Taxing the Internet is a Bad Idea

For over 15 years, American’s have enjoyed untaxed access to the Internet, thanks in part to the Internet Tax Freedom Act of 1998, which provided that no entry point to the Internet could be taxed. Congress at that time understood the importance of keeping the barriers to entry as low as possible, giving as many people as possible access to this new connected world. That bill is set to expire at the end of this year, which could open the door for governments at the federal, state and local levels to levy taxes on access to the Internet. 

One new legislative proposal is the Internet Tax Freedom Forever Act, which would make permanent the ban on taxing Internet access.  Without passage, Internet access would be taxed and that would have detrimental effects not just on the continued growth of the Internet, but also a negative effects on those who benefit from the Internet the most—namely, those who otherwise lack a platform to learn and explore.  

The fact is that the Internet has changed how consumers live and work – from being able to purchase goods and services from around the world, to telemedicine, to news and information – which has greatly benefited society by the unfettered access they have enjoyed.  As a result, taxing the Internet would be a tax on consumer benefits.

Low-income people would be especially hurt, at a time when the National Broadband Plan calls for over 100 million people to have access to ultra-high speed Internet, and plans to get everyone connected are underway. Applying a new burden for access to the Internet could greatly slow that plan.

And at a time when the Internet is opening so many doors for economic growth, the last thing we want to do is limit access to something that gives the opportunity for people to lift themselves onto the next economic rung of the ladder. From being able to take classes to further your education to lowering the barriers to becoming an entrepreneur, the Internet has been a springboard for low-income people everywhere. By taxing access to the Internet, we’re putting up further barriers to those who desperately need barriers to success stripped away.

In addition, the proposed Internet Tax Freedom Act would also ban multiple and discriminatory taxes on digital goods, such as downloadable songs, movies, ringtones and apps.  This is yet another sector of the economy that until recently has been allowed to grow unfettered.  That hands-off policy has enabled the app economy to create nearly 500,000 jobs, and digital music downloads from the iTunes store alone accounted for over 25 billion songs at this point. Taxation of digital goods could slow down this fast moving sector of the economy at a time when economic growth, jobs and U.S. innovation are so greatly needed.

If the Internet Tax Freedom Act were allowed to expire, we could potentially see the level of taxation that we see on wireless bills, where consumers in 7 states now see wireless bills with taxes exceeding 20%, with the average tax bill in the United States hovering around 17%.

Passing the Internet Tax Freedom Forever Act, which is currently entered into both the House and Senate, would stop taxation from any government of digital goods and services and access to the Internet.  If Congress is serious about continued growth and innovation in the Internet sector, they’d be wise to pass it.

Zack Christenson writes on digital tech policy for the American Consumer Institute Center for Citizen Research, a nonprofit educational and research organization.  For more information, visit www.theamericanconsumer.org.

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