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There seems to be some confusion on what taxes are and how they get enacted. The tech industry gets a lot of flak because of its strident anti-tax views. The common refrain is that it would stifle innovation, kill job growth, and hamper a sector that is critical to America’s future competitiveness. While I do not necessarily buy those arguments, it is inexplicable to read an opinion piece from someone in the tech industry advocating for more taxes. There are plenty of reasonable things to whine about, but whining about not paying enough tax?
The tax system is a government sponsored patronage system. While the objective is to fund necessary services for the good of the people, what taxes get passed and how that process occurs is not so transparent. Taxes (and subsidies) are enacted much of the time based on political whims, backdoor deals, and armies of lobbyists. That is why farmers get paid money to actually not farm, GE can get away with paying no taxes, and large businesses can force massive tax concessions on municipalities on the threat of moving. Some of the biggest Wall Street firms received significant tax breaks to stay in downtown NYC after the events of September 11 as well as years previous in order to prevent flight to the surrounding suburbs of New Jersey and Connecticut.
There is nothing ethically or morally wrong for the tech industry to leverage the same tactics used by other industries in reducing their tax burden. I think it is great that tech companies are taking advantage of the beneficial tax treatments. At the very least the money being saved is plowed into creating innovative technologies, adding value to humanity, and employing people whose income feeds back into the local communities and small businesses.
Thus we come back to the core issue of the opinion piece, that this new economy of collaborative consumption should not be exempt from taxes. There should be a “level playing field” and that such “abuse” of the tax system hurts local businesses. If anything however, big box retailers and overly aggressive regulations have had much more of an economic impact in stifling local businesses.
Back to the point however, is there really an unfair advantage enjoyed by these rouge entrepreneurs? Is the Airbnb renter undermining Marriott? Does the car sharer decimate Hertz? Does the tour guide crush the professional tour operators? No, because the collaborative consumption economy is creating opportunity from scratch. There is no zero-sum game for customers where an Airbnb steals customers from the hotels. While some of that does happen, the true effect of this new economy is that an entirely new pool of consumers is unleashed that would not otherwise purchase such service in the first place. These saved dollars are then free to be spent in other ways in the local community. The net effect of this collaborative economy is additive.
But you really want to be stubborn and make these “entrepreneurs” pay their fair share? You really want to level the paying field? Then kill the current tax code and implement a new one that is fair across all industries and businesses. Discourage tax shopping across jurisdictions. Dismantle the corporate welfare and subsidy system. Keep the tax rates low for smaller businesses and startups to encourage entrepreneurship, but otherwise keep the tax code as simple and easy to understand as possible. Instead of using the tax code as a political hot potato, patronage system, or social engineering experiment, keep it free from political manipulations and lobbyist influence. Then go ahead and tax away the technology industry and the collaborative consumption economy.
But of course, reality sets in and then you realize this is just a pipe dream. The tax code will always be victim to the winds of political dealings. The tax code never shrinks; it just gets bigger and bigger and bigger every year. Thus, the smart businesses will do what it takes within the letter of the law to pay the least amount of tax in order to maximize earnings whether it is for investors or to plow back into the business. Whether it is the big tech giant, the scrappy startup, or the single person Airbnb renter, let’s not simply buy into these tax “fairness” arguments. The tech industry has done and continues to do its fair share to revitalize the economy and contribute a good portion of its earnings back to Uncle Sam.