House looks to ban Internet access taxes, growing federal power over states

By Josh Peterson | Watchdog.org

WASHINGTON, D.C. — A critical in the vote in the House of Representatives on Tuesday to permanently ban state and local governments from taxing Internet access is also leaving state and local governments to face the continued growth of federal power.

A permanent ban on Internet access taxes is scheduled for a vote Tuesday in the House of Representatives, less than four months before the temporary moratorium expires on Nov. 1.

More than half of the members of the House — 146 Republicans and 82 Democrats— have given their support behind the bill, called the Permanent Internet Tax Freedom Act, which would permanently ban state and local taxes on Internet access, and certain “discriminatory” taxes.

The current moratorium has been periodically renewed since it was first enacted 1998.

Making the case for a permanent ban, House Judiciary Committee Chairman Bob Goodlatte, a Virginia Republican and the bill’s main sponsor, argued in an op-edpublished by The Hill that if the ban is not “renewed, the tax burden on Americans will be substantial.”

“It is estimated that internet access tax rates will be more than twice the average rate of all other goods and services,” Goodlatte said.

“Additionally, low-income households will pay 10 times as much as high-income households as a share of income,” he said.

Momentum clearly is behind a permanent ban — the bill enjoys the support of Internet service providers and free market organizations. The wireless industry itself has been arguing for a “cooling off period” to give lawmakers time to examine the issue.

“We’re glad to see the House taking action to keep Internet access tax free for millions of consumers,” Amy McClean, director of advocacy communications at MyWireless.org, told Watchdog.org in a statement.

MyWireless.org is a nonprofit advocacy organization affiliated with the wireless industry.

“This legislation will help ensure the Internet remains affordable and accessible to all Americans, and we hope the Senate will pass its companion bill soon,” McLean said.

Americans for Tax Reform President Grover Norquist, along with Katie McAullife, executive director of ATR’s Digital Liberty project, sent a letter to members before the vote encouraging them to support the ban.

“Taxation of communications services is punitive and discriminatory,” they said.

More than half of the Senate supports the upper chamber’s version of the bill, introduced in August 2013 by U.S. Sen. Ron Wyden, R-Ore., and U.S. Sen. Jon Thune, R-S.D., but it has yet to be taken up for consideration by a committee.

A ban on Internet access taxes appears to be an intuitive move for legislators. Consumers generally favor low-cost Internet access, which would be disrupted by increased taxation.

But a permanent top-down ban also further widens the scope of federal power over states and localities, placing limited-government conservatives and libertarians at odds with their preference for keeping taxes low.

When the House Judiciary Committee debated the ban in mid-June, the issue of states’ rights took center stage. State governors and city mayors are unsurprisingly opposed to the ban, which prevents them from taxing their constituents to pay for state and local government initiatives.

A 2003 report by the Congressional Budget Office estimated that preventing state and local governments from collecting Internet access taxes would directly cost state and local governments between $80 million and $120 million annually, starting in 2007.

Members opposing the ban argued that Congress could renew the temporary moratorium and revisit the issue in several years; PITFA’s supporters argued Congress could just change the law and repeal the ban — a difficult scenario, however, given Congress’ highly partisan divisions.

Michael Maserov, senior fellow at the Center on Budget and Policy Priorities, told Watchdog.org that the bill “sets a very bad precedent for the federal government to be telling states that things do and don’t belong in their sales tax base.”

Maserov viewed the bill as a means for the federal government to satisfy a national policy goal of keeping Internet access affordable while making the states’ shoulder the costs of implementing the policy.

“People have legitimate concerns about the authority of states,” Maserov said, “and they ought to be concerned about the federal government telling states that they can’t tax something, that they can’t tax something at all, because that means that somebody else is paying higher taxes when that item isn’t taxable anymore.

“I think that this bill sets up a conflict between a states’ rights perspective and people thinking that the basic goal should always be the lowest possible taxes,” he said.

Contact Josh Peterson at jpeterson@watchdog.org. Follow Josh on Twitter at @jdpeterson