Regulatory Reform

Connecting America: The Importance Of Maintaining A Tax-Free Internet

Chances are, you’ve never thought of having to pay a tax to check your Email or your Facebook account. That’s because the Internet Tax Freedom Act has prevented local, state, and federal governments from taxing Internet access. Widespread adoption of the Internet has been due, in no small part, to the absence of tax barriers to access. But now, taxes loom on the Internet’s horizon as Congress nears the sunset of the law. The affordability and accessibility of the Web will be in jeopardy if Congress fails to do something before the moratorium expires on November 1.

There are a number of reasons for Congress to make the moratorium permanent. Online retailers can conduct business without fear of spiking overhead costs. The public can continue to access the Internet without being saddled with new tax bills. By incentivizing private providers to continue to invest in high-cost and low-income areas, innovation can continue unabated. And the FCC can achieve its goals of connecting every American household to the Internet.

Fortunately, the Permanent Internet Tax Freedom Act was just passed by the U.S. House of Representatives. The bill essentially strikes the timeline from the moratorium, ensuring a permanent ban on federal, state, and local taxation of Internet access.

The real danger lies in the ability of state and local governments to tax Internet access in the event that Congress goes on recess before they extend the law once again. Unfortunately, Congress has remained largely divided which means this legislation could be held hostage, causing trouble for everyone who uses the Internet, including 91 percent of American households.

The trillion dollar Internet ecosystem looks like a ripe source of tax revenue for cities, states, and the federal government. Consumers will find little solace in suddenly being saddled with new expenses to continue using the Internet. Recognizing this, ALEC has adopted model policy that calls for the prohibition of Internet access taxes at all levels of government. This would protect the open Internet from being opportunistically taxed.

One or more new layers of taxes would not only halt Internet adoption rates, but will likely cause people to give up their Internet access altogether. According to the Phoenix Center, adopting a nominal 5 percent effective tax rate could undo the last four year’s adoption gains. Additionally, many places that offer free Wi-Fi access will be forced to charge for service or do away with it completely. The consequences aren’t just bad for consumers; they are antithetical to the FCC’s goals to increase broadband deployment and adoption.

In 2010, the Federal Communications Commission set out with their National Broadband Plan, a roadmap towards 100 percent broadband connection across American households. The plan, which seeks to “support development of broadband and […] ensure that low-income Americans can afford broadband,” would be significantly hampered by the price hikes. The increased cost of Internet service would weigh the most heavily on low-income consumers, as broadband providers lack an incentive to connect households that can’t afford its service.

In addition to this, the FCC has stated its support for “ensuring competition and [maximizing] consumer welfare, innovation and investment.” Broadband providers and the private sector have invested over $1.2 trillion since 1996. If these providers lose subscribers because customers are priced out of the market, then they may lose the willingness to invest in the infrastructure. Taxation may lower the level of capital investment.

The Internet has thrived on its own accord, spawning products and services that connect our citizens and embody American innovation. Instead of lingering on this fragile issue, the Senate should pass the companion Senate bill, known as the Internet Tax Freedom Forever Act. In doing so, Congress can ease the fears of consumers, corporations, and the Federal Communications Commission.

In Depth: Regulatory Reform

In his first inaugural address, Thomas Jefferson said that “the sum of good government” was one “which shall restrain men from injuring one another” and “shall leave them otherwise free to regulate their own pursuits of industry.” Sadly, governments – both federal and state – have ignored this axiom and…

+ Regulatory Reform In Depth