Roll Call: Latest News on Capitol Hill, Congress, Politics and Elections
February 12, 2016

A Permanent Internet Tax Moratorium: The Debate Continues

When the House Judiciary Committee debated a bill that would make permanent the temporary moratorium on state taxes on Internet access, Democrats and Republicans seemed to switch sides in the argument over states rights. For example, Democrats argued that a permanent ban would impede on states’ rights to make their own taxing decisions. They backed a temporary extension.

Extending on this debate, a research fellow at the conservative Heritage Foundation argues that the federal government prohibiting an Internet tax is “fully consistent with the principles of federalism.”

James L. Gattuso, senior research fellow in regulatory policy at Heritage, backs the permanent moratorium in a recently issue brief and writes:

Some have argued that despite the economic dangers, a federal ban on state Internet taxation would violate state prerogatives. The tax ban, however, is fully consistent with the principles of federalism. The Internet, by its nature, is an interstate network. The effects of Internet tax policy in one state are borne not just by that state’s citizens, but by citizens of other states.

A tax on Internet service can be a tempting way for a state to raise money from out-of-state tech firms, rather than from their own constituents. But the interstate effects go beyond such cost shifting. Even a tax that affects in-state residents and out-of-state residents equally can, by slowing Internet growth as a whole, hurt consumers in other states.

Gattuso talked more about his argument with Technocrat, saying that networks tend to be federally taxed and regulated, or states are limited in what they can do.

It boils down to the idea that a network, by definition, ties together different parts of the country and that one state’s action affects others, he said.

And the Internet is the “ultimate” interstate network,  he said.

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