TCS Daily

Read my lips: no net taxes!

By James Freeman - March 27, 2000 12:00 AM

Something amazing and wonderful happened in Dallas, Texas this week. A majority on the federal Advisory Commission on Electronic Commerce voted against new Internet taxes.

This is great news for consumers, for our economy, and for our country, because it means that the Internet can continue to grow and enrich our lives. I'll admit that I'm biased here. My entire livelihood has been made possible by the digital revolution. But today I'd like to explain why everyone benefits from a tax-free Internet, even people who don't shop online, work at a dot-com or own stock in an e-business.

Put simply, the tech boom creates wealth and enhances our lives. Fueled by the opportunities of a free Internet, tech firms are creating innovations that help us all. The same computers built to handle the enormous demands of e-commerce are giving doctors powerful new tools to diagnose and treat diseases.

In a more mundane example, they can also give your manufacturing business a cheaper way to acquire raw materials, a more efficient way to manage inventory, or a more effective way to market your products.

Elsewhere in this week's Tech Central, Host James K. Glassman analyzes the March 6th address by Federal Reserve Chairman Alan Greenspan. Jim describes the good and the bad in Greenspan's speech, but I'll just focus on the good stuff for a moment, because the Fed Chairman accurately described the key ingredients of our current prosperity. Said Greenspan: "In the last few years it has become increasingly clear that this business cycle differs in a very profound way from the many other cycles that have characterized post-World War II America. Not only has the expansion achieved record length, but it has done so with economic growth far stronger than expected. Most remarkably, inflation has remained largely subdued in the face of labor markets tighter than any we have experienced in a generation.

"A key factor behind this extremely favorable performance has been the resurgence in productivity growth. Since 1995, output per hour in the nonfinancial corporate sector has increased at an average annual rate of 3-1/2 percent, nearly double the average pace over the preceding quarter-century."

And what's the principal cause of the productivity gains, and of all this prosperity, according to Greenspan? Information technology and the Internet. Thanks to the power of connected computers, we can do more in less time, and our productivity is growing faster every year. We're enjoying the longest peacetime economic expansion in history with low inflation and low unemployment. Why would anyone want to disrupt this amazing tech boom with new taxes or regulations?

That's the big picture. Let's get a little more specific. It's very clear that all the wealth created by e-businesses doesn't just stay in the cyber-economy. In this age of the Internet, a lot of traditional retailers are doing better than ever, thanks to our booming, tech-driven economy. Federated Stores, which owns Macy's, reported 15% growth in revenues last year, with a 16% jump in earnings. Wal-Mart increased revenues almost 20%, with earnings up more than 25%. Home Depot delivered even better numbers.

Clearly, some traditional retailers will have a difficult time adapting to new technology. But raising taxes on e-commerce is not the way to help them. Governments don't need the money, with state revenues growing at an annual rate of almost 8%. And if your aim is to help "bricks-and-mortar" merchants, remember that they wouldn't see a nickel of new taxes collected on the web. If you really want to help Main Street retailers, cut their taxes.

Similarly, if you really want to help poor people, cut the sales taxes that they have to pay at the corner store. Whether I have to give more money to government when I shop online has no impact on them at all. I haven't seen any governors agree to reduce traditional sales taxes in return for the right to tax the Net. So this debate is about whether we take more money out of the private economy and transfer it to government.

Maybe that's why the e-commerce commission voted this week to leave the Internet alone. Despite abstentions by the Clinton Administration's representatives on the panel, the anti-tax movement won a clear majority. So the message to Congress should be clear: No net taxes!

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