Taxes & Spending

Democratic Tax-and-Regulate Congress Won’t Bar the Internet Tax

Ronald Reagan famously said: “The government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”

Those words best sum up the view of too many in Washington. But there is one area of the economy where the hands-off approach has reigned: the Internet, the most dynamic aspect of our economy.

The Internet has been this generation’s best example of free-market principles in action.  The lack of regulation and the absence of taxes have generated trillions of dollars in economic activity and, on the down side, billions of dollars in revenue to the government through taxes elsewhere.

It was both the untapped potential and the fact that several states had enacted, or were moving to enact, taxes on the Internet that led Congress to pass the Internet tax moratorium in the first place and refuse to enact laws to regulate this important tool.

The Internet is not done growing, improving and expanding. In fact, it has really just started.  It is for this reason that there is a push in Congress to ensure the government continues to stay out of the Internet’s way by extending or making permanent the tax moratorium, which is set to expire November 1.

The House of Representatives recently passed a four-year extension of the moratorium by a 405-to-two vote. Even though a bill to make the ban permanent has 238 co-sponsors, more than half of House members, the permanent ban was not allowed to come to the floor for a vote.

All eyes have now turned to the Senate, which is expected to take up the issue soon.  Sen. Mary Landrieu (D.-La.), caving to pressure from state and local officials who would like nothing more than to tax the Internet, used a procedural maneuver to block a vote on a permanent ban.  Despite the growing support for permanence, Sen. Landrieu’s efforts will most likely mean that a temporary extension of the ban is all that will be brought forward for a vote.

The benefits of the current “hands-off” position are indisputable. What remains to be seen, however, is if the Senate will have the courage and the political will to go where the House feared to tread.

No one can deny the success of the Internet is tied directly to fact that the free market was allowed to function—a result that has happened every time the free market has been tried. But there is always the risk of a lurking government that longs to “get a piece of the action,” so to speak.

State and local governments would like nothing more than to see the ban lapse so they could impose taxes that could be grandfathered in and allowed to stay in place if and when the moratorium is reinstated.  In fact, the U.S. Conference of Mayors and the National Governors Association have been lobbying hard against a permanent ban.  This is one of the reasons the House balked at a permanent ban, even though it would have easily passed.

The other reason is the nature of some in government—they want to tax and regulate.  They want to control. 

More than that, they fear what a free-market Internet represents. 

If the ban were made permanent and the Internet continued to thrive, as it would, logic would allow for it to be held up as an example of why the government should remove itself from other areas of the economy.  This is something the tax-and-regulate crowd cannot allow to happen.

They would like nothing more than to be in a position to involve themselves now, but that position is politically unpopular.  This Congress has already passed or attempted to pass countless tax increases, but most of them have been hidden taxes.  A new tax on the Internet would be visible and hit everyone, regardless of income.  Blame could and would be easily placed at the feet of those responsible—the Democrats who control Congress.  People don’t seem to mind tax increases when they are directed at someone else nearly as much as they do when it affects their own wallets.

So what will likely happen is the leadership in the Senate will allow a vote on an extension, not a permanent ban, no matter how many Senators express a desire for it.  The ball will be punted down the road for a number of years, and when the next deadline approaches, the vultures will start to circle again and we will be right back here.  Only, the next time the moratorium is set to expire, they might succeed in allowing what their nature inclines them to do now (but the politics of the moment does not).

As House Minority Whip Roy Blunt (R.-Mo.) put it: “If Democrats think that extending the Internet tax moratorium for an additional four years is a good thing, then why not go the extra mile and make it permanent?”

Now you know why.

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