Congress must act now to prevent taxes on Internet access

On Nov. 1, the Internet as we know it could change dramatically. You won’t notice it right away, but if Congress doesn’t act before then, millions of Americans will see new taxes from state and local governments on their monthly Internet access bills.

Why haven’t those taxes been there before? In 1998, Congress had the foresight to implement the Internet Tax Fairness Act, a law that has prevented most states and localities from imposing taxes on Internet access. Outside of a handful of states that were grandfathered, this tax moratorium, extended in 2001 and 2004, has meant that Internet access in the United States is untaxed.

A tax-free Web has created immeasurable benefits, the most important being the lower cost to consumers and businesses, which has allowed the Net’s usefulness to explode. The Internet is perhaps the most significant driving force behind economic, social and cultural change since the steam engine. But unlike the significant capital investment required to put a steam engine to productive use or to build an advanced communications network, a single individual with an Internet connection can create a new website or grow a business. That democratization of entrepreneurship is in large part due to the widespread accessibility afforded by a minimal tax burden.

The simple economic fact is that a tax moratorium on Internet access encourages “consumption” of Internet service. A tax on Internet access would be highly regressive, falling hardest on those who can least afford it. Consider what an Internet access tax is actually taxing — access to information, to knowledge, to a voice in the democratic process, and to economic opportunity.

If Congress is truly committed to the goal of increasing broadband adoption in the home, Congress cannot allow the moratorium to expire. In previous years, the certainty of Congress’s intent to extend the moratorium kept state and local tax collectors at bay, but this year, if Congress should fail to pass legislation prior to Nov. 1, the outcome could result in a tax increase for millions of Americans.

If Congress is to head off the regressive, innovation-sapping effects of Internet access taxes, it has only two months to do.
Much of the legwork has already been done; bills to extend the moratorium were left on the table in both the House and the Senate before the August recess. But to keep the legislation moving and add much-needed clarity to the law, the leadership of both parties will have to place this issue at the top of their agenda for must-pass legislation this fall.

Legislators should carefully weigh the repercussions of allowing the moratorium to lapse. Failure to act on this legislation will adversely affect millions of families, small businesses and the entire economy. On the other hand, clarifying, extending and strengthening the moratorium should be an integral part of a national broadband strategy.

McCormick is president and CEO of the United States Telecom Association.