INTRODUCTION

INTRODUCTION • Tremendous Internet Growth - Few Online Consumers Pay Sales Tax • Major Debate Over the Issue - Supporting Enforcement Revenue Losses, Competition with Retail - Opposing Enforcement Nurture the Internet, Compliance Costs

OVERVIEW AND OUTLINE • Little Factual Basis For Evaluation • What are the Trade-offs? • Existing Literature • Discussing the Evidence • What Would Enforcement of Taxes Do? • What are Revenue Losses from Internet? • What is Known About the Other Issues?

1: WHAT WOULD TAXES DO? • Why do people buy? • Tax factor varies by City • Compare buying pattern • Control for other factors - Impact of sales tax - High sensitivity TO ENFORCE CURRENT SALES TAX: Buyers: - 24 % Sales: - 30 %

2: REVENUE LOSS FORECASTS • Forecasts Claim Losses of $20b by 2002 - Further Forecasts out to 2010 - All are Seriously Flawed • Major Problems - Business vs. Consumer Sales - Do not Account for Types of Goods - Extrapolate Existing Growth Rates

2a: BUSINESS VS. CONSUMER • In 1997, Forrester forecasts • $327B in commerce by 2002 • 6% rate gives about $20B in lost Rev. • In 1998, Forrester ups forecast to $843B • But, These are the WRONG Transactions • Forecasts of RETAIL sales by 2002 • Forrester: $76 Billion • Jupiter Communications: $41 Billion • Maximum losses of $5B?

2b: SALES BY TYPE OF GOOD (1998) Travel 3,073 Computers 1,090 Software 665 Books 630 Apparel 530 Music & Video 338 Food & Drink 235 Health & Beauty 213 Flowers 212 Recreation 187 Event Tickets 115 Household 100 Electronics 84 Specialty Gifts 63 Greetings 36 Miscellaneous 255 1998 CONSUMER SALES: $ 7,826 M

2b: SALES BY TYPE OF GOOD (1998) Computers 545 Software 332 Books 630 Apparel 530 Music & Video 338 Health & Beauty 213 Recreation 187 Household 100 Electronics 84 Specialty Gifts 63 Miscellaneous 255 1998 REVENUE LOSING SALES: $ 3,278M

REVENUE LOSS 1998 1. 1998 Revenue Loss from Internet: $210m - Smaller than mail-order 10-20 years ago - Mail-Order between $50B and $100B - This Revenue Loss is $3,200m to $6,400m - Total Sales Tax Revenue is $160,000m 2. Internet Revenue Losses Assume - Trade Creation Versus Diversion

PROJECTED REVENUE LOSS: ‘98-’03 REVENUE SHARE OF LOSS SALES TAX REV. 1998 $ 210m 0.1% 1999 $ 470m 0.2% 2000 $ 880m 0.4% 2001 $1,400m 0.6% 2002 $2,300m 1.0% 2003 $3,500m 1.4% Source: Goolsbee and Zittrain (1999)

Only way it matters: Years of large growth rates (not numbers) Speculation Consider Mail-Order 82-87 rates Project to 1997 50% too large Consider Amazon Growth levels vs. rates 1996 1,500% 1997 825% 1998 315% 1999Q1 237% 2c: PROBLEMS OF EXTRAPOLATION

Externalities Network Benefits Learning Minimum scale Information Credit Card Security Repeat purchases Retail Competition Little Effect on shopping patterns Small share of current markets Compliance Costs Costs shrinking Automate, Simplify 3: EVIDENCE ON OTHER FACTORS

SUMMARY OF THE EVIDENCE • What Would Taxes Do? - Significant impact on current commerce • What Are the Revenue Losses? - Very Modest for Several Years • What is Known About the Other Issues? - Now, minimal competition with retail - Some network & information benefits - Falling Compliance Costs

COPIES OF THE STUDIES CAN BE FOUND AT http://gsbadg.uchicago.edu

INTRODUCTION

INTRODUCTION

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Introduction to introduction to introduction to … Optimization

INTRODUCTION/ INTRODUCTION

Introduction

INTRODUCTION

Introduction

Introduction