Copyright 2000 Federal News Service, Inc.
Federal News Service
April 12, 2000, Wednesday
SECTION: PREPARED TESTIMONY
LENGTH: 1793 words
HEADLINE:
PREPARED TESTIMONY OF JOHN BERTHOUD, PH.D. PRESIDENT OF THE NATIONAL TAXPAYERS
UNION
BEFORE THE SENATE COMMITTEE ON COMMERCE,
SCIENCE AND TRANSPORTATION
SUBJECT - S. 2255, A BILL TO EXTEND
THE INTERNET TAX FREEDOM ACT THROUGH 2006
BODY:
I. Introduction
Mr. Chairman and Members of the Committee, my
name is John Berthoud. I am President of the National Taxpayers Union, a
nationwide grassroots lobbying organization of taxpayers with 300,000 members.
I come before you today to state our views on Internet taxation and
Chairman McCain's legislation, S. 2255, which would extend the moratorium on
Internet taxation through 2006. The National Taxpayers Union strongly supports
this effort and encourages the Committee to act favorably on this bill.
II. The Moratorium Should Be Extended A moratorium is a prohibition on
action. We believe government should not act - through taxation, spending, or
regulation- unless there is a clear and compelling reason for it to do so. While
proponents of more taxes on the American people have lobbied hard to establish
taxes on Internet commerce, a close examination of the facts reveals no
justification at all for a) creating taxes on Internet access; b) creating
discriminatory taxes on the Internet; or c) forcing vendors to collect taxes for
states and cities in which they are not located.
I will briefly examine-
and refute- the claims of the pro-taxing crowd and make the case why it is
important to keep the destructive power of government as far as possible from
the Internet.III. Claim: Failure to Tax the Internet Will Lead to "Under-Funding
of Critical Government Services"
Repeatedly, we hear from the pro-tax
side that without a new tax regime on the Internet, "critical government
services" will have to be cut. The pro-tax National Governors' Association (NGA)
argues that if the NGA Internet tax plan is not adopted, "States and local
governments could lose more than $10 billion per year by 2003
in uncollected sales tax revenues on Internet
and mailorder sales... If this problem is not addressed,
America would have 200,000 fewer teachers and police officers educating our
children and keeping our communities safe."1
NGA's scare tactics about
laying off police and teachers are repeated by other big government advocates
who argue in favor of similar tax schemes. However, the facts quickly disprove
this type of groundless hysteria.
State governments are flush with
money. Total state taxes, including traditional sales taxes, have grown at
almost twice the rate of inflation and population for the past six years. Figure
1 shows that state and local government tax receipts grew by over 30 percent
between 1994 and 1999.
(NOTE charts not transmittable)
Many
states- such as New York, California, Texas, Maryland, Minnesota, Indiana,
Michigan, Washington, and Pennsylvania- have seen year-after- year of surpluses
exceeding $1 billion? One Michigan State Senator commented that
as a result of the year-after-year surpluses in that state, "we have programs
coming out of the weeds - groups with something warm and fuzzy, and some of them
have merit"3 (italics added).
Meanwhile, the federal government's share
of the economy has reached a postwar high. In FY 2001, the Office of Management
and Budget projects the federal government will collect 54 percent more revenue
than it did just ten years ago (adjusting for inflation).4
And make no
mistake - a substantial part of the reason for this boom in revenues is the
Internet, e-commerce, and the high-tech sector. Because governments at all
levels have so far mostly left the Internet, e-commerce, and indeed, the entire
high-tech sector alone, it has been able to flourish. In turn, these businesses
have returned massive amounts of revenue to states and localities through the
taxes currently in place.
Adding taxes to the Internet would adversely
affect e-commerce and in turn stifle the revenue growth that we have seen in
most types of state and local taxes. A 1999 study by the National Bureau of
Economic Research concluded that applying existing sales taxes to the
Internet would slash the number of online buyers by 25 percent and
plummet purchases by 30 percent or more?
IV. Claim: E-Commerce
Businesses Are Escaping Taxation
Proponents of more taxation argue that
it is unfair that Internet businesses are not subject to new types of Internet
tax plans - they are supposedly "escaping their obligation" to fund "needed
government services." Nothing could be further from the truth.
Businesses in America - those on the Internet or those not yet on the
Internet - are already overtaxed through a great variety of levies. Some of the
more prominent ones include: corporate income taxes personal income taxes sales
taxes use taxes property taxes literally hundreds of different types of fees
The small business sector would once again be hit hardest by Internet
taxation. Their smaller size means that the compliance burdens would be
proportionately greater. Chris Wysocki, President of the 50,000- member Small
Business Survival Committee, testified to the Advisory Commission on Electronic
Commerce that, "Allowing the taxation of e- commerce would jeopardize the growth
of the new digital economy and hamper the ability of entrepreneurs across
America... The burdens that would be imposed are simply unacceptable."6
Rather than figuring out new taxes to add onto businesses, Congress and
the states should be focusing on ways to lower the old ones.
For those
businesses who don't currently have an Internet presence and who feel that
"fairness" dictates the establishment of new taxes on e- commerce, our message
is simple: government is never the solution to your competitive problems. More
government always ends up hurting commerce. Look instead to getting into the
Internet yourself.
The situation with non-Internet retailers pursuing
taxes on those with an Internet presence is analogous to the situation where
some businesses have lobbied the U.S. Department of Justice to pursue Microsoft
in the hopes of achieving a competitive advantage. Any short-run advantage to
these firms is clearly outweighed by the longer-run costs of government
intrusion. Nobel Laureate Milton Friedman made this point very eloquently in a
dialogue with us last year:
Business, in general, has something of a
suicidal instinct. It often proposes laws in its own self-interest which destroy
the underlying basis of the whole private enterprise system.
I believe
that is what has been happening recently in the computer industry. Silicon
Valley is suicidal in calling government in to mediate in the disputes among
some of the big companies in the area and Microsoft. The end result will be that
an industry that up to now has been able to proceed at a marvelous pace with
little or no government regulation - it has been a wonderful example of the
efficiencies of a strictly free private-market- that industry is now going to
have government all over it. It's going to spend in legal fees over the next ten
or twenty years, money which society would benefit from much more if it were
spent in the kind of research and development that has brought us the many
miracles in the area of Internet, in the area of home computers, industry
computers, and all the rest.7
V. Why Do Proponents of Internet Taxation
Want to Add Internet Taxes?
It is quite clear why advocates of Internet
taxation have lobbied hard for Congress and state legislatures to either
establish special taxes on the Internet or else create new tax regimes to snare
ecommerce in the web of state sales tax collectors. They want lots more money
from taxpayers to fund their plans for even bigger government.One of the
clearest examples is that of America's teacher unions. One of the strongest
voices for more taxes - on the Internet and everything else America's teacher
union leaders are pushing an agenda that would add $906 billion
to the existing mountain of federal spending.8 That's each and every year. To
enact an agenda of this size would require a staggering tax increase of
$7,490 per taxpayer.9
Advocates of Internet taxation
are advancing this idea to help fund their dreams for a massive expansion in
government. This agenda is bad news for taxpayers and America's future.
Vl. Practical Considerations
Mr. Chairman, your legislation
extending the moratorium makes sense for all the reasons noted previously. But
even if Internet taxes wouldn't add a huge burden to businesses and even if
states weren't already overflowing in revenues, there are more practical reasons
to continue the moratorium. For example, we have yet to hear a sensible argument
on who would be owed a tax if a resident of Arizona, using an Internet Service
Provider located in Utah, ordered a product from a company headquartered in
Delaware, but whose main office is in Maine, and who ships their goods from New
York. Absent a moratorium, we would expect to see state or local legislation
that could lead to taxes being paid to a variety of these jurisdictions, meaning
multiple taxation placed on a single sale.
And we would anticipate that
it will be very difficult for tax and regulatory laws to keep pace with
technological change as it occurs. We don't want to put laws in place that will
quickly be made obsolete. As the respected Economist magazine argues, "The
Internet is so new that the direction of technological change is fiendishly hard
to predict. By contrast, tax rules are precise and inflexible, and take a long
time to change."10
Vll. Conclusion
As you well know Mr.
Chairman, the debate over taxes has been central to the 2000 election cycle.
While you and others offered wise and sensible plans for reducing the federal
tax burden and returning some of the current federal tax over-payment (what is
also called the surplus) to its rightful owners, the American taxpayers,11 the
issue we are talking about today is probably of even greater long-term
significance to taxpayers.
We thus strongly support this legislation and
indeed, we urge Congress to go further and adopt your legislation S. 1611, which
would amend the Internet Tax Freedom Act to broaden its scope and make the
moratorium permanent. We have also endorsed H.R. 3252, the Internet Tax
Elimination Act sponsored by House Budget Committee Chairman John Kasich, which
would bar sales taxes and other taxes on e-commerce.In conclusion, I want to
quote one of the great political philosophers of the Twentieth Century, former
President Ronald Reagan, who observed, "Government's view of the economy could
be summed up in a few short phrases: If it moves, tax it. If it keeps moving,
regulate it. And if it stops moving, subsidize it." Now is the time, Mr.
Chairman, to put a stop to schemes to tax the Internet - to keep it moving and
growing, so government one day doesn't have to regulate it or subsidize it. This
is the challenge before you and the Members of this Committee.
Thank
you.
END
LOAD-DATE: April 13, 2000
