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Federal Document Clearing House
Congressional Testimony
May 17, 2000, Wednesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 3587 words
HEADLINE:
TESTIMONY May 17, 2000 GROVER G. NORQUIST HOUSE JUDICIARY
COMMERCIAL AND ADMINISTRATIVE LAW INTERNET TAX ISSUES
BODY:
May 16, 2000 Testimony of Grover G. Norquist
Before The Subcommittee on Commercial and Administrative Law of the House
Committee on the Judiciary Thank you for the opportunity to testify today. In
keeping with the Truth in Testimony legislation, let me assure you that neither
I nor Americans for Tax Reform receives any taxpayer dollars
from federal, state or local sources or contracts. As a matter of policy ATR
does not accept taxpayer monies. I was appointed to the Advisory Commission on
Electronic Commerce as the representative of consumers. Other members of the 19-
member commission were appointed to represent state, federal or local
governments. A majority of the commission agreed on a set of proposals that were
transmitted to Congress in April of this year. Those recommendations included:
l. Extending the present three-year moratorium on discriminatory
taxes on the Internet by another five years. 2. Endorsing
federal legislation banning taxation of Internet access. 3. Abolishing the 3
percent federal excise tax enacted to pay for the
Spanish-American war more than 100 years ago. 4. Reducing and simplifying the
array of state and local taxes on telecommunications. 5.
Codifying the Quill Supreme Court decision so that businesses and consumers
would have a clear understanding of when Nexis does and does not exist. At
present gray areas are being defined haphazardly by courts rather than congress.
6. The commission repeatedly rejected the attempts by some lobbyists for state
and local governments to call for undermining the commerce clause of the
constitution and allowing taxing authorities in one state to force businesses in
another state to collect that states sales taxes. 7. The
commission also called for keeping the Internet tax-free at
international borders-opposing new tariffs on electronic commerce between
nations. The commission commended The Clinton Administration for its
pro-taxpayer, pro-consumer position against tariffs on electronic commerce. 8.
The commission called for the elimination of taxation on digitally transferred
goods and services. Taxing the downloading of software or video or audio would
require a massive invasion of the privacy of American cities and would damage
the Internet as a means of commerce. The Commission heard from all parties,
including a great deal from politicians who hoped to use the Internet as a new
source of increasing taxes and spending at the state and local
level. Experts testifying before the commission helped to expose four myths that
have clouded the discussion of taxation and the Internet. First, The Internet is
not taxed. At present the building blocks of the
Internet-telephone and cable services-are very heavily taxed.
There is the 100 plus year old federal excise tax of 3%. There
is the Gore tax-imposed by the FCC without congressional
approval. And without sunset. This tax will still be with us in
l00 years. State and local governments impose an average excise
tax of 14% on telecommunications. This makes telecommunications the
most highly taxed good or service other than tobacco or liquor. These heavy
excise taxes were imposed when phone companies were local,
regulated monopolies. Politicians found they would hide small
taxes in the phone bills of their constituents. The phone
companies didn t complain too loudly-they could pass on the tax
as a cost of doing business and they wouldn t want to complain too much on
behalf of their consumers as they were under the regulatory thumb of the local
and state politicians. Now, however, Congress has begun the process of moving
telecommunications to a fully competitive market. These heavy
taxes are no longer sustainable. I would strongly recommend
that Congress look to include telecommunications in the 4R law that prohibits
state and local governments from levying discriminatory taxes
on railroad property. This would allow a state with a five percent sales
tax to have a five percent sales tax on phone
bills-but not a ten percent tax. Similar protection must be
afforded telecommunications in the property and income tax
area. The other industry that mirrors telecommunications in having once been
local monopolies now moving to national competition is the electric utility
industry and it too should be protected by the 4R law. I join the commission
majority in strongly endorsing the abolition of the federal excise
tax and I urge you to sunset the Gore tax before it
also lives to tax your grandchildren. The Second myth is that
states are broke and desperately need more money. In 1998, the 50 states ended
the year with $11 billion in surpluses. The first Internet Christmas found sales
tax revenue at an all time high. The untold story is that while
Congress has found fiscal discipline in recent years-federal spending has fallen
from 2l.5% to 18.7% since 1994 state and local governments have not become more
productive. State and local governments have grown from 6.9 percent to percent
from 1968 to 1998. State and local politicians should focus on providing the
best government at the lowest cost to taxpayers. State and local governments
should be increasing productivity because of the technological progress of the
past decade. Instead, some politicians not competent to improve their work have
turned instead to calls to increase taxes on the very
technologies that are making the rest of the country more efficient and
productive. Any politician who sees the Internet as a source of even more
taxes rather than a tool to save taxpayer monies should retire
and let a more competent person take over. The third myth is that the growth of
the Internet is costing state and local governments lots of Lost revenue. First,
when the government fails to take a dollar from a citizen that dollar is not
lost. It is found in the pocket of the person who earned it. WE learn a great
deal about the thought processes of politicians who view every dollar they fail
to take as lost. Second, a June 1999 study by Ernst and young point out that
because most e-commerce is business-to-business or the sale of intangible
services or other products not subject to sales taxes the
actual loss to state and local sales tax collection was $170
million in 1998 or one tenth of one percent of sales taxes
collected. The recent panic attacks by some politicians is the third in a
series. First, these politicians said that catalogue sales would eliminate sales
tax revenues to states-everyone would buy everything from out
of state catalogues and there would be no money for police or schools. This didn
t happen. Catalogue sales are about 2% of the sales of goods. Second, in the
1980s we were told, by these same forces that America was moving from a goods
economy to a service economy and that unless we began taxing services there
would be-yes, no schools, no police. (They never threaten stop building stadiums
or hiring their brothers in law in response to less taxes.)
Governor-Former-Governor Martinez of Florida tried this and was retired. Somehow
sales taxes have increased each year anyway. Now this third
crisis is the Internet. It too will pass-unless congress allows
tax and spend politicians at the state and local level to
undermine the commerce clause in search of more taxes. The
fourth myth is that the commerce clause is a loophole and that there is no good
reason to forbid Utah from imposing its sales taxes on
businesses in other states. The commerce clause was a good idea. It created a
single American market and stopped states from attacking foreign (out-of=state)
businesses. We do not want to create a situation where Alabama businesses can
levy taxes on New York businesses. We have already seen the
damage Alabama juries to do foreign auto companies in Detroit through the abuse
of tort law. Politicians love to hide taxes and love to
tax those who cannot vote against them. Allowing Utah
politicians to audit, harass, and tax L.L. Bean in Maine or
Amazon.com In Washington state give politicians power without responsibility. IT
is taxation without representation. WE used to be against that. Myth Five:
Fairness. Some politicians have enlisted the political support of some shopping
mall owners and retailers by arguing that it is unfair that some consumers must
pay a sales tax when buying in state and not have to pay the
sales tax when buying over the Internet. Let s look at this.
Buy one hundred dollars of books at your local bookstore in Utah and the state
government will take six dollars from you-a six percent tax.
Buy that $100 of books from Amazon.com and you will pay $12 in overnight
shipping fees. If that 00 of books weighs more than one pound-as is likely-the
shipping fees double. For most sales the shipping fees are higher than the sales
taxes avoided. If the politicians who employ the fairness
argument were seriously could end this problem by one, taxing all sales at the
point of origin. Maine could tax all sales by L.L. Bean. Utah
could tax all sales by Utah firms. The politicians refuse this
simple solution because they don t want instead to levy taxes
on out of state businesses. But this does expose the hypocrisy of the argument.
Or politicians could cap the sales tax on large furniture
purchases or computers so that the sales tax would always be
lower than the shipping fees. This would reduce the sales tax
revenue only a little and solve the problem of fairness for retailers. But
again, the politician who use the fairness argument would accept this idea if
they were the least bit interested in fairness-they are not, they want more
tax dollars. A third solution would be to lower the sales
tax burden governors and mayors impose on their own citizens
and businesses. A number of shopping mall and retail representatives have told
me that they have been threatened by mayors and governors that if they do not
help this drive to tax the Internet they will be the victims of
property tax hikes. As they are not able to move easily, I
appreciate the pressure they are under and look forward to working with them to
oppose tax hikes on them and their consumers. Myth Six: The
Leavitt Constant. Governor Mike Leavitt of Utah was a consistent advocate on the
commission in support of higher taxes and in opposition to
tax relief. He would ask witnesses to assume government
spending was a fixed number, could not be reduced, and then ask them what
taxes they thought would best raise the amount of money now
spent by government. The Leavitt constant, that government spending is fixed
(and American families will have to adjust to the demands of government
spending) is the Breshnev doctrine of big government. What the government owns
today of your income is fixed. What you have kept to date is negotiable.
American taxpayers reject the Leavitt constant. Competent political leaders can
reduce the cost of government by becoming more productive. Welfare reform, the
Freedom to Farm Act and the reduction of the defense budget from 10% of GNP to
3% of GNP are examples. Privatization saves many states and municipalities
billions. Avoiding white elephants such as stadiums and light rail subsidies
reduce the cost of government. Tax and Spend politicians look
at tax cuts and ask where are we going to get the money , they
never look at their tax increases and ask what sacrifices
citizens will be forced to make. Government spending is not a fixed number. Not
for competent political leaders. The commission report is a good collection of
policy ideas that will protect consumers and taxpayers from invasion of their
privacy and will allow the Internet to develop free of the heavy hand of
government. I look forward to working with this committee and this Congress to
make the Gilmore Commission Report a reality as soon as possible.
LOAD-DATE: May 26, 2000, Friday
