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Somehow, arguments that conservative lawmakers usually make about not interfering with the economy and respecting states’ rights have fallen silent as Congress rushes to pass a bill that provides special treatment for an industry that has grown very profitable and powerful.
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| The infant of 1998 now has the keys to the American economy. |
On Tuesday the House of Representatives voted to make permanent a law banning state and local governments from taxing Internet access just as they tax other goods and services. First enacted as a temporary ban in 1998 (the Internet Tax Freedom Act) under the argument that the Internet was an “infant industry” needing special protection, the ban has been extended several times and is now scheduled to expire on Nov. 1.
As we have argued previously, the infant of 1998 now has the keys to the American economy, and yet Congress is still coddling it by shielding it from taxes that apply to other comparable services, such as cable television and cell phone service.
The pending bill is going one step further than previous extensions by stripping out the grandfather provision that allowed seven states that had enacted Internet taxes prior to 1998 to keep those laws in place. This move would cost those states half a billion dollars in revenue each year. And the remaining states would collectively forgo billions in revenue that they could otherwise raise each year if they chose to tax Internet access.
Members of Congress will take credit for shielding the Internet from taxes but the cost will be borne entirely by state and local governments. In other words, continuing the ban on taxing Internet access introduces distortions in the economy by favoring some industries over others and it interferes with state governments’ ability to raise revenue in the ways they find most sensible.