Liberals love to talk piously about universal Internet access and reducing the “digital divide” in America between rich and poor. This has been their excuse for pushing so-called “net neutrality” regulations on Internet providers.
But now Senate Democratic whip Dick Durbin, right before Congress leaves for Christmas break, has blocked a bill that would keep states and localities from taxing Internet access. Taxing Internet subscriptions could make web access, much like cable TV, too expensive for millions of Americans to afford.
Here is the lay of the land: For the past 17 years, the Internet Tax Freedom Act (ITFA) has protected Americans — especially the poor and those in rural areas — from onerous taxes on broadband services. Initially passed in 1998, when the Internet was a luxury for a small sliver of the population and Google was just getting off the ground, the legislation was intended to foster the growth of the commercial and informational potential of broadband services. And who can argue with that success?
As a political matter, not taxing Internet subscriptions has been and continues to be a big winner with voters — especially with millennial computer geeks, for whom the Internet is a way of life.
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So now Republicans and many Democrats want to pass a rare bipartisan bill to make the policy of tax-free Internet access permanent. The bill was set to be enacted this week. It would spare Americans state and local sales taxes on consumer-broadband monthly bills that can range from 2 percent to as high as 17 percent in some jurisdictions.
Colleagues of mine at the Heritage Foundation have found that Verizon and AT&T spend about $35 billion a year in broadband deployment (i.e., infrastructure), and a new tax could put this investment in jeopardy.
#share#Worse, taxing Internet access would mean a lot fewer Americans would be able to afford it. Economist George Ford of the Phoenix Center found that taxing broadband subscribership could reduce by 5 to 15 million the number of Americans with Internet service. Higher taxes could mean that as many as 30 million lower-income Americans would lose access. How can any liberal (or conservative) support that? Almost one in four Americans still remain offline as it is.
Enter Mr. Durbin. This week the Illinois senator intervened to strip the Internet-tax-moratorium provision from a must-pass trade and customs bill. He and Republican Lamar Alexander of Tennessee want to hold the Internet Tax Freedom Act hostage to their demands to allow purchases made over the Internet to be taxed. This follows a big push by retailers like Walmart, which hope that if Internet purchases were subject to state and local sales taxes, that would send shoppers back to brick-and-mortar stores for the billions of dollars of goods they currently purchase online each year. And they want to require Internet providers to collect the sales tax even if a particular provider has no connection (or “nexus”) to the state where the tax is paid — which is awful tax policy.
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Regardless of how one stands on Internet sales taxes, why hold up a bill that will increase Internet access and narrow the digital divide in America? Ironically, Senator Durbin has been one of the lead voices for universal Internet access. “Broadband access is not a luxury item,” he said at a hearing in 2007, “but a necessity to compete in the 21st century.” He adds: “Quite simply, businesses, hospitals, schools, and even communities, regions, and states are better able to compete if they have access to or can offer broadband services.”
But now the man who says the Internet should be universally available and affordable hypocritically wants to tax it to make it less affordable. The primary victims, if Senator Durbin’s eleventh-hour tax gambit succeeds, will be poor households, which is worth remembering the next time Democrats start sermonizing about tax fairness.