Don’t tax the Internet — ever

Alan Daley Writer, American Consumer Institute
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The Internet Tax Freedom Forever Act (ITFFA) from Senators Wyden and Thune has roots going back to 1998. It’s an example of good legislation achieved through bipartisan cooperation.

In the late 1990s, taxation on Internet access was a lazy and greedy practice common in municipalities that lacked vision for what the Internet could become. The Internet Tax Freedom Act placed a temporary ban on “federal, state and local taxes on Internet access, but it also barred said governments from imposing such things as a bit tax or a bandwidth tax, [which would be] absolutely disastrous in today’s age of constant bandwidth consumption.”

The current bill, ITFFA, makes permanent a ban on state and local taxes applied to Internet access. It also bans multiple and discriminatory taxes on digital goods.

The ban on discriminatory taxes rules out substitution of a heftier tax in lieu if regular sales tax. These provisions benefit consumers and internet-related businesses.

From a consumer perspective, ITFFA should be enacted without delay. The consumer savings from averting a 7 percent sales tax on a $25 Internet access charge is only $1.75 per month, but a carelessly calibrated bandwidth tax could easily doom internet video providers and some business users.

In some respects, the more concerning part of the ITFFA is what it leaves out. The federal budget remains grossly out of balance, but ITFFA does not insulate Internet consumers, innovators or businesses from ever-increasing federal income taxes, and it is unlikely ITFFA would survive any attempt to rein in “tax expenditures.”

It would likely take preternatural skill to achieve that special protection for ITFFA without triggering a tax reform donnybrook in the Senate.

Since anything Congress enacts it can also rescind, and since about half the politicians there feel an unquenchable thirst for more tax revenue, the ITFFA could easily be a victim in another round of blunt force sequestration. Perhaps since ITFFA is well regarded and bipartisan it could be the perfect example of what not to sacrifice in a mad rush to work a budget deal.

It would be ungrateful and unwise to only complain that ITFFA missed a few opportunities. ITFFA is a great example of how to do legislation that is useful over the long haul for consumers.

We hope it’s enacted, stays in place for many decades, and becomes an inspiration to other pairs of Senators ready to reach across the aisle.

Alan Daley is writes for The American Consumer Institute Center for Citizen Research, a nonprofit educational and research group.  For more information, visit www.theamericanconsumer.org