Party Politics Heats Up E-Tax Debate

The Internet tax din grew even louder this week as members of the U.S. House of Representatives weighed in along predictable partisan lines.

Republican Virginia Governor James Gilmore told the House Subcommittee on Telecommunications, Trade and Consumer Protection Thursday that the report of the Advisory Commission on Electronic Commerce (ACEC) represents good tax policy for “working Americans,” and that he believes it will find the necessary support in Congress.

Since the ACEC voted to adopt its report, which calls for an extended moratorium on e-taxes, Democrats and Republicans have escalated the fighting with no end in sight. The report also proposes that states be prohibited from charging remote sales taxes on Internet purchases, among other recommendations.

The ACEC proposals lack credibility, opponents charge, because the report fell short of receiving the two-thirds vote required to make a formal recommendation to Congress. Some of its most vocal critics are Democratic representatives who say the Commission failed to accomplish its mission.

‘A Lasting Legacy’

The Commission came up with an 11 to 8 vote in favor of the report, with some members opposing it out of fear that state and local governments could eventually lose billions of dollars in sales tax revenues as e-commerce replaces brick-and-mortar transactions.

Led by Gilmore, many Republicans maintain that the Commission’s proposal will afford needed tax relief for millions of middle-class Americans, preserve the technology-driven economic boom, and enable more people to gain access to the Internet. Gilmore called the report “a lasting legacy, a new way of thinking for a new century.”

“If there’s one recurring theme in that record,” said Representative Tom Bliley (R-Virginia), it is that taxation and regulation could kill the goose that’s laid the golden egg.”

Democrats Urge Long View

Arguments on both sides of the issue have solidified since the Commission was formed last August. Democratic opponents to the tax-free Internet proposal caution against making any decision prior to careful consideration of long-range economic repercussions.

“We can’t predict the weather three or four years from now by looking out the window today,” said Representative Ed Markey, (D-Massachusetts). “If we’re going to exempt one part of the economy from taxation, we’re talking about raising taxes in another part of the economy.”

Representative Anna Eshoo (D-California) said the commission’s report “blurs the issues” and ignores the minority position, and observed that there is no consensus on e-taxation among the general public.

The Majority Report

The Commission will most likely present a majority report to Congress by April 21st, containing five controversial recommendations:

  • Ban Internet access taxes permanently,
  • repeal the three percent telecommunications tax,
  • extend the Internet tax moratorium for five years,
  • encourage states to streamline sales tax systems,
  • define in law when a business has a physical, taxable presence in a state.

So far, the only recommendation that has enjoyed strong bipartisan support is repeal of the telephone tax, which was established in 1898 to finance the Spanish-American War.

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