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Press Release

    Activist Handbook 2000: Technology Policy

    07/26/2000

    Technology Policy
    Why CSE Cares

    High technology promises to give Americans better and faster products and services, yet government seems to limit innovation at every turn. Whether through taxation, regulation or litigation, government just can’t keep its hands off of high technology. Across the nation, federal, state, and local governments seem bent on stunting the development of telecommunications, software and computer hardware.

    Governments strangle technology development for several reasons:

    · Bureaucrats think they can "promote competition" by penalizing firms that compete too aggressively and successfully.

    · Competing businesses often lobby hard to put tax, regulatory or litigation burdens on their competitors.

    · Politicians view companies as a great way to collect taxes because consumers blame the resulting higher prices on the companies instead of the government.

    · Political threats to high-tech are a great way to extort campaign contributions. The Center for Responsive Politics predicts that political giving by high-tech companies will set new records in the year 2000. "They’re certainly being hit up like never before," says the group’s executive director.

    · Both tax and regulatory policies let politicians promise constituents "free" benefits, such as discount phone or Internet service, while hiding the costs from the consumers who ultimately pay for them with higher prices.
    Communication - a core American freedom - is taxed at rates as high as 20-40%. The average tax rate on local phone service has risen from 10.7% to 17.6% in the last 15 years. The federal excise tax on telecommunications - created to fund the Spanish-American War - is more than 100 years old and should be repealed. Taxes on communications - especially hidden telephone taxes - are a tollbooth at the on-ramp to the information superhighway.

    The Internet and its related technologies have been a boon to consumers and to the economy. The federal moratorium on new or discriminatory taxes on electronic commerce should be extended. No new taxes are necessary because taxes already exist for remote sales whether they take place through the mail, over the telephone or on the Internet.

    Consumers have benefited from new choices and low prices in the software and computing marketplace. CSE opposes a government-mandated break-up or restructuring of either Microsoft or the software industry. Government lawyers should not stand between consumers and the next innovative software product.

    The high-tech economy is responsible for 44% of domestic economic growth since 1994. Many barriers to continued growth are placed on American competitors by foreign governments. Consumers pay the price. CSE supports normalized trade status with China to take advantage of negotiations that would eliminate all tariffs on computers, semiconductors and software by 2005.

    Talking Points

    Background:

    Innovations in communications and technology have fueled the Information Age. New discoveries emerge daily, rendering yesterday’s technologies obsolete. The pace of change is so rapid that high-tech companies can lose a competitive edge if they are not first-to-market with their idea or concept.

    Taxes and government regulation slow down the growth of technological innovation. Government lawsuits against high-tech entrepreneurs hamper the pace of innovation and cost taxpayers money. Outdated government regulations pigeonhole companies and make it difficult to react in a dynamic marketplace.

    We need to unleash the full potential of the high-tech economy for consumers by breaking down obsolete government barriers.

    · The high-tech economy represents one-quarter of the nation’s growth in GDP.

    · By next year, more than half of all American businesses will sell their products online.

    · By 2003, only 2% of the traffic on telecommunications networks will be voice - the rest will be data traffic.

    · By 2006, nearly one-half of the nation’s workforce will be employed by high-tech and high-tech related industries.
    Government bureaucrats are locking consumers into yesterday’s technologies with stone-age regulations.

    · Consumers pay between 20-40% in taxes on communications services - a level of taxation that is similar to alcohol, tobacco and gasoline.

    · The government requires phone companies to keep two sets of books - one using standard accounting practices and another using the FCC’s "unique" accounting system. This redundancy costs approximately $270 million a year.

    · Consumers still pay a phone tax originally enacted in 1898 to pay for the Spanish-American War.
    We can give consumers the full benefit of high-tech by removing obsolete government barriers to competition and innovation.

    Frequently Asked Questions on
    Technology Policy

    Internet Tax Q&A:

    A: Internet transactions are not tax-free. If a business is located in your state and you purchase the product online, you pay the sales tax. Even if a business has one store, one warehouse, a deliveryman, or even just one salesman in your state, they still pay the tax. Only when out-of-state merchants use the mail or other carriers like FedEx and UPS to deliver packages is the transaction tax-free. Retailers pay sales taxes on their gross receipts. If a retailer has no presence in the state, it would be taxation without representation to make them pay the sales taxes of a state with which they have no affiliation. Furthermore, it would be impossible for companies to know what the sales tax rate is in every county in which they sold products. They would have to charge different taxes for almost every purchase; and then send the tax dollars to fifty different state capitals. For Internet small businesses this would be a prohibitive cost to business.

    A: The United States is a federal system. That means that powers are shared between the states and the federal government. Any bill in Congress that recommends or commands states to standardize their tax codes is a clear violation of the Constitution. States should be free to regulate and tax as they see fit. This regulatory and tax competition is not only healthy for the nation, but essential for progress.

    A: Currently 0.64 percent of all transactions occur over the Internet. Every state is currently running a budget surplus. It is clear that the Internet has led to economic growth and been a net benefit to the states. There is no evidence of e-commerce hurting states or causing their treasuries to dwindle. Internet taxes designed to secure revenue will have the opposite effect; taxes on interstate e-commerce will slow down the Internet growth engine and cause tax revenues to decline.

    Federal Excise Tax Q&A:

    A: The Federal Excise Tax was devised more than 100 years ago in 1898 as a luxury tax on phone owners. Clearly, phones are no longer a luxury only enjoyed by the rich. Now the tax is just another way government confiscates your money. It is a hidden tax that most people don’t even realize they pay - that’s what’s so sinister about it. A tax on talking is ridiculous and should be abolished.

    A: The money from the FET goes into general revenue. There is no way to differentiate between all of the money that pours into federal coffers. Slick politicians can connect the dots between any tax and any spending program, but the fact of the matter is that all revenues pay for all outlays - there is no coordination between individual taxes and spending programs.

    A: The Federal Excise Tax arguably does more to harm low-income Americans than any other tax. Since the Internet is accessed over the phone lines, the tax on phone communication prevents low-income Americans from being able to afford Internet access. Low-income Americans are being deprived the economic growth experienced by millions Americans because of the Federal Excise Tax.

    Antitrust Q&A:

    A: The case is now on appeal. The judge’s order - at the request of government lawyers - to break up the company and to impose intrusive regulations has been stayed. That is, it is on hold pending appeal. It is unclear whether it will go straight to the Supreme Court or if it will first be heard by a panel of three judges in the 10 Circuit Court of Appeals. We should learn soon whether or not the Supreme Court decides to hear the case immediately.

    A: The break-up of AT&T had no effect on long distance prices or market share. The government-granted local phone company monopoly created artificially high long distance rates and made it difficult for competing services to connect their calls. Prices came down only when others were allowed "equal access." The Microsoft case is fundamentally different because there is no government-controlled monopoly, and Microsoft sells products, not services provided over telecommunications lines.

    A: Microsoft has been extremely popular with consumers: that is why the company has been so successful. The growth in computer ownership and Internet access is a testament to the benefits Microsoft has provided consumers. The people most actively supporting the case are, and have always been, Microsoft’s competitors who find Microsoft’s low prices and consumer-friendly products too difficult to compete with.

    A: If the Department of Justice is allowed to split Microsoft and regulate the software industry, consumers will be hurt. But more importantly, a break-up would set a dubious precedent for the future. Can the undefined rules that Microsoft allegedly broke be used to split up any company if it becomes too successful? Can competitors use the courts to do what they can’t in the marketplace: topple the industry leader? If Microsoft is split in two, these questions would have to be answered yes.

    Permanent Normal Trade Relations Q&A:

    A: American farms and businesses will save almost $14 billion dollars each year in exports to China. Additionally, PNTR with China would save American jobs, help Americans afford consumer goods, and reinforce U.S. influence in China. Finally, without PNTR, Chinese products sold in the U.S. would be subject to tariff increases ranging upwards of 40 percent. As a result, American consumers would be forced to pay higher prices for hundreds of everyday goods.

    A: First, governments don’t trade with governments - people trade with people, so granting normal trade status will have a more direct impact on the citizens of China themselves. Also, while China's record on human rights is not stellar, the solution is not to turn our backs on the Chinese people, but to do everything in our power to ensure they that they have the broadest exposure not only to American products, but to American ideals and principles as well. Talking about trade with China, Pat Robertson said: "We do so not merely for business advantage, but for the sake of free hearts and free minds. In truth, we do so for the future of the U.S. and the future of the world."

    Questions to Ask Policymakers
    About Technology Policy

    Internet Tax

    Will you make the current ban on Internet sales taxes permanent?

    Will you sign CSE’s petition against Internet Taxation?

    Federal Excise Tax

    Every month I pay a tax to fund the Spanish-American War. That tax, and a host of others, represent about 25% of my monthly phone bill. Will you support eliminating this century-old tax?

    Antirust

    What do you think of the government attacking law-abiding technology companies and paving the way for dozens of abusive class-action lawsuits to be filed by greedy trial lawyers?

    What are you going to do to stop trial lawyers from following the government’s attack on law-abiding technology companies?

    What are you going to do to stop the government from regulating and taxing our amazing technology sector?

    Will you contact Attorney General Butterworth and urge him to stop the government lawsuit against the high technology sector?

    Permanent Normal Trade Relations (PNTR)

    International trade promotes individual and economic freedom at home and abroad, and American farmers, workers and businesses stand to lose almost $14 billion each year in exports to China if PNTR were to be denied. Do you support Permanent Normal Trade Relations with China?

    Sample Letters to the Editor

    Sample Internet Tax Letter to the Editor

    Dear Editor:

    I am a Citizens for a Sound Economy activist and as a concerned consumer, I support the current extension of the moratorium on Internet taxation.

    CSE activists across America have been voicing their views to politicians at all levels — from the presidential candidates to local mayors — that we are opposed to the various schemes that have been put forward to place discriminatory taxes on the Internet.

    Taxes already apply to e-commerce the same as they apply to catalogue and mail order sales. The Internet is the driving force behind the best economy in American history. Because it accounts for one-third of our nation’s economic growth, why any politician or state government would want to apply new taxes that are specifically targeted to e-commerce is beyond me. The debate should be focused on cutting tax rates for consumers and small businesses, not raising taxes on the Internet.

    Every state in the union has a budget surplus, and state tax revenues have doubled in the past 10 years. E-commerce does not threaten the existing tax base. Rather, because it is responsible for the dramatic growth in our economy, the Internet actually adds to the tax base. Why do we want to harm the goose that lays the golden egg for our economy?

    I believe it is important for the future of our economy and our country to keep the Internet free from taxation. The U.S. House of Representatives has passed a bill extending the current moratorium until 2006, I urge our U.S. Senators to follow the suit and support a free Internet.

    Sincerely,

    Sample Federal Excise Tax Letter to the Editor

    Dear Editor:

    For all veterans of America’s wars, there comes a time when a grateful nation must say goodbye and bid them a fond farewell. The time has come to once again say goodbye to one of the longest living veterans in U.S. history - the Federal Telephone Excise Tax.

    Well over a century ago, the United States entered into a brief conflict to settle a dispute with Spain. To help fund this conflict the Federal Government enacted the Federal Telephone Excise Tax. This 3% regressive tax was once viewed as a luxury tax paid for only by those who could afford a phone, well times sure have changed. Today, this small luxury tax intended to fund a war, has turned into a $6 billion government confiscation.

    Excluding the fact for which it was primarily intended, this tax now has become burdensome to the economically disadvantaged and dramatically increases the cost of connecting to the Internet. In its purest form, it taxes one of the most precious principals that all Americans hold close to their heart, "FREE SPEECH."

    Very recently, the U.S. House of Representatives took the lead and voted overwhelmingly in favor of repealing of this unnecessary tax. Unfortunately, the fight is not over; the legislation, H.R. 3916, now sits in the Senate Finance Committee, where it does enjoy overwhelming support from most members of the Committee. The Spanish-American War was a decisive victory for our blossoming nation; Senate passage of H.R. 3916 would be a decisive victory for an America still blossoming more than 100 years later.

    Every American should place a phone call to his or her Senator and urge them to end the Federal Excise Tax and by voting for the passage of H.R. 3916. Let us bury this old soldier and let the sinking of the U.S.S. Maine be the only memory of the Spanish-American War.

    Sincerely,

    Sample Antitrust Letter to the Editor

    Dear Editor:

    I am a member of Citizens for a Sound Economy who knows that competition and innovation have long been the trademarks of our flourishing economy. I know the importance of maintaining a marketplace free of government regulation so that business - not bureaucracy - will continue to drive the economy.

    For this reason, I am strongly opposed to the Department of Justice’s antitrust lawsuit against Microsoft. Microsoft, whose dominant position in the marketplace is a testament to their innovation and customer satisfaction, has indeed become a powerful force in our economy. This is in stark contrast to AT&T, who once achieved a monopoly through protective government regulations. Microsoft has truly proven that it is the best at meeting the demands of consumers, and has therefore enjoyed great success.

    It is ironic and disturbing that Netscape - the firm originally at the heart of this antitrust suit - was bought by America Online and that AOL has subsequently merged with Time-Warner. This pending merger is further evidence of our nation’s vibrant and dynamic technology marketplace.

    Recall the plight of Western Union in the 19th century. In 1880, Western Union controlled 80 percent of the traffic over America’s telegraph network. However, by 1885 its market dominance had decreased significantly because of a new innovation—the telephone. Market forces, not government regulation, brought this firm to heel. Given the chance, innovation and competition in the marketplace are the best protection for consumers. Thus, we should let competition and innovation challenge Microsoft’s dominance in the marketplace.

    Sincerely,

    Sample PNTR Letter to the Editor

    Dear Editor:

    International trade promotes individual and economic freedom at home and abroad. Therefore, as a member of Citizens for a Sound Economy - dedicated to economic freedom and prosperity - I urge the U.S. Senate to support permanent normal trade relations (PNTR) with the People’s Republic of China. By supporting PNTR, our senators are demonstrating their support for American consumers, workers, farmers and business owners.

    Without PNTR, Chinese products sold in the U.S. would be subject to tariff increases ranging upwards of 40 percent. As a result, American consumers would be forced to pay higher prices for hundreds of everyday goods. In addition, American farms and businesses stand to lose almost $14 billion each year in exports.

    PNTR with China would save American jobs, help Americans afford consumer goods, and reinforce U.S. influence in China. It is this last benefit that provides Chinese citizens a foundation for economic, individual and political freedom. Since 1978, trade, combined with economic reform in China, has lifted approximately 200 million Chinese individuals out of poverty, and provided them with greater access to not only our goods and services, but to our values and ideas as well.

    The high-tech economy, which represents one-quarter of the growth in GDP, stands to benefit from opening the Chinese market would be greatly beneficial. The U.S. high-tech industry represents more than 55% of all exports to foreign markets, making it the largest U.S. exporter. China is already America’s fourth largest trading partner; PNTR would only increase the U.S.’s influence and access to this growing market.

    For these reasons, I strongly urge the U.S. Senate to support PNTR with the People’s Republic of China. By doing so, they would preserve the economic rights of America’s consumers, workers, farmers and business owners.

    Sincerely,

    Sample Internet Tax Letter to the U.S. Senate

    Dear Senator:

    I am writing to you to give you one simple message: Unleash the full potential of the high-tech economy for consumers by keeping the Internet free from taxation.

    The Internet economy accounts for nearly one-third of our nation’s economic growth. It is estimated that if taxes were applied to online sales, growth in the technology sector would be slowed by 24%. The government must be stopped from taxing to death the goose that laid the golden egg.

    As a concerned citizen, I believe that we should be repealing taxes on the Internet, not creating new ones. Today, consumers pay between 20% and 40% in taxes on communications services - tax rates similar to those on alcohol and tobacco. Every month, consumers pay a phone tax originally enacted in 1898 to pay for the Spanish-American War. This tax cost consumers roughly $6 billion every year.

    In the interest of traditional brick-and-mortar retailers, we can give consumers the full benefits of high technology without harming Main Street or state governments. State revenues have doubled in the past 10 years because of the growth of the Internet economy. Internet sales are not a direct threat to traditional brick-and-mortar businesses. For example, during the 1999 holiday season, 86% of Americans visited a retail mall to make a purchase, and 42% used a catalog, while only 10% went online to shop for gifts. Americans spend billions of dollars and hours at malls and shops each year; the Internet poses little threat to these established businesses. p>You can help unleash the full potential of the high-tech economy by keeping the Internet free from taxation, thus maintaining our economic well-being and sustaining our nation’s unprecedented economic growth. Please vote with American consumers—vote to keep the Internet tax free.

    Sincerely,

    Sample Federal Excise Tax Letter to the U.S. Senate

    Dear Senator:

    For all veterans of America’s wars, there comes a time when a greatful nation must say goodbye and bid them a fond farewell. The time has come to once again say goodbye to one of the longest living veterans in U.S. history - —the Federal Telephone Excise Tax.

    Well over a century ago, the United States entered into a brief conflict to settle a dispute with Spain. To help fund this conflict, the Federal Government enacted the Federal Telephone Excise Tax. This 3% regressive tax was once viewed as a luxury tax paid for only by those who could afford a phone, well times sure have changed. Today, the small luxury tax intended to fund a war has turned into a $6 billion government confiscation.

    Excluding the fact for which it was primarily intended, this tax now has become burdensome to the economically disadvantaged and dramatically increases the cost of connecting to the Internet. In its purest form it taxes one of the most precious principals that all Americans hold close to their heart, "FREE SPEECH."

    With overwhelming support from the Senate Finance Committee, there is no reason H.R. 3916, the bill to end the Federal Telephone Excise Tax, should not be brought to the floor and passed in the very near future. The Spanish-American War was a decisive victory for our blossoming nation; Senate passage of H.R. 3916 would be a decisive victory for an America still blossoming more than 100 years later. There is no reason a tax used to fund a war should outlive every veteran of that conflict: I urge you to abolish the Federal Excise tax and vote for passage of H.R. 3916.

    So let us bury this old soldier and let the sinking of the U.S.S. Maine be the only thing we remember.

    Sincerely,

    Sample Antitrust Letter to Florida’s Attorney General

    Bob Butterworth
    Attorney General
    Office of Attorney General
    The Capitol
    Tallahassee, FL 32399-1050

    Dear Mr. Butterworth,

    As an active member of Florida Citizens for a Sound Economy, I understand that competition and innovation have long been the trademarks of our flourishing economy. As a leader in our state, I know you realize the importance of maintaining a marketplace free of government regulation so that business - not bureaucracy - will continue to drive the economy.

    For this reason, I am strongly opposed to the Department of Justice’s antitrust lawsuit against Microsoft and believe that you should no longer be a party to it. Microsoft, whose dominant position in the marketplace is a testament to their innovation and customer satisfaction, has indeed become a powerful force in our economy. This is in stark contrast to AT&T, who once achieved a monopoly through protective government regulations. Microsoft has truly proven that it is the best at meeting the demands of consumers and has therefore enjoyed great success.

    It is ironic and disturbing that Netscape, the firm originally at the heart of this antitrust suit, was bought by America Online and that AOL has subsequently merged with Time-Warner. This pending merger is further evidence of our nation’s vibrant and dynamic technology marketplace. Perhaps this is the fear that drove you to first make Florida a party to the case. However, the DOJ has proceeded with the case and will likely dismantle one corporation only to allow another to fill its void.

    I strongly urge you to drop this case. Given the chance, innovation and competition in the marketplace are the best protection for consumers.

    Sincerely,

    Sample PNTR Letter to the U.S. Senate

    Dear Senator:

    International trade promotes individual and economic freedom at home and abroad. Therefore, I urge you to support permanent normal trade relations (PNTR) with the People’s Republic of China. By supporting PNTR, you are demonstrating your support for American consumers, workers, farmers and business owners.

    Without PNTR, Chinese products sold in the U.S. would be subject to tariff increases ranging upwards of 40 percent. As a result, American consumers would be forced to pay higher prices for hundreds of everyday goods. In addition, American farms and businesses stand to lose almost $14 billion dollars each year in exports.

    PNTR with China would save American jobs, help Americans afford consumer goods, and reinforce U.S. influence in China. It is this last benefit that provides Chinese citizens a foundation for economic, individual and political freedom. Since 1978, trade, combined with economic reform in China, has lifted approximately 200 million Chinese individuals out of poverty, and provided them with greater access to not only our goods and services, but to our values and ideas as well.

    The high-tech economy, which represents one-quarter of the growth in GDP, stands to benefit from opening the Chinese market. The U.S. high-tech industry represents more than 55 percent of all exports to foreign markets, making it the largest U.S. exporter. China is already America’s fourth largest trading partner; PNTR would only increase the influence and access to this growing market.

    For these reasons, I strongly urge you to support PNTR with China. By doing so, you would preserve the economic rights of America’s consumers, workers, farmers and business owners.

    Sincerely,