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Internet Taxation is on the Way
by Timothy H. Lee
The Obama Era has become a protracted, nightmarish Whack-A-Mole game of tax increases and bureaucratic self-enlargement. In sector after sector of American life, another scheme to expand government and wrench more earnings from Americans' pockets pops up.
Its next targeted sector? The Internet.
Take a look at the following introduction of a nationwide tax upon Internet goods and services, inserted within page 58 of the Federal Communications Commission's (FCC) National Broadband Plan released this week:
Digital Goods and Services Taxation
RECOMMENDATION 4.20: The federal government should investigate establishing a national framework for digital goods and services taxation.
The National Broadband Plan is focused on increasing beneficial use of the Internet, including e-commerce and new innovative business models. The current patchwork of state and local laws and regulations relating to taxation of digital goods and services (such as ringtones, digital music, etc.) may hinder new investment and business models. Entrepreneurs and small businesses in particular may lack the resources to understand and comply with the various tax regimes.
Recognizing that state and local governments pursue varying approaches to raising tax revenues, a national framework for digital goods and services taxation would reduce uncertainty and remove one barrier to online entrepreneurship and investment.
Ponder that curious logic for a moment.
Americans already suffering from a recession prolonged by Mr. Obama's policies are being asked to concur that raising - yes, raising - taxes on a nationwide basis will somehow "reduce uncertainty and remove one barrier to online entrepreneurship and investment."
Consider also that section's observation that "entrepreneurs and small businesses in particular may lack the resources to understand and comply with the various tax regimes."As if federal tax laws are straightforward? Anyone who has asked two separate tax attorneys to ascertain a provision from the Internal Revenue Code and received seven different indecipherable answers can immediately recognize the absurdity of suggesting that federalizing Internet taxes would somehow "reduce uncertainty" and facilitate understanding and compliance.
In just fourteen months, political discourse during Mr. Obama's tenure has pioneered new depths in Orwellian Newspeak - think of "jobs saved or created," for instance - but this is remarkable even by those standards.
The FCC's National Broadband Plan contains other tax-increase proposals, unfortunately. It states that we "should broaden the universal service contribution base," which refers to the tax upon telecommunications service providers created by the FCC in 1997.
Just what the Internet sector needs - a new tax upon Internet-service providers whose yearly investments in network expansion are necessary to keep pace with exploding Internet data traffic.
These tax proposals in the National Broadband Plan come just as the FCC continues to push so-called "Net Neutrality" regulations for the Internet.
"Net Neutrality," which in fact constitutes Net regulation, would prohibit service providers from differentiating distinct forms of Internet data. And why is this important? Because with booming Internet use consuming ever-greater amounts of scarce network capacity, service providers must be free to test innovative methods to prioritize data to prevent gridlock.For instance, emergency medical data could be prioritized over routine recreational video downloads.But Net Neutrality would stifle that sort of experimentation and innovation.
The result of "Net Neutrality" would be fewer incentives for Internet-service providers to continue investing in infrastructure expansion, which would in turn degrade Internet quality as ever-increasing traffic overwhelms existing capacity. The Internet has flourished like few technologies in human history precisely because its innovators and service pro-viders have remained free of regulatory suffocation."Net Neutrality," however, and now proposed taxation of Internet goods and services would jeopardize that.
The nation's attention understandably remains focused upon the yearlong fiasco that is ObamaCare. Nevertheless, the FCC's agenda recalls Ronald Reagan's portrayal of government logic: "If it moves, tax it. If it keeps moving, regulate it. If it stops moving, subsidize it."
As concerns the Internet, the Obama administration is at the tax and regulation stage. Should it succeed in imposing Internet taxes and "Net Neutrality," however, it's only a matter of time until we would reach the failure and subsidy stage for yet another sector of our economy.
Timothy H. Lee is vice president of legal and public affairs for the Center for Individual Freedom.