In December 2014, Congress re-extended the Internet Tax Freedom Act (ITFA), a ban on the taxation of Internet access, as part of the “cromnibus” spending bill.
The cromnibus version of ITFA expires this fall, just in time for the annual budget fights on Capitol Hill. First passed in 1998 as a temporary law, ITFA has been renewed for more seasons than sleeper hit shows like Arrested Development and Invader Zim.
Unlike those shows, ITFA was renewed for a fifth season. It’s time for Congress to commit to keeping ITFA “on the air” for good.
This month a bipartisan group in Congress—Reps. Steve Cohen (D-TN), Steve Chabot (R-OH), Anna Eshoo (D-CA), and Bob Goodlatte (R-VA)—reintroduced the Permanent Internet Tax Freedom Act (PITFA).
PITFA would prevent governments from taxing Internet access and would ban the levying of “multiple or discriminatory” taxes on online commerce.
Whether one is using the Internet to sell handcrafted goods or to connect with friends on social media, a permanent ban on taxing Internet access just makes sense. Economic studies show taxing broadband access would discourage people from subscribing to Internet services.
A study conducted by the Phoenix Center for Advanced Legal & Economic Public Policy Studies predicts Internet taxes would have outsized negative economic effects: A 2.5 percent tax on the Internet would prompt anywhere from 5 to 15 million people to cancel their high-speed Internet subscriptions.
“Indeed, given the price sensitivity of many Americans to broadband service, eliminating the ITFA will set the country back many years of broadband adoption growth,” researcher George Ford writes. “In light of such findings, the case for making the ITFA permanent is compelling.”
Internet access spurs economic activity, as entrepreneurs use online storefronts such as Etsy to connect with consumers all over the world and use their talents to make money. Taxing Internet access would cut into these digital artisans’ bottom lines, discouraging them from selling their wares online. That would reduce competition and consumer choice, thus pushing prices of goods and services higher.
ITFA protects consumers from the threat of local or state governments trying to rake in more cash by using the phone company or Internet service provider as a deputy tax collector. It also prevents state and local governments from taxing Internet services like e-mails or taxing people by the volume of data they use.
Over the past 16 years, ITFA has proven to be a “fan favorite” among consumers. Instead of continuously renewing the temporary moratorium on taxing digital bits, keeping fans on edge every time the season ends, Congress should wake up and acknowledge ITFA is a perennial smash hit with the public.
Making ITFA permanent, as opposed to the needless “will they or won’t they” uncertainty of the temporary extensions, will continue the years-long trend of improved Internet access and economic opportunity the act has facilitated.
Jesse Hathaway is a policy advisor for budget and tax issues at The Heartland Institute.
