House Passes Permanent Internet Tax Ban, Bill Goes to Senate

House Passes Permanent Internet Tax Ban, Bill Goes to Senate
July 17, 2014

A debate over states’ rights ensued in the U.S. House in July as it looked to permanently ban state and local governments from taxing Internet access.

The House passed the ban via voice vote, placing pressure on the Senate to pass its version of the Permanent Internet Tax Freedom Act before Nov. 1, when the current moratorium on Internet access taxes expires.

The Senate version, called the Internet Tax Freedom Forever Act, is awaiting consideration from the Senate Finance Committee.

Under the original Internet Tax Freedom Act, passed in 1998, 10 states — Texas, North Dakota, Washington, South Dakota, Hawaii, New Mexico, Tennessee, New Hampshire, Wisconsin, and Ohio — were “grandfathered” under the moratorium and allowed to tax Internet access.

‘Important for Digital Economy’

PITFA’s main sponsor, House Judiciary Committee Chairman Bob Goodlatte, a Virginia Republican, praised Tuesday’s vote in a tweet, saying the ban was “important for our growing digital economy.”

Advocates for a permanent ban worry taxation of Internet access would slow broadband subscriber growth.

HIS Global Insight, an industry research company, reported in December that, by the end of the first half of 2013, more than 70 percent of U.S. households were broadband Internet subscribers. The company expected that number to rise to more than 74 percent of U.S. households by 2017.

A Federal Communications Commission fact sheet from September 2011 reported broadband subscriber growth, according to research from McKinsey and Deloitte, was helping to generate new jobs.

“A 7 (percent) increase in broadband penetration could create an additional 2.4 million new jobs,” said the report.

The strongest opposition to the ban came from Democratic Reps. John Conyers of Michigan and Sheila Jackson Lee of Texas, who expressed their concern about federal interference in state and local taxation authorities.

Economists such as James Gattuso, a senior fellow at the Heritage Foundation, have argued that the very structure of the Internet justifies a ban.

‘Consistent With Federalism’

“Some have argued that despite the economic dangers, a federal ban on state Internet taxation would violate state prerogatives,” wrote Gattuso in a policy brief released June 30. “The tax ban, however, is fully consistent with the principles of federalism.”

“The Internet, by its nature, is an interstate network. The effects of Internet tax policy in one state are borne not just by that state’s citizens, but by citizens of other states,” Gattuso wrote.

Jackson Lee and Conyers advocated for a continuation of a temporary ban.

Jackson Lee’s district includes the inner city of Houston; Conyers represents a portion of the Detroit area. Both cities are among the many across the country that have gravely fallen short of meeting public pension obligations.

Opposition from Government Unions

Unions whose members’ pensions depend on cash-strapped city and state governments to collect taxes oppose the permanent Internet tax access ban.

Detroit city workers and retirees finished voting July 11 on whether to accept pension cuts as part of a plan to reduce the city’s estimated $18 billion debt. The city declared bankruptcy July 18, 2013, because it was unable to pay its bills, which included its public pension obligations.

Houston is considering suing the firm that advised the city to make changes to its firefighters’ pensions in 2011, according to the Houston Chronicle. The city says the advice made the firefighers’ pensions unaffordable.

Concerns over Goodlatte’s permanent ban on Internet access taxes did not fall solely along partisan lines.

Texas Republican Rep. Joe Barton, whose district includes Arlington, also raised concerns that the bill would negatively affect the cities he represents.

Josh Peterson (jpeterson@watchdog.org) reports for Watchdog.org, where a version of this article first appeared.