Articles

Don't Tax Internet, At Least Not Yet

Opinion
April 29, 2004

Increasing access to the Internet qualifies as a genuine Big Deal. Much of the anticipated economic growth among consumers and businesses hinges on more households being able to connect to the world by way of the Internet.

As marketed today, the swiftest Internet access, mostly by way of DSL or cable modems, is priced in the $45 to $50 range. The fast service is becoming the backbone of household communication, from e-mail to news and shopping. Even the governments are saying get on line to register, pay the ticket or learn the rules. Raising the price of Internet access by taxing could inhibit access, especially among moderate-income families with children and seniors on fixed income. To promote continued high-speed growth in broadband service, in town and country, it makes sense to exempt access from taxes for the next two to four years.

State and local government revenues will be affected by the tax exemptions. The National League of Cities claims that municipalities alone could lose out on some $9 billion a year if Congress enacts a permanent ban on Internet taxation. However, Sen. John McCain (R-Ariz.) has a sensible compromise in his proposal to limit exemption to four years at most. A two-year exemption may be sufficient, given the already rapid spread of Internet availability even into rural areas.

However, at least one of the original proposals to exempt the Internet should be avoided. That feature would have shielded new-fangled telephone services over the Internet from taxes. Fortunately the McCain compromise would permit taxes on Internet phones and regular phones alike. That idea should definitely be preserved. A rapid move of phones to the Internet would otherwise reach directly into the pockets of the state and local governments, which collect taxes on telephone service.

Given an era of severe fiscal constraints, it doesn't make sense to take more money from local governments.

HIGH-SPEED INTERNET GROWTH
High-speed Internet access lines in residences and small businesses, in thousands:
Year	Lines
1999	1,792
2000	5,170
2001	11,005
2002	17,357
SOURCE: Congressional Budget Office

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