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Press Release

    Tech Fact #9 - Government Taxes Widen the Digital Divide

    03/06/2000

    Few people would disagree that access to the Internet and the latest technology is crucial to success in our new digital economy. Given the importance of this access to technology, the "digital divide," or disparity in access to digital technology, is certainly worthy of the recent attention focused on it by the presidential candidates and other politicians. Unfortunately, they have missed one of the easiest and most effective solutions to bridging the so-called digital divide.

    Government taxation and regulation compound the digital divide. Consumers pay between 20 percent and 40 percent in taxes on communications services - rates similar to "sin" taxes. Some areas of America are receiving the benefits of high-speed Internet access, while others are denied. Outdated federal regulations, left over from the break-up of Ma Bell, limit the ability of some phone companies to provide high-speed Internet service to consumers. As a result, fewer companies compete to provide consumers with service. These taxes and restrictions on communications directly impact Americans' ability and desire to go online.

    The government imposes these regressive rates of taxation on access to technology at the same time it proclaims the need to rapidly expand technology to all regions and income levels. As with all regressive taxes, these taxes hit hardest those who can least afford it.

    The government needs to re-examine its telecommunications taxation regime. Currently, we pay as much in taxes to call our congressman as we do to buy beer or cigarettes. The government must stop taxing our right to speak. In just one example of the gluttonous waste that characterizes the communications taxation regime, the federal excise tax on telecommunications costs Americans nearly $6 billion every year just for the "privilege" of using the phone. This tax is left over from the Spanish-American War, but the money is now used to fund everything from Mohair subsidies to congressional pensions. And that's just one of the many examples of taxes and silly outdated regulations that cost money and keep Americans offline. We won the Spanish-American War more than 100 years ago; it's time to stop taxing modern communications.

    Citizens for a Sound Economy has always asserted, and a recent study by the Stanford Institute for the Quantitative Study of Society (SIQSS) confirmed, that eliminating taxes and regulations is the best approach the government can take to bridge the digital divide.

    The Stanford study found that demographics account for only 20 percent of the digital divide. Government efforts to bridge the digital divide have focused on targeting specific demographic groups. However, as this study indicates, this will not solve the problem. If government truly wants to get more people online the best solution is to lower the cost of going online. There are numerous free Internet Service Providers (ISPs), but a highly taxed phone line is needed to access these ISPs. By reducing or eliminating outdated and discriminatory taxes on communications the government could lower the cost of going online and take a huge leap forward in eliminating the digital divide.

    As the government looks for ways to bridge the digital divide it should remember that the best way to give consumers the full benefits of high technology is by removing the high taxes and obsolete government regulations that are barriers to competition and innovation.