Copyright 2000 eMediaMillWorks, Inc.
(f/k/a Federal
Document Clearing House, Inc.)
Federal Document Clearing House
Congressional Testimony
May 3, 2000, Wednesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 1907 words
HEADLINE:
TESTIMONY May 03, 2000 MR. GROVER NORQUIST PRESIDENT AMERICANS FOR
TAX REFORM HOUSE COMMERCE
telecommunications, trade and consumer protection INTERNET
ACCESS CHARGE PROHIBITION ACT OF 1999
BODY:
Legislative Hearing H.R. 4202, the Internet Services Promotion Act of 2000
and H.R. 1291, the Internet Access Charge Prohibition Act of 1999 Subcommittee
on Telecommunications Trade & Consumer Protection May 3,
2000 Prepared Statement of Mr. Grover Norquist President Americans for
Tax Reform Mr. Chairman, members of the Subcommittee, thank you
for allowing me to present testimony today in support of H.R. 1291, the Internet
Access Charge Prohibition Act of 1999. Americans for Tax Reform
supports this bill. H.R. 1291 would save consumers and taxpayers money by
preventing the FCC from applying access charges to Internet Service Providers.
In addition to this bill, I would also like to take on the issue of Internet
taxation in a broader sense. In recent weeks, the debate over electronic
commerce has focused on exactly the wrong question; that is, "should the
Internet be taxed?" Perhaps in a perfect world, this would be the right
question. Right now, however, the building blocks of the Internet - phone lines,
cable, and, in fact, all telecommunications - are already some
of the most heavily taxed facets of the American economy. The first
excise tax on telecommunications was levied in
1898 to fund the Spanish-American War. The war is over. However, the federal
tax remains and is joined by state and local excise
taxes that average 14.l % and get as high as 28.6% in Texas, 24.5% in
Florida and 15.8% in Washington, D.C. Just complying with existing law requires
enormous resources. AT&T reports that it files 50,000 tax
forms with government at all levels. Some governors and big city mayors want to
impose additional taxes on the Internet. They would overturn
Supreme Court decisions that now protect interstate commerce. Part of the
benefit of the Internet is its inherent usefulness as a commercial medium.
Present law forbids Utah, for example, from forcing Amazon.com to collect Utah s
sales tax when a citizen from Utah buys a book over the
Internet. Adding additional taxes and regulations could present
a dramatic threat to the growth of the Internet as a transaction medium. Some
Internet tax advocates, including Utah Governor Mike Leavitt,
argue that the states need the extra taxes, that too much
tax revenue is being lost, and that these additional
taxes can be imposed without hurting the Internet or the
Constitution. They are wrong on all four fronts. First, in 1998, the 50 states
ended the year with $11 billion in surpluses. State and local government
revenues have grown from 6.9 percent to 9 percent of GDP from 1968 to 1998-a
period in which federal revenues fell from 20.5 percent to 18.7 percent.
Taxpayers upset about declining productivity in government and increased waste
have been wrong to focus solely on Washington over the past three decades.
Additionally, a June 1999 study by Ernst & Young points out that, because
most e-commerce involves the sale of intangible services or other exempt
products not subject to sales taxes, or is business-to
business, the actual "loss" to state and local sales tax
collection was $170 million in 1998-one-tenth of 1 percent of sales
taxes collected. Moreover, the definitive study on how taxing
e-commerce would affect Internet sales was done by Professor Austen Goolsbee of
the University of Chicago Business School, who found that changing the
Constitution to allow taxation of electronic commerce would reduce e-commerce by
24 percent or more. (Now, that would do interesting things to the market
capitalization of those companies presently driving up the Dow and the NASDAQ.)
Imposing new tax collection schemes on remote sellers would not
"level the playing field" as the other team suggests. Rather, it would tilt the
playing field heavily against online vendors and their customers. It would do
this by imposing a massive, government-imposed barrier to market entry insofar
as a single vendor selling goods on the Internet would be compelled to collect
and remit sales taxes for more than 6,000 jurisdictions. A
single "Brick and Mortar" retailer operating a single store only needs to
collect taxes for one jurisdiction. The Constitution s commerce
clause is not a loophole. It created one coherent American market and stopped
states from attacking "foreign" (out-of-state) businesses. The two pieces of
legislation under consideration today go a long way toward preserving the
commerce clause. We do not want to allow the federal government to
tax the Internet out of existence-nor do we want to create a
situation where Alabama politicians can levy taxes on New York
businesses. We have already seen the damage Alabama juries do to "foreign" auto
companies through the abuse of tort law. As for "fairness:" Buy a book in your
local bookstore in Washington, DC and you pay a 5.75% percent sales
tax. Buy a book over the net and you pay $12.00 in overnight
shipping fees. You have to buy more than $200 worth of books at a time for the
dot com company to have any advantage. One idea before the Electronic Commerce
Commission that had merit was to urge states to lower or abolish sales
taxes on big-ticket items, such as computers. This would
eliminate any differential between electronic commerce and main street
businesses without clogging up the Internet with tax
collectors. Governor James Gilmore of Virginia, who chaired the Commission on
Electronic Commerce, has outlined a plan to ban taxes on
electronic commerce altogether, to phase out the 3% federal excise
tax on phone bills, to ban taxes on Internet access,
to ban tariffs on international trade and to reduce the "digital divide" by
allowing states to spend surplus welfare funds to buy computers and Internet
access for families making the transition from welfare to work. Senator John
McCain (R-AZ) and Congressman John Kasich have also introduced federal
legislation to make the ban in Internet taxes permanent and to
ban all sales taxes on electronic commerce. In addition, the
commission recommended banning the taxation of digitally transferred goods and
services. To tax digitally transferred music, or computer
software would require a tremendous violation of privacy of every American.
Better to repeal those taxes than leave them on the books to be
selectively enforced. Congress might also wish to extend the protection of the
4R laws prohibiting discriminatory taxation on railroad lines to
telecommunications. I believe this would greatly reduce the
tax burden on lower income Americans using the internet.
Passing H.R. 1291 is an important step in preserving the economic growth of the
Internet. In addition to this legislation, however, I urge Congress to enact the
entire Gilmore Report: abolish the 3% Federal Excise Tax on
telecommunications, sunset the Gore Tax, or
E-Rate, extend the present moratorium on discriminatory taxes
on the internet, and strengthen nexus standards to preserve Commerce Clause
protections for all Americans. Thank you for allowing me to testify today.
LOAD-DATE: May 8, 2000, Monday
