Senator Dick Durbin (D-IL) is currently drafting a bill that would levy new taxes on Internet sales with the aim of exacting the same liability on online stores as their brick-and-mortar counterparts. The proposed legislation is expected to arrive sometime after the Easter recess.

“Why should out-of-state companies that sell their products online have an unfair advantage over Main Street bricks-and-mortar businesses?” Durbin said in February. “Out-of-state companies that aren’t paying their fair share of taxes are sticking Illinois residents and businesses with the tab.”

Clearly, these are the words of a man who has never run anything, and understands very little about economics.  Granted, this doesn’t surprise me, because the Beltway is really bad with money, and when you couple that with the mentality of  “It’s on the  on the internet, so of course it will make money”  we’re looking at a disaster waiting to happen.

Now, I know I’ll catch flak on this because of our vast west-coast audience, but that’s okay.  I expect that.  Sometimes remedial math and civic lessons are in order. Or in simpler terms, as Mark and I often like to say, “Sometimes you have to beat the kids.”

Laws are pesky things

I can’t believe that I even have to bring this up, but what Senator Durbin is proposing is illegal.  There’s this little thing called “taxation without representation” I’m sure somebody has heard of it.  In fact, I’m pretty sure we had a revolution over it.  Sales tax is not a federal issue. Sales tax is a state and local issue.  If I’m not on the ground and in a store in a specific state, or if the entity I am purchasing from does not sell retail-in-store in my state, (like Dell does) I’m not supposed to be taxed. Your idea makes the constitution cry, Dick.

Let’s talk about the “tab”, Dick

This whole idea that “Illinois businesses are stuck with the tab” because they somehow are being crippled by the fact that taxes from out of state sales aren’t being collected is laughable.  I live in Illinois.  The governor just signed into law a 67% increase in the income state tax rate, and it’s gotten so bad that Caterpillar Tractor has threatened to leave the state, because doing business here has become cost prohibitive.  If Cat leaves, Illinois will lose thousands of jobs and thousands of taxpayers.  Who’s going to make that up, Dick?  You can’t tax us any more than you already have.  When a major corporation threatens to move its world headquarters (which happens to be located in my hometown) you’d think that would be a giant red flag, yes?

Furthermore, I know how hard it is to start and run a business in this state.  I ran a small computer repair business out of my home for a while.  I did my own sales taxes, so I know something about it.  I’m glad I don’t sell anything anymore. In fact, it was the tax code that made me stop.  I remember at one point, according to the revenue service, I had underpaid my quarterly sales tax by a single dollar.  The state then saw fit to slap me with a $40 fine, and then, after I sent the fine in, the state had the audacity to bill me for five cents in interest.  That is not a joke. I was billed for a nickel.  On paper.  It costs more to send out and process the bill out than the nickel is worth.  So in short, I was penalized $40.05 for a supposed $1 accounting error.  So yeah.  Illinois businesses are getting stuck with the tab, but it’s not because somebody bought shoes on Zappos.  Government stuck me with the tab.  Thanks, Dick.

Now that that’s out of the way, it’s now time for my favorite part.  It’s a little story I like to call….

Where Money Comes From

First and and foremost, like it or not, money starts at the top.  Now, when I say “top”, I mean the people who start businesses.  Starting a business takes a fair mount of capital in most cases, so this should be easily understandable.  Some people think this is unfair, but it isn’t.  This is the way our system works. You will never, ever be hired by a poor person. It’s just a fact.  The beauty of our capitalist system is that it is a free market capitalist system.  That means you have choices, and you can put yourself at the top if you have a good idea.  You just have to work for it.  That’s the proverbial American dream. Who wouldn’t want that?

Secondly, It is important to understand that while companies do create jobs, creating jobs is not (nor should it be) the primary focus of any company.  The goal of any business its to create or provide a product or service that people will want or need, and then turning the production of such things directly into profit. Period.  End of story.  Jobs created within companies are merely tools needed to reach that outcome.  A means to an end if you will.

This isn’t to say that jobs aren’t important.  In fact the opposite is true. Especially when it comes to taxation, but I felt it important to lay out the two basic principles above before we discussed how this all ties together:

Taxpayers are made, not born, and certainly not coerced. because if taxes are too high, a tipping point occurs where it no longer becomes worthwhile to produce. When production stalls, personal revenue declines, and then by definition, so does tax revenue.  The keys to economic balance and prosperity are twofold:

1. Cut spending
2. Lower taxes

The first of these things is paramount because if you cut the waste (which there is a lot of) it should, in a sane world, lead to the reduction of tax rates. this puts more money in the hands of the people. Which they in turn spend or invest.  When personal spending goes up, demand goes up.  When demand goes up, production must increase in order to meet that demand.  When that occurs the job providers must respond by increasing their respective  workforces in order to stay competitive.  This creates taxpayers, therefore increasing tax revenue.  It’s a proven fact. Higher levels of disposable income lead to increased revenue, because spent money is taxed at every level of the commercial chain.  It’s simple.

Why we outsource

For the aforementioned growth  phenomenon occur, it has to originate at the business level.  Folks, there is a very simple reason why a great number of companies are moving overseas.  Our corporate taxes are outrageous.  At over 30% our taxes are soon to be the highest in the world.  When one contrasts that with Ireland’s modest corporate tax of 12.5%  It simply not cost effective to do business in America.  Why should any company worth its salt throw money at a local, state and federal governments which have created numerous programs that routinely fail and have amassed billions and trillions of dollars in debt respectively?

We shouldn’t!  We’ve thrown trillions at poverty, yet there are still poor people.  We’ve thrown piles of money at our public schools, and they are among the worst in the world.  Oh, and how are your roads looking these days?  Hmm…anybody see a pattern here?

It makes much more sense to allow businesses to have disposable income that they can use to expand, thus creating more jobs by necessity rather than fiat, thus raising the standard of living for all as a result. Soaking the “rich” will not solve the problem as Mary Katharine Ham illustrates in the video below:

I’ve met her. She really is that awesome.

The myth of “social responsibility”

Tom Foremski, a frequent contributor here at SiliconAngle has spent a fair amount of time as of late that Twitter’s attempts to avoid paying taxes in San Francisco is some kind of moral failing.  A dereliction of duty, if you will. the company not living up to the “social responsibility” it preaches.

Disclaimer: I personally think Twitter is stupid.  Yes, it should have value, but as I have often said, “Twitter is like a slot machine that pays off in dumb-asses.”

My personal opinion of Twitter notwithstanding, I think it’s move to avoid the taxes is brilliant.  The “social responsibility” mantra plays well with the hippie Valley culture, and I’m sure somebody at Twitter knows that. But when you peel it all way, deep down, Ev and the gang know that in return they get little or nothing in return for the tax dollars Twitter shells out, and Lord knows that Twitter by it’s very nature is difficult if not outright impossible to monetize. So this is a brilliant business move.

The money Twitter is saving on San Francisco taxes would be better spent on researching business models, and streamlining or expanding service.  Doing so would lead to more hires, which creates more taxpayers (who probably live in San Francisco) thus increasing revenue.  Plus what if Twitter is actually consistently profitable?  Imagine the tax revenues collected by your beloved overlord government then?  Dare to dream kids.  Dare to dream.

Social responsibility is in reality anything but.  It generally means “cater to the irresponsible” or in simple terms “Take care of the dope-smoking hippies”.  Responsibility isn’t a social cause.  It is an individual mandate.  for each of us, our responsibility to society with getting off our dead weight asses and producing. Not to make sure that we’re arbitrarily pissing away the “right”  amount of other people’s money.  Sadly, I’m afraid that it’s a lesson that some in the Valley and even fewer in government will ever learn.