Stephen Moore: A Tax-Ban No Brainer

[R.A. Hettinga]

-----BEGIN PGP SIGNED MESSAGE-----
Hash: SHA1

<http://www.nationalreview.com/script/printpage.asp?ref=/moore/moore200411191121.asp>

The National Review
 November 19, 2004, 11:21 a.m.
A Tax-Ban No Brainer
Congress should keep the Internet-tax ban in place.



Today the House of Representatives will vote to extend the ban on Internet
taxation through November of 2007. Keeping cyberspace tax free has long
been a goal of anti-big-government and pro-technology forces in Washington.
This bill, led by Chris Cox in the House and John McCain and George Allen
in the Senate has significant opposition from tax-eater lobbying groups on
Capitol Hill, especially state and local governments who hope that the
World Wide Web will be their next great cash cow. The Senate enacted the
bill earlier this week; the House should follow suit, and keep the
Internet-tax ban in place.

 President Bush strongly supports this legislation. So, if the House does
its job, next week this pro-taxpayer legislation will be the law of the
land.

The new law will mean no taxes on Internet access, unless you use dial up
and pay the telephone tax (which should be eliminated as well). It also
means no tax on Internet sales. In other words, the Internet will be a
genuine tax-, regulation-, and tariff-free zone.

 A tax on the Internet would do real damage to the U.S. economy. Economic
growth in recent years has been propelled by the technology sector, which
has made a big-time rally after the implosion of 2000-01, when the NASDAQ
fell from 5,000 to 1,500.

The argument against the ban on the Internet tax is that states and
localities need the money and that Internet purchases are eroding the tax
base of city hall and state governments. This is preposterous. The states
and localities are now awash in cash. For example, my home state of
Virginia has a $1 billion state-tax surplus. The same rosy fiscal picture
is true in local governments across the nation. A new Cato Institute study
finds that states and localities have already doubled their tax collections
over the past twelve years, even without tapping into the new frontier of
the digital economy. Governors and mayors should now be aggressively
cutting taxes, not finding sneaky new ways to add to their coffers.

The policy that Congress is about to adopt is simply a continuation of the
federal law that has been in place for the past six years. Since 1998
Congress has wisely declared the Internet a tax-free zone by establishing a
moratorium on Internet-access charges. An "access charge" is essentially a
toll on using the Internet. The idea was to prevent the government from
causing infant crib death of this new consumer technology. After all, as
Justice John Marshall once observed, "the power to tax is the power to
destroy." By all accounts, the Internet-tax moratorium has been a
resounding success. In 1985, about one in six American families and
businesses had access to the web; now, three in four do.

 Moreover, e-commerce is the new frontier of business enterprise.
International Data Corporation recently estimated that the Internet economy
in 2003 reached $2.8 trillion. In the U.S. alone, e-commerce accounted for
$500 billion in business activity and employed 2.3 million Americans. The
Internet sector of the economy is growing at 12 percent per year
compounded. E-commerce, in short, is to the early 21st century what the
steam engine was to early-20th-century economic development. Meanwhile, the
telecommunications sector of the economy now stands ready to invest
billions to upgrade the nation's communications networks and make
high-speed (or broadband) Internet access available to all American homes
and small businesses, as it is for large corporations today.

 All of this is to say, if ever a public policy has worked precisely as
hoped, it is the Internet-tax moratorium.

 Moreover, if the Republicans in Congress really wants to keep tax relief a
centerpiece of their domestic agenda, keeping the IRS and state tax
collectors away from the Internet is critical. By some estimates, a tax on
Internet access could cost families up to $150 a year. If purchases on the
Internet were also taxed, these costs could double or triple.

 There is only one problem with the bill that Congress will vote on today.
It does not make the Internet a tax-free zone permanently. Also, it seems
that if we want a regime of "tax fairness" and a level playing field, all
forms of Internet access, whether dial-up or wireless, should be immunized
from state, local, and federal taxation. While Sen. McCain's compromise
does not meet all of these criteria, it brings us a lot closer to the
ultimate goal.

 Congress today has a chance to ring the bell for liberty. The opportunity
now exists to create, through the growth of the Internet economy, a massive
global free-trade zone. Opponents of the Internet-tax ban argue that this
bill will only put added pressure on all levels of government to lower
taxes on "bricks and mortar" businesses. That's absolutely true - but I
suspect most Americans would regard this as an added benefit of the
Internet-tax ban.

 - Stephen Moore is president of the Club for Growth.
- -- 
- -----------------
R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'

-----BEGIN PGP SIGNATURE-----
Version: 1308

iQA/AwUBQZ6i/8PxH8jf3ohaEQJyOwCeKeNAAz7QCyiEng3wz8tLjuKQmZcAoLfG
punAsHbRo/bldh6SnM2Qe0Hw
=j/kW
-----END PGP SIGNATURE-----