If Congress accepts this recommendation, the moratorium on new Internet taxes introduced in 1998 would be extended. The majority vote was by a slim margin, however. Traditional retailers would also be disadvantaged because they have to charge sales taxes. Draw a supply and demand diagram for CDs. Mark the equilibrium price and quantity in the absence of sales taxes.
Most internet sales are free of sales taxes, but high-street retailers have to charge sales taxes.
Draw a supply and demand diagram for goods and services in general. Show the equilibrium price and quantity. Assume that sales taxes are charged on all goods and services. Show the effect on the equilibrium price and quantity. Shade in the area representing the tax revenue earned.