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Newspaper Article

No thanks to 'pay to Click'

BY Peter Suderman
10/01/2007
by Peter Suderman on 10/1/07.

Stop. Put down your BlackBerry, stop typing that e-mail, and turn down that podcast for just a second. Then close your eyes and try to remember what life was like without the Internet.

It wasn’t all that long ago that we lived in a world without iTunes or Amazon, without eBay or online banking, without YouTube or Google, where personal e-mail accounts were rare and no one knew what a blog was.

It's easy to forget, but, in a little more than a decade, the Internet boom has fundamentally reshaped much of American life and business, creating a fountain of digital wealth and online opportunity for millions of Americans.

There are no doubt many reasons for the net’s success, but one of them is surely that, since its inception, it has remained that rare thing in the U.S. economy: a tax free zone. In 1998, President Clinton, recognizing that the net’s potential for growth was best left untouched by the grubby hands of the government, joined with the Republican Congress to place a moratorium on taxing Internet access and services.

In 2004, despite opposition from a small cadre of senators, that ban was extended. But now it's about to expire once again, and Congress will need to vote to reauthorize it. When they do, the moratorium should be made permanent.

The tax ban has obviously made the Internet business-friendly, but it's also resulted in a boon for average Americans, piping heretofore unimaginable informational power into the homes of millions. Approximately 35 percent of U.S. households—comprising more than 58 million Americans—now have broadband access.

This is good news, but it leaves much room for improvement. There still exists a vast “digital divide” between those upper and middle income households with broadband access and those without. 61 percent of homes with six-figure incomes have broadband, but that’s true of only 11 percent of homes with incomes below $30,000.

Needless to say, affordability is a big factor. A connection tax could add 20-25 percent to an annual service bill, resulting in a price spike of about $150 a year — and putting broadband access further out of reach for many lower-income families.

Don't think it won’t happen.

The rest of the telecom sector is already beset by far heavier taxes than most consumer goods. A recent study by the Council on State Taxation reports that telecom sector services like tax rates on cable television and wireless phones average over 14 percent, compared with a 6 percent average tax rate on general business.

Next time you get your cell phone bill, take a look at all the extra fees and charges tacked on at the end. If the Internet tax moratorium is lifted, broadband bills could end up padded with the same sort unnecessary fees.

And consumer bills, while important, aren’t all that's at stake.

The Internet has been a prime mover in the country’s recent economic growth — one report found that communications and information technology accounted for a whopping 80 percent of the country’s economic growth in 2003 and 2004 — so taxing net access would be like attaching a lead weight to the nation's economy.

And don’t listen to those who shrug at the effects of taxes on telecom usage: The market is highly affected by price. At a recent Senate hearing, Jeff Dircksen of the National Taxpayer’s Union noted that telecom taxes and fees have been estimated to result in as much as $2.6 billion in losses annually.

Pro-tax advocates have tried to claim that tax rates have no serious effect on broadband adoption, but that’s simply not the case. Like it or not, taxes have consequences.

Ronald Reagan once said, “There are no such things as limits to growth, because there are no limits on the human capacity for intelligence, imagination and wonder,” and nowhere is that more true than the Internet.

One hopes that Congress remembers this and votes not to shackle the Internet with any artificial limits in search of short-term gain.

That’s bound to make voters happy too. Everyone wants to hear “you've got mail,” but no one likes the sound of “you've got taxes.”

Peter Suderman is a policy analyst at FreedomWorks.