While immigration reform and military funding wilt under the spotlight of publicity, in the wings and mostly out-of-sight the House and Senate are taking up the question of whether to extend or make permanent a current ban on taxing access to the Internet.

The question of taxing sales made on the Internet is separate.

An article by Anne Broache at ZD Net News explains:

At issue is the scheduled expiration on November 1 of a law, initially enacted in 1998, that says local governments generally cannot tax Internet access, including DSL (digital subscriber line), cable modem and BlackBerry-type wireless transmission services. The law also prohibits governments from taxing items sold online in a different manner than those sold at brick-and-mortar stores, but it does not deal with sales taxes on online shopping.

So this is about your connection, not your activity online.

The usual suspects are lined up on the expected sides of the question. Business interests want to make the moratorium permanent. State governments want to see it expire.

But previous attempts at renewing the ban for more than two to four years have failed, in part because of resistance from state and local government lobby groups. State government representatives caution against making the moratorium permanent, saying it would deprive states indefinitely of vital revenue sources and that its original purpose–boosting the nascent Internet to commercial viability–has essentially been accomplished.

An investment disincentive will make investors look elsewhere for a better return. While the Internet may be humming commercially, hobbling that commercial activity and creative ferment by allowing taxation can only give investors and entrepreneurs fits. To keep innovation thrumming, you want to keep the cost of failure low. That means lots of bad ideas will be tried, tested well, and abandoned quickly. Conversely, it means a few good ideas will be found among the bad, tested well, and expanded on. Raising the cost with a tax will lower the number of ideas tested, absolutely. As night follows day, the number of discovered and exploited good ideas will shrink as well.

On the Senate side, the Committee on Commerce, Science & Transportation is holding a hearing today, listening to some of the same folks as the House heard earlier. The Senate committee is chaired by Daniel Inouye (D-HI). Sen. Inouye opened the hearing with a statement that said, in part:

[O]ur actions must consider the substantial interest of states and localities in managing their fiscal affairs.

As Americans increasingly turn to the Internet to conduct transactions online, Main Street businesses will increasingly be placed at a competitive disadvantage. While many debate the size of the sales tax revenue currently lost from the growth in Internet commerce, most observers agree that the tax loss is significant and will grow robustly over time.

As pressures on state treasuries increase, the effects of such policies will increasingly be felt by teachers, firefighters, police, and others on the front lines of providing state services. As a result, it is important that we encourage ongoing efforts to simplify state tax codes in the hope that such action may facilitate further congressional action that would permit states to treat online and offline sales transactions in a nondiscriminatory fashion.

I get a definite vibe that Sen. Inouye would like to see the moratorium expire.

My own position is that starving government of revenues is a good thing. Politicians never hesitate about spending money that is laying ready-to-hand. They need to have fiscal restraint forced on them.

[cehwiedel also writes at cehwiedel.com]

Be Sociable, Share!