Make the Ban on Internet Taxes Permanent
In November of last year, a five-year moratorium on any Internet access taxes and multiple or discriminatory taxes on e-commerce in the states was allowed to expire. The U.S. House of Representatives agreed to make the ban permanent by a voice vote in September. However, the Senate failed to pass the legislation before the Christmas holiday break.
So, Congress left town with no ban in effect. Thus far, there has been no significant movement in the states to impose such Internet taxes. Most likely, state and local legislators are restraining themselves for now until it becomes clear what Congress plans to do. If Congress lets this measure fall by the wayside, lawmakers in various states will target their tax guns on cyberspace.
There are sound economic reasons to reinstate and make permanent the ban on such taxes.
The Internet has been a great leveler of the competitive playing field for entrepreneurs and small businesses. Small, regional businesses of all kinds have been transformed into national and international players. The Internet has allowed businesses to reduce a variety of costs (such as paperwork), gain greater access to valuable information, and reach out to new customers. Indeed, Internet-based or related businesses that were unimaginable twenty years ago have become crucial to the global economy.
Taxes specific to Internet access and e-commerce obviously raise costs for consumers and businesses. Resources get siphoned away from the private sector, and channeled to government where chances that those dollars will be wasted increase exponentially.
In recent years, most politicians seem to have had something positive to say about expanded access to the Internet at faster speeds, and there has been much distress expressed about the so-called “digital divide.” Does it make sense, then, to raise taxes on Internet access and e-commerce? Obviously, the answer is no.
Finally, a broader issue about the reach of the taxman comes into play as well. Does government have the right to tax anything and everything that exists? That seems to be the assumption of many who seek to expand taxes deep into cyberspace. They complain about government revenues being “lost” due to the federal moratorium that could be applied to the Internet. Of course, such assertions fly in the face of tremendous state and local government revenue growth over the past decade, for example. Contrary to claims made during the past two or three years, federal, state and local government budget deficits do not originate from revenue shortfalls, but instead from too much spending.
But even more fundamentally, this thinking presumes that government has first crack at the money of individuals, families and businesses. Government cannot lose revenues that were not its in the first place. In reality, people’s earnings are their own property. Government should resort to taxation only as a very last resort. The primary job of elected officials is not to relentlessly seek out new avenues for taxing people. If only they put as much time and energy into rooting out waste in government.
The Internet has been a tremendous tool for entrepreneurs, businesses, investors and consumers, and has helped to spur economic growth forward. Allowing government to expand the dead hand of taxation into cyberspace will only raise costs and restrain growth.
The choice is clear. Either Congress institutes a permanent ban on Internet access and discriminatory e-commerce taxes and thereby helps the economy, or it hurts the economy by allowing for new taxes in cyberspace.
Raymond J. Keating serves as chief economist for the Small Business Survival Committee.
