My essay will utilize the following economic principles: supply and demand, tax incidence, deadweight loss of taxation, tax distortions and elasticities. The essay will proceed in four sections. Section one will introduce the background of the Internet Tax Nondiscrimination Act. Section two will analyze the reason why a potential deadweight loss will emerge if the government enforces sales taxes on Internet commerce such as Internet sales. Section three will consider how the elasticity of demand affects the size of the deadweight loss. Section four includes closing remarks and summary.

Existing law governing sales tax treats goods sold over the Internet the same way it treats goods sold from catalog companies. Any enterprise without a physical presence in a state cannot be required to collect that state¡¯s sales tax even if the customer lives in the state. In this sense, the Internet is a vir

Figure 1: Supply and demand curve without tax

Being quite familiar with Internet commerce, I bought a camcorder from an online store at a reasonable price, and plan to purchase a new digital camera in the future. However, I will not buy items like food or shoes online, although their prices maybe lower than the retail stores. Because people usually need to see those necessities with their own eyes, or even try them in person. However, luxuries like computers and books are different, as they are just exactly the things you expect. What¡¯s more, the price difference of luxuries is much greater than necessities; consequently it is wise to purchase of the luxury items from online stores, so most of us follow this rule. But since luxury items tend to have elastic demands, will the elasticity of demand have a significant effect on the deadweight loss? We can find an obvious conclusion from Figure 3 and 4.

Figure 3: Inelastic Demand Figure 4: Elastic Demand

Now consider welfare after the tax is enacted on the Internet commerce. The price paid by buyers from P1 to PB, so consumer surplus now drops to only area A. The price received by sellers falls from P1 to PS, so producer surplus drops to only area F. The quantity sold falls from Q1 to Q2, and the government collects tax revenue equal to the area B+D. In this case, the total surplus is area A+B+D+F.

Some topics in this essay:
Q1 Q2, Section Elasticity, Section Deadweight, Nondiscrimination Act, Introduction Existing, Act Section, Elastic Demand, Internet Applying, Internet Congress, A+B+C Similarly, deadweight loss, internet commerce, taxing internet, total surplus, demand curve, taxes internet, sales tax, sales taxes, internet tax, tax nondiscrimination act, supply demand, taxing internet commerce, size deadweight loss, ban taxing internet, internet tax nondiscrimination,