Senate Passes Permanent Extension of Internet Tax Freedom Act

Today, February 11, 2016, the Senate passed a permanent extension of the Internet Tax Freedom Act, which would permanently ban state and local taxes on Internet access. Because the House passed its version of the bill in June 2015, the legislation now waits for President Obama’s signature. (See my June 2015 blog on the House passing the bill.)

As I have written many times, along with FSF scholars who have written on the subject, Internet access taxes at any level of the government would make Internet access less affordable for all consumers and, therefore, stifle broadband infrastructure investment from Internet service providers.

Thanks to Congress for passing this important piece of legislation. Now, President Obama must sign the bill in order to keep the Internet affordable for all!

Permanently Ban Internet Access Taxes

On January 19, 2016, Steve Pociask, President of the American Consumer Institute, published a Forbes article entitled “Keep The Internet Tax-Free.” Mr. Pociask says that the proposed provisions included in H.R. 644, which would permanently ban Internet access taxes, should be supported for a couple of reasons. He states that taxes on Internet access would reduce revenues for Internet service providers (ISPs) and would increase the price consumers pay for Internet access. Mr. Pociask states that such revenue losses would stifle investment and lead to fewer jobs created in the information economy because ISPs would not be able to cover their fixed costs. He also says that an increase in the price of Internet access would discourage prospective consumers from adopting Internet access and discourage current consumers from expanding their use of Internet-based services, ultimately leading to less tax revenue, not more.

The Internet has brought wonderful benefits to consumers over the past 20 years, but artificially increasing the price of Internet access (through federal, state, or local taxes) would certainly harm innovation and investment and diminish consumer benefits. It is time that Congress permanently ban Internet access taxes.

Read Mr. Pociask’s article here.

Congress Extends Internet Tax Freedom Act – Again!

On Friday, December 18, 2015, Congress passed and President Obama signed the $1.1 trillion funding bill that will keep the federal government running until September 30, 2016. This legislation includes a nine-month extension of the Internet Tax Freedom Act (ITFA). If Congress had failed to extend the ITFA, states and municipalities would have had the ability to tax Internet access.

Despite the good news of the nine-month extension, it is very important that the Senate pass the Permanent Internet Tax Freedom Act in the next nine months to avoid another close call with the ITFA expiration date at the end of September 2016. Congress has had to extend the ITFA a handful of times in the past two years. The House already passed its version of the bill back in June 2015. (See my blog from last week.)

Permanently banning taxes on Internet access would help keep the Internet affordable for all Americans. And it would lead to additional market-driven innovation, content choices, and economic growth. 

Senate Should Immediately Pass the Permanent Internet Tax Freedom Act

The Internet tax moratorium is set to expire on Wednesday, December 16, 2015. Instead of Congress temporarily extending the moratorium as it has done several times in the past two years, the Senate should pass the Permanent Internet Tax Forever Act, which would permanently ban state and local taxes on Internet access. (See here, here, and here.) The House already passed its version of the bill back in June 2015. (See my June 2015 blog for more.)

Michael Powell, President and CEO of the National Cable and Telecommunications Association, Meredith Attwell Baker, President and CEO of CTIA - The Wireless Association, and Walter B. McCormick Jr., President and CEO of U.S. Telecom Association, sent a coalition letter to members of the Senate, urging them to support a permanent extension on the Internet Tax Freedom Act. The letter also discusses the important bipartisan history of this issue:

Over the nearly 17 years since ITFA was enacted, the Internet has become an engine for economic growth, opportunity, and inclusion while American consumers have been shielded from having their broadband access subject to the myriad of discriminatory taxes and fees that apply to traditional telecommunications services, often at rates twice that of general sales taxes—11.5% on average but as high as 17% in some places. Because of this bipartisan policy achievement, most Americans have never paid these taxes on their broadband access.

This success – begun during the Clinton Administration, and continued through the Bush Administration and thus far through the Obama Administration – is at risk because ITFA will expire this year unless Congress acts. Expiration would likely increase the cost of broadband access as it would become vulnerable to new onerous telecommunication taxes and fees, an imminent threat due to the Federal Communications Commission’s recent reclassification of broadband services as a Title II telecommunications service. At a time when promoting broadband adoption is a national priority, Congress should ensure that every American can afford to participate in the digital economy by making the expiring ban on Internet access taxation permanent.

As stated in the letter by these industry leaders, permanently banning taxes on Internet access would help keep the Internet affordable for all Americans and would lead to additional market-driven innovation, content choices, and economic growth. 

The Senate should act immediately to adopt the permanent ban on state and local taxes for Internet access!

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

Internet Freedom Forever Act | Create infographics

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. 

House Scheduled to Vote on the Permanent Internet Tax Freedom Act

This week the House of Representatives is scheduled to vote on the Permanent Internet Tax Act (HR 235), which would ban state and local taxes on Internet access.

The current ban on Internet access taxes has been extended many times since it originated in 1998 (and is set to expire once again on October 1, 2015). But if this legislation passes, the ban would become permanent and discriminatory taxes on e-commerce would also be prohibited, according to this article in The Hill.

It is very important for consumers and Internet Service Providers that the House pass this legislation. 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.

Taxes on Internet access would be particularly regressive because it is often the poorest people that do not connect to the Internet. 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 broadband service prior to the tax being levied, the increase in price would make that person less likely to adopt. Raising the price of an Internet access would be counterproductive to the many government programs that aim to connect America’s poorest individuals.

I commend Judiciary Committee Chairman Bob Goodlatte for introducing the Permanent Internet Tax Freedom Act and I urge the House to pass it.

PITFA Introduced in the House

House Judiciary Committee Chairman Bob Goodlatte (R-Va.), Congresswoman Anna Eshoo (D-Calif.), Subcommittee on Regulatory Reform, Commercial and Antitrust Law Chairman Tom Marino (R-Pa.), Congressman Steve Chabot (R-Ohio), and Congressman Steve Cohen (D-Tenn.) have introduced H.R. 235, the Permanent Internet Tax Freedom Act (PITFA). Last Congress, the House of Representatives passed PITFA by voice vote.

While the Congress extended the Internet tax moratorium last year, a permanent ban on should Internet access taxes should be adopted. The introduction of H.R. 235 is a good first step.

This is a piece of legislation that will be good for the economy that should be accomplished on a bipartisan basis.

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.

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.