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Congress Must Pass the Permanent Tax Ban Now

Robert M. McDowell

Congress has before it what may be the last opportunity this year to secure a permanent ban on Internet taxes and further the cause of Internet freedom. The next two weeks will be crucial to our Internet economy and American consumers. Right before the end of last year, a bipartisan effort in Congress led to a nine-month extension of a long-time bipartisan law known as the Internet Tax Freedom Act. Congress’s temporary action temporarily halted local governments from taxing consumers’ and businesses’ access to the Internet. With so few working days left on Congress’ calendar due to the presidential election, delaying action could end up burying the Internet access market under an avalanche of state and local taxes, thus stunting America’s world-leading Net economy.

For Internet users already struggling to make ends meet, a spike in monthly Internet bills due to new access taxes could relegate Americans who are dependent on the web for critical services to struggling as disconnected second-class citizens trying to make do in an offline parallel universe. For the dozens of small Internet service providers in underserved areas, new Internet access taxes would mean living with unfunded state and local mandates, increased compliance costs and an expansive tax-collecting infrastructure that will divert scarce capital away from building out to unserved areas and upgrading existing infrastructure.

Ultimately, without a permanent ban on these taxes, much of the progress we have seen in the past decade in connecting more Americans to the Internet could very well be upended.According to a 2014 report from McKinsey, cost is one of the four leading factors in Internet adoption. While 97 percent of households making at least $75,000 use the Internet, only 74 percent of households making less than $30,000 enjoy regular access, according to a study from the Pew Research Center. By keeping the hands of state and local governments off of Internet access, users are protected from an additional 7 to 20 percent in increased costs.

Enter Congress.

The House of Representatives passed The Trade Facilitation and Trade Enforcement Act of 2015 in December, which included language that would make the Internet Tax Freedom Act permanent. Containing what is now known as the Permanent Internet Tax Freedom Act (PITFA), this bill is currently awaiting Senate approval. Luckily, Republican John Thune of South Dakota and Democrat Ron Wyden of Oregon continue to champion the bipartisan effort to stamp out access taxes once and for all. Their legislative efforts have paid off as the language in the bill straightforwardly bans state and local governments from taxing Internet access, or imposing “email taxes” – a law that was originally passed in 1998 on an overwhelmingly bipartisan basis. It has been extended annually every year since.

What was true in 1998 is still true today: state and local governments tax communications services like landlines at a high rate. By keeping access taxes off the Internet, policymakers have helped spur Internet adoption exponentially. Pew now estimates that 84 percent of all American adults use the Internet in some capacity, whether wirelessly or via a wired broadband connection.

Holding up this no-brainer ban on Internet access taxes, unfortunately, is one unrelated bill known as the Marketplace Fairness Act (MFA). According to MFA supporters, their bill would allow state governments to collect sales taxes from online retailers not physically located in their state just the way they have with “brick and mortar” stores since the beginning of the Republic.

Although MFA supporters have a right to make their case in Congress, they should not hold the PITFA hostage to get their way. The benefits of a tax-free Internet are too important to play such political games, and it is disingenuous to conflate Internet access taxes with online sales taxes.

Adding taxes and fees to the web – a real possibility should the Senate make the mistake of melding the two issues – will only turn back the clock on the nation’s Internet economy and put low-income Internet consumers at risk of going offline. Adding costs through additional taxation is no way to accomplish the bipartisan goal of attaining universal broadband access.

By choosing the simple and straightforward path of the PITFA, Congress has an opportunity to pass a widely supported measure that would help keep costs down and bring more people online. Congress has in its hands a wonderful opportunity to pass common sense legislation that will help consumers and keep our Internet economy humming. Let’s not have Washington politics trip up America’s Internet future.

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