The Internet Tax Moratorium Should Be Made Permanent

It looks like Congress is going to wait until the last minute to extend or make permanent the Internet Tax Moratorium.

What is the Internet Tax Moratorium, you ask?

Basically it prevented the federal, state, and local governments from taxing the use of the Internet to conduct business, whether buying, selling, or bartering goods or services. The reasoning behind the moratorium was that with all of the potentially thousands of taxes that would have to be paid for every transaction and every use of the Internet would make it too expensive to administer because every level of government would want their cut. The moratorium would help promote the use of the Internet to expand the economy.

Some think that the Internet Tax Moratorium has outlived its usefulness, mostly those licking their chops at the potential tax revenues to be gained. Never mind that those revenues might be short lived. The burden of administering and collecting those taxes could cause a lot of the business that generated all the revenue to go away because doing business on the 'net would no longer be cost effective. The taxes would, in effect, kill the goose that laid the golden egg. But taxers never really concern themselves with that, do they?

The argument will be made that only the big Internet businesses like Amazon reap the benefits of online sales and that those sales hurt the mom and pop businesses. Nothing could be further from the truth.

Other opponents to extending the moratorium maintain that it puts offline retailers at a disadvantage--the old unlevel playing field argument. I (wrongly) made this same point in a column seven years ago: Why should an Amazon.com, with a market cap that dwarfs most of its offline rivals, receive a government subsidy to compete with them?

Why? Because the distinction between online and offline retailer (or any other business, for that matter) gets smaller all the time. As the Cato Institute points out, small Main Street shops are experiencing an "economic renaissance" in part because their Web storefronts and commerce capabilities are bringing in more customers online and offline. "Subjecting small Internet businesses to the tender mercies of more than 6,500 (and potentially over 30,000) state and local taxing jurisdictions wouldn't level the playing field--it would put the mom-and-pops out of business," Cato analyst Aaron Lukas argues.

As for the revenue ramifications of extending the moratorium, don't ignore the property, sales, income, and other taxes that expanding Internet-dependent businesses and their employees pay. The moratorium doesn't stop governments from collecting those taxes, so if we undercut businesses with more onerous Internet taxes, watch as overall tax revenue takes a hit.

The costs to access the Internet would increase tremendously, pricing some folks off of the 'net. There would be no more free WiFi at coffee shops, schools , and a number of other places. In fact, it might go away all together because those that offer it as an amenity could no longer justify spending that kind of money. Access to the Internet could end up contracting just as it is expanding everywhere else in the world.

But again, that doesn't bother the taxers. They just want what they see as their money that we've been unfairly keeping them from collecting.

If we want the American economy to keep growing, we should take actions that will help ensure that it does. Otherwise we will see the economic gains of the past 10 years go away. A good example of where we might be headed is to look at our cell phone bills and see how the taxes we pay start adding up.

As Presidential hopeful Fred Thompson states:

The decision to keep the Internet tax free would seem to have been a good one. High speed broadband connections - the type that have allowed people to watch videos online or to quickly download music or games or to make inexpensive Voice over Internet Protocol calls - are now available in some form to just about everyone in the United States, whether at home, work, school or wireless hot spots in coffee shops and popular public shopping areas.

On a month to month basis, perhaps we're not talking about what would seem to be a lot of money. But like every other tax or fee imposed by government, it all adds up. Good examples of what might lie ahead for consumers can be found on our wireless phone bills. Recently, economists Thomas M. Lenard and Brent D. Mast released a report through the libertarian Progress and Freedom Foundation that showed most cell phone users' paid out about $7 a month in federal, state and local taxes.

That's more than people pay in cigarette or liquor taxes, and I don't think we need to be taxing broadband like it was a sin or a luxury. Congress should make permanent the tax moratorium on the Internet, or, at a minimum, extend it.

You'll get no argument from me on that.