NCPA - National Center for Policy Analysis

Internet Taxes

February 23, 2004

The moratorium on taxing Internet access imposed by the Internet Tax Freedom Act of 1997 expired in November 2003. Current legislation to continue the moratorium has stalled in the Senate, where critics of the House bill -- particularly the Multistate Tax Commission (MTC) -- have contended that it threatens states' ability to collect sales taxes and will reduce revenues from current taxes.

According to the Heritage Foundatio, these concerns are largely unfounded:

  • Nothing in the proposed bill prevents governments from levying sales taxes -- after all, the bill specifically deals with Internet access taxes only.
  • Moreover, even if the bill did hamper additional taxation, the country is actually better off without taxes on the Internet.
  • Inflation adjusted GDP would decline by $8.7 billion to $19.6 billion.
  • Household disposable personal income would fall by between $103 and $231 after adjusting for inflation.
  • The nation's unemployment rate would rise from 5.44 percent to approximately 5.50 percent.

Ultimately, the study concludes that Internet technology has become a vital part of U.S. economic growth and that a failure to continue the moratorium will come with a stiff economic price.

Source: Norbert J. Michel and William W. Beach, "The Economic Impact of Taxing Internet Access," WebMemo No. 424, The Heritage Foundation, February 2004.


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