Policy Documents

Research & Commentary: Ending Internet Access Taxes for Good

April 11, 2014

The current national moratorium on state and local taxation of Internet access is set to expire in 2014, but two proposals being considered in Congress would permanently ban discriminatory taxes on broadband Internet access. An online petition sponsored by MyWireless.org calling on Congress to permanently ban taxes on Internet access has drawn more than 44,000 signatures so far. 

Proponents of the Internet access tax moratorium say making it permanent is a necessary step in promoting wider access to the Internet while keeping the cost down and eliminating discriminatory taxes. As the Internet has become one of the driving forces behind economic growth across the United States, ensuring affordable access for businesses and consumers is crucial.

Annabelle Canning, executive director of the Internet Tax Freedom Act (ITFA) Coalition, a group of communications and technology companies, business associations, and consumer groups, argued in a statement the goal of mobilizing the Internet economy to promote economic growth would “be better achieved by ensuring all Americans have access to broadband Internet access, free from burdensome state and local taxation. Permanently extending ITFA would allow Americans to reap the benefits provided by broadband Internet access through increased access to job training, education, employment opportunities and government services without excess taxation.”

Allowing Internet access taxes to increase could quickly make Internet bills resemble cell phone bills, which are taxed higher than almost all other goods and services. Wireless tax rates have reached all-time highs, with almost half the states nationwide now imposing a wireless tax above 10 percent, according to the Tax Foundation; the national average is more than 16.3 percent. If similar state and local taxes were placed on Internet access, the costs would make it more unaffordable for consumers and impede capital investments in broadband deployment.

The proposal also would prevent state and local governments from imposing multiple taxes on digital goods, such as apps and music, which many governments have begun to do with wireless phone service. Under the moratorium, the digital economy for apps and digital music has boomed; according to the American Consumer Institute Center for Citizen Research, the freedom from Internet access taxes 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.” 

Internet access taxes place an unnecessary burden on consumers in order to do something the market is already handling quite effectively. A permanent Internet access tax moratorium would help broadband access and development expand while reducing the need for government broadband spending. 

The following documents discuss Internet access taxes from multiple perspectives.
 

Ten Principles of Telecom Policy
http://heartland.org/policy-documents/ten-principles-telecom-policy
In this Heartland Institute Legislative Principles booklet, Hance Haney and George Gilder examine the results of telecom reforms in Indiana, document the advances made by other innovation leaders in the telecom market, and explain how other states can follow their lead to reap the rewards of new investment in telecommunications services. 

Taxes and Fees on Communication Services
http://heartland.org/policy-documents/no-113-taxes-and-fees-communication-services
In this Policy Study from The Heartland Institute, David Tuerck, Paul Bachman, Steven Titch, and John Rutledge document taxes and fees on communication services, describe their destructive consequences, and call for tax and regulatory reform. 

Taxing the Internet Is a Bad Idea
http://www.theamericanconsumer.org/2014/04/taxing-the-internet-is-a-bad-idea/
This paper from the American Consumer Institute Center for Citizen Research argues passing a permanent extension of the moratorium and stopping taxation from any government of digital goods and services and access to the Internet would encourage continued growth and innovation in the Internet sector.

A Policymaker’s Guide to Internet Tax
http://heartland.org/policy-documents/policymakers-guide-internet-tax
This guide from the Information Technology & Innovation Foundation explains the state of current law and how policymakers should approach taxing online, digital activity. It focuses on four particular areas: the Internet tax moratorium, multiple and discriminatory taxes of digital goods, discriminatory taxes on wireless services, and the collection of sales taxes on online purchases of products. 

The Case for Tax-Free Internet Access
http://heartland.org/policy-documents/case-tax-free-internet-access
Daniel Castro of the Information Technology and Innovation Foundation discusses the advantages of tax-free Internet access and argues for keeping the moratorium on Internet access taxes. “State tax policy should reflect the fact that Internet access is not merely a consumer good, but rather a tool used by producers to increase economic efficiency and lower the cost of production,” he writes. 

The Economic Impact of Taxing Internet Access
http://www.heritage.org/research/reports/2004/02/the-economic-impact-of-taxing-internet-access
Heritage Foundation researchers Norbert J. Michel and William W. Beach present an economic analysis predicting that taxing Internet access would reduce GDP, disposable income, and employment. 

Internet Tax Debate: Freedom vs. Taxation
http://www.atr.org/internet-tax-debate-freedom-vs-taxation-a1933
Americans for Tax Reform argues keeping the Internet tax-free represents freedom and that taxes on Internet access would become onerous if allowed. 

A Scare for the Web: Will Congress Let the Internet Tax Ban Expire?
http://heartland.org/policy-documents/scare-web-will-congress-let-internet-tax-ban-expire
James L. Gattuso of The Heritage Foundation explains why the national ban on Internet access taxes should be made permanent. 

Internet Access Tax Moratorium: Revenue Impacts Will Vary by State
http://heartland.org/policy-documents/internet-access-tax-moratorium-revenue-impacts-will-vary-state
The Government Accountability Office examines the Internet access tax moratorium, reviewing its language, legislative history, and associated legal issues; examines studies of revenue impact; discusses interviews with experts in access services; and presents information about eight case-study states not intended to be representative of other states. 

Bandwidth for the People
http://heartland.org/policy-documents/bandwidth-people
Robert Crandall, Robert Hahn, Robert Litan, and Scott Wallsten discuss broadband policies and their possible effects in this AEI-Brookings Joint Center for Regulatory Studies paper. The authors argue Internet access taxes are likely to be inefficient and costly to the economy relative to certain other taxes. Such taxes also will impede broadband rollout. Given the positive effects of competition, the authors highlight the importance of removing obstacles to investment and competition. Thus, although averting new access taxes is important, it is probably a second-order concern compared with removing regulatory barriers to competition, the authors conclude. 

Never a Right Time to Tax Internet
http://www.cato.org/publications/commentary/never-right-time-tax-internet
Stephen Moore of the Cato Institute argues against Internet access taxes and in favor of the moratorium. Implementation of an Internet access fee would do real damage to the tech sector, he writes.

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit The Heartlander’s Tech News Web site at http://news.heartland.org/tech, The Heartland Institute’s Web site at www.heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org. 

If you have any questions about this issue or The Heartland Institute, contact Heartland Institute Senior Policy Analyst Matthew Glans at 312/377-4000 or mglans@heartland.org.