As we enter the new year looking for legislative opportunities that produce massive economic benefits for American consumers, consider the proposed provisions included in HR 644 that would keep Internet access free from taxes, as it has been for almost two decades. If passed, this legislative fix would be very good news for consumers.
Under tax-free encouragement, Internet access services have grown rapidly, and 70% of adults now have broadband Internet access services, which is a key to their participation in the digital economy and culture. Affordable Internet access has become a highly beneficial service for American consumers and producers, keeping production costs and consumer prices low for a vast array of innovations and applications – including free applications for banking, shopping, entertainment (music, games and videos), communications, social media, navigation, parking, ride-sharing and so on.
Internet access issues affect almost everyone in the country, and account for 4.7% of all economic activity. The wireless applications market alone accounts for nearly 466,000 jobs, including programmers, user interface designers, marketers, managers and support staff. Yet, economist Austan Goolsbee found that, if a tax were applied on broadband services, it would reduce producer surplus enough that suppliers would be unable to cover their fixed costs and would delay the diffusion of broadband in those markets. That means less investment and fewer jobs created in the information economy.
If Internet access is not given permanent protection from taxation, state and federal lawmakers who are desperate to plug their budget holes will descend on it like vultures. Those taxes will increase the cost of Internet to consumers, stunt investment and repress demand. The FCC’s National Broadband Plan states that the largest barrier to consumer adoption and expanded use of Internet-based services is cost. Erecting a cost barrier to broadband in the form of new taxes will result in far less tax revenue than from an economy accelerated by tax-free Internet access.
In addition, if the Internet Tax Moratorium were allowed to expire, state and local governments would likely impose quite sizable tax increases on broadband consumers. For example, if taxes were imposed on wireless broadband services at the same rate as they are imposed on wireless “voice” services today, consumers could see 20% taxes in some states – essentially, three times the rate of sales taxes.
Preventing these taxes has significant economic and consumer benefits because it encourages the deployment and use of broadband services. More broadband allows more people to benefit from bandwidth-intensive applications such as telework, telemedicine, teleconferencing and online learning. In turn, telework reduces transportation time and costs for commuters, creates a more productive workforce for companies, and results in lower amounts of traffic and traffic accidents, wear and tear on roads and bridges, pollution and fuel consumption for society. The environmental benefits of broadband services are well documented and, by one estimate, predicted to reduce greenhouse gas emissions by one billion tons over a ten-year period.
Broadband also encourages e-materialization, where digital goods replace physical goods (such as paper books, music CDs, film for photographs and x-rays, video DVDs and first class mail). Without requiring physical resources, producing digital goods spares the harvesting of trees, reduces energy consumption and keeps plastic packaging from ending up in landfills. Broadband makes the distribution and use of these digital goods possible and cost-effective, while clearly benefiting the environment.
Internet access deserves careful treatment because it launches nascent industries, as exemplified by the many new and successful ventures in social media, online shopping and the sharing economy. Just as tax-free Internet access sets the stage for the wide adoption of broadband services, going forward, Internet access will encourage the Internet of Things (IoT). Internet access will coordinate IoT applications, such as factory floor robots and sensors, household appliance and environment controllers, machine to machine communications and driverless vehicles. These next-stage Internet innovations will total $4 trillion to $11 trillion in economic benefits, a welcome private sector stimulus for our slow-growing economy.
The Internet has been tax-free since 1998, but that moratorium is set to expire. Based on the solid track record of a tax-free Internet helping consumers, the future of its dazzling innovations in America hinges on keeping it tax-free. The economic, environmental and consumer benefits are absolutely clear – we should not be taxing what we should be encouraging.
Alan Daley, who writes for the American Consumer Institute, contributed to this article.
