Why an Online Sales Tax Would Hurt All New Yorkers

By Max Gulker

Imagine an extra $3 tax any time you order something online. That’s what two New York City officials are asking of New Yorkers in the name of “saving” the city’s financially troubled Metropolitan Transit Authority. John Samuelson, president of the Transport Workers Union, and state assemblyman Robert Carroll make their case in a recent New York Daily News op-ed.

While the authors maintain that a federal bailout is necessary in addition to the ill-conceived tax, they see some advantages in a citywide surcharge for e-commerce. They believe it will lessen the “siege” of delivery truck traffic, and incentivize consumers to more frequently patronize the city’s local businesses, large and small.

“Shopping online is cheap and convenient,” they write. “Online commerce is booming. Amazon’s profits are up 53% compared to last year.

What Samuelson and Carroll have done is pack an astonishing array of bad economic ideas into a single newspaper op-ed. Those include the inherent mistrust of technology seen all too often among progressives, as well as misguided attempts at protectionism that might make the outgoing president proud.

Economists have a term for a surcharge on products brought in from outside some set border. It’s called a tariff. And while President Trump in some circles may have gotten away with claiming outsiders paid his national tariffs, the $3 surcharge at the end of every New Yorker’s online transaction would make it abundantly clear whose taxes are being raised.

Twenty years ago it was fashionable to ask questions like “what will the internet do to brick and mortar retail?” Our complex economy has shown us once again that neither the question nor the answer are so simple. Many of the small and large “local” businesses in New York work synergistically with their own and other websites, not to mention home delivery for their local consumers.

Samuelson and Carroll correctly celebrate the wide range of businesses that perhaps more than any city in the world make New York “dynamic, diverse and interesting.” Their belief that the tariff will help these businesses likely springs from an idealized moment in a certain kind of New Yorker’s life: a New York consumer wishes to avoid the $3 fee and closes Amazon on their computer. They exit their apartment and proceed to their neighborhood bookstore, renewing their appreciation for its quirky charm.

But what about the bookstore? This dynamic and diverse local business likely orders its office supplies, as well as a slew of other items, online. They may even acquire much of their inventory from e-commerce platforms that Samuelson and Carroll appear to cover in their proposed tax.

What about all those financial firms and law offices in midtown Manhattan? Some may have the knee-jerk reaction that they can afford the surcharge, but can the city and its economy? As the fee puts a small damper on the activity of every business, those costs will snowball into fewer jobs and perhaps some firms leaving the city altogether.

These supply chain dynamics are, of course, one reason tariffs are almost always bad for the countries that implement them and often end up harming even the specific industries they mean to protect. In an interconnected modern economy, a business will share in the pain if either its suppliers or buyers see their costs go up. As the examples above illustrate, New York City would be no different.

Samuelson and Carroll see another reason to tax New Yorkers’ online transactions—the growing presence of delivery trucks on city streets. Traffic and pollution are nothing to be taken lightly in any city, but it’s the authors who show how little they’ve really thought about the problem when they see each and every package not ordered online as reducing such traffic:

A delivery surcharge will also undoubtedly encourage consumers, and the Amazons of the world, to more regularly consolidate multiple items into a single package for delivery. Instead of shipping someone a pair of new sneakers on Monday, a pair of socks on Wednesday and a toaster oven on Friday, Amazon could put them into one box and (gasp) make you wait a little. That’s one truck trip down your block by FedEx or UPS instead of three. Now multiply that by millions.

Amazon, of course, works with both the US Postal Service and major private carriers. The small items Samuelson and Carroll use in their example, if delivered individually, may simply be part of the neighborhood mailman’s route, while if consolidated require a big box and a truck. Trips down New Yorkers’ blocks could go from zero to one under the surcharge just as easily as being reduced.

Samuelson and Carroll try to couple this online tax with the financial position of the MTA, which runs the city’s vital subway and bus services. The two issues have nothing to do with each other.

The tax would harm both Samuelson’s transit workers and Carroll’s Brooklyn constituents, both directly like all New Yorkers, and by damaging the city’s economy more widely.

New York has always thrived by being a global point of connection for goods, services, people, and cultures. Putting up barriers in the name of bailing out the city financially would be the definition of myopic.



Source: FEE

Max Gulker is an economist and writer who studies how poverty and access to education can be addressed with voluntary, decentralized approaches that don’t interfere with free markets. He holds a PhD in economics from Stanford University and a BA in economics from the University of Michigan.

Image: Pixabay

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