- The Washington Times - Friday, February 11, 2000

Missing from the flurry of proposals in the State of the Union address to Congress was President Clinton's position on Internet taxation. Perhaps he understands that the issue potentially threatens to define his Democratic Party as out-of-touch liberals who continue to try to apply Industrial Age remedies of the failed Great Society to the Information Age. Their challenge will be to keep Internet taxation from becoming an issue.

The challenge for the Republican Party is to recognize that protecting the Internet from a host of new taxation is worthy of a fight. Republicans then must have the courage to embrace the fight in their national and state platforms and encourage their candidates to champion the issue.

The Internet is unlike any other medium in history in its power, accessibility, reach, and impact on trade, commerce, education and communications. The freedom and equal opportunity offered by the Internet is truly American in its concept. Consider that anyone with a vision, a little money, and a little knowledge can open an online business and compete in the global marketplace.

Yet many shortsighted politicians only see a new source of tax revenue. Taxation of the Internet is shaping up to be a very big political fight.

The battleground could not be more clearly defined. On one side are the National League of Cities, National Association of Counties, U.S. Conference of Mayors, National Conference of State Legislators, National Governors' Association, Council of State Governments, and International City/County Management Association better known collectively as "the government."

On our side are citizens, consumers, scientists, patients, entrepreneurs, educators and students who are responsible for creating the jobs, wealth and unending opportunities that have produced the remarkably strong economy that has led to record surpluses of over-collected taxes already in the very coffers of the offending state and local governments.

Their objective is simple: Figure out how to tax more in order to spend more on new and expanding big government programs. The proposal they submitted to the Internet Commerce Commission would allow states, counties and towns to use so called "trusted third parties" to reach outside their jurisdictional borders and tax online purchases to pay for government services even though the customer never set foot within the taxing locality.

Allowing remote taxation is taxation without representation. Taxation should support services provided within a governing jurisdiction and be paid for by those who either benefit from these services or who have a say in how the funds are used. Vendors and customers from other states do not use or deplete state or local resources. They should not be forced to pay for them. Shipping services already pay multiple state and local taxes for the services they use and Internet vendors will continue to pay taxes where they reside because they are treated like any other business in their home states.

The ability of an individual to take advantage of the Internet depends on accessibility, which is largely related to cost. Existing discriminatory regulation and taxation drives up the cost of electronic commerce and the price of Internet access for every household but disproportionately impacts the poor. The Republican Party should call for the repeal of the federal 3 percent excise tax on telecommunications. First established in 1898 as a temporary tax to help finance the Spanish-American War, and then continued as a "luxury" tax to help pay for World War I, the tax is still collected today. Combined with state and local taxes, the average tax rate on telecommunications services in the United States is more than 18 percent. Adequate investment by telecommunications companies in the infrastructure is vital to the development of the Internet.

Congress should also insist that the 1996 Telecommunications Act intended only for state and local governments to be reimbursed for actual costs incurred for managing the public right-of-ways, not as ongoing toll stations to be levied on telecommunications customers. Congress and the states should simplify and lower the multiple high taxes on consumer phone bills.

The Internet Commerce Commission should adopt Dean Andal's proposal that clarifies state and local tax responsibilities and defines what constitutes a substantial physical presence within the taxing jurisdiction, or "nexus."

Finally, protecting consumer privacy is best accomplished by making the federal ban on discriminatory e-commerce taxes permanent. We should allow for anonymous cash transactions using some form of electronic cash. Any effort by government to control the Internet will inevitably require invasive monitoring and should be considered an assault not only on the medium but also on business and personal privacy.

The Republican Party should not shy away from this fight. The GOP should embrace the information revolution and learn its lessons of freedom, innovation and entrepreneurship and apply them to build a smaller, more efficient government to create a society that is safe, prosperous and free.

Former Speaker of the House Newt Gingrich is the founder of the Committee for New American Leadership. E-mail: www.NewAmericanLeadership.com

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