Copyright 2000 The Denver Post Corporation
The
Denver Post
July 11, 2000 Tuesday 2D EDITION
SECTION: DENVER & THE WEST; Pg. B-07
LENGTH: 774 words
HEADLINE:
Reality therapy on Internet taxes
BYLINE: By Froma
Harrop,
BODY:
It's the fashion in Washington to say
that you love the Internet and hate taxes. And so the House bill to
continue forbidding states to demand that online retailers collect
the same sales taxes as the stores in town made a nice cocktail mix.
Best of all for the reps, while they might jeopardize
the revenues that states rely on, they did not touch the flow
of federal tax dollars with which they must work.
That was really big of them. Under the Internet Tax
Freedom Act, consumers are required to pay the sales
tax on a CD they buy at a record store in the mall but not
on the same CD purchased through an Internet site, such as
amazon.com.
Well, the heady buzz after last month's passage of
a five-year moratorium on new Internet taxes has
since faded into sober reflection. Sales taxes
provide the states an average 40 percent of their revenues. It is
estimated that states will be losing $ 11 billion a year to Internet
sales by 2003. Huge and sudden changes in revenue flows do have
consequences.
Since that vote, various people have been sitting down
with the elected officials in Washington and explaining
state government to them. It is surprising that such coaching would
be needed. After all, these politicians are the same guys who
have been busily transferring social programs - health care,
welfare reform - to the state and local levels. States, counties
and municipalities also provide fire and police protection,
education, roads, a court system, and a lot of other services that
the public wants.
(Note that Congress also passed a bill on
national airports that includes an increase in Internet taxation. Not
one member raised a voice in protest. After all, the revenues were
going to the federal government.)
Because they do not charge
sales taxes, Internet retailers enjoy a competitive
advantage over local store owners. Local merchants do not think this
is fair, and the National Retail Federation has been all over Capitol
Hill expressing its displeasure. Firefighters, teachers and other
local government workers also question the wisdom of making
cyberspace a tax-free zone.
And they are being joined by the sort of
people who would reliably oppose most any kind of tax. After all, if
state and local governments lose large swaths of revenue to a
sales-tax-free Internet, what will
fill the budget gaps? Higher income and property
taxes. (The threat of hikes in property taxes has
brought real estate agents into the fray.) And if e-commerce puts
local stores out of business and their employees out of jobs, then
there will be even more property and income-tax revenues to replace.
Some normally anti-tax legislators have recognized the
reality that tax freedom on the Internet does not reduce overall
taxation. It just shifts the burden elsewhere. Texas, for example,
does not have a state income tax and depends on sales taxes for 51
percent of its revenues. Republican Sen. Kay Bailey Hutchinson put
two and two together. 'If we allow this inequity to continue to
occur,' she said, 'I can well see a drumbeat beginning for a state
income tax, which I am going to fight to the death.'
Politicians who worship at the cyberspace altar have
argued that the Internet is a fabulous machine for growth. It
is employing multitudes and pumping untold riches into our
national economy. Charging sales taxes on e-commerce would 'hamper
the growth of this vital medium by imposing old ways of thinking
that just do not apply.' These are the words of Sen. John
McCain. During the presidential campaign, the Arizona Republican
called for a permanent ban on Internet sales taxes.
Let's propose a new resolution: Only those industries
that aren't doing very well should pay taxes.
The senator
from Arizona is reportedly experiencing a change of heart on this
issue. Someone apparently informed him that his state derives 44
percent of its revenues from sales taxes. Losing that income would
punch a canyon-size hole in the state budget.
As the light bulbs go on
all over Capitol Hill, the passion for a tax-free Internet is
dimming. The Senate version of the House measure now bobs quietly in
the horse latitudes of legislative inaction. As in the case of the
horses thrown overboard from ships trapped on becalmed seas, the
future for Internet tax freedom does not look very good.
Froma Harrop is a Providence Journal-Bulletin editorial
writer and columnist. She may be reached by e-mail
at: fromaharrop@projo.com.
LOAD-DATE: July
11, 2000 
