Friday, December 3, 2004 - The Progress & Freedom Foundation Blog

Commissars at Bay

President Bush today signed into law an extension of the Internet tax moratorium, a victory for anyone desiring continued growth of cyberspace. Is it everything we could have hoped for? Little that comes out of Congress is, but it's better than the alternative -- no moratorium at all.

We've actually been without a moratorium for more than a year now, but every state and local tax administrator -- the folks Senator George Allen (R-Virginia) calls "tax commissars" -- knew to hold their powder. One new tax on Internet access likely would have spurred Congress into approving the House version of the legislation, which would have made the moratorium permanent. Allen's bill also would have permanently ensured the legacy telecom tax system didn't burden new technologies and services, but it was modified in the Senate to last only until 2007, and to keep some grandfathered taxes in place.

We fought this fight in 1998. We fought it again in 2001 (that was the first moratorium Bush signed). Then we fought it once again in 2004. It seems we'll be back in the ring one more time in the 109th Congress, and likely the 110th. Legacy rent systems, like Freddy Krueger, aren't easy to kill. Otherwise rational senators such as Kay Bailey Hutchison of Texas can't help but listen to a county tax official who comes to Washington arguing that eliminating grandfathering and banning Internet access taxes will cause the county to lose its only fire engine. But somebody needs to ask how we came to be in a world where local first responders rely on Internet taxes for their existence?

As I mentioned here before, there's a much larger fight going on here. The landline phone service market is in decline, faced with a multitude of alternatives, and the taxes on those services thus are declining as well. As consumers turn to VoIP and other Internet-based services for their communications needs (how many times do you send an e-mail now when you used to make a phone call?), the telecom tax pie will shrink even more. The new law prohibits states from taxing DSL, which some had started doing by calling it a telecom service. But taxing VoIP will be too great a temptation for many of Allen's commissars, and Allen himself says the new law doesn't prohibit such taxation. I want my local firehouse to be funded as much as anyone, but I question the wisdom in preserving -- and growing -- an antiquated tax system applied to unrelated services to ensure my safety.

posted by Patrick Ross @ 3:08 PM | Communications