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Capitol Comment

    Capitol Comment 198 - Would We Tax Freedom?

    07/24/1998

    Last month, Lady Margaret spoke and the House moved. The remarks of Great Britain’s former Prime Minister Margaret Thatcher to the World Congress on Information Technology reinforced the idea that information is an essential component of freedom. As such, it should not be heavily taxed.

    Thatcher declared that, "In a free society we want the spread of information and ideas to the widest possible audience, of course. We note, or indeed we know that those states that seek to constrain freedom have relied on their ability to cut off or control the free flow of information so people didn’t know the truth and couldn’t find it out."

    Later that evening, the U.S. House of Representatives voted to approve H.R. 4105, the Internet Tax Freedom Act (ITFA). The substantive effect of the ITFA would be a limited moratorium on all taxes that are unfair, duplicative, or specifically targeted at electronic commerce or the Internet. As a result, tax collectors would need to treat all forms of remote sales the same regardless of how we shop.

    The Senate Commerce Committee already approved companion legislation last November, and in February, President Clinton endorsed the moratorium. The advent of the Internet should not expose consumers to new taxes simply for doing the same old activities. The ITFA would insure that whether a consumer chose to use a mail order catalogue and telephone or a web-browser and email, their tax obligations would not change. There is now only one final hurdle — the bill must pass on the Senate floor.

    Throughout the legislative process, Representative Christopher Cox (R-CA) often remarked that the guiding principle for this legislation is that information should not be taxed. Although Cox was the House leader for passage of the ITFA, he was not alone. A bipartisan coalition that included members of the congressional leadership from both parties and several committee and subcommittee chairmen all stayed the course, presumably because they agreed with this principle.

    Much of the dialogue surrounding the ITFA has been about the economics of commerce. The legislation directs the administration to continue its ongoing efforts to make the Internet a global free trade zone. This discussion has been a welcome relief. All too often elected officials make laws or regulations without considering their full economic effect. The two-year effort to pass the ITFA has been an exercise in prevention — the goal is to keep electronic commerce free of excessive and unfair taxation.

    The House action encourages more commerce by creating a tax environment that does not penalize online commerce. International Data Corp. predicts that Internet-based commerce will exceed $200 billion before the ITFA moratorium expires. However, the future of debate on Internet policy should be made in terms of liberty, freedom, and individual growth instead of simply in terms of dollars, trade or commerce.

    A vital effect of the legislation has to do with the commerce of free market economics, democratic principles, and information. Information is liberty enhancing. In 1989, many Chinese students stayed one step ahead of tyranny at Tiananmen with the help of cellular telephones. More recently, the Internet was the information lifeline that kept communication alive when the students and government forces of Indonesia clashed.

    The Internet and the development of electronic commerce present difficult policy questions in areas as diverse as tax policy, privacy, liability and telecommunications regulation. However, consumers will benefit as long as policymakers adhere to time-tested principles like consumer choice, deregulation and competition. As a result, the widespread dissemination of ideas that are necessary for advocates of democracy, human rights, and free markets will continue.

    The House responded to the idea that information should not be taxed. Taken one step further, widespread communication is a key to expanding markets and freedom around the globe. In the future, "It’s going to be more and more difficult to keep the truth out because of the Internet." Or, so says Lady Margaret.