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"A Curtain Call for No Internet Taxes"

"A Curtain Call for No Internet Taxes"

Source: Remarks by Governor James S. Gilmore, III, at the 1999 BNA Public Policy Forum. Washington D.C., 5 p.m. EST, November 15, 1999.

Dr. Merten, thank you for the introduction and your superb leadership at the helm of George Mason University. During your tenure, George Mason has grown into one of Virginia's leading regional universities and one of the nation's preeminent technology universities.

I remember standing with you at George Mason just last December to pledge my support for the creation of The Tech Center. I'm very excited that the center is sponsoring this forum and already contributing to the public debate on the pressing technology issues of the day.

I also would like to thank BNA and BNA CEO Paul Wojcik (WOH-jick) for their lead role in this forum. Paul, I noticed on your web site that BNA is ranked as one of the top 100 companies to work for in America. That is an impressive achievement. It shows that BNA is making it a top priority to employ quality men and women, which is vital to a company's success in the New Economy.

All across America and around the world, businesses and individuals alike are embracing the New Economy and its driving force -- the Internet.

Last year, Congress passed the Internet Tax Freedom Act, which placed a three-year moratorium on taxing the Internet. The legislation also created the Advisory Commission on Electronic Commerce (ACEC), to which I was appointed and elected chairman.

The purpose of the Advisory Commission is to recommend a tax policy that would encourage the commercial growth and development of the Internet and submit it to Congress for approval. The Commission has already held two meetings - the first was in Williamsburg, Virginia and the second in New York City - and is scheduled to meet in San Francisco next month and conclude its work in Dallas next year.

Serving as chairman has been -- to say the least -- a challenge. The 19-member commission is effectively polarized between those who would tax the Internet and those who would not tax the Internet, with only a few undecided. The three Clinton-Gore Administration designees are the main group that has not made their position known. Although I can guess where they will eventually stand considering the President's recent veto of the Republican tax cut legislation. And, during the first two meetings, I did not take a position in order to ensure that all viewpoints on Internet taxation could be heard and to evaluate all information and arguments prior to making up my mind as to the correct policy.

But after hearing dozens of experts on an entire range of e-commerce issues, I felt it was time to put forward my vision. It can be summarized in three words: No Internet Tax!

My policy proposal does the following:

First, eliminate the tax on goods, services and information sold over the Internet.

Second, provide $3.3 billion in tax relief to working Americans by eliminating the federal excise tax on telephone service. Since most Americans use phone lines to access to the Internet, this tax cut would make it more affordable to log on.

Third, preserve for three years one percent of the tax to give to states in exchange for their simplification of their telecom taxes. This would provide $1.7 billion per year to states and localities for revenue lost by not taxing the Internet. Now this would initially be a significant windfall for states and localities. Ernst and Young estimates that Internet sales would have generated only $170 to $200 million in tax revenue last year.

Fourth, allow states to spend surplus welfare money on buying computers and Internet access for needy families. This would greatly help states in their efforts to close the digital divide.

Fifth, oppose all international taxes and tariffs on U.S. electronic commerce. This is critical to maintaining our global competitiveness in technology industries.

The goal of my plan is to protect the American people from Internet taxes and empower them to fully realize the benefits of the Internet. We must remember that the Internet -- in its current form -- is only five years old. Yet its impact on our economy and our society has been nothing short of revolutionary.

America's current economic expansion is due in no small part to the Internet. According to a recent University of Texas study, the Internet sector of our economy grew almost 70 percent last year and generated more than half a trillion dollars in business revenue. It also has created more than two million jobs -- nearly half of which are e-commerce related. And over half of our country's capital investment now goes to the Internet and IT industries. My plan will allow the Internet to continue to expand commercially and create prosperity throughout America.

And beyond the economic benefits, the social benefits are astounding as well. Men and women of all ages and backgrounds and from across America and around the world are using the Internet to improve their lives. Take for example the fastest growing segment of our society, seniors. One recent study found that of senior citizens who have made online purchases, 27 percent have bought medication from an on-line drugstore and 43 percent have bought books from an online bookstore. For senior citizens who can't drive themselves to their local pharmacy or shopping center, the Internet is a tremendous tool of empowerment. My plan will allow all Americans to continue to use the Internet in new and exciting ways to improve their lives.

The Internet changes everything. The old rules, the old models, the old ways simply don't work anymore. And the Internet doesn't have a loophole for government. Government must change with the rest of the world.

Now there are those who don't want government to embrace the Internet. They believe the Internet changes everything but government. They want to cut and paste a sales tax system created during The Great Depression of the 1930s onto the New Economy of the information age.

Ronald Reagan captured the spirit of these old thinkers, when he said, "The government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it." In the New Economy, what's moving is the Internet. And many in government want to tax it and eventually regulate it. I want to stop the high taxers before they stop the Internet!

Internet taxes - and the burdensome system that would be required to collect them - would hurt both Internet businesses and Internet consumers. University of Chicago Professor Austan Goolsbee showed the Commission compelling evidence that Internet sales would drop 30 percent if they were taxed. Bizrate.com found that three-fourths of Internet consumers would buy less on-line if they had to pay Internet sales taxes. And Ernst and Young's presentation to the Commission showed tremendous costs for businesses to collect Internet sales taxes across states. Not only would Internet sales taxes increase the cost of goods to consumers, but the cost of operating a business as well.

And taxing the sale of goods on the Internet is only the beginning. The history of taxation and government's insatiable appetite for revenue shows that Internet taxes will inevitably extend to services and information. Buying and selling stocks and bonds, using a search engine, even sending a simple e-mail ... nothing will be safe from the government once the tax collector goes on-line.

Those who would tax the Internet say it's "unfair" to give consumers a tax-free medium to purchase goods and services. Now according to the old way of thinking, "fair" really means making everyone pays more. That has been the experience of the 20th Century -- higher tax burdens at all levels to pay for bigger government.

But I say: "If a tax cut creates economic prosperity and social progress and enhances the general welfare -- it is fair!" Consider enterprise zone tax credits, which are critical to reviving business activity on the Main Streets of America. Consider all the goods and services that currently are exempted from sales taxes -- groceries, medical services, financial services. Each exemption serves vital policy objectives. The truth is that tax cuts and credits are inherent in any tax code. According to the higher taxers, the only thing fair about taxing the Internet is that everyone would have less money in their pockets.

We simply can't predict that a tax-free Internet would be unfair to Main Street America. History has shown that our economy prospers most when government leaves it alone. Businesses that will need to use the Internet to survive will, and they will prosper. Businesses that don't need to use the Internet to survive won't, and they will prosper. We cannot overlook the fact that most consumers will always want to touch ... feel ... smell the product they want to buy. And they will go to their local shops and buy it and avoid delivery fees and avoid the necessity of returns.

Those who would tax the Internet also claim that unless the Internet is taxed, revenue will decrease and vital government services will have to be cut. They assume e-commerce is a zero-sum game, which it isn't. The Internet economy is attracting investment, creating jobs, and increasing salaries. The National Governors' Association reports that states had a collective surplus of $11 billion in 1998, even with tax cuts of more than $5 billion. Mail-order goods have been difficult to collect for years, and revenues keep going up. The tax collector's glass isn't half-empty. It isn't half-full. It isn't even full. It's overflowing with liquid cash.

Let's get real about the Internet. Let's recognize it and embrace it for what it is -- a borderless and seamless tool of economic and social empowerment.

The Internet is above all about freedom ... freedom for businesses to compete and prosper in a virtual environment ... freedom for individuals to improve their station in life ... and freedom for consumers to shop in the perfect marketplace. America is the world's great arbiter of freedom. No nation is more able to maximize the potential of the Internet than we are.

The policy that the National Advisory Commission on Electronic Commerce proposes will have a profound, ripple-effect impact on economic prosperity and social progress for generations to come. Will we fulfill our American destiny of advancing freedom across the globe? Or will we cast a stifling web of government intervention over our economy and our lives?

Nearly thirty years ago, when I was stationed in West Germany as a soldier in the U.S. Army, I visited the Berlin Wall. It was, as Churchill described, an Iron Curtain ... separating democracy from totalitarianism ... liberty from servitude ... capitalism from communism ... separating America and all that was good from the Soviet Union.

We fought the Cold War, and we won. We won in no small measure because the modern age sent information and knowledge behind the Iron Curtain. The men and women of the Soviet Union - hungry for freedom - tasted democracy, liberty, and capitalism, and tore the Wall down in search for more.

America must not construct an Internet Curtain. We must advance democracy, freedom, and capitalism on-line. If we don't, who will?

 

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Directeur de la publication : Joël-François Dumont
Comité de rédaction : Jacques de Lestapis, Hugues Dumont, François de Vries (Bruxelles), Hans-Ulrich Helfer (Suisse), Michael Hellerforth (Allemagne).
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