Letter from Kent Lassman, CSE Director of Technology and Telecommunications Policy to Rep. Billy Tauzin Regarding H.R. 4445

September 18, 2000

Representative Billy Tauzin

Committee on Commerce

2125 Rayburn House Office Building

Washington, DC 20515

Dear Chairman Tauzin,

We urge you – and all members of the Commerce Committee – to stay the course. At Citizens for a Sound Economy (CSE), we take any threat of new taxation on the Internet or electronic commerce very seriously. It is our view that H.R. 4445 – the Reciprocal Compensation Adjustment Act of 2000 – is no threat at this time. Do not vote against H.R. 4445 because of claims that it would create an Internet tax.

CSE is hundreds of thousands of grassroots citizens dedicated to (1) free markets and limited government, and (2) the highest level of personal involvement in public policy activism. Through recruitment, training, and political participation, CSE has become an army of activists committed to improving the well being of American consumers through common-sense economic policies.

We have worked hand-in-hand with you to promote a tax system that is flat, fair, simple, and honest. For nearly a dozen years CSE has provided analysis on telecommunications and technology issues. From its introduction in 1997 to its recent report findings, the Internet Tax Freedom Act has been of keen interest to our members.

To paraphrase Senator Bentsen, we know Internet taxes and H.R. 4445 is no new Internet tax. More likely, it is the elimination of a government-protected subsidy to middlemen in the marketplace for Internet service. H.R. 4445 would diminish the role of regulators and increase the role of market forces in the telecommunications marketplace.

The proposed legislation does raise serious issues. Policymakers should consider the extent to which the federal government will continue its involvement in the marketplace for telecommunications services. Time and again, evidence shows that decisions about prices and contract provisions are better settled in the hurly-burly of a free marketplace than in the politically-charged and rhetorically-heated meeting rooms of political officials.

The argument that a change to reciprocal compensation rules would automatically raise the consumer price of Internet service requires an examination of facts.

Every price increase is not a tax increase. Prices provide consumers with choices among alternatives. By contrast, consumers cannot avoid taxes and taxes do not react to competitive pressures.

There are a variety of prices offered for Internet service that range from free to thousands of dollars per month. Most consumers pay between ten and twenty dollars a month for a dial-up connection to the Internet.

There is no evidence that a change to reciprocal compensation rules would require all Internet service providers (ISP) to adversely change their price structures. Any change to ISP prices would face immediate competitive pressures.

Regulatory arbitrage is a relic of an era when state and federal policymakers set all contracts, prices, service offerings, and even costs. That day has passed. The 1996 Telecommunications Act opened a door to competition in telecommunications services.

Consumers will realize the benefits of competition only when all aspects of the government coercion are removed from the marketplace.

We urge your continued vigilance in pursuit of this goal. Please vote to eliminate regulatory arbitrage.


Kent Lassman

Director, Technology & Communications Policy