Ronald Reagan memorably observed that the government’s view of the economy can be summed up as follows: “If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”
Fortunately, so far when it comes to the Internet, the federal government has uncharacteristically suppressed the urge to tax and regulate. And the result has been a flourishing of information, productivity and opportunity. But state and local governments will get another crack at proving Mr. Reagan’s aphorism correct unless Congress acts soon to protect consumers and entrepreneurs from opportunity-killing taxes on Internet access.
As governor and as a senator, I supported and sponsored with Sen. Ron Wyden of Oregon legislation banning taxes on Internet access as well as updating definitions so that there is no discrimination based upon which platform one uses to access the Internet, whether it be cable, DSL, wireless, satellite or power lines. Congress first passed a temporary ban on state and local governments taxing Internet access in 1998 and renewed the moratorium in 2001 and 2004. This law protects every American from harmful, regressive taxes on Internet access, as well as duplicative and predatory taxes on Internet transactions. It ensures that a complicated and costly telephone-like tax regime, which increases bills for service by an average 18 percent nationally, will not be imposed on Internet consumers for the privilege of accessing the Internet.
The moratorium has prevented avaricious state and local tax commissars from slapping consumers with new taxes when they log on to the Internet. The result has been that Internet use in the United States has grown from 36 percent in 1998 to more than 70 percent today. But the moratorium is set to expire on Nov. 1 unless Congress acts to renew the temporary moratorium or make it permanent.
At a time when the United States is lagging behind much of the world in broadband penetration, extending the tax moratorium would put us one step closer to achieving much greater broadband access across the country. But I do not believe that a temporary moratorium is sufficient.
A permanent ban on Internet access taxes would extend the reach of technology and help eliminate the digital divide. According to a study by Government Accountability Office analysts, only 11 percent of households with incomes below $30,000 have broadband service, compared to 61 percent of households with incomes above $100,000. Basic economics indicates that for every dollar of taxation added to the cost of Internet access, we can expect to see lost opportunities for thousands of American families, especially people in rural areas and people everywhere with lower incomes.
Taxes on access increase costs for distance learning, interactive medicine, online businesses and basic communication. Higher taxes would impede small businesses’ ability to take off, grow and create new jobs. By banning taxes on the Internet (or as I call it, the “individualized opportunity zone”), we would ensure that this unparalleled, vital tool for communication, commerce, medicine and education would remain more affordable and accessible for more Americans.
By contrast, allowing taxes on Internet access would have a chilling effect on companies looking to build broadband Internet infrastructure in low-population areas, where fewer consumers will buy a more expensive product. A permanent ban on Internet taxes would provide Internet service providers with the certainty necessary to undertake the enormous investments in infrastructure that would greatly increase broadband access in underserved areas.
Greater broadband access would allow for more people to “tele-work” from rural and suburban areas, reducing commuting expenses and providing jobs for people to stay in small hometowns rather than move to the big urban areas to find work. One of the most exciting characteristics of the Internet is that it provides opportunity for all — regardless of income or location — to be entrepreneurs.
Internet commerce has become an enormous engine of growth throughout the economy. According to the National Association of Manufacturers, 75 percent of the growth in productivity in the U.S. economy since 1995 can be attributed to investment in communications networks and the information technology transported across them. Greater broadband deployment is the key to setting off a new round of Internet-led gains in productivity in our economy.
State and local governments, looking for a cash cow to feed their ever-exploding budgets, have opposed a federal ban on Internet taxes, or at least opposed making the ban permanent. Resisting these calls for more tax options, a bipartisan coalition in Congress has come together to support the Permanent Internet Tax Freedom Act, which would make the current moratorium on taxes a permanent ban. But Congress needs to act on this legislation quickly, or else we will face a tax horror story this Halloween when the moratorium expires.
The guiding principle of the Internet tax moratorium has always been that the Internet should remain as accessible as possible to all Americans in all parts of the country forever. By establishing a permanent Internet tax ban, we will allow this innovation for individual empowerment, economic growth and jobs to continue to thrive for future generations.
Former Sen. George Allen, who also served as Virginia’s governor, is the Reagan Ranch Presidential Scholar for Young America’s Foundation.