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Internet Needs No Subsidies

November 12, 2003

With states, cities and counties across the nation in fiscal meltdown, could Congress be more irresponsible than to consider stripping $9 billion in annual revenue from local governments just so it can boost an already-burgeoning industry that ran through investors' billions in the last decade?

As early as today, the Senate will vote on legislation to make permanent its temporary bar on state and local government taxes on the monthly access fees that customers pay to Internet service providers. SB 150, and a companion House bill, also would eliminate existing state and local taxes that had been allowed. It would broaden the tax ban in ways that threaten to rip away billions of dollars more in annual revenue from local governments.

This is an unacceptable, deceitful action by Congress, which told taxpayers in 1998 that it would give only a temporary break to the broadband industry to help it build and expand. Lawmakers extended the tax moratorium in 2001, and it was supposed to expire Nov. 1. By that date, it had accomplished its goal: Almost half of American homes have dial-up or broadband Internet access.

So isn't it time for Congress to take off the fiscal training wheels for the broadband industry? No, instead, Congress wants to let telecoms elude local government taxes that telephone companies as well as electric and water utilities managed to pay while they grew. Further, lawmakers in Washington also would exempt broadband content from local levies, giving the industry a golden pass as it delivers a bonanza of blockbuster movies, hit songs and popular software online in the blink of an eye. SB 150 also would save telecom giants billions of dollars in taxes when technology lets routine phone calls be routed over the Internet.

The Net hardly needs these subsidies considering the billions invested in it already in the last decade, by millions of Americans. Sure, making cyberspace a tax-free haven is good for the bottom line of tech companies. But Congress soon must figure out how to fairly tax cyber-commerce without penalizing local and state governments that depend upon sales and franchise taxes to pay for policing the streets, running buses, paving highways and picking up the garbage.

And the very consumers who delight in a tax-free Internet must acknowledge the dangers of starving local government today for the sake of a broadband tomorrow. SB 150 would take as much as $9 billion annually from state and local governments, says the Multistate Tax Commission, a group representing California and 44 other states.

The tax moratorium should end. But if the Senate won't reject SB 150 outright, it should embrace the amendment sponsored by Sens. Thomas Carper (D-Del.), George Voinovich (R-Ohio), Bob Graham (D-Fla.) and Lamar Alexander (R-Tenn.).

It would extend the moratorium for two years, giving Congress time to recognize the bill for what it is -- a shameful gift to telecom giants and Internet service providers that hard-pressed state and local governments can ill afford.

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