TCS Daily

Taxing the Tide?

By Charles Matthew Rousseaux - April 26, 2004 12:00 AM

Jerry Seinfeld's mailman menace Newman once proclaimed, "You remember this: When you control the mail, you control information!" He was partially right in that distant era when the sitcom was recorded. Since then, e-mail has become as commonplace as snail mail. The flow of information on the Internet has become a flood thanks in large part to its mostly tax-free status.

Having lifted America to Information Age prominence, and empowered all with access to it, that tide of information could be turned back if politicians succeed in taxing its flow. The Internet Tax Freedom Act expired last November 1. Since then, state and local legislators -- awash in red ink instead of bubble-era revenue -- have been trying to tap into its streams.

They've found friends in Sens. Lamar Alexander of Tennessee and Tom Carper of Delaware, who have proposed legislation (S. 2084) extending the moratorium on Internet taxation two more years but leaving taxing loopholes open. Instead of throwing an Internet tea party at which patriots pitch their taxed PDAs and PCs into the Potomac, the anti-taxers are simply supporting legislation (S. 150) offered by Sens. George Allen of Virginia and Ron Wyden of Oregon, which would put a permanent ban on Internet tolls.

A version of that bill (H.R. 49) received the unanimous support of the House last September. There are a variety of reasons -- of both personal and nation interest -- that Senators ought to vote to keep the Internet permanently free of federal fees.

The true impact of the Internet's tax-free status probably won't be known for some time, but it is undisputed that the moratorium has -- and is continuing to -- propel Americans into the information age. As Mr. Allen argued in a Washington Times oped last fall, "The Internet has personally empowered millions of Americans as consumer, entrepreneurs and citizens in our democracy." Matthew Clark, Federal Affairs Manager at Americans for Tax Reform echoed that sentiment in a recent interview, saying that it is "Essential to keep the Internet tax free to continue the economic growth and technological gains by the United States and ensure free communications among all Americans and their loved ones." True, the tax-free Internet has also permitted a parade of pop-ups and porn, but that's part of the marketplace.

Sen. Allen also expressed dismay at the bill offered by Sens. Alexander and Carper, noting that it would "allow harmful, regressive taxes on Internet access services" and "expand the [digital] divide." That isn't mere carping. Others confirm his assessment. Lee E. Goodman, a former adviser to Gov. James Gilmore and current council for Time Warner Inc., including both AOL and Time Warner Cable, called the approach, "A Trojan-horse plan for full-blown taxes on the Internet within two years."

The municipalities that favor the Carper/Alexander approach argue that it would give policymakers time to reach a consensus on the contentious and complex regulatory issues regarding the Internet. However, it's unlikely that there will be complete agreement on any issue in which one side thinks it will lose revenue. One complicated issue has been taken off the table by the concurrence of both parties that the Federal Communications Commission (FCC) should arbitrate whether or not phone calls made through the Internet qualify as a taxable telecom service.

While the technology is relatively new, the real issue is as old as dollars and denarii. Whether in times of bubble or trouble, politicians will always be looking for a way to skim something from free flows. The Internet is only different in that legislators haven't taxed it yet.

Politicians could become big losers if they do so now, so critical has the Internet become for campaigning. Although his campaign made a Homer Simpson style "D'OH!" of it, the Internet helped Howard Dean make heaping amounts of dough. A recent AP story published in The Washington Times headlined "Parties virtually love Web" pointed out that Republicans and Democrats are using the Internet to raise money, recruit supporters and connect followers.

It's easy for Google addicts to forget that about a decade ago, many politicians probably voted for the information superhighway because they thought their states would receive more transportation funds. One of the oft-overlooked benefits of the Republican revolution was the wiring of Washington. Shortly after his assent to the Speakership, Newt Gingrich unveiled the essential electronic bill-finder "Thomas," and pushed his colleagues and their committees to put their materials on the web. Now, regardless of their level of fitness (or their ability to divine the difference between a constituent and a keypad: Hint, the constituent is probably the one wearing the Hawaiian print shirt), most members of Congress are taking the Information Age advice of Olivia Newton-John and trying to, "Get digital, digital. They want to get digital."

If electrons are taxed, electronic campaigning will become more problematic and more costly. Even those politicians who still confuse the Internet with interstates should know better than to put a toll . . . er . . . a tax on it. The Senate should follow the House and put a permanent prohibition against politicians trying to tap into the freely flowing floods of information on the Internet.

Charles Rousseaux is an editorial writer for The Washington Times.


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