Tag Archives: tax subsidies

More on Silicon Valley’s Government Handouts

Down below, Robert Cruickshank does a brilliant job of taking down Michael Arrington’s hypocritical anti-government screed on TechCrunch, arguing that what Arrington should really be complaining about is corporate domination of American politics, not big scary government regulation.  Cruickshank also implies, in passing, that the high-tech industry should be the last to complain about government meddling, given that it was the Defense Department that created the internet in the first place.

One thing Cruickshank leaves out is that not only was Big Government the midwife (if not the mother) of Silicon Valley, but it’s also been its bodyguard, protecting online commercial ventures from their rivals on the mean streets of the free market.  In 1992, the Supreme Court deemed retailers exempt from having to collect sales taxes on purchases made in states in which the retailer has no physical presence.  Since then, online stores have enjoyed a major competitive advantage over their brick-and-mortar competitors, especially those that are local, independent, and without the resources to establish an online or mail order merchandising business.

The Supreme Court, it should be noted, did not rule it unconstitutional to establish a taxation system for interstate electronic commerce; it merely interpreted existing law as granting this exemption.  At Silicon Valley’s behest, however, state and federal elected officials in the 90s refrained from passing laws to close this loophole and maintained a government-imposed, grossly uneven playing field, quite consciously in order to give preferential treatment to what was then considered a fledgling industry in need of protection.

In other words, politicians used tax subsidies as a tool of centralized economic planning by the government.  It may have been smart, forward-thinking economic planning, but it was economic planning nonetheless, and I don’t recall Arrington or any other Silicon Valley pundit at that time raising the specter of dangerously misguided government bureaucrats trampling over the delicate free market habitat.

Today, the tax privilege for e-commerce continues, though now it’s no longer considered a temporary protectionist measure to help usher in our new economic future, but, like the Bush tax cuts for the rich, an inherent right of these go-it-alone, by-your-bootstraps entrepreneurs who have been subsidized, coddled and protected at every stage of their industry’s manic success story, even after the bursting of the tech bubble exposed the hype and dysfunctionality of Silicon Valley business culture.  The “Main Street Fairness Act” was introduced in Congress as one solution to the problem, but it died quietly in committee.  State governments have tried to fill in for the leadership vacuum in Washington, but e-commerce businesses like Amazon have begun to play hardball with states like Colorado that have tried to devise ways to collect taxes on online purchases in the face of soaring budget deficits.

Arrington might just be libertarian enough to point to repealing all sales taxes as his preferred approach to leveling the playing field between online and brick-and-mortar stores, but unless and until that happens (it won’t), Silicon Valley’s sales tax subsidy will remain not only a drain on desperately needed public resources, but a government-created obstacle to free and fair competition in the retail sector.  If Arrington cares about consistency in his political ideology, he could start by renouncing his own industry’s government-subsidized perks.