Capitol Comment 264 – The Internet: Do the Candidates Get It?

The Republican debates have always provided an ample opportunity for voters to learn where candidates stand on tax issues. What is new this year is an emphasis on taxation of the Internet and electronic commerce. It appears the candidates are just beginning to hear the message from voters: We need a new tax code that respects the modern family and encourages the emerging digital economy.

Quick, easy, efficient and inexpensive communication is the foundation for both a healthy economy and a nation of free individuals. Taxing communications services makes no sense in a modern digital economy.

For a politician, support for the Internet is akin to support for Mom, apple pie and baseball. For voters in the early primary and caucus states, where political discussions demand more than a sound bite, the fight against Internet taxation goes to the heart of how we talk to one another. The underlying infrastructure of the Internet is quickly becoming the means by which Americans communicate with one another and the rest of the world.

Polls in Iowa show that more than three out of four voters think that the revolution in information technologies is having an impact on the agricultural economy. The Granite State ranks fifth in the nation for adults online. On the national scene, one only need to look at the magazine covers on the local newsstand to get a hint of the Internet’s impact in our lives.

To date, the central point of contention is a candidate’s commitment to extend the federal moratorium on new or discriminatory taxes on the Internet. During televised candidate forums, Gary Bauer endorsed a permanent moratorium. The morning after the New Hampshire debate, George Bush told a breakfast crowd that he would “would remove any taxation on access to the Internet,” and that “it is important to extend this moratorium for a time.” While this is encouraging, Bush stopped short of a public declaration against undue taxation of the Internet and electronic commerce.

Most of the other Republican candidates have endorsed a permanent moratorium on taxes that single out consumers who use the Internet. Lately, John McCain has been the most outspoken candidate on the issue. During the Manchester debate, McCain said “The Internet is the greatest thing that’s happened to the world. It is somewhere between a combination of the invention of the printing press and the Industrial Revolution. It has unlimited potential to spread knowledge, information and freedom throughout the world.” Four days later at the Phoenix debate, he challenged Senate colleague Orrin Hatch to oppose efforts by many of the nation’s governors to impose new taxes on the Internet.

Orrin Hatch and Steve Forbes have been the only candidates to sign an E-Freedom declaration. Oddly enough, McCain has yet to sign the declaration that calls for a permanent ban on taxes especially designed for the Internet as well as the repeal of the federal excise tax on telecommunications.

While signing the declaration in Des Moines earlier this month, Forbes echoed familiar refrains from his stump speech. His columns and speeches have followed the Internet tax debate through Congress and into the presidential campaign.

The debate is headed toward a more thorough explanation of Internet taxation. Sales taxes on electronic commerce already exist. What is on the table are new proposals to allow taxation from an out-of-state government in addition to the myriad of taxes imposed on basic telecommunications services from all levels of government. Our current tax system makes no sense in an economy driven by information technology.

Four of the most highly taxed products in the United States are tobacco, alcohol, gasoline – and telecommunications services. There are 38 different kinds of taxes paid by telecommunications companies for the telephone industry alone.

The federal excise tax on telecommunications services – a 3 percent fee assessed on all consumers – is a tax on talking. It was first created to fund the Spanish American war. Next year, this tax will claim nearly $5.7 billion from consumers. This is equivalent to approximately $57 from every household.

In effect, consumers are punished for communicating. Quick, easy, efficient and inexpensive communication is the foundation for both a healthy economy and a nation of free individuals. Taxing communications services makes no sense in a modern digital economy.

It is time for the presidential candidates to address where Internet taxation really hits consumers. In addition to a pledge against new Internet taxes, American voters need to hear how a president would eliminate existing taxes on the growth engine of our economy: telecommunications.