Copyright 2000 eMediaMillWorks, Inc.
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Document Clearing House, Inc.)
Federal Document Clearing House
Congressional Testimony
April 6, 2000, Thursday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 5427 words
HEADLINE:
TESTIMONY April 06, 2000 JAMES S. GILMORE III GOVERNOR HOUSE
COMMERCE telecommunications, trade and consumer protection ELECTRONIC COMMERCE
COMMISSION
BODY:
April 6, 2000 Testimony of the
Honorable James S. Gilmore, III Governor of the Commonwealth of Virginia
Chairman, Advisory Commission on Electronic Commerce Telecommunications, Trade
and Consumer Protection Subcommittee of the Commerce Committee U.S. House of
Representatives Introduction Chairman Tauzin, Vice Chairman Oxley, Ranking
Member Markey, and members of the Telecommunications, Trade and Consumer
Protection Subcommittee, thank you for inviting me to report to you on the
results the Advisory Commission on Electronic Commerce. Let me preface these
remarks by recognizing the exemplary service of all members of the Advisory
Commission on Electronic Commerce. The Congress took great care in appointing
distinguished leaders from diverse perspectives and from the public and private
sector. They include several distinguished leaders from the private sector:
Michael Armstrong of AT&T, Grover Norquist of Americans for Tax Reform,
Richard Parsons of Time Warner, Bob Pittman of AOL, David Pottruck of Charles
Schwab, John Sidgrnore of MCI WorldCom and UUNet, Stan Sokul on behalf of the
Association of Interactive Media, and Ted Waitt of Gateway. And they include an
equally impressive group from the public sector representing state and local
governments: Dean Andal, Chairman of the California Board of Equalization,
Delegate Paul Harris of the Virginia General Assembly, Commissioner Delna Jones
of Washington County, Oregon, Mayor Ron Kirk of Dallas, Texas, Governor Mike
Leavitt of Utah, Gene LeBrun of the Commissioners on Uniform State Laws, and
Governor Gary Locke of Washington State. And representing the Clinton-Gore
Administration were Joe Guttentag of the Department of Treasury, Andy Pincus of
the Department of Commerce, and Bob Novick of the Office of U.S. Trade
Representative. These people devoted thousands of hours and their creativity in
the service of the hardworking people of the United States. I assure you that
these distinguished people accomplished great deeds on the people's behalf. You
can be proud of their efforts. Most importantly, I am proud of the quality of
the ideas that will be reported to Congress. Speaker Hastert asked the
Commission to send "sound policy proposals for the individual taxpayers of
America," and Senate Majority Leader Lott requested US to forward "a clear and
unambiguous policy proposal ..., especially if that proposal is bold and
innovative." That is precisely what the Congress will receive. The Commission
Has Successfully Fulfilled Its Charge The Advisory Commission on Electronic
Commerce was established by Congress to conduct a thorough study of federal,
state, local and international taxation of electronic commerce. For the last 1 -
months, 19 Commissioners have been deeply engaged in that endeavor. The
Commission held its first meeting in Williamsburg, Virginia, in June of 1999. We
met again in New York City in September, and then again in San Francisco in
December. The Commission held its last meeting in Dallas, Texas, in March of
2---, and then concluded its business on a conference call a week later. The
Commission came a long way in 1- months. Since June of last year, the Commission
heard testimony from over 55 experts, academics, think-tanks and interest groups
representing a broad range of perspectives on tax and electronic commerce
policy. Each Commissioner was able to invite their own experts to express a
viewpoint. We heard from every quarter, from the Heritage Foundation to the
National Governor's Association and Wal-Mart. The Commission also received over
7,--- pieces of mail and over 5- ,--- e-mails. Every viewpoint has been heard.
The Commission's library has grown to over 28- selections. Our Website received
an award from MuniNet -- it was selected as one that publication's top sites for
1999. That website will be archived by the Library of Congress for posterity.
Our Commission has been viewed by hundreds of thousands of people on C-SPAN and
via webcasts of our meetings. By the time the Commission arrived in San
Francisco in December, we had distilled dozens of issues into a "Policies &
Options" Paper. That paper guided an open and engaged debate at the San
Francisco meeting and propelled the Commission to our final meeting in Dallas
where we voted on specific policy proposals and attempted to come to
constructive policy conclusions in the best interests of the American people. I
am confident that conclusions we reached will indeed benefit the people of the
United States with regard to the taxation of electronic commerce. In short, the
Commission fulfilled its public obligation to engage and educate the people of
the United States on the policy of Internet taxation, and its statutory charge
to report the results of our study to Congress no later than April 21, 2---. On
behalf of the Commissioners, I extend our special appreciation to Speaker
Hastert, Majority Leader Armey, Congressman Bliley and Congressman Rogers for
their support in making the Commission a success, as well as Senate Majority
Leader Lott and Senator Gregg for their efforts and guidance. I also applaud the
foresight of Senator Wyden and Congressman Cox in sponsoring the Internet Tax
Freedom Act which credited the Commission. The Internet is Driving the New
Economy A year of study has confirmed at least a few important principles. The
Internet is the most transforming economic development since the Industrial
Revolution. Information Technology is driving America's economic boom - creating
new jobs, increasing productivity and efficiencies in every sector of the
economy, and generating new wealth in America. The Internet economy is not just
facilitating commerce - it is creating new commerce. And it is empowering
individual people in their roles as citizens in a democracy, as consumers, and
as entrepreneurs. Every person on the Commission recognized that our national
economy, U. S. global competitiveness, and American culture depend vitally upon
nurturing full development of the Internet. I believe the Internet and
information technology, combined with the creativity and hard work of the
American people, are responsible for the advent of a new Age of Opportunity. For
the first time ever, consumers can locate perfect information and access to
goods and services at the touch of a button, and small businesses and
entrepreneurs can - for the first time in history - reach a global marketplace
and compete with big, capital intensive companies, The result is a digital
marketplace even Adam Smith would marvel. Evidence that the Internet is driving
America's economic boom abounds and was most recently documented in a study
conducted by the University of Texas' Center for Research in Electronic
Commerce. According to the study, the nation's Internet-based economy grew 68
percent last year to produce over $5-7 billion in business revenues.
TheIntemeteconomyhascreated2.3millionnewjobs. The Internet and in formation
technology sector now accounts for more than half the capital investment in our
country. And of the tens of thousands of new businesses being created every
year, research shows nearly one in three did not exist prior to 1996. One sector
of the Internet economy - electronic commerce - accounted for nearly I million
of the 2.3 million jobs created by the Internet. Even in rural areas long ago
ignored by the economic progress in metropolitan areas and bypassed by the
Nation's huge investment of public resources on the interstate highway system,
small businesses are prospering by selling products worldwide. The Virginia
Diner in rural Wakefield, Virginia, is a perfect example. The nation's huge
investment of tax dollars in the interstate highway system left Rt. 46-, a
classic small town "Main Street," virtually abandoned years ago. Those people
who happened through Wakefield could stop into the Virginia Diner and buy a cup
of coffee and a can of Virginia peanuts. But the Internet economy has empowered
VaDiner. com to sell Virginia peanuts to consumers from Spain to California to
Tokyo. Due to the boom in Internet sales. the Virginia Diner has increased its
employment in Wakefield from 7- to 12- employees over the last three years and
this year the Diner will invest over $1--,--- in new computer hardware and
software. This new economic activity, increased productivity and job creation is
generating new wealth and increasing tax collections by governments. Indeed, the
Internet economy has local, state and federal tax coffers fuller and growing
faster than ever through the massive job creation and capital investment
occurring in every state in the Nation. The National Governor's Association
reports that the states collectively took in $11.3 billion in tax surpluses in
1998 despite tax cuts totaling $5.3 billion in 1998 and $4.9 billion in 1997.
And end-of-year balances for all states totaled $35 billion by the end of 1998.
In 1999, the states collectively took in $7.5 billion in tax surpluses despite
additional tax cuts totaling $7 billion. Sales taxes in particular continued to
increase in 1998 and 1999 - the states collectively took in surpluses of sales
taxes totaling $2.3 billion in 1998 and $2.2 billion in 1999 as people spent
their new wealth. The Challenge for Public Policy - Government Must Change
Underlying all the documented numbers is a profound social and economic
transformation. Every sector of our society is challenged to adapt to the new
Internet economy. Business is being conducted differently. Business models are
changing. Companies are more efficient and productivity per employee is
increasing exponentially. The same transformations are occurring in education,
in the way Americans live, obtain information and conduct their own lives.
Fundamentally, this technology empowers. It empowers businesses, business
leaders, employees, educators, and mostly it empowers each individual citizen.
All of this evidence validates the maxim: The Internet changes everything. More
to the point, the Internet changes everything including government. Old rules do
not work well in this new borderlines economy. Sometimes they do not work at
all. Regardless, change is everywhere, and government has to change as well. In
the Internet economy, government at all levels must change its policies as well
as the way it operates. The Internet is driving a 15 percent increase in
revenues and productivity per employee in the private sector economy, according
to the University of Texas' Center for Research. Government must marshal the
Internet to become equally as productive per public employee in the delivery of
government services, The result should be a dividend to American taxpayers
through lower-cost, more efficient government. The savings should be
re-prioritized to other government services so that no city goes without fire
trucks or schools, and taxes should be kept low. Policy Prescriptions for the
213t Century That brings me to policy prescriptions for the 2 Ist Century
economy. I point out that the some of the Commission's policy proposals will
come to the Congress by way of a two-thirds vote - the statutory hurdle for a
proposal to take on the elevated or " "finding." On issues such as international
tariffs, status as a formal "recommendation' consumer privacy, and the digital
divide, we came to two-thirds votes, though I was disappointed representatives
from the Clinton- Gore Administration abstained on these consensus issues. On a
host of core tax issues, the Commission came to a clear majority by a vote of I
1 to 1 (with 7 votes abstaining) and we will share the results of our work on
those topics with you, as well. as requested by Speaker Hastert and Senate
Majority Leader Lott. Let me provide one disclaimer regarding my personal
opinion which is the position I advocated within Commission debates. I believe
that no taxation is presumptively necessary. To the contrary, the presumption
should favor the right of individual citizens to keep their own hard-earned
money. Government must prove a tax is absolutely necessary for the provision of
essential services before taxing a new realm of economic activity or human
endeavor. Government has no right to expand tax burdens on Americans just
because a similar commercial transaction is taxed. Government should take only
what it needs to operate government and stop there. And in the context of
electronic commerce, America's response to the Internet revolution should NOT be
to tax it or all the people - the individual taxpayers, consumers and small
businesses - who have been empowered by it. In my view, the history of the 2-
Century 17 was about bigger government built at the expense of hardworking
people. But the 21' Century offers the promise of smaller, more efficient
government and a proportionate increase in the economic freedom and liberty of
individual people who are permitted to keep more of their own money. In my view.
the Internet changes everything, including government. Government at all levels
must begin now to harness the efficiencies and productivity increases
facilitated by Information Technology and the Internet. Free enterprise is doing
it. Government must do it, too. That opinion was not shared universally on the
Commission. Nevertheless, a majority of Commissioners approved policy
prescriptions that, in my view, advance these objectives. Among the ideas
submitted in this Report, you will find proposals for the following tax cuts and
tax reforms: First, Congress should eliminate the 3% federal telephone tax - an
immediate tax cut of over $5 billion annually for the American people. This tax
was originally established as a luxury tax for the few Americans who owned a
telephone to fund the Spanish American War of 1898. Since that time, it has been
scheduled for extinction for decades, but was finally made permanent in the late
198os. In the Information Age, it is important to stop taxing people's
telephones. Elimination of this regressive tax is an important first step in
reducing the expense of Internet access, one of the contributing factors to the
digital divide. While this tax once was justified as a luxury tax on the few
Americans who owned a telephone, it has no rationale in the Information Economy.
-Second, extend the current moratorium on multiple and discriminatory taxation
of electronic commerce for an additional five years through 2--6. Third,
prohibit taxation of digitized goods sold over the Internet. This proposal would
protect consumer privacy on the Internet and prevent the slippery slope of
taxing all services, entertainment and information in the U.S. economy (both on
the Internet and on Main Streets across America). Moreover, this tax prohibition
is essential to maintaining U.S. global competitiveness since the United States
currently dominates the world market in digitized goods. -Fourth, make permanent
the current moratorium on Internet access taxes, including those access taxes
grandfathered under the Internet Tax Freedom Act. This proposal is another
crucial initiative, targeted to reduce the price of Internet access and to close
the digital divide, By expanding the moratorium to eliminate the current
grandfather provision, consumers across the country would participate in
electronic commerce without onerous tax burdens. Fifth. establish "bright line"
nexus standards for American businesses engaged in interstate commerce. The
cyber economy has blurred the application of many legal nexus rules. American
businesses need clear and uniform tax rules. Therefore, Congress should codify
nexus standards for sales taxes in a way that adapts the law of nexus to the New
Economy and the new "dot corn" business model. Codification of nexus would serve
several important policy objectives: (1) provide businesses "bright line" rules
in an othenvise confusing system of state-by-state nexus rules; (2) protect
businesses, especially small businesses, from onerous tax collection burdens;
(3) reduce the amount of costly litigation spurred by confusing nexus rules; (4)
nurture the full growth and development of electronic commerce, and (5) give
consumers and individual taxpayers who participate in Internet commerce a tax
break. -Sixth, place the burden on states to simplify their own labyrinthine
telecommunications tax systems as well as
sales and use tax systems to ease burdens on
Internet commerce. This effort will be particularly important
for small and medium-sized retailers with nexus in two or more states. It also
will be important for telecommunications companies as they build out the
Internet infrastructure and offer new technologies and services. Radical
simplification will be necessary in the New Economy if small and medium-sized
businesses are to succeed. Seventh. clarify state authority to spend TANF funds
to provide needy families access to computers and the Internet, as well as the
training they need to participate in the Internet economy. This is one strategy
the Commission formally recommends to close the digital divide and make the
personal computer and access to the Internet as ubiquitous as the telephone and
television. Eighth, provide tax incentives and federal matching funds to states
to encourage public-private partnerships to provide needy citizens access to
computers and the Internet. This is yet another strategy the Commission formally
recommends to close the digital divide. Ninth, respect and protect consumer
privacy in crafting any laws pertaining to online commerce generally and in
imposing any tax collection and administration burdens on the Internet
specifically. This is a formal recommendation of the Commission. Ten, continue
to press for a moratorium on any international tariffs on electronic
transmissions over the Internet. This idea also is a formal recommendation of
the Commission. And eleven, a majority of the Commission endorsed a
comprehensive framework for addressing international tax and tariff issues based
upon the following core principles: no new taxes or tax structures on electronic
commerce in the world marketplace; tax neutrality toward electronic commerce;
simplicity and transparency of tax rules applied to electronic commerce; and a
call for the organization of Economic & Community Development (OECD) to
continue fostering international dialogue and cooperation on international tax
issues. These are the key ideas generated in a year of open debate and thorough
study. As you can see, the Advisory Commission on Electronic Commerce has been
busy. Some our ideas obtained a two-thirds majority to rise to the level of
formal "recommendations" while others obtained a clear simple majority by a vote
of I I to I (with 7 votes abstaining). Taken together, they comprise a
comprehensive package of ideas to inform Congress of the comprehensive array of
tax issues implicated by the Internet. Consistent with direction from
Congressional leadership, the Commission has provided Congress a bold and
constructive foundation for legislative action that will have a tangible and
positive impact on the lives of working men and women and their families, It has
been my high honor to serve the people of the United States as Chairman of the
Advisory Commission on Electronic Commerce. I thank the Congress for entrusting
me with this critical role in shaping ideas for the 2l'th Century. I thank my
fellow Commissioners for their keen insights and creativity and, most of all,
for their great sacrifices of time and effort in the service of our Country. Few
chairmen can claim to have presided over a more distinguished assembly of public
and private leaders. The Commissioners can be satisfied their labors have
advanced the best interests of the people of the United States, and the Congress
can be proud of the quality of ideas they have delivered. These ideas will leave
a lasting legacy on a new way of thinking for a new century. This Commission has
rung a bell for the 2l" Century and a new' paradigm in America. For that, I am
very proud. Thank you for inviting me and I would be happy to answer any
questions.
LOAD-DATE: April 12, 2000, Wednesday
