FreedomWorks

While taxes may be one of life’s certainties, the Internet has, so far, miraculously managed to escape the clutches of revenue-hungry government tax collectors. That may change if Congress doesn’t get its act together – and fast.

Back in 1998, Congress passed the Internet Tax Freedom Act, imposing a three-year moratorium on state and local taxes on Internet access. The moratorium came just as some local governments began to extend their very high telecommunications taxes to accessing the Net. Our goal was simple: encourage the spread of this important new technology by preventing government from strangling it in its crib with high taxes.

After a two-year extension was passed in 2001, the Internet tax moratorium expired last November. This time around, Congress should make the ban on Internet taxes permanent. A bill to do just that raced through the House with broad bipartisan support and won the endorsement of the Bush Administration.

With the Senate in Republican hands, you’d think this would be an easy lay-up. But a small group of Republicans – yes, Republicans – ganged up to stop the bill dead in its tracks. Even worse, they have introduced sham legislation known as S. 2084 that masquerades as an extension of the moratorium, but actually hits some broadband users with at least $1.5 billion in new taxes.

Why a few Republicans would be so desperate to open up the Internet to new taxes is anyone’s guess. If they succeed, over 12,000 state and local jurisdictions across the country could slap taxes on our e-mail accounts and Blackberries. As Democrat Senator Ron Wyden – a key supporter of efforts to keep the Internet tax free – put it recently, America Online would have to change its slogan from “You’ve got mail” to “You owe taxes.”

For consumers, it’s no laughing matter. State and local access fees could add 20-25% to the average Internet consumer’s bill – a tax hike of about $150 per year. That may not sound like much in Washington, but it could strand millions of low-income Americans on the wrong side of the digital divide. And higher Internet charges could hinder small business from gaining access to the technology they need to compete with larger companies. Schools, libraries and other educational and research institutions with limited budgets would also take a hit.

Supporters of new Internet taxes make the case that Congress’ “Hands Off the Internet” strategy has served its purpose. The Internet is no longer an infant technology, they say. After all, Internet use in the United States has soared from about 36% of the population at the end of 1998 to 75%, or 204 million Americans today.

But in the warp-speed world of the Internet, that’s yesterday’s news. America still lags far behind our economic competitors when it comes to wiring homes and businesses with high-speed Internet access or broadband. Even though the Internet was invented by our own Al Gore, America still ranks 11th in the world in terms of broadband deployment, behind countries like South Korea and Japan.

Widespread broadband deployment is the key to unleashing a new round of Internet-driven gains in productivity and entrepreneurial activity. Respected economists estimate that 1.2 million new jobs would be generated by the broadband build-out – a strong antidote to all the election-year rhetoric about the so-called “jobless” recovery -- and enough growth to generate more in taxes than states and localities hope to raise by taxing your e-mail.

So why not just extend the moratorium for another two years or so? Because making broadband available on a near-universal basis will require billions in private investment by technology companies eager to build next generation networks like fiber-to-the-home. And companies are hesitant to put that capital at risk as long as the taxman keeps lurking right around the corner, always threatening to milk consumers and potentially destroy a good portion of the mass market for broadband.

Members of the Senate have a choice to make. They can give the green light to state and local governments to saddle Internet users with a myriad of new taxes and fees. Or they can lock the taxman away permanently and throw away the key. That should be a pretty easy call.