the American Recovery and Reinvestment Act. The Recovery Act included $151 billion in flexible emergency funds to help state governments avoid draconian cuts in services. And it saved or created 2 million American jobs.
MARKETPLACE FAIRNESS ACT
There isn’t going to be another Recovery Act coming from Washington any time soon. There just isn’t the support in Congress for it. But there is a proposal before Congress that has bipartisan support that will help states and counties balance their budgets without raising taxes and without adding a dime to the federal deficit.
You know it. Two days ago, NACO officially endorsed it. It’s called the Marketplace Fairness Act. I’m here to thank you for NACO’s endorsement. I particularly want to thank Cook County Board President Toni Preckwinkle for presenting the resolution supporting the Marketplace Fairness Act to NACO’s board of directors on Sunday.
Before I tell you about the bill, I want to give you fair warning. As hard as it is to believe, we are seeing an outbreak of bipartisanship in the United States Senate – at least on this issue. When we introduced the Marketplace Fairness Act in October we had 10 co-sponsors: 5 Democrats and 5 Republicans.
I am one of three original co-sponsors. The other two original co-sponsors are both good, solid Republicans. You are going to hear from one of them this morning: Senator Mike Enzi of Wyoming. Our other original co-sponsor is Senator Lamar Alexander of Tennessee. Before he was a Senator, Mike Enzi was a shoe store owner, a mayor and a state legislator. Lamar Alexander used to be a Governor.
For years, Mike Enzi worked with Senator Byron Dorgan of North Dakota, and they did their best to pass this legislation similar to the Marketplace Fairness Act. When Senator Dorgan retired, I approached Senator Enzi and said: I would like to join you in this effort.
I think this is a matter of basic economic fairness and for some small businesses it’s a matter of economic survival.
The Marketplace Fairness Act solves a problem that we have been trying to solve for 20 years, ever since the U.S. Supreme Court ruled that without Congressional approval, states could not require out-of-state businesses to charge state sales taxes.
The Court said it was too complicated and created too much of a burden on interstate commerce. States had to rely on consumers calculating their own sales taxes and sending the money to their state treasury. But there are problems with that plan.
Few people know they are required to pay online sales taxes and even fewer pay them. That’s the first problem.
Second, this tax loophole hurts local businesses. In 1992, not many Americans had home computers. Today, most of us walk around with computers in our pockets. With smartphones, you can download apps that let you scan a product in a store and see instantly what online merchants will sell you that same product for less.
I talk with store owners in Illinois who tell me that people come into their stores every day. They talk with the sales staff and get the benefit of their expertise; they try the merchandise and decide exactly what they want. Then they go home and buy it online. Why? Because not having to collect sales taxes gives online-only retailers an unfair 5 to 10 percent price advantage over brick-and-mortar merchants. That’s not fair and it’s not right.
Small businesses on Main Street invest in our communities, they create jobs for local workers; they are our neighbors and they deserve a fair shake. But local businesses will never be able to compete if we continue this unfair advantage for huge online retailers.
The third reason we need to pass the Marketplace Fairness Act is because states need the money they are owed in order to avoid raising taxes or making painful cuts that will slow their recovery or harm their economic future.
The Center on Budget and Policy Priorities is a well-respected, non-partisan think tank here in Washington. They estimate that states are looking at a combined shortfall of just under $103 billion this year. States will also lose an estimated $23 billion in uncollected sales and use taxes this year. Think about that. Allowing states to collect those taxes – taxes they are already owed -- would reduce states’ combined budget shortfalls by one-fourth.
Let me give some examples.
California has the biggest projected budget shortfall this year: $23 billion. The $4.1 billion that California will lose this year in uncollected sales taxes could reduce the state’s budget gap by nearly 20 percent. The amount of sales taxes from Amazon sales alone is roughly the same amount cut from child welfare services in the current budget.
New York will lose $1.8 billion in uncollected use taxes this year; that’s equals to about one-fifth of the state’s total budget deficit. To close that budget gap, New York is cutting education and Medicaid.
In my state, Illinois, we’re looking at a $5.3 billion budget shortfall this year. Illinois is cutting education by 13 percent – the biggest education cuts of any state this year. We’re also cutting mental health services and assistance to people with developmental disabilities. We’ve cut aid to needy families by one-third and eliminated cash assistance for thousands of poor adults. The revenue Illinois will lose this year in uncollected sales and use taxes could shrink our budget deficit by nearly 20 percent.
Ohio is cutting education from pre-K through college. The $629 million that Ohio will lose this year in uncollected sales taxes could fill more than 20 percent of its budget gap.
Oklahoma is projecting a $500 million budget shortfall this year. The $296 million they stand to lose in uncollected sales and use taxes stand could reduce that budget shortfall by 59 percent.
Georgia has shortened the pre-K school year for 86,000 poor children, eliminated child care funding for 9,600 children and cut teacher salaries by 10 percent. The $838 million in that Georgia will lose this year in uncollected sales taxes could eliminate 65 percent of its budget shortfall.
Alabama will lose nearly $350 million in uncollected sales and use taxes this year. Arizona: $798 million. Colorado: $352 million. Florida: Nearly $1.5 billion. Kentucky: $225 million. The list goes on. The $23 billion that all states together stand to lose this year is enough to pay the salaries of 460,000 teachers, according to the U.S. Bureau of Labor Statistics.
Let me be clear: The Marketplace Fairness Act is not a new tax. It is not a tax on the Internet. It simply gives states the ability to close the online sales-tax loophole created when out-of-state sellers don’t collect, and purchasers don’t pay, state sales tax – even though they still owe it.
States have a choice. They can require out-of-state businesses to collect sales taxes – or they can keep things the way they are. It’s up to each state to choose.
If they decide to collect sales and use taxes from out-of-state sellers, the Marketplace Fairness Act gives them two options. States can either join the Streamlined Sales and Use Tax Agreement, as 24 states already have. If they don’t want to do that, they can pass their own sales tax collection laws, as long as it meets certain basic simplification requirements.
Retailers will receive the software to calculate state and local sales taxes. All a business will have to do is type in an address and click the mouse. In less than a second, the software will calculate the sales taxes owed -- the same way online sellers calculate shipping costs now.
We exempt small online sellers with less than $500,000 in out-of-state sales a year to give small start ups a chance to grow. If Aunt Jane wants to sell a couple hundred jars of her famous apple butter online, she can, and she won’t have to collect state sales taxes under our law.
If you ask the small businesses in my home state of Illinois what they want, it is not a big handout from Washington. They don’t want special treatment. All they want is a level playing field. Our bill gives them that.
Besides NACO, the Marketplace Fairness Act is supported by 200 organizations. They include the National Governors’ Association, National Conference on State Legislatures, National Conference of Mayors, National League of Cities, the Governing Board of the Streamlined Sales and Use Tax Agreement, Retail Industry Leaders Association and the American Booksellers Association. Amazon, the biggest online retailer in America, has for years opposed any effort to collect state sales taxes on online purchases. Amazon supports our bill.
Now, in the interest of fairness, I have to admit that there are some people who hate our bill like the devil hates holy water. Grover Norquist does not like our bill. I would just ask Grover: When did tax evasion and not paying taxes become an American value?
NACO has been at the forefront of this issue, pushing for tax fairness, for a decade. We need your help again now. Now is the right moment for this bill.
Majority Leader Harry Reid has told me he will call our bill for a vote as soon as 60 Senators sign on as co-sponsors. Right now, we have 12 co-sponsors. I’m going to read you a list. If your Senator’s name is not on this list, that’s your assignment.
In addition to Senators Enzi and Alexander and I, we have Republican Senators Bob Corker of Tennessee, Roy Blunt of Missouri and John Boozman from Arkansas and Democrats Tim Johnson of South Dakota, Jack Reed and Sheldon Whitehouse from Rhode Island, Mark Pryor from Arkansas, Jeff Bingaman from New Mexico and Senator Ben Cardin of Maryland.
If your Senator’s name is not on that list, that’s your assignment. Ask him or her to co-sponsor the Marketplace Fairness Act. Asking all retailers to play by the same set of tax rules will help protect our communities and preserve jobs on Main Street. And it will help states balance their budgets without deeper cuts to essential services and without adding a dime to the federal deficit.
This isn’t a partisan issue. It’s a matter of fiscal responsibility and basic fairness. And with your help, we can get it passed this year. Thank you.
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