Taxation with Misrepresentation

Abstract

THE TAXATION aspects of interstate trade barriers present a problem of as much importance to marketing men as to students of public finance. Its study will reveal a curious mixture of unsound theory, bad ethics, ingenious subterfuge anid practical politics. In the first place, it ought to be selfevident that an honest tax measure is one which clearly states its objective and that a so-called revenue law which penalizes interstate commerce will, instead of increasing the state's income, curtail it through the decline or disappearance of the tax base. Hence, while we may justifiably complain about the general tax burden, we should not add the charge of trade barrier effects to the indictment. The principal matter to be discussed here is the increasing use of laws purporting to be revenue acts which have, in fact, a trade barrier objective. It is generally recognized, of course, that states have tremendously increased demands for public expenditure and that heavier taxes and new sources of funds are essential. It is equally apparent that a state has the right and duty to protect its income so long as discrimination is avoided. The temptation is ever present to blacklist many defensible restrictions against the evasion of domestic taxation by foreign corporations or individuals by calling them barriers to interstate commerce. So long as tax legislation tends only to equalize competitive opportunity, there should be no objection; but in our recently well-aroused indignation against the trend toward economic provincialism, we become more enthusiastic than selective in our condemnation. Not only do we apply the trade barrier stigma too freely in some directions, but we have probably failed to appreciate the restrictive effects that are found in others.1 We should conserve our energies to attack the invocation of the taxing power to hide purposes which could not be attained if legislation were subjected to the labeling and advertising restrictions borne by business enterprise. A tax which openly levies upon the possession of wealth or the receipt of income, which requires payment for the enjoyment of special benefits or privileges, or which is punitive to socially undesirable activities may involve problems of theoretical importance and may constitute a burdensome cost to the business community. However, it does not warrant as much critical attention as the action of legislators who, succumbing to lobbying pressure, pervert the state's tax authority for the benefit of special group interests. There is no question but that the states have the power to tax intrastate commerce, but the taxation of interstate commerce has constitutional and judicial aspects. There is no provision in the Federal Constitution specifically prohibiting the states from levying against trade between the states, but the courts have traditionally limited such a practice. Until very recently, at least, the accepted doctrine has been that the national government has control over matters of common interest to the entire country or which require uniformity of control, while affairs of purely local concern are the province of the states.