Liberal groups object to bill barring taxes on Internet access

Liberal groups are objecting to a measure approved in a voice vote by the House this week that bars states from taxing Internet access. 

The Internet Tax Freedom Act hasn’t been a controversial bill. In fact, it’s so popular that senators are seeking to pair it up with a far more contentious measure to give states more power to tax online purchases.

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But groups like the Center on Budget and Policy Priorities and Citizens for Tax Justice say the online access legislation, which first became law in 1998 and expires on Nov. 1, has outlived its usefulness. 

Those organizations say that the law was first put into place to give firmer footing to the fledgling Internet, and isn’t necessary anymore. 

Plus, they say an extension of the measure would put even further shackles on states struggling with tough budget situations, and that the House approach –which, among other things, makes the ban on Internet taxes permanent – goes way too far.

“We can’t be eroding the sales tax base for states,” said Michael Mazerov of CBPP. “It’s far too critical of a revenue source.”

That sort of skepticism is in short supply on Capitol Hill. The permanent version of the Internet Tax Freedom Act passed the full House by voice vote, after clearing the Judiciary Committee on a 30-4 vote. The last short-term extension of the law, in 2007, also passed with minimal opposition.

Supporters of the bill say extending the access ban will stop a stealth tax hike on consumers just before an election – a tax increase they add would hit lower-income households even harder.

The Internet, House Judiciary Committee Chairman Bob Goodlatte (R-Va.) said, “offers opportunity to anyone willing to invest time and effort.”

“That is precisely why Congress has worked assiduously for sixteen years to keep Internet access tax-free,” Goodlatte said. “Now we must act again, once and for all.”

In addition to extending the moratorium indefinitely, the House bill also removes a provision that grandfathered in seven states that taxed Internet access before 1998.

Those states and localities would lose around $500 million a year, CBPP says, while the other states wouldn’t have the chance to get around $6.5 billion a year in potential revenue.

“Somehow, arguments that conservative lawmakers usually make about not interfering with the economy and respecting states’ rights have fallen silent as Congress rushes to pass a bill that provides special treatment for an industry that has grown very profitable and powerful,” wrote Steve Wamhoff of Citizens for Tax Justice.

In the Senate, supporters of a bill that would allow states to collect sales tax on Internet purchases from out-of-state companies have married that proposal with a 10-year extension of the moratorium on Internet access taxes. 

Senate Majority Whip Dick Durbin (D-Ill.) acknowledged to reporters this week that the popularity of the Internet access law was one reason supporters of the online sales tax bill saw it as an attractive partner.

“Most of us don’t want to see that happen,” Durbin said about the expiration of the Internet Tax Freedom Act. 

Still, GOP leaders in the House have yet to show much interest in the Senate’s online sales tax bill. But Congress could also tack a short-term extension of the tax freedom act on a measure to fund the government this fall if the House and Senate get into a showdown over online sales taxes.

Mazerov of CBPP said that enacting the online sales tax bill would make it easier to accept an extension of the Internet access measure.

While Mazerov said that acquiring a computer was more of a roadblock to Internet access than taxes, he also acknowledged that he was in the minority when it came to the expiring law. 

“Basically, Congress can take credit for keeping the Internet tax-free,” Mazerov said. “They don’t have to deal with the consequences.”