Internet Taxes

December 14, 1999

The Internet is a symbol of a rapidly changing economy. And many legislators want to insure its growth and prosperity by placing a permanent moratorium on Internet taxes. However, a coalition of liberal governors and mayors have called for taxing transactions over the Internet. Those are the battle lines. Will government tax the Internet or leave it as a free form of commerce?

Over 180 years ago Supreme Court Justice John Marshall observed that "the power to tax involves the power to destroy." Opponents of Internet taxation fear that current proposals would kill this revolutionary medium while it is still in the cradle.

The moratorium on "e-taxes" expires in October 2001. So why do public officials want to impose taxes on a largely unfettered medium for entrepreneurial activity? The answer of course is money. Politicians see this as another source of revenue and want to make sure they get their "fair share" of tax revenue.

Virginia governor James Gilmore is also the chairman of the National Advisory Commission on Electronic Commerce. He has proposed a policy that would eliminate sales taxes on the Internet but still provide funds to states and localities for revenue lost by not taxing the Internet. It would also provide $3.3 billion in tax relief to Americans by eliminating the federal tax on telephone service. Perhaps such a compromise measure will be what Congress eventually implements.

Whatever is finally proposed and passed, I think it is good for Congress to consider a tried and true maxim. Whenever you tax something, you get less of it. Do we really want to begin levying taxes on the Internet? Some studies indicate that the pro-tax plan by the governors and mayors would shrink e-commerce by 30 percent. That doesn't sound like a very good idea to me.

I'm Kerby Anderson of Probe Ministries, and that's my opinion.