Internet Tax Freedom Act - Missed Opportunity to Help Internet Grow

On 10/31, President Bush signed a bill to extend the Internet tax moratorium for 7 more years (H.R. 3678). Without the extension, the ban would have expired on 11/1/07. The ban is on state and local taxes on Internet access and multiple or discriminatory taxes on e-commerce. It has been around since 1998, originally designed to help the Internet grow.

While lawmakers and the President seem unable to say enough wonderful things about the ban, it has problems. Here are a few:

1. It represents the federal government using the state and local tax base to do something. The federal government could provide incentives to promote broader use of the Internet with its own dollars and should do so. The federal government could provide tax credits to low-income individuals and Internet service providers who offer discounts to low-income customers, and subsidies to libraries and senior centers to improve Internet access.
2. It hurts federal and state/local relations because the federal government is imposing itself on the subnational governments thereby preventing them from being able to fully make their own decisions in crafting their tax systems.
3. It misses opportunities to really help the Internet grow. The ban is very broad even though data exists to show which groups in the population have low Internet usage. A better approach would be to use a TARGETED approach to address the problem. Research shows that broadband use is lowest for people in four groups: low income, age 65 or older, no college education, and rural community dwellers. The extended ban does nothing to help promote Internet use among these groups. If it did, businesses that offer new usages of the Internet would prosper.