Tuesday, October 4, 2005 - The Progress & Freedom Foundation Blog

Competition Policy Begets Tax Policy

The AP ran an interesting story out of Pierre this week.

Two years ago the legislature passed a tax on wireless communications and split the revenues 60/40 between the state and counties. Today, new competitive VoIP offerings are undermining the tax base while creating new services and convenience for consumers. While legislators intended to create a stable revenue stream for counties, innovation doesn't always fit neatly into the plans of legislators.

Here is the money quote: ''Part of the problem is, the Internet knows no boundaries...There's a growing philosophy that any regulation, any legislative relief for Internet-based services, needs to come at the federal level...This is a service that you can as easily provide in Kennebec, South Dakota, as you can in Buffalo, New York, or in Paris and still serve a customer in Pierre, South Dakota.''

Typically people who develop tax policy like large, stable bases of economic activity. A large tax base like all income, all sales, or all imports permits a lower tax rate and more predictable revenue patterns. Communications services generally, and wireless specifically, are certainly large and growing parts of the economy. But as the folks in Pierre are learning, communications is a highly dynamic industry. We can count on changes in the technology and usage patterns. Perhaps it is about time to apply those taxes elsewhere, if at all.

posted by @ 9:57 AM | Economics , Internet , State Policy , Wireless