Copyright 2000 Federal News Service, Inc.
Federal News Service
February 2, 2000, Wednesday
SECTION: PREPARED TESTIMONY
LENGTH: 1647 words
HEADLINE:
PREPARED STATEMENT OF GOVERNOR PAUL CELLUCCI PRESERVING A TAX-FREE INTERNET: THE
KEY TO FUTURE PROSPERITY
BEFORE THE SENATE
BUDGET COMMITTEE
BODY:
Thank you Chairman
Domenici and members of the Committee for this opportunity to speak before you
this morning on an issue of the utmost importance to the economic future of our
nation - an Internet free from burdensome taxes.
Innovation has defined
the American identity for more than two hundred years - especially during the
1900s. In the American Century, homegrown dreamers used their imagination and
perspiration to generate history-changing inventions, from the telephone, to the
automobile, to the supercomputer, to, most recently, the Internet.
The
boisterous new information-based economy that we are enjoying today is the
natural evolution of that tradition. The Internet economy is here to stay. The
flurry of commercials from .(dot) com companies during last Sunday's Superbowl
illustrates the high tech impact on our economy. It is incumbent on political
leaders to set economic policy that will facilitate its continued growth. But
despite the important boost technology has given our economy, nearly everyone
would agree that we are only scratching the surface of the full potential of
e-commerce. That future potential is being put in peril by misguided efforts to
tax on-line purchases, which would choke off a burgeoning industry before we
experience its full economic benefit.
We are proud of our new economy in
Massachusetts, just ten years removed from a national recession that hit
Massachusetts harder than nearly any other state. The Massachusetts economy of
the new century bears no resemblance to that of the late 1980s, when a few large
corporations dominated our business landscape. Today, many of our companies have
fewer than a handful of employees, a sign of a more stable economy, but also one
that can adapt quickly to a changing market. Much of this growth is a direct
result of the explosion of e- commerce and from Internet start-ups. In fact, we
have picked up a new state nickname, the. (dot) commonwealth, which underscores
our high tech focus.
We are very pleased to have helped create 450,000
new jobs in Massachusetts over the past five years, but it wasn't state
government that directly hired all those people. What we have done is to create
an employer-friendly atmosphere that has encouraged businesses to stay, relocate
and expand in Massachusetts, including 38 tax cuts. Chopping taxes and helping
reduce other business costs have been particularly important for our high tech
industry, which employs about 700,000 people statewide.
Embracing change
is important to the progress of any nation, state or community. The Berkshire
County former mill city of North Adams, rebounding from massive layoffs in the
1980s, is now being referred to as Silicon Village - a destination for
e-entrepreneurs seeking a more rural lifestyle. Last month, I held my State of
the State address in the northeastern Massachusetts City of Lowell, a high tech
melting pot that is the envy of any mid-size city in the nation. Without the
high tech driven economy, these cities and many others like them would be the
economic ghost towns that they were in the early 1990s, when a generation of
young people believed that they were doomed to fall short of their parents'
success. I will do anything in my power to prevent that sense of despair from
prevailing again.But this is not just an issue for Massachusetts. In order for
our nation to continue this record economic growth, we must not build a toll on
the Information Superhighway. Imposing stifling taxation on this powerful new
tool of commerce jeopardizes the future of high technology and the jobs it
creates for our citizens. There is a belief among some elected officials that if
it moves, tax it. But often times, when you tax it, it won't move.
In
addition, imposing an Internet tax would leave the United States vulnerable to
foreign competitors that do not tax on-line sales. Last October, I met with
Canadian leaders to impress upon them the importance of a worldwide ban on
Internet taxes, but that is unlikely to ever fully come to pass. Unlike
traditional brick and mortar businesses, e-commerce ventures are extremely
portable, and could easily move their headquarters offshore to an island like
Bermuda where they would be immune from any sales tax from this country.
This is not just a real threat to the economy of Massachusetts, but for
the nation as a whole. An Internet tax-fueled exodus of high tech employers
would damage a growing industry that, according to Forrester Research, is
expected to surpass $180 billion in sales by 2003 - more than
nine times the sales generated in 1999. More important, it could shut off the
flow of new Internet-related jobs, which, according to a University of Texas
study has created 2.3 million new employment opportunities. I don't know of any
governor who would forgo that level of job growth for his or her state, in
return for a small - and unneeded - amount of revenue.
Opponents of a
tax-free Internet also point to missing out on
revenue from not slapping a sales tax on e-commerce. Based on
1998 factors, estimates of the taxes from on-line sales fall
between $170and $450 million nationally. While
that is not a big number to governments with multi-billion dollar budgets, it
means a lot to the consumer who generally must pay a shipping and handling
charge on Web purchases, and may find the added cost of a sales tax too much to
bear. And it means a lot to e-commerce companies that are trying to get off the
ground and can't afford to lose business.
But the final number is
irrelevant. This is perhaps the best economic boom in our nation's history, and
to attempt to derail this progress for short money today threatens to put an
abrupt end to our prosperity. This revenue is better left in the private markets
than sitting in already overflowing government coffers.
In fact, by the
end of the next fiscal year, Massachusetts will have more than
$4.2 billion stored away in reserve accounts, while just eight
short years ago, these accounts were running a deficit. Last month, I filed my
Fiscal Year 2001 budget, which factors in an income tax cut while recommending
spending increases in health care, education, local aid, and housing - all
priorities for my state. This is true not just in Massachusetts, but on a
national basis. From Maine to Florida, Oregon to Maryland, government is already
keeping too much of the people's money - it is time to say enough is enough.
There is also no empirical evidence that e-commerce has a detrimental
effect on traditional retailers. Proponents of taxing e-commerce argue that
traditional "Main Street" merchants are losing customers to the
tax-free Internet shopping. The fact that
sales tax collections in Massachusetts were up more than eight
percent in the second half of 1999 - the same time period that e-commercebecame
part of the American vocabulary - go a long way toward proving that the growth
of on-line sales has not slowed the success of traditional retailers.
I
understand that later you will be hearing about a new tax scheme from the
National Governors' Association. With all due respect to my friends and
colleagues from the NGA, the so-called Zero Burden Tax Simplification Proposal
is unworkable, and would harm the national economy with little, if any reward in
return. While the plan's primary purpose is to allow for the taxation of the
Internet, it would have other harmful effects as well.
Even the
proposal's supporters must admit that for this to work, every state and company
would need to sign-up. Since the plan is voluntary, there is no way to guarantee
full participation. And without full- participation, we would have a much more
disjointed and arbitrary system than exists today. In fact, it would place the
states and businesses that entered the plan voluntarily at a competitive
disadvantage. The plan even seems to complicate standard cash purchases by not
making clear whether a third party would be required for that type of
transaction.
The NGA plan would also create a giant network of private
taxation bureaucracies that would rival even the Internal Revenue Service in
terms of scope, and its potential intrusion into the private dealings businesses
and consumers - an issue that Lt. Governor Jane Swift and I are making a
priority of our Administration.
The formation of this oversight
bureaucracy would mean that another entity would have access to consumers'
personal information. There is always the worry that this detailed information
on the6 spending habits of millions of American consumers would be vulnerable to
computer hackers or sold to profiling companies, just as some states have done
with motorist information through their motor vehicle departments.
In
Massachusetts, the Cellucci-Swift Administration has its own version of a tax
simplification plan. It is a ballot initiative drive for the November general
election that will roll back the state income tax to five percent - a promise
made more than a decade ago that the state Legislature has refused to keep. This
tax cut will help simplify the lives of thousands of Massachusetts families by
allowing them to keep up to $600 per year of their hard earned
money.
I would like to take this opportunity to call on Congress not
just to extend the moratorium on Internet taxation to cover
sales tax, but to enact a permanent ban on all
Internet-related taxes. The Internet is a new
technology that is open to anyone, anywhere. An Internet venture can spring up
from the soil of the smallest hamlet in the Nation's Heartland as easily as it
could in Silicon Valley, Austin, Texas or Cambridge, Massachusetts. For that
reason, its continued growth is crucial to our future prosperity and reign as
the world's technological leader. We can only achieve this goal by keeping the
Internet a tax-free zone.
Thank you, Mr. Chairman.
END
LOAD-DATE: February 3, 2000 
