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In a situation only the out of touch, inside the Beltway crowd could love, added into the conference report (the final version of a bill to be considered by both chambers of congress) of the Trade Facilitation and Trade Enforcement Act of 2015, is a provision adding the legislative language from H.R. 235, the Permanent Internet Tax Freedom Act (PITFA), as widely approved by the House of Representatives earlier this year.
PITFA would make permanent the Internet Tax Freedom Act (ITFA) which was extended multiple times over the last seventeen years. ITFA was first signed into law in 1998. Originally intended to be permanent but negotiated to be temporary, the Act places a moratorium on federal, state and local governments from imposing discriminatory taxes on online sales and Internet access, and protects consumers by limiting taxes on transactions to one state.
If ITFA were allowed to expire, if PITFA is blocked as some in the Senate plan, then consumers would bear the costly result. How costly? Without the moratorium in place, consumers would have their broadband access subjected to a wide variety of the discriminatory taxes and fees that are already slathered onto traditional communications services. These taxes are generally twice the rate of sales taxes, just shy of 18 percent on average and soaring as high 25 percent in some places. Put another way, the American Action Forum released an analysis earlier this year showing that the cost to taxpayers would be $16.4 billion annually. Scott Mackey, a partner at KSE Partners LLP has estimated that a typical household would pay $50 to $75 more in taxes every year. While that may seem trivial to some in Washington the fact is that every dollar drained from consumer’s pockets to fund government is opportunity lost to those most in need.
And the damage to taxpayers could grow. According to Mackey, “I would say there is an unknown but significant number of states where…the tax department could write a new rule” to require and collect new taxes.
Why would anyone support this massive tax increase just as the economy seems to be healing itself after years of malaise? As the private and public sectors spend millions of dollars to deliver broadband access, why entertain the enactment of a new tax that will disproportionately affect those least able to bear the extra government cost?
In this case, big-government pro-taxers in the Senate are looking to put off a permanent fix in an effort to force Congress to accept a massive tax increase and the radical expansion of government authority with a legislative vehicle once oxymoronically named the Mainstreet Fairness Act. In other words, only one thing is preventing passage of a permanent moratorium and the elimination of disparate, discriminatory tax treatment of the Internet, and that is politics. Reportedly parliamentary tricks will be at hand this week as Senators Enzi, Alexander, and Durbin try to remove the language stopping the tax hike, so that they can try later to expand government authority to be as large as the Internet.
Discriminating against the digital and online is never going to be acceptable, just as discriminating against other industries will never be the right tax policy. Congress should simply ignore the huge government, high tax fever dreams of those who would play parliamentary tricks and permanently end the threat of the discriminatory treatment of the Internet and those who use it.