NCPA - National Center for Policy Analysis


September 26, 2007

The federal Internet tax moratorium is due to expire on November 1, and no committee in Congress has acted to make it permanent, says the Wall Street Journal

A Congressional failure to extend the moratorium would quickly show up on monthly bills, and not quietly:

  • Taxes on telephone service can run above 20 percent, more than triple the average general sales tax rate.
  • Absent the moratorium, state revenue departments will begin to issue letters ruling that Internet access services are subject to these same sky-high telephone tax rates.
  • The revenuers will do this because they can (until state courts judge their merit), not because they need the money.
  • State and local governments have enjoyed 17 straight quarters of increasing revenues.

The indirect impact on constituents could be even more significant, says the Journal:

  • A Brookings Institution study found that for every 1 percent increase in broadband penetration, America adds about 300,000 jobs.
  • Harvard economist Dale Jorgenson has found that, ironically, the Internet's greatest economic benefits have actually occurred since the dot-com crash in 2000, where the pace of innovation has accelerated considerably and shows no signs of weakening.

Listening to recent Democratic talking points on the economy, you might wonder why Congress isn't all over this issue, says the Journal.  Democrats say they want to make the tax system less "regressive," if only they could get something past President Bush's veto pen.  Well, here's an opportunity to prevent imminent tax increases on poor and middle-class consumers, and the President is ready to sign it, says the Journal.

Source: Editorial, "Broadband Taxman," Wall Street Journal, September 26, 2007.

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