Big Businesses Want To Tax And Regulate The Internet Sharing Economy. Small Businesses Have To Fight Back

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Peter Ferrara Contributor
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The economic revolution produced by the internet is still playing out in new and innovative ways.

Combining internet technology with online smartphones is opening new avenues for imaginative businesses. This is giving rise to low cost, lightly taxed, and lightly regulated competitors that are adding up in some cases to giant corporate enterprises with global, worldwide effects.

The first avenue of such liberated competition was enabling small entrepreneurs to market and sell their goods and services as broadly as they desire, from the neighborhood, to the city, to the metropolitan area, to entire states, nations and even worldwide. Imagine young entrepreneurs even working from home — even stay-at-home moms — taking their products, services and innovative ideas to a global marketplace.

Amazon saw the opportunity to expand its original bookselling business from selling books online to ultimately selling almost anything online. That has made it into an economic behemoth that can drive the entire economy up or down, on good or bad days, making owner Jeff Bezos a multibillionaire.

The immediate controversy such global marketing has created centers around something as mundane as the sales tax. If you sell your Widget online from Atlanta to Addis Ababa, who collects the local sales tax from your customers?

Actual “brick and mortar” stores, from Main Street to sleek, modern, shopping malls, cannot avoid collecting and paying the tax from their customers, because law enforcement literally “knows” where they live. But if a small entrepreneur operating from a basement or garage does not collect and pay sales from customers in Arizona to Zaire, who really knows? Except the customer, who would not turn himself or herself in.

Brick and mortar stores complain that this involves unfair competition for online sellers. But actual stores have advantages that online sellers do not have.

The store can employ salespeople who can immediately explain the product or service in person. The customer can immediately buy the product, without waiting for delivery. Mall shoppers can then immediately shop for other goods and services while in the mall, eat lunch with friends in a mall restaurant, enjoying the experience while interacting with friends during an afternoon shopping spree.

While online customers can avoid the sales tax, they must pay delivery charges in roughly equivalent amounts. Online shopping can be a lonely experience in the dark without the enjoyment of a day at the mall.

Instead of complaining to the government to impose the same taxes and regulations to online sellers, brick and mortar stores can campaign to level the playing field with reduced tax and regulatory burdens for them. Customers can join the crusade.

The same issues arise in the new sharing economy. Airbnb enables homeowners to rent out space in their homes without bearing the same tax and regulatory burdens as hotels, for a fee paid by homeowner customers to Airbnb. Airbnb is becoming a multibillion-dollar company as a result.

Some entrepreneurs are buying up a number of properties and renting them out, avoiding the same taxes and regulations as hotel chains; more power to them, but they are operating just like hotels.

The needle that needs to be threaded is to find policies that reduce government burdens while making sure the new entrants into the market do not have an advantage because they have found a way to hide from government.

Hotels have asked the government to hunt down, tax and regulate Airbnb customers. A better solution would be to join together with their customers and communities, who benefit from the people and customers hotels bring to town through sales to tourists or business travelers, or the commerce the visitors create, and ask for lower taxes and unnecessary regulations on hotels.  

Make the Airbnb regulation and tax model the preferred one. Trade associations can rise to specialize in such free-market relief, powering new prosperity for whole communities.

It is ironic how Airbnb hired former Obama Attorney General, Eric Holder, to help them out to avoid taxes and regulations that were the hallmark of the Obama Administration. Airbnb is no small company, they are valued at tens of billions and have loaded up with former Obama and Clinton Administration officials for the purpose of tax and regulatory avoidance.

Former Clinton Administration official Chris Lehane is in charge of keeping Airbnb government free. These former Obama, Clinton Administration officials and Airbnb are practitioners of “freedom for me, but not for thee (other guys).”

These companies could load up instead with free-market libertarians promoting economic liberation for them, but they have loaded up instead with big government liberals in love with high taxes and regulations for the sole purpose of avoiding high taxes and regulations.

Uber similarly enables car owners to sell shared rides, for a share of the fees, without bearing all the tax and regulatory burdens of taxi companies.

Customers and whole communities share in the economic gains resulting from the reduced transportation costs and increased commerce from more people able to get around more cheaply. Uber and similar companies consequently prosper into multibillion-dollar companies as well.

Instead of the taxicab establishment trying to shut down Uber, they can seek tax and regulatory relief for themselves. While some of the regulations are designed to keep competitors out, taxi drivers would benefit from not having to bear the costs of high priced licenses or medallions restricting the business to incumbent guild members.

The same issues arise with websites enabling workers to market their services online, such as Craigslist, Task Rabbit, Handy or a myriad of other services advertised ubiquitously on TV. These services enable more convenient employment, and so are a direct benefit and opportunity for working people.

Live and let live. Live long and prosper. Those should be the mottoes for the new economy, to the ultimate benefit of all.

Peter Ferrara teaches economics at Kings College in NY. He also serves as Senior Fellow for Legal Affairs at the Heartland Institute and Senior Policy Advisor to the National Taxpayer Limitation Foundation. He formerly served in the White House for President Reagan and as Associate Deputy Attorney General under President George H.W. Bush

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.