The World Wide (Tax) Web

By Senator George Allen

The growth of the Internet over the past 10 years has provided greater opportunity for everyone — from the largest multinational corporation to the smallest mom-and-pop start-up business. By giving more people access to knowledge and information, the personal computer and the Internet have empowered tens of millions of Americans as consumers and entrepreneurs, and as citizens in our free society.

The content on the Internet and access to it have exploded primarily because government regulators and taxers have stayed out of the way. While governments are, by nature, drawn to take "their share" of any successful private venture, for the Internet to keep growing and for our citizens to keep benefiting from it, government must fight its instinct to meddle and to burden creativity. That's why Congress passed a law in 1998 temporarily banning taxes on Internet access.

In November of 2003, the temporary moratorium on Internet-access taxes expired, and this week the Senate will face this issue once again. Once again, the answer is clear. We must keep access to the Internet tax-free.

Some have asked, "Why is it important for us to act now?" For an answer, one need only look back over the last six years, when Internet access was supposedly tax-free. Even while the moratorium was in place, some states desperately chose to solve their budget problems by skirting the law and taxing elements of the Internet. They took a general definition of Internet access and found parts they claimed were not covered.

With this tactic, if we had agreed not to tax hamburgers, those states would have come up with a cynical plan to tax the meat, but not the bun. We must make sure that the avaricious tax commissars from every county, city and state in America do not continue conniving new ways to tax the Internet and the people who use it. Otherwise, the Tax-the-Internet advocates will turn our freeways into toll roads like the New Jersey Turnpike.

Last year, I joined with Sen. Ron Wyden of Oregon in calling for a permanent ban on Internet-access taxes, as well as on discriminatory and multiple taxes on the Internet. While I continue to believe that we should enact a permanent ban, it is clear after months of debate that we must reach a short-term compromise if we are to protect the American consumer.

The stalemate that has arisen can now be ended with the passage of Sen. John McCain's amendment to our bill. His amendment, which calls for a four-year moratorium, maintains the balance struck by the original Internet tax moratorium. It makes Internet access tax-free, and will continue to encourage the growth of the Internet by protecting consumers in a technology neutral fashion. But it will still respect and maintain state and local governments' existing revenue base, protecting traditional taxes on telephone services.

The proposal brings simplicity and clarity to a prolonged debate. While it takes into account the advances in technology since the original moratorium passed in 1998, it also provides Congress, industry, and state and local governments with the ability to revisit the issue and make adjustments where necessary to accommodate for new technologies and changing market realities.

It provides states and localities that have been imposing access taxes for the past six years, and taxing high-speed DSL service for the past two years, with a three-year window to cease such harmful practices. This is enough time for them to get out of their current budget cycle and adequately prepare and plan.

A key aspect of any legislation that comes from our debate on Internet taxation must also ban taxes on broadband high-speed Internet access. We should want to help broadband high-speed Internet grow and, more importantly, want to help more people have access to the wealth of educational, informational and entrepreneurial opportunities offered by broadband. A study by the Pew Internet and American Life Project released just last week found geographic disparities in high-speed access. Only 10% of rural Americans have broadband at home, compared to 28% of urban or suburban residents.

The impact of taxing broadband would be particularly harmful to small towns and rural communities. Digital subscriber lines — DSL — and advances in wireless delivery systems offer an efficient way of extending high-speed Internet access to less-populated areas. But if these services are taxed, fewer families and businesses will be able to afford the service and that, in turn, will make the investment in delivery technology less attractive to broadband providers.

The deployment of broadband is an essential component for small business's ability to compete, especially in rural areas. As these businesses grow, they will offer more prosperity and opportunities for young people to obtain jobs in their home communities rather than having to move away to find work. New taxation would cost millions of Americans everywhere jobs and opportunities. It would make our monthly Internet-service bill look like our telephone bills, with multitudes of state and local taxes.

With history as our guide, I predict that if we protect the Internet and the American consumer from stifling taxes now, we will see more economic growth in the future. Those same bureaucrats who are hungry for short-term tax revenue today will reap an even greater benefit from increased economic and consumer activity tomorrow. It is up to us to show discipline and restraint and allow the Internet to flourish unimpeded in the decades to come.

U.S. Senator George Allen (R-VA) is the author of the Internet Tax Nondiscrimination Act. This article originally appeared in the April 28 edition of the Wall Street Journal.

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