Can Silicon Valley Save Grover Norquist?
The anti-tax crusader's new fight against an Internet sales tax could be the perfect way for him to reinvent himself as a populist for the Obama era.
Grover Norquist isn't the most popular man in Washington right now. He isn't even in the top 10. But he is smart. And if he can pull off his latest gambit successfully, he'll have done more to burnish his image than with all the lobbying he did in 27 years of anti-tax absolutism.
The president of Americans for Tax Reform has his work cut out. Even though Norquist managed to escape an awkward position on the fiscal cliff with some legal jujitsu in December, the painful negotiation process -- and the final deal it produced -- dealt a serious blow to his cause. Never have so many Republicans come so close to abandoning the ATR pledge not to raise taxes, nor have so many Americans so intensely believed -- in recent memory, at least -- that taxes should be raised on the wealthy.
Which is what makes Norquist's new project so interesting. At a tech conference in Washington on Wednesday, Norquist launched Taxes Without Borders, an effort to oppose Internet sales taxes. Right now, if you buy goods from an online business like Zappos or Overstock.com, the retailer won't charge you sales tax. (Technically, shoppers are on the tax hook for online purchases; it's just that retailers have never bothered to collect, and states lack the resources to follow up.) That's good for you, the consumer, but a headache both for states -- whose governments are leaving as much as $23 billion in potential revenue on the table -- and for traditional brick-and-mortar businesses, many of whom are struggling to compete against less-encumbered online rivals.
A bipartisan group of U.S. senators and representatives is hoping to even the playing field by giving states the ability to levy sales taxes on Internet transactions. Norquist, predictably, is spoiling for a fight. But for several reasons this confrontation is qualitatively different from the controversial struggles over income tax -- and if ATR comes out on top, the group will find itself in the strange and not-unenviable role as the Internet's Robin Hood.
The debate over online sales tax isn't your garden-variety battle about the proper role of government. For one thing, sales taxes are inherently regressive. A poor person and a wealthy person pay the same amount of tax on a gallon of milk, but it's going to hit the poor person harder. Shooting down a sales tax therefore does much more to ease the public's tax burden than shaming lawmakers who aren't committed to protecting wealthy people's incomes. Opposing new taxes from a position that more clearly benefits non-elites could establish Norquist's bona fides as a fresh kind of public-interest defender. And that's good for a man who wants to stay relevant even as his old strategy gets called into question.
Standing in the way of Internet sales taxes is good for Team Norquist in another way, too: It aligns him with Silicon Valley types who not only boast a great deal of social and cultural capital, but who are also likely to drive a significant share of U.S. economic growth down the road. Among all G-20 nations, the size of the Internet economy is set to reach $4.2 trillion in 2016 -- nearly double what it was in 2011, according to research by the Boston Consulting Group. Three years from now, the web will account for 5.3 percent of U.S. GDP. And the digital economy will play an even larger role in many developing economies the United States does business with.
Not everyone in the tech industry is of the same mind on the Internet sales tax. Amazon is actually among those fighting for the duty as a way to crush smaller, up-and-coming rivals, while arrayed against it are eBay and Overstock. But as long as online retailers remain divided over the tax and deal-seeking shoppers stand to lose, Norquist has much to gain.
It's not clear whether he and his allies are aware of the opportunity they face, but it's a big one. By linking his fortunes to the tech world, Norquist can make innovators and entrepreneurs a bigger part of his coalition. Refashioning himself into a spokesman for America's future economic leaders will allow him to cast off his reputation of the past two decades as the man who fought to defend Old Money.
Update: A Twitter follower helpfully points out that Norquist actually addressed just this subject with a tiny section of his 2008 book, Leave Us Alone. In three paragraphs, Norquist argues that online sales taxes open the door to interstate leeching:
Here one spots politicians who think they live in 'loser' states looking for ways to tax people who have moved out of their state and/or would never think of moving in. The more confident a state is that its businesses are healthy and growing and likely targets for 'loser' states, the less tempted their politicians are to push for rules that allow such crossborder raids.
The idea that successful states will find themselves subsidizing the inadequacies of other states -- and that the winning states should fear this outcome -- is an interesting way to lobby against the tax from a governmental perspective, but it's not that compelling. After all, if you plot federal revenues on a map, it tells pretty much the very same wealth transfer story.