|
|
|
Opinion INTERNET
TAXES COULD CRASH THE SYSTEM By
Adam D. Thierer
If Supreme Court Chief Justice John Marshall was right 180 years ago when he
observed that "the power to tax involves the power to destroy," then
the 19 members of the federal Advisory Commission on Electronic Commerce should
ask themselves today: Will taxing the Internet kill this revolutionary medium in
the cradle? Regrettably, some members of the
commission, appointed by Congress last year to study the feasibility of taxing
electronic commerce, appear unconcerned with such questions. Egged on by
governors and mayors, they are pushing proposals to start taxing the Internet as
soon as a congressionally imposed three-year moratorium on "e-taxes"
expires in October 2001. Indeed, they seem to be working under the assumption
that the need to tax the Internet is a foregone conclusion. Why would any public official want
to impose taxes on a largely unfettered medium that has ignited a surge in
entrepreneurial activity? The answer, of course, is money. While most Americans
view the Internet as a technological passport offering countless ways to get
information and exchange products and services, state and local officials
(including some who sit on the commission) consider it a threat to their
traditional tax base, which they say will erode if "e-commerce"
isn’t taxed. This is ironic, since the
explosive growth of electronic commerce has been accompanied by a dramatic
increase in state and local tax revenue. A recent analysis by budget experts
Dean Stansel and Stephen Moore of the Washington-based Cato Institute reveals
that state tax collections grew at almost twice the rate of inflation between
1992 and 1998, forcing them to conclude that "today, almost without
exception, state governments are awash in tax revenues." Investor’s
Business Daily notes that state revenues grew 227 percent and local revenues
grew 193 percent between 1980 and 1995. And a report by Michael Flynn of the
American Legislative Exchange Council finds states "in their best financial
health in over a decade," with a $74 billion revenue windfall flowing into
their coffers over the past four years. Pro-tax commission members are
unmoved, even though Congress appointed the commission to study "the
effects of taxation, including the absence of taxation," on the
Internet. House Majority Leader Richard Armey, R-Texas, and 35 other lawmakers
reminded them of this in a Sept. 14 letter, saying the commission should bear in
mind that "only Congress can authorize one state to compel sellers in
another state to collect Internet taxes. This idea is not a popular one in
Congress or among the American people. You should know that there are many
Members that will oppose any new taxes on the Internet." Commission members are so
concerned with figuring out how to tax the Internet, rather than whether
it should be taxed, that they are ignoring the wide gulf separating their views
from those held by the lawmakers who appointed them. Indeed, some members of
Congress, such as Sens. John McCain, R-Ariz., and Bob Smith, I-N.H., have
already introduced legislation that would make the Internet tax moratorium
permanent. Unless commission members adhere more closely to their original
mandate, they may find their work disregarded entirely. Which would be a shame, because
the commission could serve a useful purpose by examining the larger questions
the federal government must consider if it wants to encourage the growth of the
Internet economy. For example, how can Internet taxes be reconciled with the ban
on interstate taxation established by the Constitution and past Supreme Court
decisions? And shouldn’t the ability to tax a company be reserved for that
state and locality where the company resides? And finally, if the proposed
Internet tax threatens e-commerce, shouldn’t lawmakers consider the harm existing
taxes inflict on the broader telecommunications industry? In avoiding such questions, the
commission has maneuvered itself to the left of even the unabashedly pro-tax
Clinton administration, which has proposed a global free-trade zone for Internet
commerce. The administration recently lent its support to a congressional
resolution introduced by Rep. Christopher Cox, R-Calif., and Sen. Ron Wyden,
D-Ore., that urges U.S. trade officials to lobby for a permanent global ban on
Internet taxes during a World Trade Organization meeting in November. Sometime before its report is due
next April, the commission needs to recall one of the central tenets of
economics: The more you tax something, the less you get of it. Unless their
intention is to discourage on-line commercial activity, commission members
should hit the "delete" key on any proposals to tax the Internet.
Internet's
Taxing Nightmare |
|
|