The right thing: Protect the Internet

An important bill for American consumers has arrived in the Senate.  Senators can vote to protect consumers by passing The Internet Tax Freedom Forever Act (S. 431).  It is a clean, straightforward bill that tracks the consumers’ interest and it deserves quick consideration and handling. Last year, a similar bill reached the Senate after arriving from the House, but the bill never moved.  This year, the Senate needs to do the right thing and give the bill the consideration it deserves, including an up or down vote.  There is too much as stake in terms of job creation and increased consumer benefits.

Over the past two decades, the Internet has become a vital force in Americans’ lives. It plays a constructive role in their jobs, their family relationships, in commerce and in their interactions with health, government, and educational professionals. Fifteen years ago, the U.S. Commerce Department touted the immense economic growth in the information technology sector, fueled by commercialization of the Internet. Studies have cited the Internet’s contribution to economic output, jobs and productivity growth.

{mosads}Today, the numbers are staggering.  The number paying Internet subscribers has been doubling every four years, and the number is fast approaching the total U.S. population.  Surpassing wired broadband are wireless broadband services.  In context, total wireless services, including voice and data, contribute to $400 billion in economic output each year and, over the long term, the spectrum will provide up to $10 trillion in consumer benefits.

Increased investment and network deployment leads to increased output, and it also means jobs.  These jobs generally pay salaries that are twice the general average, and the direct jobs that result lead to millions of indirect jobs in other industries and markets.  For example, the app economy alone now accounts for 752,000 jobs. 

The spillover benefits of broadband services are immense, changing how consumers shop, bank, access entertainment and news, get information on jobs, healthcare and government services.  While Internet services are blanketing businesses and households, the “Internet of things” – the electronic communication between business machines, home appliances and other devices – appears to be the latest avenue for innovation, consumer benefits and job growth.

Through mobile wireless and landline services, the Internet has become an ally of the American consumer.  Technical ingenuity, product differentiation and bundling, service rivalry, and massive capital investment have kept it accessible and affordable.  As a result, almost every American, especially students, have access to deep sources of information.  New investments and intellectual undertakings have readied the Internet to become an even more engaging pathway for education, health, commerce and entertainment.

Since 1998, various forms of Internet Tax Freedom legislation at the federal level have thwarted the temptation to tax Internet at the state and local level – as often happens to services (such as telecommunications) on which the American public relies.  When enacted by the Senate, S.431 would permanently protect the Internet from degenerating into a chronic taxation vehicle that drains consumers’ wallets.   

If Internet consumers were eventually taxed at the current rate levied on wired and wireless telecommunications consumers, we could expect broadband service prices to rise at least 17 percent — about three times higher than general sales taxes.  That hardship would affect marginal users and those of the lowest income, thereby repressing demand and increasing the digital divide.

Broadband services are essential services.  For poor, young and minority groups, wireless broadband is often the only access these consumers have to broadband services and phone services.  By allowing the heavy taxation of these services, these demographic groups will be disparately and disproportionately impacted.  Permanently banning Internet taxation will protect the public from these price increases, and encourage broadband deployment and use.  To do otherwise would jeopardize investment, innovation, jobs and consumer benefits.  U.S. citizens deserved better. 

The Senate’s passage of S. 431 will be a cause for celebration and gratitude from the American public because they welcome the positive outcomes that will shower benefits on American consumers for decades. This year, the Senate needs to do the right thing – at least an up or down vote.

Daley and Pociask write for The American Consumer Institute Center for Citizen Research, a nonprofit educational and research organization.  For more information about the Institute, visit www.theamericanconsumer.org or follow us on Twitter @consumerpal.