ACT NOW - DON'T LET INTERNET TAX BAN EXPIRE!

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U.S. Senate Should Emulate Florida's Wireless Tax Cuts

On June 15^th, Florida’s House and Senate passed legislation which would save the state’s taxpayers $430 million. Included in these tax cuts is a $100 million annual Communication Service Tax reduction on wireless services.

Although this legislation does not cut wireless taxes as much as Governor Rick Scott’s proposal outlined (see here), it is certainly a positive step for Florida wireless consumers, who currently pay the 4^th highest wireless tax rate in the country. Effective July 1^st, Florida residents will see their wireless tax rates decrease by 1.73 percentage points. This may seem small but considering that 56 percent of all poor American adults had only wireless Internet service as of December 2013, this will substantially benefit low-income Florida residents.

As I posted in a blog back in April 2015, the United States Congress should emulate Florida’s approach on wireless taxation. The House of Representatives did so last week when it passed the Permanent Internet Tax Freedom Act (H.R. 235), which bans state and local taxes on Internet access. Now, the Senate should quickly pass its version of the bill, the Internet Tax Freedom Forever Act (S. 431). Permanently banning taxes on Internet access would help keep the Internet affordable to the poorest Americans and would lead to additional market-driven innovation, content, and economic growth.  

House Passed the Permanent Internet Tax Freedom Act

On Tuesday June 9^th, the House of Representatives voted to pass the Permanent Internet Tax Freedom Act (H.R. 235), which would permanently ban state and local taxes on Internet access. (See this blog.)

Now, it is up to the Senate to pass its version of the bill, the Internet Tax Freedom Forever Act (S. 431). The House passed the Permanent Internet Tax Freedom Act last summer when the temporary ban on Internet access taxes was about to expire but the Senate failed to pass its bill. Hopefully with the help of some new Senators, this summer’s Congressional session will be different.

The temporary ban is set to expire on October 1, 2015.  Therefore, I urge the Senate to pass the Internet Tax Freedom Forever Act as soon as possible so all Americans can access an affordable Internet. 

CRomnibus Would Extend Ban On Internet Taxes For One Year

A new spending bill of $1.1 trillion was released on Tuesday and is being referred to as “CRomnibus,” because it is partially a continuing resolution and partially omnibus. CRomnibus includes a provision that would extend the ban on Internet taxes for a year. According to The Hill, Senator Ron Wyden (D-OR), who coauthored the Internet Tax Freedom Act the late 1990s, still remains one of the biggest voices in Congress supporting the elimination of Internet taxes. Senator Wyden said: “A fair and open Internet is an engine of economic growth in America, a launching pad for entrepreneurs and history’s most powerful tool of communication.” 

There have been several FSF blogs in recent months promoting the adoption of the Internet Tax Freedom Forever Act, which would permanently ban state and local taxes on Internet access, pending Senate action. (See here, here, and here.) Although a permanent ban would be preferable, at this point a one year extension of the ban is certainly better than nothing. However, supporters of an online-sales tax likely will push for opposing legislation next year.

If this bill passes (and it looks like it will), it will mean at least an additional year of Internet-driven and market-driven innovation, content, and economic growth.

The Internet Tax Freedom Forever Act Should Be Adopted

On Wednesday, Scott Mackey and Joseph Henchman of the Tax Foundation released a report entitled “Wireless Taxation in the United States 2014.” Some of the key findings include:

·         Americans pay an average of 17.05 percent in combined federal, state, and local tax and fees on wireless service. This is comprised of a 5.82 percent federal rate and an average 11.23 percent state-local tax rate.

·         The five states with the highest state-local rates are: Washington State (18.6 percent), Nebraska (18.48 percent), New York (17.74 percent), Florida (16.55 percent), and Illinois (15.81 percent).

·         The five states with the lowest state-local rates are: Oregon (1.76 percent), Nevada (1.86 percent), Idaho (2.62 percent), Montana (6.00 percent), and West Virginia (6.15 percent).

·         Four cities—Chicago, Baltimore, Omaha, and New York City—have effective tax rates in excess of 25 percent of the customer bill.

·         The average rates of taxes and fees on wireless telephone services are more than two times higher than the average sales tax rates that apply to most other taxable goods and services.

More importantly, there are some key implications of high taxes on wireless service. When a tax is imposed on any good or service, it raises the price, resulting in a decrease in the quantity demanded from consumers. In a previous blog, I mentioned that taxes are generally regressive because the marginal value of a dollar is much higher to a poor person than to a rich person. Well, according to surveys by the Centers for Disease Control, over 56 percent of all poor adults had only wireless service as of December 2013. Therefore, high tax rates on wireless service are very regressive because they impose a disproportionate burden on low-income consumers.

I have also written about how the Senate should pass the Internet Tax Freedom Forever Act, which would permanently ban state and local taxes on Internet access (here and here). This should be done as soon as Congress returns after the elections. Mackey and Henchman’s report mentions that without this legislation state and local taxes “could add significantly to the tax burden on wireless consumers.” Many Americans still remain offline, either because they cannot afford Internet access or have chosen not to connect, but taxes on Internet access would lower the incentive for these individuals to get online.

Wireless networks are rapidly becoming the future of broadband throughout the United States, but high tax rates slow down the pace of deployment of wireless infrastructure. The reductions in the quantity of service demanded by consumers decrease the incentive for providers to invest in infrastructure. Although the transformation in wireless networks has been incredible over the past ten or more years (2G, 3G, 4G), the progress certainly could be slowed considerably or hindered if the Internet Tax Freedom Forever Act is not adopted.

Internet Freedom Forever Act Should Garner Attention Over Recess

While Congress is on recess for the next five weeks, there will be plenty of issues constituents will be talking about with their Representatives and Senators at town hall meetings and community centers.  One topic that will hopefully garner attention during the recess is the Senate’s vote on the Internet Tax Freedom Forever Act. As urged in previous FSF blogs (see here and here), the Senate should pass the Internet Tax Freedom Forever Act, permanently banning state and local taxes on Internet access, well before the current tax moratorium expires on November 1^st.

Within the Internet world, the term “digital divide” describes the separation between individuals online and offline, either because they cannot afford Internet access or have chosen not to connect. The Internet Freedom Forever Act is something both parties should support because taxes on any good or service raise the price and result in a decrease in the quantity demanded from consumers. As for the Internet, a price increase for access could push more people offline, or prevent them from going online in the future. Those most likely to be affected are low-income users, expanding the digital divide.

Without having to recite all the positive benefits of the Internet, it should be understood that any barrier that forces individuals to consume less of a positive good or service leads to lower economic growth, because individuals cannot prosper the way they would like.  While supporters of an Internet access tax might conjecture that this tax will be absorbed by large Internet Service Providers (ISPs), such as Comcast and AT&T, this is simply not true.  While ISPs may have to pay a small portion of the tax, most of the burden will be levied onto consumers.  

Many Internet users know how many videos to stream, songs to download, pictures to upload, or webpages to visit in a given day or week to keep themselves happy. So an increase in price from an Internet tax might only result in one or two less weekly Facebook selfies for the median individual. But more importantly, individuals on the margin of Internet connection place a lower value on Internet access. Therefore, those who have not yet connected or just recently connected – often low-income individuals – will surely be impacted the most by imposition of an Internet access tax.  The increase in price could push them onto the wrong side of the digital divide or even further away from connection if they were already offline.

This is why it is important that the Senate pass the Internet Freedom Forever Act.

Sen. Thune, Commissioner Pai Urge Tax Moratorium Adoption

Yesterday, in a blog in this space, FSF's Michael Horney urged the Senate to follow the House of Representative's lead and promptly pass the Permanent Internet Tax Freedom Act ("PITFA"). The current moratorium on taxing Internet access services expires on November 1, so quick action is needed to prevent the imposition of new taxes.

As a follow-on, please see the op-ed in todays' Wall Street Journal [subscription required] by Senator John Thune and FCC Commissioner Ajit Pai urging the Senate to act promptly.

By the way, the Senate bill, with broad bipartisan support, already has 52 co-sponsors.

There is no reason why the Tax Freedom Act shouldn't be sent to President Obama for his signature before the next Congressional break.  

The Senate Should Pass the Internet Tax Freedom Forever Act Now

The Permanent Internet Tax Freedom Act (HR 3086), which would permanently ban state and local taxes on Internet access, passed the House of Representatives on Tuesday.  It is now the Senate’s turn to pass the Internet Tax Freedom Forever Act, and it should do so well before the current tax moratorium expires on November 1^st.

Senator John Thune (R-SD), a lead sponsor of the legislation, applauded the House for its passage of the Act, adding that “it’s time for Leader Reid to take up this bipartisan bill to ensure we continue to keep the Internet accessible to consumers across the country and encourage innovation and investment in our global economy.”  If the legislation does not pass and the moratorium expires, taxes levied on Internet Service Providers would raise the price of broadband for consumers.

Taxes imposed on any good or service raise the price, resulting in a decrease in the quantity demanded from consumers.  Whether taxes are shifted on consumers or businesses, the elasticity of demand and supply allows for both sides of the market to inherit the burden, ultimately leading to less economic activity and growth.

While all taxes are regressive in one way or another because the marginal value of a dollar is much higher the fewer dollars someone has, taxes on Internet access would be especially regressive because it is often the poorest people that do not adopt Internet in the first place.  A tax on Internet access could push the price of broadband beyond many of the poorest consumers’ willingness to pay.  Even if a person had not adopted prior to the tax being levied, the increase in price would make them less likely to adopt.  Allowing for a barrier to connecting the poorest citizens to the Internet seems counterproductive to ending the “digital divide.”

It is very important that the Senate quickly pass the Internet Tax Freedom Forever Act, so the economy can continue to see innovation and growth within the Internet.

Support Grows for Banning Internet Access Taxes Forever

Thanks to the Internet Tax Freedom Act of 1998, consumers have been able to benefit from access to the Internet free from state and local taxes for well over a decade. And, the digital marketplace has grown and thrived thanks, at least in part, to this access tax ban. However, in November of this year, the moratorium on Internet access taxes expires unless Congress takes action to extend the ban or make it permanent.  

In a Perspectives published in October of last year, I discussed the many positive effects of free Internet access. The current regime prohibiting Internet access taxes has fostered economic growth and investment, technological innovation, and broadband deployment and adoption. For instance, a 2011 McKinsey study ranked the United States as the most prominent country in the “global Internet supply ecosystem,” attaining more than 30% of global Internet revenues and more than 40% of net income. If an Internet access tax were imposed, the thriving Internet economy may be threatened.

Thankfully, support for a permanent moratorium on Internet access taxes has been growing in the House and the Senate. And, interest groups like MyWireless.org have made available a petition to allow the public to voice their support for continuing to ban Internet access taxes. The enactment of a permanent ban on Internet access taxes will promote the availability of information, continued technological innovation, and the economic success of the digital marketplace.