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Commentary


An Odd-Bedfellow Coalition: Republicans and (many) Democrats see eye-to-eye on Internet-access taxes

May 31, 2007
By Kristina Rasmussen

Key congressional players from both parties have realized the potential gains of making permanent a soon-to-expire federal moratorium on Internet-access taxes. This would mean no discriminatory taxes on Internet services - a policy more and more Democrats are rightly coming around to support.

Arch-liberal senators John Kerry and Patrick Leahy - both of whom would do away with many of the Bush tax cuts - are teaming up with fellow progressive Ron Wyden to back the ban. Meanwhile, stalwart fiscal conservatives John Sununu and Tom Coburn are joining presidential candidate John McCain and moderate GOPer Olympia Snowe to carry the Republican banner on the issue. Finally, over in the House, California Rep. Anna Eshoo, who received an "F" last year on the National Taxpayers Union's comprehensive fiscal scorecard, has joined with Virginia Rep. Bob Goodlatte, who earned a "B," to champion the effort.

Surprising? Perhaps - but not after you consider the background.

If you're reading this article on a computer, chances are you have not had to pay any state or municipal taxes on the service you use to connect to the Internet. That's not because governments don't want to levy these taxes - they do. Just think of the fees and taxes on your cell phone bill. But thanks to a federal law passed in 1998, and renewed in 2001 and 2004, a moratorium has been put on new taxes targeting Internet-access services. For instance, DSL, cable modem, and wireless Internet services are now safe from new taxes - although for how much longer remains in question.

The moratorium's sponsors originally had to agree to a sunset in order to get the bill passed; lawmakers wanted to periodically re-evaluate the situation. And now the current moratorium is scheduled to expire on November 1, 2007, with many government officials salivating over the prospect of imposing new taxes and fees on the growing number of Internet users. (Never mind that the revenue raised from such taxes would have little or nothing to do with improving Internet services.)

Of course, Republicans have long been dedicated to stopping new taxes in any form. But why would Democrats support a bill that would deny a new revenue stream to traditionally friendly state and local governments - entities whose leaders applaud Democratic calls for more federal aid?

Three reasons come to mind:

One, a low-tax Internet is affordable for Americans of all income levels. Telecom taxes can add 20 percent or more to a wireless phone bill. Because this burden tends to fall hardest on lower-income households, many Democrats don't want to be responsible for putting Internet access out of reach for the very Americans they profess to care the most about.

Two, the ban has helped create a dynamic Internet environment that is opening up new employment and commerce opportunities. This is especially good news for the blue states where manufacturing jobs are departing for warmer climates.

Three, Democrats can tune their rhetoric on the moratorium so that it's in sync with the familiar (but shrill) song about "protecting" the Internet with (economically destructive) "net neutrality" rules. It's hard to imagine the net-neutrality scheme having any upside, but that's a fight for another day. In the here and now, Democrats gain an undeniable political benefit by relating these two issues.

The bottom line is that the Internet's relative newness, widespread usage, and incredible potential allow members of both political parties to connect in ways that would be impossible if the discussion were, say, lowering capital-gains taxes. The Internet provides a setting where odd-bedfellow coalitions can be surprisingly successful, and taxpayers should support all those who would make the moratorium permanent - regardless of party.

The next step is to make sure this growing coalition is strong enough to beat the "wait-it-out" team, which wants to see the ban expire quietly. Many legislators are experts at running down the clock, but few want to feel the wrath of constituents who would soon see $5 "Local Internet Access Fees" added to their monthly Internet bills.

Americans are only going to rely more and more on the Internet, and making this tax moratorium permanent could rank among the most far-sighted examples of good tax policy ever produced in Washington. But with the clock ticking down to November (not the elections in 2008, but this year's tax-ban expiration), Democrats have limited time to put this victory in the bag.

Taxpayer advocates stand ready to help.