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Document 560 of 890.

March 14,2000, Tuesday

SECTION: EDITORIAL & COMMENT, Pg. 9A

LENGTH: 703 words

HEADLINE: TAXING THE NET WOULD DO HARM

BYLINE: J. Kenneth Blackwell

BODY:

Nothing better symbolizes 21st-century Americans' cherished freedom than the Internet: freedom to innovate and invent, freedom to communicate, freedom to prosper.

But this freedom is being threatened. In April the commission created by Congress to study this issue will recommend whether to extend the moratorium, make it permanent or create a system of taxation for online retail transactions.

That the latter is even being considered is unfortunate. Taxing the Internet will either clip the wings or outright cook the electronic goose that has hatched America's booming economy.

As the Internet continues to grow, so, too, will our economy. Contrary to popular rumor, states are not losing billions of desperately needed revenue dollars by not taxing the Internet.

Nothing could be further from the truth. In 1998, states saw $ 36 billion in budget surpluses; 1999 figures indicate this trend is continuing. These statistics reveal that it's not more revenue but more discipline in spending that the states need. If states cut spending and use their surpluses wisely, they will not need to squeeze more taxes out of their citizens, who are already laboring under intense tax burdens.

The average working family in America has a tax burden of 39 percent in direct taxation: sales tax, property tax, death tax, income tax -- the list goes on and on. To add another tax only would serve to increase the burden and widen the oft-spoken-about technology gap. The Internet provides a wealth of opportunities to those who have access to it. What will happen to those who don't?

A tax on this entity certainly would not initiate increased access to Internet have-nots. In fact, the National Bureau of Economic Research has concluded that it would even decrease current levels of access and activity. Studies show that applying existing sales tax to the Internet or the individual modems in a person's home would slash the number of online buyers by 25 percent and probably cause a downward spiral of purchases by about 30 percent.

And that would be disastrous. Many facets of our economy are becoming dependent on the Internet, and on the promise of its unlimited potential. Traditional corporations and .com start-ups are using the Internet to create and participate in the economic prosperity. Mom and pop stores are setting up Web sites and thriving in the new venue, selling anything from homemade pies to wool sweaters, and to more people in more places than they could have dreamed just a few years ago. And yet, brick-and-mortar retail outlets will survive alongside their electronic counterparts; even the rapid growth of this explosive technology cannot instantly replace hundreds of years of traditional retail- type transactions.

Predictions are for e-commerce to make up only 6 percent of total retail spending by 2003. Clearly, customers still like to see and touch what they buy in most circumstances. To pollute this remarkable environment of coexistence with taxes would merely deter participation in the electronic marketplace by increasing costs and adding to the chaotic nature of our tax system.

The enormous cloud of taxation has been drenching the American people in confusion for years. The U.S. Tax Code has 17,000 pages and 7.5 million words. The complexity of an Internet tax would add volumes to this misbegotten work and dash any hopes for a simplified tax system. An estimated 7,000 state and local jurisdictions in this country potentially would lay claim to tax revenues derived from e-commerce: The logistics alone would be a nightmare.

To shackle the Internet with the chains of bureaucratic tax forms and filings would oppress the freedom this technology has given us.

The Internet is an invention comparable to Gutenberg's printing press. Who are we to hinder its growth with unnecessary and cumbersome taxes? If we tax the Internet, we will kill two golden geese: one, the expanding U.S. economy, and the other, the freedom and opportunity the Internet has brought us.

J. Kenneth Blackwell is Ohio Secretary of State and a member of the board of the National Taxpayers Union, a grassroots organization the works for lower taxes and small government.

LOAD-DATE: March 14, 2000

Document 560 of 890.


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