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Opinions/Editorial No More Milking the Internet Released by Grover Glenn Norquist on 12/21/99 of
Americans for Tax
Reform, Advisory Commission for Electronic
Commerce
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Should the
Internet be taxed? That's the wrong question. The building blocks of
the Internet--phone lines, cable, all telecommunications--are
already one of the most heavily taxed parts of the American economy.
The first excise tax on telecommunications was levied in 1898 to
fund the Spanish-American War. The war is over. The federal tax
remains and is joined by state and local excise taxes that average
14.1 percent and get as high as 28.6 percent in Texas, 24.5 percent
in Florida and 15.8 percent in Washington, D.C. AT&T reports
that it files 50,000 tax forms to government at all levels.
Now some governors and
big-city mayors want to add additional taxes on the Internet. They
would overturn Supreme Court decisions that protect interstate
commerce. Present law forbids Utah from forcing Amazon.com to
collect Utah's sales tax when a citizen from Utah buys a book over
the Internet.
Pro-tax-the-Internet Gov. Michael Leavitt (R) of Utah argues
that the states need the extra taxes, that much tax revenue is being
lost, and that these additional taxes can be imposed without hurting
the Internet or the Constitution. He is wrong on all counts.
In 1998 the 50 states ended
the year with $11 billion in surpluses. State and local government
revenue has grown from 6.9 percent to 9 percent of GDP from 1968 to
1998, a period when federal revenues fell from 20.5 percent to 18.7
percent. Taxpayers looking for declining productivity in government
and waste have been wrong to focus solely on Washington over the
past three decades.
Second, a
June 1999 study by Ernst & Young points out that because most
e-commerce is business-to-business or the sale of intangible
services or other exempt products not subject to sales taxes, the
actual "loss" to state and local sales tax collection was $170
million in 1998, or one-tenth of 1 percent of sales taxes collected.
Moreover, the definitive study on how taxing e-commerce would affect
Internet sales was done by Prof. Austen Goolsbee of the University
of Chicago Business School, who found that changing the Constitution
to allow taxation of electronic commerce would reduce e-commerce by
24 percent or more. (That would do interesting things to the market
cap of those companies presently driving up the Dow.)
The Constitution's commerce
clause is not a loophole. It created a single American market and
stopped states from attacking "foreign" (out-of-state) businesses.
We do not want to create a situation in which Alabama politicians
can levy taxes on New York businesses. We have already seen the
damage Alabama juries do to "foreign" auto companies in Detroit
through the abuse of tort law.
As for "fairness": Buy a book in your local bookstore in
Washington and you pay a 5.75 percent percent sales tax. Buy a book
over the net and you pay $12 in overnight shipping fees. You have to
buy more than $200 worth of books at a time for the dot.com company
to have any advantage.
One
idea before the Electronic Commerce Commission is to urge states to
lower or abolish sales taxes on big-ticket items, such as computers.
This would eliminate any differential between electronic commerce
and Main Street businesses without clogging up the Internet with tax
collectors.
The battle lines
are being drawn for the 2000 election. Gov. James Gilmore of
Virginia, fresh off his victory over the auto excise tax, chairs the
Commission on Electronic Commerce and has outlined a plan to ban
taxes on electronic commerce, phase out the 3 percent federal excise
tax on phone bills, ban taxes on Internet access, ban tariffs on
international trade and reduce the "digital divide" by allowing
states to spend surplus welfare funds to buy computers and Internet
access for families making the transition from welfare to work. Sen.
John McCain (R-Ariz.) and Rep. John Kasich (R-Ohio) have introduced
federal legislation to make the ban on Internet taxes permanent and
to ban all sales taxes on electronic commerce. Let the first
Internet election begin.
The
writer is president of Americans for Tax Reform and the
consumer/taxpayer representative member of the Advisory Commission
on Electronic Commerce. |
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