Tax and the Internet-Fueled Economy

This guest article was written by William Laraque who is the Managing Director of US-International Trade Services.

The good news is that there is a new form of global economy.

The bad news is that governments are as yet unable to measure its extent. Various terms have been used to describe this economy - crowd-based capitalism, microentrepreneurship, the sharing economy. This economy can best be explained as individual initiatives filling the spare capacity in economies.

Professor Arun Sundararajan, NEC Faculty Fellow, Professor of Information, Operations and Management Sciences, and a Doctoral Coordinator at the Stern School of Business, New York University, uses the interesting example that 80 million portable drills are owned in the US. The average lifetime use of these drills is 13 minutes.

Spare capacity exists in what we own, short-term accommodation, in transportation, in the short-term need for elegant clothing, financing, services of all kinds. The microentrepreneur uses the smart phone to fill these voids with Airbnb, Uber, couch surfing, home renting, renting of couture, making loans, provision of all sorts of services on an ad-hoc and freelance basis which constitutes an entire economy.

The US Bureau of Labor Statistics struggles to measure the extent of this 'informal' economy in the same way that the US Census Bureau, part of the US Commerce Dept., struggles to measure the extent of US exports when sales are made via e-commerce and no SED or Shipper's Export Declaration is reported.

I have over the course of a 40 year career in international trade finance spoken to hundreds of people who are not even aware of the requirement to report via SED, Shipper's Export Declaration, the export of goods and services with a value reaching or exceeding $2500.

Government reporting and data have simply not kept up with the virulent growth of the internet-fueled, new economy. The determination that this economy does not exist, is not significant, is immeasurable, is fuelled by bureaucratic hubris. It is bureaucratic ideology to presume that everything in an economy is both measurable and controlled with the appropriate application of bureaucracy. The internet and its diffusion of democratic opportunity make a mockery of this vainglorious assertion.

The great problem for government is how do you tax that which you cannot measure? When the sharing economy goes cross-border, how do you tax it if you cannot measure it or record its data?

Yes, the good news is that the microentrepreneur has found a new means of achieving income and wealth. The bad news is that government bureaucrats and politicians have been bypassed by an economy which renders them insignificant.