By Brendan Sasso - 07/18/13 06:13 PM EDT
They concluded that the lack of an online sales tax encourages consumers to evaluate products at local retailers, but then buy the products from out-of-state websites.
"Such incentives increase overall in-state retail costs and reduce overall in-state sales," they wrote.
Some Republican governors, including Scott Walker of Wisconsin and John Kasich of Ohio, have already promised to use online sales tax revenue to slash other rates.
Under current law, states can only collect sales taxes from retailers that have a physical presence in their state. People who order items online from another state are supposed to declare the purchases on their tax forms, but few do.
The Senate passed legislation earlier this year that would empower states to tax online purchases, but the proposal has yet to gain momentum in the House.
"This would create a more efficient tax system and correct a fundamental distortion of the retail marketplace, where traditional retailers must collect the sales tax and their online competitors don't," Laffer wrote in an op-ed in USA Today touting the study.
Laffer, who advised President Reagan, is best know for the "Laffer curve," which demonstrated that in some situations, cutting taxes can produce more government revenue.
"Our small retail businesses can grow, create jobs, and prosper if Congress passes the Marketplace Fairness Act and closes this unfair and confusing tax loophole – one that amounts to a subsidy for out-of-state businesses," Rep. Steve WomackSteve WomackObscure lawmaker thwarts Never Trump movement GOP passes rules vote over outcry from Trump opponents A fix for the well-intended ethanol flop MORE (R-Ark.), the sponsor of the House's online sales tax bill, said in a statement. "Dr. Laffer’s study clearly shows this. And it’s not just small businesses that stand to benefit."
But critics of the legislation say it would be complicated to implement and would stifle online commerce.