Congress is once again taking up the Internet Tax Freedom Act, which has barred special or “discriminatory” taxes on Internet access and Web transactions since 1998. Hill Hurrying to Renew Ban on Web-Access Taxes [TechNews.com] Now the debate centers on high-speed ISPs — cable modem and DSL services — which the current Senate bill defines as “information” services not subject to telecommunications taxes. (This is an outgrowth of the labels issue discussed in other posts.)
The problem is that taxation has a way of morphing into an entrenched system of subsidization and weatlh transfers. Those telecommunications “taxes” are mainly in two forms: a 3% federal excise tax, enacted more than 100 years ago to finance the Spanish-American War, and a cloudy system of “universal service” payments, administered by the FCC, that go to small and rural telcos. The former is clearly an anachronism, the latter is a political sacred cow that nobody has the courage to call out. But together they add 16-18% to consumers’ bills for telecom services.
The uninversal service system has been around since 1934. In those 70 years, telephone “penetration” has climbed to 97%. Meanwhile, the government does not tax or subsidize VCRs, which in a mere 20 years are now in about 85% of American homes. Do we need telecom taxes to close the so-called “digital divide?” The numbers clearly say “No.”