************ Date: Fri, 9 May 1997 21:57:45 -0400 To: fight-censorship-announce@vorlon.mit.edu From: Declan McCullagh <declan@well.com> Subject: FC: Tax the Net! Report from Capitol Hill... Sender: owner-fight-censorship-announce@vorlon.mit.edu Reply-To: declan@well.com X-FC-URL: Fight-Censorship is at http://www.eff.org/~declan/fc/ So I'm sitting in this rundown basement meeting room in the Rayburn House office building listening to a bunch of DC policy wonks spout off about Internet taxation. Too bad I'll have to wait to get back to the bureau to log in. Gotta get Strosser in Purchasing to get me that radio modem. It'll be great for playing networked Quake when Senate Judiciary hearings are yawners. Bruce Cohen from the Treasury Department is speaking. Horn-rimmed glasses, nondescript blue suit, definitely a geek. Tries a joke: "I hope there are no criminal tax evaders in the audience." It flubs; folks glance at each other nervously. I lean over to the guy from Cox's office next to me and whisper, "I guess that's IRS humor." He deadpans, "For what it's worth." Cohen is praising a Treasury Department white paper released last fall that says basically "No New Net Taxes." That's true. But you have to read the fine print. Which I did. That's where one finds the very clear suggestion that existing tax laws must be extended to encompass the Internet -- in the kind of clumsy and misinformed way that has typified federal forays into legislating online behavior. "We have a tax system based on a 19th century model of industry," Cohen continues. "Cash poses problems for cash administrators. Electronic cash poses additional problems." It does. The guy from IBM admitted a couple minutes ago that if I buy _physical goods_ over the Net and have 'em shipped to my zip code (20036), then the usual taxes should apply. Just like mail order. But problems arise when the product sold is virtual. If I buy a copy of an email program from Poland, pay for it with digital cash from an Amsterdam bank, and get a partial refund from a firm in Singapore, which government taxes what? No wonder the Internet Caucus decided to organize today's luncheon. Everyone on the Hill's still scratching their heads. Now Americans for Tax Reform's Jim Lucier (a longtime f-c subscriber) is at the podium. He recommends "reengineering the tax code" to address some of the unique aspects of the Net. A steely silence descends on the room. Okay, that ain't gonna happen. Too bad. Lucier is one of the few folks in the room who has a clue about the Net. To be sure, cypherpunks have anticipated these regulatory problems for years. I remember Lucky Green, a digital cash guru and veteran 'punk, stopping by my apartment last summer. Over beers, we talked crypto-anarchy: as more and more transactions move online, as more folks become "knowledge workers," as they get paid in foreign e-cash for writing or hacking code, the Feds' ability to tax income (and virtual spending) will suffer. But that doesn't mean taxes disappear. (Yeah, I know. What a shame.) Governments always will be able to tax physical purchases and meatspace property. When I buy a loaf of bread at my favorite organic grocery down on Columbia Road, the Man can monitor the grocer to ensure he reports the transaction. Or property taxes: governments will always be able to extract 'em. Taxes will shift from income to sales and property. Things are winding down. Aaron from White's office is asking for questions. Embarassed silence. Nobody asks any. Is it because nobody understands the stuff or because everybody understands the stuff? Time passes. Yep, the silence is definitely caused by nobody wanting to sound stupid. Aaron gives up. The panelists get to ask each other questions instead. Lucier starts rambling about the economics of tax policy, but nobody can understand, so we all ignore it. Then Mark Rhoads, the guy supposedly representing the state legislators, stands up. He says the only funny thing of the afternoon: "I worked for Dirksen when he wasn't a building." Or something like that. Maybe you had to be there. Anyway, he doesn't like the Cox-Wyden bill that would prevent states from taxing the Net: "I'll give you a nightmare scenario. What if you had a garage sale and invited 80 million people to your garage sale. I happen to be a collector of antique plates. The efficiency the Internet creates allows me to find people. The complications involved in taxing that at either the federal or state level are amazing." Anyone want to bet that's going to stop 'em from trying? -Declan ------------------------- Declan McCullagh Time Inc. The Netly News Network Washington Correspondent http://netlynews.com/ -------------------------------------------------------------------------- This list is public. To join fight-censorship-announce, send "subscribe fight-censorship-announce" to majordomo@vorlon.mit.edu. More information is at http://www.eff.org/~declan/fc/