House passes Internet access tax ban amid battle over states’ rights

By Josh Peterson | Watchdog.org

WASHINGTON, D.C. — A debate over states’ rights ensued in the U.S. House as it looked to permanently ban state and local governments from taxing Internet access.

The House on Tuesday passed the ban via voice vote, placing pressure on the Senate to pass its version of the Permanent Internet Tax Freedom Act before Nov. 1, when the current moratorium on Internet access taxes expires.

The Senate version, called the Internet Tax Freedom Forever Act, is awaiting consideration from the Senate Finance Committee.

Under the original Internet Tax Freedom Act, passed in 1998, 10 states — Texas, North Dakota, Washington, South Dakota, Hawaii, New Mexico, Tennessee, New Hampshire, Wisconsin, and Ohio — were “grandfathered” under the moratorium and allowed to tax Internet access.

Of those 10 states, only three — Texas, North Dakota, and Washington — were ranked in the top 10 states for economic performance of the American Legislative Exchange Council’s 2014 “Rich States, Poor States” report. Those same three states also ranked in the top 10 of Forbes’ 2013 report, “The Best States for Business and Careers.”

PITFA’s main sponsor, House Judiciary Committee Chairman Bob Goodlatte, a Virginia Republican, praised Tuesday’s vote in a tweet, saying the ban was “important for our growing digital economy.”

Advocates for a permanent ban worry taxation of Internet access would slow broadband subscriber growth.

IHS, an industry research company, reported in December that, by the end of the first half of 2013, more than 70 percent of U.S. households were broadband Internet subscribers. The company expected that number to rise to more than 74 percent of U.S. households by 2017.

A Federal Communications Commission fact sheet from September 2011 reported broadband subscriber growth, according to research from McKinsey and Deloitte, was helping to generate new jobs.

“A 7 (percent) increase in broadband penetration could create an additional 2.4 million new jobs,” said the report.

The strongest opposition to the ban, however, came from Democratic Reps. John Conyers of Michigan and Sheila Jackson Lee of Texas, who expressed their concern about federal interference in state and local taxation authorities.

Economists such as James Gattuso, a senior fellow at the Heritage Foundation, have argued as recent as June 30, however, that the very structure of the Internet justifies a ban.

“Some have argued that despite the economic dangers, a federal ban on state Internet taxation would violate state prerogatives,” wrote Gattuso in a policy brief.

“The tax ban, however, is fully consistent with the principles of federalism,” said Gattuso.

Federalism is the relationship the Founding Fathers set up between the federal and state governments, and how each governs its citizens. The Constitution empowers Congress to legislate over issues involving interstate commerce.

“The Internet, by its nature, is an interstate network. The effects of Internet tax policy in one state are borne not just by that state’s citizens, but by citizens of other states,” he said.

Jackson Lee and Conyers advocated for a continuation of a temporary ban.

Jackson Lee’s district includes the inner city of Houston; Conyers represents a portion of the Detroit area. Both cities are among the many across the country who have gravely fallen short of meeting public pension obligations.

Unions whose pensions depend on cash-strapped city and state governments to collect taxes oppose the permanent Internet tax access ban. Jackson Lee and Conyers‘ political campaigns have benefited greatly from union member contributions, according to OpenSecrets.org.

Detroit residents finished voting July 11 on whether to accept pension cuts as part of a plan to reduce the city’s estimated $18 billion debt. The city, a decayed shell of what was once known as the “Paris of the Midwest,” declared bankruptcy July 18, 2013, because it was unable to pay its bills, which included its public pension obligations.

Proposed cuts, The New York Times reported in May, were not popular among the city’s retired employees.

Houston is considering suing the firm that advised the city to make changes to its firefighters’ pensions in 2011, according to the Houston Chronicle. The city says the advice made the firefighers’ pensions unaffordable.

Concerns over Goodlatte’s permanent ban on Internet access taxes did not fall solely along partisan lines.

Texas Republican Rep. Joe Barton, whose district includes Arlington, also raised concerns that the bill would negatively affect the cities he represents.

IHS recently reported the Dallas-Forth Worth metro area, including Arlington, was one of the fastest growing metros in the U.S., according to the Star-Telegram.

Goodlatte told Barton they would work together to sort out the issue. People associated with major energy and telecommunications companies — headquartered in Barton’s district — have financed his campaigns.

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