Just days after a top U.S. Senator began moving toward reviving a ban on Internet access taxes, that bid received some potent-sounding ammunition for the defense: a study saying taxes on high-speed Internet connections could injure consumers, cut rather than raise state and local revenues, and injure the economy in general through lost jobs and technological investment.
"State and local taxes imposed on the transport portion of [digital subscriber line services] would flow through to [Internet service providers] and, ultimately, be passed along to consumers in the form of higher prices," said TelNomic Research president Stephen Pociask in "Taxing High-Speed Service: A Quantification of the Effects on the DSL Industry and Universal Service," issued April 26 through the New Millennium Research Council. "Therefore, taxing high-speed telecommunications facilities is merely a backdoor way to increase prices on broadband consumers."
Three days earlier, Senate Commerce Committee chairman John McCain (R-Arizona) began moves toward re-introducing a proposal to make permanent a federal ban on Internet access taxes whose temporary status expired last November. The ban has been snagged over infighting between federal lawmakers who concur, in general, with such arguments as Pociask's, and those who think state and local governments stand to lose billions in revenues if Internet access isn't taxed the same way traditional telecommunications are taxed.
Pociask, if anything, argues that taxing DSL at the same rates imposed on other telecommunications services would itself turn into a possible $4.3 billion reduction in gross state and local revenues over the following five years and a $10.3 billion revenue loss after taxes.
"This reduction," he wrote, "would mean that DSL employment and investments would be reduced, and so would the current employment, property and income taxes that all businesses currently pay... the reduction in industry revenues would [also] lead to a one-year loss of 11,900 direct jobs, including 7,600 unionized jobs. There will also be a sizeable loss of jobs in other industries."
McCain isn't the only high-profile politician taking up the Internet access tax ban issue again. President Bush, stumping in Minnesota the same day the Pociask paper was released, called for Congress to write and pass a permanent Internet access tax ban, a call criticized by a campaign spokeswoman for his likely presidential opponent, Sen. John F. Kerry (D-Massachusetts).
"If you want broadband access throughout the society," the president told a gathering of the American Association of Community Colleges, "Congress must ban taxes on access. Clear out the underbrush of regulation and we'll get the spread of broadband technology and America will be better for it."
But the Kerry campaign rejoined that Bush should have made such an Internet access tax ban part of his previous tax cut packages. "The Bush broadband policies," said spokeswoman Stephanie Cutter to reporters, "don't do anything to provide the new resources that will be needed to deploy broadband in rural and urban areas, and they are not addressing the regulatory barriers that prevent deployment."
Pociask argues that DSL services are "price elastic," meaning that a price increase would produce a larger demand increase and cause total industry revenues to fall. "[P]ublic financing theory shows that taxing an elastic service is inefficient and inappropriate," he wrote. "This is because taxing elastic services, like DSL, would have repressive effects on demand, employment, and investment.... Policymakers should resist taxing elastic services and find revenue sources that would not cause large market distortions and industry losses, such as simply increasing general tax funds."
The Cato Institute, a Washington think tank which favors the free market and low tax policies, applauded the renewed push for a federal Internet access tax ban. "If Congress fails to renew the Internet access tax moratorium," said Cato telecommunications policy director Adam Thierer, "it could open the floodgates of state and local taxation of online services and activities. We should not let state and local government turn this global medium into their latest cash cow."
